CPA Conceptual
Pharma, a nongovernmental NFP organization, is preparing its year-end financials. Which
statement(s) are required? ✔✔NFP organizations are required to produce
1. Statement of financial position
2. Statement of activities
3. Statement of cash flows
This transaction will cause an increase to stockholders' equity: ✔✔The sale of treasury stock
sold at less than cost
The cumulative effect of a change in accounting estimate should be shown separately: ✔✔It
should not be recorded separately on any financial statement.
A change in estimate is handled prospectively. No cumulative effect adjustment is made and no
separate line item presentation is made on any financial statement. If a material change is
being made, appropriate footnote disclosure is necessary.
When a property dividend is declared and the market value of the property exceeds its book
value, the excess ✔✔Increases net income for the period.
A property dividend is recorded at the fair value of the property to be distributed. The property
has to be adjusted to fair value with the adjustment affecting earnings for the period. APIC is
not affected.
Each of the following would be considered a Level 2 observable input that could be used to
determine a liability's fair value, except: ✔✔Internally generated cash flow projections for a
related asset or liability
Internally generated cash flow projection is based on "unobservable" inputs reflecting a
company's "own assumptions" about the way the related asset or liability would be priced.
Which of the following does not affect an internal service fund's change in net position?
✔✔Due from other funds
Due from other funds appears on the balance sheet. They are not a component of changes in
net position.
,When the allowance method of recognizing uncollectible accounts is used, how would the
collection of an account previously written off affect accounts receivable and the allowance for
uncollectible accounts? ✔✔AR- No effect
Allowance- Increase
Under the allowance method, the following entries are recorded:
1. To restore the account previously written off:
Dr. A/R
Cr. Allowance for uncollectible accounts
2. To record the cash collection on the account:
Dr. Cash
Cr. A/R
In complying with GASB 34, a government will present separate fund financial statements for its
governmental and proprietary funds. The purpose of this presentation is to: ✔✔Report
additional and detailed information about the primary government
RULE: Separate fund financial statements should be presented for governmental and
proprietary funds to report additional and detailed information about the primary government.
Company J acquired all of the outstanding common stock of Company K in exchange for cash.
The acquisition price exceeds the fair value of net assets acquired. How should Company J
determine the amounts to be reported for the plant and equipment and long-term debt
acquired from Company K? ✔✔Plant and equipment- Fair Value
Long-term debt- Fair Value
When the acquisition price exceeds the fair value of net assets acquired, assets and liabilities
should be presented at fair value.
Which of the following should be disclosed for each reportable operating segment of an
enterprise under GAAP? ✔✔P&L: Yes
Total Assets: Yes
For each reportable segment of an enterprise, both P&L and total assets should be disclosed
under GAAP. In disclosure questions, if you are not sure, disclose the most rather than the least.
A segment of Ace Inc. was discontinued during Year 1. Ace's loss from discontinued operations
should not: ✔✔Exclude operating losses from the date the decision to dispose of the segment
was made until the end of Year 1.
, Ace's loss on discontinued operations should not exclude operating losses from the date the
decision to dispose of the segment was made until the end of Year 1. All Year 1 operating losses
should be included.
When accounting for income taxes, a temporary difference occurs in which of the following
scenarios? ✔✔An item is included in the calculation of net income in one year and in taxable
income in a different year.
A major difference between GAAP and IFRS guidance for considering going concern is: ✔✔IFRS
does not offer guidance on the basis of accounting to use in case of imminent liquidation. GAAP
provides specific guidance about preparing financial statements and necessary disclosures
when liquidating is imminent.
All of the following regarding notes to the basic financial of governmental entities are true,
except: ✔✔the notes contain disclosures related to required supplementary information-
required supplementary information is reported before (MD&A) or after (budget,
infrastructure, pension) the basic financial statements.
The notes to the financial statements are integral to the financial statements and include
important disclosures about the basic financial, not the required supplementary information.
General purpose external financial reporting of a corporation focuses primarily on the needs of
which of the following users? ✔✔Investors and creditors and their advisors
Which of the following is not a disclosure requirement related to risks and uncertainties under
GAAP? ✔✔Disclosure of vulnerability due to all identified concentrations.
Identified concentrations only need to be disclosed if all of the following are met:
1. The concentration exists at the financial statement date.
2. The concentration makes the entity vulnerable to the risk of a near-term severe impact.
3. It is at least reasonably possible that the events that could cause the severe impact will occur
in the near-term.
P Company owns 30% of the voting common stock of S company. P will probably use the equity
method of accounting to accounting to account for this investment because: ✔✔P is assumed
to be able to exercise significant influence over the affairs of S Co.
On 12/31/X1, the end of its fiscal year, S Co held a derivative instrument which it had acquired
for speculative purposes during November, Year 1. Since the acquisition the fair value had
Pharma, a nongovernmental NFP organization, is preparing its year-end financials. Which
statement(s) are required? ✔✔NFP organizations are required to produce
1. Statement of financial position
2. Statement of activities
3. Statement of cash flows
This transaction will cause an increase to stockholders' equity: ✔✔The sale of treasury stock
sold at less than cost
The cumulative effect of a change in accounting estimate should be shown separately: ✔✔It
should not be recorded separately on any financial statement.
A change in estimate is handled prospectively. No cumulative effect adjustment is made and no
separate line item presentation is made on any financial statement. If a material change is
being made, appropriate footnote disclosure is necessary.
When a property dividend is declared and the market value of the property exceeds its book
value, the excess ✔✔Increases net income for the period.
A property dividend is recorded at the fair value of the property to be distributed. The property
has to be adjusted to fair value with the adjustment affecting earnings for the period. APIC is
not affected.
Each of the following would be considered a Level 2 observable input that could be used to
determine a liability's fair value, except: ✔✔Internally generated cash flow projections for a
related asset or liability
Internally generated cash flow projection is based on "unobservable" inputs reflecting a
company's "own assumptions" about the way the related asset or liability would be priced.
Which of the following does not affect an internal service fund's change in net position?
✔✔Due from other funds
Due from other funds appears on the balance sheet. They are not a component of changes in
net position.
,When the allowance method of recognizing uncollectible accounts is used, how would the
collection of an account previously written off affect accounts receivable and the allowance for
uncollectible accounts? ✔✔AR- No effect
Allowance- Increase
Under the allowance method, the following entries are recorded:
1. To restore the account previously written off:
Dr. A/R
Cr. Allowance for uncollectible accounts
2. To record the cash collection on the account:
Dr. Cash
Cr. A/R
In complying with GASB 34, a government will present separate fund financial statements for its
governmental and proprietary funds. The purpose of this presentation is to: ✔✔Report
additional and detailed information about the primary government
RULE: Separate fund financial statements should be presented for governmental and
proprietary funds to report additional and detailed information about the primary government.
Company J acquired all of the outstanding common stock of Company K in exchange for cash.
The acquisition price exceeds the fair value of net assets acquired. How should Company J
determine the amounts to be reported for the plant and equipment and long-term debt
acquired from Company K? ✔✔Plant and equipment- Fair Value
Long-term debt- Fair Value
When the acquisition price exceeds the fair value of net assets acquired, assets and liabilities
should be presented at fair value.
Which of the following should be disclosed for each reportable operating segment of an
enterprise under GAAP? ✔✔P&L: Yes
Total Assets: Yes
For each reportable segment of an enterprise, both P&L and total assets should be disclosed
under GAAP. In disclosure questions, if you are not sure, disclose the most rather than the least.
A segment of Ace Inc. was discontinued during Year 1. Ace's loss from discontinued operations
should not: ✔✔Exclude operating losses from the date the decision to dispose of the segment
was made until the end of Year 1.
, Ace's loss on discontinued operations should not exclude operating losses from the date the
decision to dispose of the segment was made until the end of Year 1. All Year 1 operating losses
should be included.
When accounting for income taxes, a temporary difference occurs in which of the following
scenarios? ✔✔An item is included in the calculation of net income in one year and in taxable
income in a different year.
A major difference between GAAP and IFRS guidance for considering going concern is: ✔✔IFRS
does not offer guidance on the basis of accounting to use in case of imminent liquidation. GAAP
provides specific guidance about preparing financial statements and necessary disclosures
when liquidating is imminent.
All of the following regarding notes to the basic financial of governmental entities are true,
except: ✔✔the notes contain disclosures related to required supplementary information-
required supplementary information is reported before (MD&A) or after (budget,
infrastructure, pension) the basic financial statements.
The notes to the financial statements are integral to the financial statements and include
important disclosures about the basic financial, not the required supplementary information.
General purpose external financial reporting of a corporation focuses primarily on the needs of
which of the following users? ✔✔Investors and creditors and their advisors
Which of the following is not a disclosure requirement related to risks and uncertainties under
GAAP? ✔✔Disclosure of vulnerability due to all identified concentrations.
Identified concentrations only need to be disclosed if all of the following are met:
1. The concentration exists at the financial statement date.
2. The concentration makes the entity vulnerable to the risk of a near-term severe impact.
3. It is at least reasonably possible that the events that could cause the severe impact will occur
in the near-term.
P Company owns 30% of the voting common stock of S company. P will probably use the equity
method of accounting to accounting to account for this investment because: ✔✔P is assumed
to be able to exercise significant influence over the affairs of S Co.
On 12/31/X1, the end of its fiscal year, S Co held a derivative instrument which it had acquired
for speculative purposes during November, Year 1. Since the acquisition the fair value had
