CPA FAR 2025 — 250 Prac ce Ques ons + Condensed
Notes
What does comprehensive income exclude? - Answers Changes related to owner distribu on
and owner investment
How to report gain/loss from unusual and infrequent transac on on the income statement? -
Answers It is reported pretax as a separate component of income from con nuing opera ons.
What does selling expense include? - Answers Selling expense includes adver sing, freight out,
sales salaries, any rent expense.
What type of incomes does net income include? - Answers Net income include incomes from
con nuing opera ons and discon nued opera ons
When a company can report a discon nued opera on? - Answers When it is classified as held-
for-sale.
Has a commitment plan to sell, component is available for immediate sale, has an ac ve
program to locate buyer, sale is probable within on year, sale is being ac vely marketed, unlikely
plan to sell is changed or withdrawn
How is accumulated other comprehensive income reported? - Answers It is a balance sheet
item and is reported in the equity sec on a(er retained earning
Describe the rela onships between net income and retained earning, OCI and accumulated
OCI: - Answers Net income is closed out to retained earning on balance sheet. OCI is closed out
to accumulated OCI.
Retained earning and accumulated OCI are the undistributed earning of corpora on
, What is comprehensive income and what does other comprehensive income include? -
Answers Comprehensive income shows all non-owner changes in stockholder's equity. It
includes net income plus OCI. Other comprehensive income includes: pension adj, unrealized
gain and loss AFS debt securi es, foreign currency, instrument credit risk.
How are foreign transac on and transla on gain/losses reported? - Answers Foreign
transac on gain/loss is reported in net income. Foreign transla on gain/loss is reported in OCI
How does prior service cost not recognized in net periodic pension cost affect OCI? - Answers It
will reduce OCI
What is presenta on of comprehensive income? - Answers It can be presented either on
income statement a(er net income or in a separate "statement of comprehensive income"
How are components of other comprehensive income regarding to tax issues reported? -
Answers Either report components net of tax or report components before tax basis with one
amount shown a(er for the aggregate tax effects.
What are exchange rate direct method and indirect method? - Answers Direct method is 1
foreign currency to domes c price.
Indirect method is 1 domes c price to foreign currency
What does form 8-K used for? - Answers To report major corporate events like asset
acquisi ons/disposals, management changes, accountant changes, financial statement changes
How is cumula ve preferred stock treated to calculated basis EPS? - Answers When preferred
stock is cumula ve, the accumula ve dividend in the period is subtract from net income to
calculated basis EPS, not the amount paid or declared.
, What is dliuted EPS? - Answers Diluted EPS include EPS and any possible conversions security
that will decrease EPS. Any possible conversion security that will increase EPS is not included
because of an dilusion rule.
What are out of the money stock op ons? How does it affect diluted EPS calcula on? -
Answers Out of the money stock op ons take place when stock's exercise price is more than
market price. It it an dilute and excluded from diluted EPS calcula on.
Which following periods is required to file balance sheets on form 10-Q beside most recent
quarter end? - Answers Balance sheet of the end of last fiscal year. If seasonal fluctua on
present, it may include corresponding quarter of last fiscal year.
How is EPS reported when an en ty has a discon nued opera on? - Answers Company will
show the basis and diluted EPS on the income statement or in the notes.
Who requires to disclose EPS? - Answers Company has publicly traded common stock,
poten al common stock, in the process of filing with regulatory agency
What do we do with interest expense for conver ble bonds in diluted EPS calcula on? -
Answers We need to add back (net tax) to net income because we won't need to pay interest if
the bonds are conver ble
What do we do with (conver ble) preferred stock dividend paid in diluted EPS calcula on? -
Answers We will not need to subtract from net income and add number of preferred stock into
total shares for diluted EPS calcula on because we assume were converted to common share
What is the numerator in diluted EPS calcula on? - Answers Income available to common
shareholder plus any a(er tax interest expense that would not have incurred if the bonds
converted
, When a bank account's overdra( can be ne?ed against another bank account? - Answers
When there is a legal right to offset exists at a different bank. Otherwise, the overdra( is
reported as current liability
What is appropriated retained earning? - Answers The purpose of appropriated retained
earning is to alert/disclose shareholders that some of it retained earning is not available to pay
dividends because they are restricted for certain purposes. When the purpose of appropria on
is completed, it will be reclassed to unappropriated retained earnings
What is the cost method in equity transac on accoun ng? And how does it affect income
statement/balance sheet? - Answers Calcula on of paid-in capital for its treasury stock is based
on the amount treasury stock were bought. It doesn't affect income statement but it is recorded
on balance sheet as APIC-T/S and losses are first eliminated in APIC-T/S then decrease retained
earnings
How does owned treasury stock affect stockholder's equity? - Answers Owning its own stock
reduces stockholder's equity
How are cumula ve preferred stock dividends are paid? - Answers They are paid on par value
and have a preference over common stock dividend
How are dividends in arrears reported and when are dividends reported as liability? - Answers
Dividends in arrears are not yet declared are only disclosed in financial statements.
They are recorded as liability when they are declared
How to allocate issue proceeds of sale of conver ble preferred stock? - Answers Alloca on is
based on fair value. Take the pro-rated percent for preferred stock based on fair value and
mul ply the issued proceeds
What is the journal entry for dividend declara on? - Answers Dr. Retained earnings
Notes
What does comprehensive income exclude? - Answers Changes related to owner distribu on
and owner investment
How to report gain/loss from unusual and infrequent transac on on the income statement? -
Answers It is reported pretax as a separate component of income from con nuing opera ons.
What does selling expense include? - Answers Selling expense includes adver sing, freight out,
sales salaries, any rent expense.
What type of incomes does net income include? - Answers Net income include incomes from
con nuing opera ons and discon nued opera ons
When a company can report a discon nued opera on? - Answers When it is classified as held-
for-sale.
Has a commitment plan to sell, component is available for immediate sale, has an ac ve
program to locate buyer, sale is probable within on year, sale is being ac vely marketed, unlikely
plan to sell is changed or withdrawn
How is accumulated other comprehensive income reported? - Answers It is a balance sheet
item and is reported in the equity sec on a(er retained earning
Describe the rela onships between net income and retained earning, OCI and accumulated
OCI: - Answers Net income is closed out to retained earning on balance sheet. OCI is closed out
to accumulated OCI.
Retained earning and accumulated OCI are the undistributed earning of corpora on
, What is comprehensive income and what does other comprehensive income include? -
Answers Comprehensive income shows all non-owner changes in stockholder's equity. It
includes net income plus OCI. Other comprehensive income includes: pension adj, unrealized
gain and loss AFS debt securi es, foreign currency, instrument credit risk.
How are foreign transac on and transla on gain/losses reported? - Answers Foreign
transac on gain/loss is reported in net income. Foreign transla on gain/loss is reported in OCI
How does prior service cost not recognized in net periodic pension cost affect OCI? - Answers It
will reduce OCI
What is presenta on of comprehensive income? - Answers It can be presented either on
income statement a(er net income or in a separate "statement of comprehensive income"
How are components of other comprehensive income regarding to tax issues reported? -
Answers Either report components net of tax or report components before tax basis with one
amount shown a(er for the aggregate tax effects.
What are exchange rate direct method and indirect method? - Answers Direct method is 1
foreign currency to domes c price.
Indirect method is 1 domes c price to foreign currency
What does form 8-K used for? - Answers To report major corporate events like asset
acquisi ons/disposals, management changes, accountant changes, financial statement changes
How is cumula ve preferred stock treated to calculated basis EPS? - Answers When preferred
stock is cumula ve, the accumula ve dividend in the period is subtract from net income to
calculated basis EPS, not the amount paid or declared.
, What is dliuted EPS? - Answers Diluted EPS include EPS and any possible conversions security
that will decrease EPS. Any possible conversion security that will increase EPS is not included
because of an dilusion rule.
What are out of the money stock op ons? How does it affect diluted EPS calcula on? -
Answers Out of the money stock op ons take place when stock's exercise price is more than
market price. It it an dilute and excluded from diluted EPS calcula on.
Which following periods is required to file balance sheets on form 10-Q beside most recent
quarter end? - Answers Balance sheet of the end of last fiscal year. If seasonal fluctua on
present, it may include corresponding quarter of last fiscal year.
How is EPS reported when an en ty has a discon nued opera on? - Answers Company will
show the basis and diluted EPS on the income statement or in the notes.
Who requires to disclose EPS? - Answers Company has publicly traded common stock,
poten al common stock, in the process of filing with regulatory agency
What do we do with interest expense for conver ble bonds in diluted EPS calcula on? -
Answers We need to add back (net tax) to net income because we won't need to pay interest if
the bonds are conver ble
What do we do with (conver ble) preferred stock dividend paid in diluted EPS calcula on? -
Answers We will not need to subtract from net income and add number of preferred stock into
total shares for diluted EPS calcula on because we assume were converted to common share
What is the numerator in diluted EPS calcula on? - Answers Income available to common
shareholder plus any a(er tax interest expense that would not have incurred if the bonds
converted
, When a bank account's overdra( can be ne?ed against another bank account? - Answers
When there is a legal right to offset exists at a different bank. Otherwise, the overdra( is
reported as current liability
What is appropriated retained earning? - Answers The purpose of appropriated retained
earning is to alert/disclose shareholders that some of it retained earning is not available to pay
dividends because they are restricted for certain purposes. When the purpose of appropria on
is completed, it will be reclassed to unappropriated retained earnings
What is the cost method in equity transac on accoun ng? And how does it affect income
statement/balance sheet? - Answers Calcula on of paid-in capital for its treasury stock is based
on the amount treasury stock were bought. It doesn't affect income statement but it is recorded
on balance sheet as APIC-T/S and losses are first eliminated in APIC-T/S then decrease retained
earnings
How does owned treasury stock affect stockholder's equity? - Answers Owning its own stock
reduces stockholder's equity
How are cumula ve preferred stock dividends are paid? - Answers They are paid on par value
and have a preference over common stock dividend
How are dividends in arrears reported and when are dividends reported as liability? - Answers
Dividends in arrears are not yet declared are only disclosed in financial statements.
They are recorded as liability when they are declared
How to allocate issue proceeds of sale of conver ble preferred stock? - Answers Alloca on is
based on fair value. Take the pro-rated percent for preferred stock based on fair value and
mul ply the issued proceeds
What is the journal entry for dividend declara on? - Answers Dr. Retained earnings
