CPA Exam FAR Correct Questions And
Answers
NFP revenue related to charity care. Correct Answers NOT recognized on the face of
financial statements but is disclosed. When asked to compute the amount of revenues,
gains, support etc. you must SUBTRACT charity care revenue
Current Ratio Correct Answers current assets/current liabilities (liquidity)
Quick Ratio Correct Answers (Cash & Cash Equivalents + Net Accounts Receivable +
Marketable Securities) / Current Liabilities
Debt to Equity Ratio Correct Answers total liabilities/total equity
Total Asset Turnover Formula Correct Answers net sales/average total assets
accounts receivable turnover Correct Answers net sales/average accounts receivable
Inventory Turnover Correct Answers COGS/Average Inventory
Days in Inventory Formula Correct Answers Ending Inventory / (COGS/365)
Working Capital Turnover Formula Correct Answers sales / average working capital
Average Working Capital Formula Correct Answers Current Assets - Current Liabilities
= Working Capital. Take the average of the two years to find Average working capital.
Accounts Receivable Turnover Ratio Correct Answers Sales (net)/ Average A/R
Return on Assets Formula Correct Answers Net Income/Average total Assets
Days sales in A/R formula Correct Answers Ending A/R / (Net Sales/365)
Return on Equity Calculation Correct Answers (net income - preferred dividends) /
average common equity
Total Debt Ratio Correct Answers total liabilities/total assets
Times Interest Earned Formula Correct Answers EBIT/interest expense
*EBIT = Earnings before interest and taxes
Total accumulated other comprehensive Goes on balance sheet as
,A. Equity
B. Retained Earnings
C. Asset Correct Answers A. Equity
Allowance Method that emphasizes asset valuation Correct Answers Aging the
receivables.
Segment revenue is 10% or more of combined rev of all the company segments, a
segment must be at least 10% of... Correct Answers 10% of...
1. Combined revenues (intersegment or affiliated customers)
2. Operating Profit (of all segments w/ NO OPERATING LOSS)
3. Identifiable assets
Periodic Inventory System Formula Correct Answers Beginning Inventory + Purchases
= Ending Inventory + COGS
When can revenue be recognized for ag products and precious metals? Correct
Answers At time of production, not at time of sale
With Monitory Exchanges (25% of cash received or more) you record the entire
loss/Gain based on the FV of the asset Correct Answers With Monitory Exchanges
(25% of cash received or more) you record the entire loss/Gain based on the FV of the
asset
Non-Monitory exchange that has commercial substance. Correct Answers Recognize all
gains/losses
Non-Monitory Exchange that LACKS commercial substance Correct Answers Calculate
gain/loss, if you have a loss then loss is recognized, if gain and if no boot received then
no gain recognized. If boot is paid, no gain recognized. If cash is received & less than
25% you recognize a portion of the gain. If cash received and is more than 25% of total
FV then both sides recognize gain/loss.
How to calculate LIFO Method on Perpetual vs Periodic Correct Answers Perpetual -
Last in First Out as inventory comes in throughout the year.
Periodic - Last In First Out starting at inventory at the end of the year.
(SEE TBS 033003 @ 9Min for example)
A company is planning to construct an office that will be used as its new corporate
headquarters. When/How can they capitalize interest? Correct Answers During the
construction period with borrowed funds to finance the weighted average accumulated
expense.
,Cost of the trademark is amortized over its economic life Correct Answers The
cost/purchase price, not the book value.
Legal fees defending a patent that aren't successful can be expensed or capitalized?
Correct Answers Expensed immediately. Successful = Capitalized
Computer software being developed can be capitalized once technological feasibility
has been established. Correct Answers Any costs before technological feasibility will be
expensed.
Any costs after software is available for release will be expensed.
Is receipt of stock dividend income? Correct Answers No, it just INCREASES the
number of shares held and DECREASES the cost basis per share.
How are investments in bonds classified as held-to-maturity reported. Correct Answers
Amortized Cost.
How are trading securities reported? Correct Answers At Fair Value on the Balance
Sheet
FASB conceptual framework, quality of information that helps users forecast future
outcomes is? Correct Answers Predictive Value
does transportation to consignees count towards COGS? Correct Answers YES.
Checks that are postdated should not be included into the checkbook balance until...
Correct Answers The postdated date arrives (for the date the check is written for)
If a check is deposited and its returned as NSF, when it be reflected on the checkbook
balance? Correct Answers If the check is counted into the checkbook balance, it will
need to be taken out until the check is redeposited and cleared.
How to Calculate Composite Depreciation Straight-Line Method and find the "composite
life" (Will be something like 6.2 or 7.5) Correct Answers Divide the depreciable cost by
the annual depreciation.
Are trading securities a current or non-current asset? Correct Answers Current Asset
When Correcting under or overstated Retained Earnings... Correct Answers Calculate
NET OF TAX for RE
2/15, net 30 Correct Answers 2=2% discount and 15= days to pay or days in AR.
When finding the amount of interest that should be capitalized for the year end. Correct
Answers Find weighted average accumulated expenditures. ($150K paid in sept = 4/12
, or $50k) and apply the interest rate. The interest capitalized is the lesser of actual
interest or capitalized interested from weighted average expenditures.
Current expected credit loss CECL model Correct Answers Expected credit loss is
equal to the difference between amortized cost and the present value of expected cash
flows.
Does a Liquidating Dividend count as dividend income? Correct Answers NO, its a
reduction of the investment account.
If a sub has a payable to its parent, should the sub report that on its balance sheet?
Correct Answers Yes. Payables and receivables to a subs parent will be reflected on its
balance sheet, but not on its consolidated balance sheet.
Where does a loss from permanent impairment get credited to? Correct Answers
Accumulated Depreciation.
On a Consolidated Financial Statement, what do you report plant assets at for the
sub/parent? Correct Answers Sub = fair value & Parent = book value
Is OCI Net of tax? Correct Answers YES
When finding how much interest to capitalize with PP&E the process is... Correct
Answers Find the average accumulated expenditures ($2000 in yr 1 would be $
= $1000) and times that by your interest rate. This is your "avoidable interest". Then,
you will capitalize the interest that is lower between the interest incurred vs the
avoidable interest.
When changing from LIFO to another inventory cost flow assumption, do you adjust
beginning retained earnings from current year or next year? Correct Answers Beginning
RE in current year. Whatever your beginning inventory for the year is, you'll take
beginning inventory net of tax to find the adjusted RE. Example: $400 beginning
inventory.... 400 x (1 - .30) = 280 which is the cumulative effect of accounting change in
RE
***Remember that you will adjust beginning retained earnings to the earliest of years
presented when switching any inventory method with one exception....
If switching from any method TO LIFO, there are no retroactive adjustments, not even to
the current year retained earnings. you simply begin to use LIFO in the current period
moving forward.
With a trade discount (example: the company allowed a trade discount of 30% and
20%)(this is literally all they give you... See MCQ 00307) Just take the first discount
(30%) and then take the second discount (20%) and apply it to the result of the first
trade discount. (cost of merchandise sold = $5000 - Trade discount 30% = $3500. Then
Answers
NFP revenue related to charity care. Correct Answers NOT recognized on the face of
financial statements but is disclosed. When asked to compute the amount of revenues,
gains, support etc. you must SUBTRACT charity care revenue
Current Ratio Correct Answers current assets/current liabilities (liquidity)
Quick Ratio Correct Answers (Cash & Cash Equivalents + Net Accounts Receivable +
Marketable Securities) / Current Liabilities
Debt to Equity Ratio Correct Answers total liabilities/total equity
Total Asset Turnover Formula Correct Answers net sales/average total assets
accounts receivable turnover Correct Answers net sales/average accounts receivable
Inventory Turnover Correct Answers COGS/Average Inventory
Days in Inventory Formula Correct Answers Ending Inventory / (COGS/365)
Working Capital Turnover Formula Correct Answers sales / average working capital
Average Working Capital Formula Correct Answers Current Assets - Current Liabilities
= Working Capital. Take the average of the two years to find Average working capital.
Accounts Receivable Turnover Ratio Correct Answers Sales (net)/ Average A/R
Return on Assets Formula Correct Answers Net Income/Average total Assets
Days sales in A/R formula Correct Answers Ending A/R / (Net Sales/365)
Return on Equity Calculation Correct Answers (net income - preferred dividends) /
average common equity
Total Debt Ratio Correct Answers total liabilities/total assets
Times Interest Earned Formula Correct Answers EBIT/interest expense
*EBIT = Earnings before interest and taxes
Total accumulated other comprehensive Goes on balance sheet as
,A. Equity
B. Retained Earnings
C. Asset Correct Answers A. Equity
Allowance Method that emphasizes asset valuation Correct Answers Aging the
receivables.
Segment revenue is 10% or more of combined rev of all the company segments, a
segment must be at least 10% of... Correct Answers 10% of...
1. Combined revenues (intersegment or affiliated customers)
2. Operating Profit (of all segments w/ NO OPERATING LOSS)
3. Identifiable assets
Periodic Inventory System Formula Correct Answers Beginning Inventory + Purchases
= Ending Inventory + COGS
When can revenue be recognized for ag products and precious metals? Correct
Answers At time of production, not at time of sale
With Monitory Exchanges (25% of cash received or more) you record the entire
loss/Gain based on the FV of the asset Correct Answers With Monitory Exchanges
(25% of cash received or more) you record the entire loss/Gain based on the FV of the
asset
Non-Monitory exchange that has commercial substance. Correct Answers Recognize all
gains/losses
Non-Monitory Exchange that LACKS commercial substance Correct Answers Calculate
gain/loss, if you have a loss then loss is recognized, if gain and if no boot received then
no gain recognized. If boot is paid, no gain recognized. If cash is received & less than
25% you recognize a portion of the gain. If cash received and is more than 25% of total
FV then both sides recognize gain/loss.
How to calculate LIFO Method on Perpetual vs Periodic Correct Answers Perpetual -
Last in First Out as inventory comes in throughout the year.
Periodic - Last In First Out starting at inventory at the end of the year.
(SEE TBS 033003 @ 9Min for example)
A company is planning to construct an office that will be used as its new corporate
headquarters. When/How can they capitalize interest? Correct Answers During the
construction period with borrowed funds to finance the weighted average accumulated
expense.
,Cost of the trademark is amortized over its economic life Correct Answers The
cost/purchase price, not the book value.
Legal fees defending a patent that aren't successful can be expensed or capitalized?
Correct Answers Expensed immediately. Successful = Capitalized
Computer software being developed can be capitalized once technological feasibility
has been established. Correct Answers Any costs before technological feasibility will be
expensed.
Any costs after software is available for release will be expensed.
Is receipt of stock dividend income? Correct Answers No, it just INCREASES the
number of shares held and DECREASES the cost basis per share.
How are investments in bonds classified as held-to-maturity reported. Correct Answers
Amortized Cost.
How are trading securities reported? Correct Answers At Fair Value on the Balance
Sheet
FASB conceptual framework, quality of information that helps users forecast future
outcomes is? Correct Answers Predictive Value
does transportation to consignees count towards COGS? Correct Answers YES.
Checks that are postdated should not be included into the checkbook balance until...
Correct Answers The postdated date arrives (for the date the check is written for)
If a check is deposited and its returned as NSF, when it be reflected on the checkbook
balance? Correct Answers If the check is counted into the checkbook balance, it will
need to be taken out until the check is redeposited and cleared.
How to Calculate Composite Depreciation Straight-Line Method and find the "composite
life" (Will be something like 6.2 or 7.5) Correct Answers Divide the depreciable cost by
the annual depreciation.
Are trading securities a current or non-current asset? Correct Answers Current Asset
When Correcting under or overstated Retained Earnings... Correct Answers Calculate
NET OF TAX for RE
2/15, net 30 Correct Answers 2=2% discount and 15= days to pay or days in AR.
When finding the amount of interest that should be capitalized for the year end. Correct
Answers Find weighted average accumulated expenditures. ($150K paid in sept = 4/12
, or $50k) and apply the interest rate. The interest capitalized is the lesser of actual
interest or capitalized interested from weighted average expenditures.
Current expected credit loss CECL model Correct Answers Expected credit loss is
equal to the difference between amortized cost and the present value of expected cash
flows.
Does a Liquidating Dividend count as dividend income? Correct Answers NO, its a
reduction of the investment account.
If a sub has a payable to its parent, should the sub report that on its balance sheet?
Correct Answers Yes. Payables and receivables to a subs parent will be reflected on its
balance sheet, but not on its consolidated balance sheet.
Where does a loss from permanent impairment get credited to? Correct Answers
Accumulated Depreciation.
On a Consolidated Financial Statement, what do you report plant assets at for the
sub/parent? Correct Answers Sub = fair value & Parent = book value
Is OCI Net of tax? Correct Answers YES
When finding how much interest to capitalize with PP&E the process is... Correct
Answers Find the average accumulated expenditures ($2000 in yr 1 would be $
= $1000) and times that by your interest rate. This is your "avoidable interest". Then,
you will capitalize the interest that is lower between the interest incurred vs the
avoidable interest.
When changing from LIFO to another inventory cost flow assumption, do you adjust
beginning retained earnings from current year or next year? Correct Answers Beginning
RE in current year. Whatever your beginning inventory for the year is, you'll take
beginning inventory net of tax to find the adjusted RE. Example: $400 beginning
inventory.... 400 x (1 - .30) = 280 which is the cumulative effect of accounting change in
RE
***Remember that you will adjust beginning retained earnings to the earliest of years
presented when switching any inventory method with one exception....
If switching from any method TO LIFO, there are no retroactive adjustments, not even to
the current year retained earnings. you simply begin to use LIFO in the current period
moving forward.
With a trade discount (example: the company allowed a trade discount of 30% and
20%)(this is literally all they give you... See MCQ 00307) Just take the first discount
(30%) and then take the second discount (20%) and apply it to the result of the first
trade discount. (cost of merchandise sold = $5000 - Trade discount 30% = $3500. Then
