CPA Exam Practice Questions and Task-Based Simulation Practice Questions

1. When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the earnings statement as a gain or loss on disposal reported as A: An amount after continuing operations. Explanation: This answer is correct because both the gain or loss from discontinued operations and the gain or loss on sale of the segment should be shown after income from continuing operations. 2. The following expenses were among those incurred by Sayre Company during year 1. Accounting and legal fees $160,000 Interest 60,000 Loss on sale of office equipment 25,000 Rent for office space 200,000 One-quarter of the rented premises is occupied by the sales department. How much of the expenses listed above should be included in Sayre’s general and administrative expenses for year 1? A: $310,000 Explanation: This answer is correct. The accounting and legal fees ($160,000) and the portion of office rent not allocable to sales (3/4 × $200,000 = $150,000) are all considered general and administrative expenses. Therefore, the general and administrative expenses should be $310,000 ($160,000 + $150,000). In addition, the interest expense ($60,000) would be included with the financial expense or other expenses. The $25,000 loss on the sale of office equipment should be included in other expenses and losses. The office rent for the sales department (1/4 × $200,000 = $50,000) is an operating expense and is included in selling expenses rather than general and administrative expenses. 3. The correction of an error in the financial statements of a prior period should be reflected, net of applicable income taxes, in the current A: Retained earnings statement as an adjustment of the opening balance. Explanation: This answer is correct because the correction of an error in the financial statements of a prior period is a prior period adjustment which is to be shown net of tax as an adjustment to the beginning balance of retained