UWORLD CPA - FAR - CH.1 - GENERAL
PURPOSE ACCOUNTING (FOR PROFIT
ENTITIES). EXAM QUESTIONS AND
ANSWERS. VERIFIED 2025/2026.
Measurement basis of Inventory - ANS Lower of Cost or Market / NRV (Replacement cost)
Measurement basis of PPE / Intangibles - ANS Historical Cost and Depreciated/amortized
historical cost
Is inventory and prepaid expenses current assets or noncurrent? - ANS Current assets
(able to be converted to cash within 1 year or operating cycle, whichever longer)
Unmailed checks are considered - ANS Cash
Overdrafts are reported as - ANS Current liability or may be netted against bank account
asset
Unearned rent is - ANS liability
Accumulated other comprehensive income/loss items (DENT) - ANS D - Derivative cash flow
hedges
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,E - Excess adjustment for pension PBO and FV of plan assets
N - Net unrealized holding gains/ (loss) on AFS debt securities
T - Translation adjustments for foreign currency.
Construction in progress - ANS A current asset account where costs and profits from LT
contracts are incurred and accumulated.
Are deferred income tax liability current or long term liabilities? - ANS Long term
Do all highly valuable resources must be reported as assets? - ANS No. Assets must be certain
of a future benefit. (e.g. R&D may be highly valuable but future benefit is unknown)
Can assets with restrictions be still reported as assets? - ANS Yes
Discounts on bond payables - ANS Contra liability to bonds payable, net them up.
Where is Other Comprehensive Income reported? - ANS statement of comprehensive income
Where is Accumulated Other Comprehensive Income reported? - ANS statement of financial
position
Are deferrals concerned with future or past cash receipts and payments? - ANS past
accruals are future.
What are the 3 principles of accrual accounting expense recognition? - ANS Cause and effect
(e.g. COGS)
Systematic and rational allocation (e.g. Depreciation)
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Immediate recognition (e.g. R&D)
What is additional paid in capital? - ANS Difference between par or stated value and original
issue price.
What costs are included in discontinued operations? - ANS Disposal loss (including severance
pay and other expenses directly related to disposal) and segment's operating loss
Where are gains/losses from result of exchange rate change be reported on? - ANS As a
component of income from continuing operations (Transaction gain/loss)
Difference between translation and transaction - ANS Translation: Convert financial
statements expressed in foreign currency to statements in domestic currency. Reports in OCI.
Transaction: Actual transactions. Reports in income from continuing operations
What's the correct format of a direct quotation to buy a foreign currency? - ANS (domestic
currency) per (foreign currency)
e.g. $0.01 per 1 JPY (yen)
Foreign currency will be whole number.
Net income includes - ANS Operating income, non operating income, related tax impacts.
net income + other comprehensive income = ? - ANS Comprehensive income
Statement of comprehensive income will include net income and OCI.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
PURPOSE ACCOUNTING (FOR PROFIT
ENTITIES). EXAM QUESTIONS AND
ANSWERS. VERIFIED 2025/2026.
Measurement basis of Inventory - ANS Lower of Cost or Market / NRV (Replacement cost)
Measurement basis of PPE / Intangibles - ANS Historical Cost and Depreciated/amortized
historical cost
Is inventory and prepaid expenses current assets or noncurrent? - ANS Current assets
(able to be converted to cash within 1 year or operating cycle, whichever longer)
Unmailed checks are considered - ANS Cash
Overdrafts are reported as - ANS Current liability or may be netted against bank account
asset
Unearned rent is - ANS liability
Accumulated other comprehensive income/loss items (DENT) - ANS D - Derivative cash flow
hedges
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,E - Excess adjustment for pension PBO and FV of plan assets
N - Net unrealized holding gains/ (loss) on AFS debt securities
T - Translation adjustments for foreign currency.
Construction in progress - ANS A current asset account where costs and profits from LT
contracts are incurred and accumulated.
Are deferred income tax liability current or long term liabilities? - ANS Long term
Do all highly valuable resources must be reported as assets? - ANS No. Assets must be certain
of a future benefit. (e.g. R&D may be highly valuable but future benefit is unknown)
Can assets with restrictions be still reported as assets? - ANS Yes
Discounts on bond payables - ANS Contra liability to bonds payable, net them up.
Where is Other Comprehensive Income reported? - ANS statement of comprehensive income
Where is Accumulated Other Comprehensive Income reported? - ANS statement of financial
position
Are deferrals concerned with future or past cash receipts and payments? - ANS past
accruals are future.
What are the 3 principles of accrual accounting expense recognition? - ANS Cause and effect
(e.g. COGS)
Systematic and rational allocation (e.g. Depreciation)
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Immediate recognition (e.g. R&D)
What is additional paid in capital? - ANS Difference between par or stated value and original
issue price.
What costs are included in discontinued operations? - ANS Disposal loss (including severance
pay and other expenses directly related to disposal) and segment's operating loss
Where are gains/losses from result of exchange rate change be reported on? - ANS As a
component of income from continuing operations (Transaction gain/loss)
Difference between translation and transaction - ANS Translation: Convert financial
statements expressed in foreign currency to statements in domestic currency. Reports in OCI.
Transaction: Actual transactions. Reports in income from continuing operations
What's the correct format of a direct quotation to buy a foreign currency? - ANS (domestic
currency) per (foreign currency)
e.g. $0.01 per 1 JPY (yen)
Foreign currency will be whole number.
Net income includes - ANS Operating income, non operating income, related tax impacts.
net income + other comprehensive income = ? - ANS Comprehensive income
Statement of comprehensive income will include net income and OCI.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
