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CPA FAR Accounting Theory and Financial Reporting
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Avg score: 62% • Most missed: “Which of the following accounting standards requires a statement in the footnote…”
For the CPA FAR (Financial Accounting and Reporting) exam, mastering Accounting Theory and Financial Reporting is crucial, as it covers 30-40% of the exam content. This domain focuses on the Conceptual Framework, the preparation of standard financial statements under U.S. GAAP, and specialized reporting for non-GAAP frameworks.  1. Conceptual Framework for Financial Reporting The Conceptual Framework acts as the foundation for U.S. GAAP. Key aspects include:  Objective: To provide useful information for decision-making by investors and creditors. Qualitative Characteristics: Fundamental... Show more
CPA FAR Accounting Theory and Financial Reporting
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25 Questions

1. Wershing Corp., a publicly held corporation, is subject to the requirements of segment reporting. In its income statement for December 31, Year 12, Wershing Corp. reported revenues of $60,000,000, operating expenses of $58,000,000, and net income of $2,000,000. $40,000,000 of Wershing Corp. sales were to external customers. External revenues reported by operating segments must be at least how much for Year 12?
2. The cumulative effect of which of the following accounting changes would be presented as an adjustment to the beginning balance of retained earnings for the earliest period presented?
I. A change in the amount of mineral expected to be recoverable from an underground mine
II. A change in the expected useful life of a machine from 7 years to 4 years
3. Which of the following are reported as adjustments to the beginning balance of retained earnings for the earliest period presented?
I. correction of an error in a period that is not being presented
II. cumulative effect of a change in inventory from FIFO to weighted average
4. According to the FASB and IASB conceptual framework, both timeliness and understandability are:
5. Which of the following should be disclosed in a footnote called “summary of significant accounting policies”?
I. Basis of profit recognition on long-term construction contracts
II. Criteria for measuring cash equivalents
6. Which of the following is a correct statement regarding deferred revenue?,Deferred revenue result from services that have not yet been billed
7. Which of the following is correct regarding the US Securities and Exchange Commission (SEC) reporting standards for a large accelerated filer?
I. Form 10-K must be filed within 90 days of the close of the fiscal year.
II. Form 10-Q must be filed within 40 days of the close of the first three fiscal quarters.
8. Which of the following standard setting bodies requires that a description of significant policies be included as an integral part of the financial statements?
I. US GAAP
II. IFRS
9. Which of the following accounting standards requires a statement in the footnotes that financial statements are presented in accordance with the reporting framework?
I. US GAAP
II. IFRS
10. Which of the following is a fundamental qualitative characteristic of financial reporting?
I. Relevance
II. Faithful representation
11. An accounting change whose cumulative effect on prior periods is impracticable to determine should be accounted for:,as a prior period adjustment,on a prospective basis,as a cumulative effect change on the income statement,as an adjustment to retained earnings in the earliest period presented,b,An accounting change whose cumulative effect on prior periods is impracticable to determine is treated as a change in estimate and should
12. On October 31, Year 8, Kingman Corp. decided to change from the completed contract method to the percentage of completion method. Kingman Corp. is a calendar year corporation and used US GAAP. If comparative financial statements are NOT being presented, the cumulative effect of this change is:
13. Which is correct regarding interim financial reporting?
I. Interim financial reporting is not required under GAAP.
II. Permanent inventory declines incurred during interim periods should NOT be recorded at the time of their decline, but rather should be reported at year-end.
III. Revenues and expenses should be allocated evenly over interim reporting periods, regardless of when they actually occurred.
14. Cimmino, Ltd. reported the following selected information for Year 2:
What amount should Cimmino report as other comprehensive income/(loss) for Year 2?
15. Accordingly to the FASB conceptual framework, essential characteristics of an asset include which of the following?
I. An asset is intangible.
II. Claims to the asset’s benefits are legally enforceable.
III. An asset provides future benefits.
16. Assuming a 30% tax rate, what amount of net gain (loss) should be reported in Durka’s Year 4 income statement under US GAAP?
17. The underlying concept that governs gain contingencies under GAAP is:,conservatism,consistency,materiality,faithful representation,a,The rationale for accounting for contingencies according to Accounting Standards Codification (ASC) Topic 450
18. Which of the following accounting changes would receive prospective treatment in the income statement?
I. Change in depreciation method
II. Change in useful life of an asset
19. As it relates to financial reporting qualitative characteristics, which of the following is emphasized through the preparation of interim financial statements?
20. In its consolidated financial statements in the current year, Benson Corp. included a subsidiary it acquired several years ago that was appropriately excluded from consolidation last year. How should this be reported?
21. The objectives of financial reporting for business enterprises, as set forth by the FASB conceptual framework, are based on:
22. Which of the following accounting changes is treated as a change in accounting principle?
I. a change from first in–first out inventory valuation to average cost
II. a change from the direct write-off method of recognizing bad debt expense to the allowance method
23. On January 1, Year 8, Ashbrook Corp. changed from one IFRS method to another. The change in principle better presents the financial information of Ashbrook Corp. Under the old method the pretax accounting income was $600,000. Had Ashbrook Corp. been using the new method, pretax accounting income would have been $900,000. Ashbrook Corp.’s effective tax rate is 30%. How should Ashbroook Corp. report the cumulative effect of a change in accounting principle for Year 8?
24. Which of the following is correct regarding the reporting of comprehensive income?
I. Comprehensive income can be presented together with the income statement as a single financial statement.
II. Comprehensive income may be shown separately on its own financial statement.
25. Rex Corp. changed from straight line depreciation to double declining balance, resulting in an additional expense of $20,000 after tax for Year 5. Also in Year 5, Rex Corp. failed to accrue bad debt expense of $30,000 (after tax) in its income statement. What amount should Rex Corp. report as a prior period adjustment in Year 5?

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