Uniform CPA Examination — Financial
Accounting and Reporting Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationale 2027
Q&A| Instant Download Pdf.
1. A company purchases equipment for $120,000 and incurs $8,000 in
transportation costs and $4,000 in installation costs before the
equipment is ready for use. What amount should initially be
recognized as the cost of the equipment?
A. $120,000
B. $124,000
C. $132,000
D. $136,000
The cost of property, plant, and equipment includes the purchase price and
directly attributable costs necessary to bring the asset to the location and
condition necessary for its intended use. Therefore, $120,000 + $8,000 +
$4,000 = $132,000.
2. A company uses straight-line depreciation for equipment with a cost
of $200,000, an estimated residual value of $20,000, and a useful life
of 10 years. What is the annual depreciation expense?
A. $18,000
B. $18,000
,C. $20,000
D. $22,000
Straight-line depreciation is calculated as depreciable cost divided by
useful life. The depreciable amount is $200,000 − $20,000 = $180,000, and
$180,000 ÷ 10 years = $18,000 per year.
3. A company acquires a machine for $500,000 and estimates that its
useful life is eight years with no residual value. After four years, the
company revises the remaining useful life to three years. What is the
appropriate treatment of the change?
A. Restate prior depreciation expense
B. Record a cumulative-effect adjustment to retained earnings
C. Apply the revised estimate prospectively
D. Ignore the revised estimate until the asset is disposed of
A change in an accounting estimate is generally accounted for
prospectively. The carrying amount of the asset at the date of the change
is depreciated over the revised remaining useful life.
4. Which of the following costs associated with internally developed
software is generally capitalized when the applicable capitalization
criteria have been met?
A. Preliminary project-stage research costs
B. General administrative costs
C. Certain application-development-stage costs
D. Employee training costs
Under applicable U.S. GAAP guidance, certain costs incurred during the
application-development stage of internally developed software may be
capitalized when specified criteria are met. Preliminary-stage and training
costs are generally expensed.
5. A company acquires a patent from another entity for $300,000. Legal
fees of $20,000 are incurred to successfully defend the patent. What
, amount should generally be capitalized as the patent's carrying
amount?
A. $280,000
B. $300,000
C. $320,000
D. $340,000
The purchase price and qualifying legal costs associated with successfully
defending a patent are generally capitalized. Thus, the capitalized amount
is $300,000 + $20,000 = $320,000.
6. Which characteristic distinguishes an indefinite-lived intangible asset
from a finite-lived intangible asset?
A. An indefinite-lived asset is never tested for impairment
B. An indefinite-lived asset is always amortized
C. An indefinite-lived asset is not amortized but is subject to impairment
testing
D. A finite-lived intangible asset cannot be impaired
An intangible asset with an indefinite useful life is not amortized because
there is no foreseeable limit to its useful life. It is instead evaluated for
impairment under the applicable guidance.
7. A company purchases land for $900,000 and incurs $40,000 of legal
fees directly related to acquiring the property. It also pays $30,000 to
clear the land and $50,000 to construct a parking lot. What amount
should be recorded as land?
A. $900,000
B. $940,000
C. $970,000
D. $1,020,000
The land account includes the purchase price, directly attributable
acquisition costs, and costs necessary to prepare the land for its intended
, use. The parking lot is a separate depreciable land improvement.
Therefore, land is recorded at $900,000 + $40,000 + $30,000 = $970,000.
8. A company exchanges an old machine for a new machine and pays
additional cash. The exchange has commercial substance. Which
measurement is generally appropriate for the new machine?
A. The carrying amount of the old machine only
B. The fair value of the cash paid only
C. The fair value of the asset given up or received, whichever is more
clearly evident
D. The historical cost of the old machine regardless of fair value
When a nonmonetary exchange has commercial substance, the acquired
asset is generally measured at fair value, using the fair value of the asset
given up or received depending on which is more clearly evident.
9. A company has accounts receivable of $600,000 and estimates that 4%
will be uncollectible. Before adjustment, the allowance for credit
losses has a credit balance of $12,000. What additional credit loss
expense should be recognized?
A. $12,000
B. $18,000
C. $12,000
D. $24,000
The required allowance is $600,000 × 4% = $24,000. Because the existing
allowance has a $12,000 credit balance, an additional $12,000 credit loss
expense is required.
10. A customer balance of $15,000 is specifically identified as
uncollectible and is written off under the allowance method. What is
the effect of the write-off?
A. Assets decrease and bad debt expense increases
B. Accounts receivable decrease and the allowance decreases
Accounting and Reporting Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationale 2027
Q&A| Instant Download Pdf.
1. A company purchases equipment for $120,000 and incurs $8,000 in
transportation costs and $4,000 in installation costs before the
equipment is ready for use. What amount should initially be
recognized as the cost of the equipment?
A. $120,000
B. $124,000
C. $132,000
D. $136,000
The cost of property, plant, and equipment includes the purchase price and
directly attributable costs necessary to bring the asset to the location and
condition necessary for its intended use. Therefore, $120,000 + $8,000 +
$4,000 = $132,000.
2. A company uses straight-line depreciation for equipment with a cost
of $200,000, an estimated residual value of $20,000, and a useful life
of 10 years. What is the annual depreciation expense?
A. $18,000
B. $18,000
,C. $20,000
D. $22,000
Straight-line depreciation is calculated as depreciable cost divided by
useful life. The depreciable amount is $200,000 − $20,000 = $180,000, and
$180,000 ÷ 10 years = $18,000 per year.
3. A company acquires a machine for $500,000 and estimates that its
useful life is eight years with no residual value. After four years, the
company revises the remaining useful life to three years. What is the
appropriate treatment of the change?
A. Restate prior depreciation expense
B. Record a cumulative-effect adjustment to retained earnings
C. Apply the revised estimate prospectively
D. Ignore the revised estimate until the asset is disposed of
A change in an accounting estimate is generally accounted for
prospectively. The carrying amount of the asset at the date of the change
is depreciated over the revised remaining useful life.
4. Which of the following costs associated with internally developed
software is generally capitalized when the applicable capitalization
criteria have been met?
A. Preliminary project-stage research costs
B. General administrative costs
C. Certain application-development-stage costs
D. Employee training costs
Under applicable U.S. GAAP guidance, certain costs incurred during the
application-development stage of internally developed software may be
capitalized when specified criteria are met. Preliminary-stage and training
costs are generally expensed.
5. A company acquires a patent from another entity for $300,000. Legal
fees of $20,000 are incurred to successfully defend the patent. What
, amount should generally be capitalized as the patent's carrying
amount?
A. $280,000
B. $300,000
C. $320,000
D. $340,000
The purchase price and qualifying legal costs associated with successfully
defending a patent are generally capitalized. Thus, the capitalized amount
is $300,000 + $20,000 = $320,000.
6. Which characteristic distinguishes an indefinite-lived intangible asset
from a finite-lived intangible asset?
A. An indefinite-lived asset is never tested for impairment
B. An indefinite-lived asset is always amortized
C. An indefinite-lived asset is not amortized but is subject to impairment
testing
D. A finite-lived intangible asset cannot be impaired
An intangible asset with an indefinite useful life is not amortized because
there is no foreseeable limit to its useful life. It is instead evaluated for
impairment under the applicable guidance.
7. A company purchases land for $900,000 and incurs $40,000 of legal
fees directly related to acquiring the property. It also pays $30,000 to
clear the land and $50,000 to construct a parking lot. What amount
should be recorded as land?
A. $900,000
B. $940,000
C. $970,000
D. $1,020,000
The land account includes the purchase price, directly attributable
acquisition costs, and costs necessary to prepare the land for its intended
, use. The parking lot is a separate depreciable land improvement.
Therefore, land is recorded at $900,000 + $40,000 + $30,000 = $970,000.
8. A company exchanges an old machine for a new machine and pays
additional cash. The exchange has commercial substance. Which
measurement is generally appropriate for the new machine?
A. The carrying amount of the old machine only
B. The fair value of the cash paid only
C. The fair value of the asset given up or received, whichever is more
clearly evident
D. The historical cost of the old machine regardless of fair value
When a nonmonetary exchange has commercial substance, the acquired
asset is generally measured at fair value, using the fair value of the asset
given up or received depending on which is more clearly evident.
9. A company has accounts receivable of $600,000 and estimates that 4%
will be uncollectible. Before adjustment, the allowance for credit
losses has a credit balance of $12,000. What additional credit loss
expense should be recognized?
A. $12,000
B. $18,000
C. $12,000
D. $24,000
The required allowance is $600,000 × 4% = $24,000. Because the existing
allowance has a $12,000 credit balance, an additional $12,000 credit loss
expense is required.
10. A customer balance of $15,000 is specifically identified as
uncollectible and is written off under the allowance method. What is
the effect of the write-off?
A. Assets decrease and bad debt expense increases
B. Accounts receivable decrease and the allowance decreases
