CPA FINAL PRACTICE EXAM 100%
A+ GRADED
Fundamental Characteristics of Accounting Information - CORRECT ANSWER✅✅✅1.
Relevance
2. Reliability (faithful representation)
Comprehensive Income - CORRECT ANSWER✅✅✅NI + OCI
Unrealized G/L AFS Securities - CORRECT ANSWER✅✅✅OCI: Not on income statement
Unusual, frequent items - CORRECT ANSWER✅✅✅No separate disclosures
Aspects of Relevance - CORRECT ANSWER✅✅✅Predictive Value, Confirmatory Value,
Materiality
Aspects of Reliability - CORRECT ANSWER✅✅✅Comparability (consistency),
verifiability, timeliness, understandability
Single source of US GAAP
Amended through - CORRECT ANSWER✅✅✅FASB Accounting Standards Codification
Accounting Standards Updates
All US public companies - CORRECT ANSWER✅✅✅Required to follow US GAAP
Accounting standards update issued - CORRECT ANSWER✅✅✅Only after majority vote
by members of FASB
,Replacement Cost - CORRECT ANSWER✅✅✅Amount of cash or cash equivalent
Continued vs. discontinued income - CORRECT ANSWER✅✅✅Predictive value
Royalties paid - CORRECT ANSWER✅✅✅Reported as expense in the period incurred
Disposal on component of a business - CORRECT ANSWER✅✅✅Discontinued
Overdraft reported as - CORRECT ANSWER✅✅✅Current liability
Cash account for payment into a bond sinking fund - CORRECT
ANSWER✅✅✅Noncurrent asset
Non current asset - CORRECT ANSWER✅✅✅Cash realized time beyond operating cycle
or 1 year
Deposits received from customer - CORRECT ANSWER✅✅✅Liabilities
Service Contracts sold - CORRECT ANSWER✅✅✅Deferred revenue increases, but service
revenue doesn't increase until services are performed
JE when contract is performed - CORRECT ANSWER✅✅✅None
Journal entries sales of service contract - CORRECT ANSWER✅✅✅Cash received:
Dr. Cash 15000
Cr. Unearned Sales revenue 15000
,Product transferred:
Dr. Unearned Sales Revenue 15000
Cr. Sales Revenue 15000
Dr. COGS 9000
Cr. Inventory 9000
Revenue recognition process - CORRECT ANSWER✅✅✅ISTAR
1. Identify Contract
2. Separate performance obligations
3. Transaction price expected to be entitled to
4. Allocate to separate performance obligations
5. Recognize revenue based on either a point in time or over time
Bill and hold - CORRECT ANSWER✅✅✅Recognize all revenue now. 0 unearned
Discount - CORRECT ANSWER✅✅✅Allocated
Consignment - CORRECT ANSWER✅✅✅No unearned revenue--didn't sell anything
Service contracts - CORRECT ANSWER✅✅✅Deferred revenue= Unearned Liability
Service revenue= earned income
Milestones achieved - CORRECT ANSWER✅✅✅Output method to recognize revenue
Incremental costs - CORRECT ANSWER✅✅✅Can recover costs. Would not have been
incurred if didn't enter the contract. Recognized as an asset
, Revenue recognition:
1. Principal
2. Agent - CORRECT ANSWER✅✅✅1. Gross consideration entity expects to receive
2. Fee or commission performing the agent function
Forward or Call Option
Repurchase price > Original Selling Price - CORRECT ANSWER✅✅✅Financing
arrangement
Forward or call option Financing arrangement JE - CORRECT ANSWER✅✅✅Dr. Cash
350000
Cr. Financial Liability 350000
Recognize interest exp:n 385000 (RP) - 350000 (Cash received)
Dr. Interest exp 35000
Cr. Financial Liability 35000
Option lapses unexercised: Derecognize liability and record sale
Dr. Financial Liability 385000
Cr. Revenue 385000
If you get extended warranty - CORRECT ANSWER✅✅✅Separate performance obligation.
Longer the coverage period, higher likelihood it's a performance obligation
A+ GRADED
Fundamental Characteristics of Accounting Information - CORRECT ANSWER✅✅✅1.
Relevance
2. Reliability (faithful representation)
Comprehensive Income - CORRECT ANSWER✅✅✅NI + OCI
Unrealized G/L AFS Securities - CORRECT ANSWER✅✅✅OCI: Not on income statement
Unusual, frequent items - CORRECT ANSWER✅✅✅No separate disclosures
Aspects of Relevance - CORRECT ANSWER✅✅✅Predictive Value, Confirmatory Value,
Materiality
Aspects of Reliability - CORRECT ANSWER✅✅✅Comparability (consistency),
verifiability, timeliness, understandability
Single source of US GAAP
Amended through - CORRECT ANSWER✅✅✅FASB Accounting Standards Codification
Accounting Standards Updates
All US public companies - CORRECT ANSWER✅✅✅Required to follow US GAAP
Accounting standards update issued - CORRECT ANSWER✅✅✅Only after majority vote
by members of FASB
,Replacement Cost - CORRECT ANSWER✅✅✅Amount of cash or cash equivalent
Continued vs. discontinued income - CORRECT ANSWER✅✅✅Predictive value
Royalties paid - CORRECT ANSWER✅✅✅Reported as expense in the period incurred
Disposal on component of a business - CORRECT ANSWER✅✅✅Discontinued
Overdraft reported as - CORRECT ANSWER✅✅✅Current liability
Cash account for payment into a bond sinking fund - CORRECT
ANSWER✅✅✅Noncurrent asset
Non current asset - CORRECT ANSWER✅✅✅Cash realized time beyond operating cycle
or 1 year
Deposits received from customer - CORRECT ANSWER✅✅✅Liabilities
Service Contracts sold - CORRECT ANSWER✅✅✅Deferred revenue increases, but service
revenue doesn't increase until services are performed
JE when contract is performed - CORRECT ANSWER✅✅✅None
Journal entries sales of service contract - CORRECT ANSWER✅✅✅Cash received:
Dr. Cash 15000
Cr. Unearned Sales revenue 15000
,Product transferred:
Dr. Unearned Sales Revenue 15000
Cr. Sales Revenue 15000
Dr. COGS 9000
Cr. Inventory 9000
Revenue recognition process - CORRECT ANSWER✅✅✅ISTAR
1. Identify Contract
2. Separate performance obligations
3. Transaction price expected to be entitled to
4. Allocate to separate performance obligations
5. Recognize revenue based on either a point in time or over time
Bill and hold - CORRECT ANSWER✅✅✅Recognize all revenue now. 0 unearned
Discount - CORRECT ANSWER✅✅✅Allocated
Consignment - CORRECT ANSWER✅✅✅No unearned revenue--didn't sell anything
Service contracts - CORRECT ANSWER✅✅✅Deferred revenue= Unearned Liability
Service revenue= earned income
Milestones achieved - CORRECT ANSWER✅✅✅Output method to recognize revenue
Incremental costs - CORRECT ANSWER✅✅✅Can recover costs. Would not have been
incurred if didn't enter the contract. Recognized as an asset
, Revenue recognition:
1. Principal
2. Agent - CORRECT ANSWER✅✅✅1. Gross consideration entity expects to receive
2. Fee or commission performing the agent function
Forward or Call Option
Repurchase price > Original Selling Price - CORRECT ANSWER✅✅✅Financing
arrangement
Forward or call option Financing arrangement JE - CORRECT ANSWER✅✅✅Dr. Cash
350000
Cr. Financial Liability 350000
Recognize interest exp:n 385000 (RP) - 350000 (Cash received)
Dr. Interest exp 35000
Cr. Financial Liability 35000
Option lapses unexercised: Derecognize liability and record sale
Dr. Financial Liability 385000
Cr. Revenue 385000
If you get extended warranty - CORRECT ANSWER✅✅✅Separate performance obligation.
Longer the coverage period, higher likelihood it's a performance obligation
