The Best AICPA FAR Study Guides and Dumps of 2023
Top AICPA FAR Exam Audio Study Guide! Practice Questions Edition
Introduction to Financial Accounting and Reporting (FAR) Exam
The Standardized CPA Evaluation is the exam portion of the Financial Accounting and Reporting (FAR) which measures the expertise and skills that a newly qualified CPA must demonstrate in the financial accounting and reporting systems used by enterprise (public and non-public), non-profit, and state and local government agencies.
In the FAR portion of the test, the examination contains the requirements and regulations provided by:
- American Institute of Certified Public Accountants (AICPA)
- Financial Accounting Standards Board (FASB)
- International Accounting Standards Board (IASB)
- Governmental Accounting Standards Board (GASB)
- U.S. Securities and Exchange Commission (U.S. SEC)
The FAR section consists of questions that emphasize the conceptual structure and financial reporting, the selection of accounts of financial statements, the selection of transactions, and the application of state and local governments to accounting work. These sections can be overviewed from the FAR practice test. References at the end of this introduction provide a list of guidelines and regulations provided by these bodies and other reference materials that are available for evaluation in the FAR portion of the review.
Financial Accounting and Reporting (FAR) Exam Certification Path
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finally, if you can only study for 10 hours a week, you'll be ready for FAR in 12-16 weeks.
So, you can use any one of these study schedules or do anything in between. That's because of how fast you finish your FAR review depends on how much time you have to study in a week. But what's important is that you study consistently so you can stay in study mode and stick to your exam schedule.
NEW QUESTION # 94
In financial reporting of segment data, which of the following items is always used in determining a
segment's operating income?
- A. Gain or loss on discontinued operations.
- B. General corporate expense.
- C. Income tax expense.
- D. Sales to other segments.
Answer: D
Explanation:
Choice "b" is correct. Sales to other segments would be used in determining a segment's operating
income. Rule: Equity in net income of another company, general corporate expenses, interest, income tax
expense, and gains or losses on discontinued operations are all not included in segment profit unless they
are included in the determination of segment profit reported to the "Chief Operating Decision Maker."
NEW QUESTION # 95
Under FASB Statement of Financial Accounting Concepts #5, which of the following items would cause
earnings to differ from comprehensive income for an enterprise in an industry not having specialized
accounting principles?
- A. Loss on exchange of nonmonetary assets without commercial substance.
- B. Unrealized loss on investments in current marketable equity securities held for trading.
- C. Unrealized loss on investments in noncurrent marketable equity securities available for sale.
- D. Loss on exchange of nonmonetary assets with commercial substance.
Answer: C
Explanation:
Choice "a" is correct. Unrealized loss on investments in marketable equity securities available for sale
would cause earnings to differ from comprehensive income for an enterprise in an industry not having
specialized accounting principles. Rule: FAC 5 defines "earnings" for a period to exclude certain
cumulative accounting adjustments and other non-owner changes in equity (such as changes in market
value of marketable securities available for sale) that are included in comprehensive income for a period.
NEW QUESTION # 96
How should the effect of a change in accounting principle that is inseparable from the effect of a change in
accounting estimate be reported?
- A. As a correction of an error.
- B. By footnote disclosure only.
- C. As a component of income from continuing operations.
- D. By restating the financial statements of all prior periods presented.
Answer: C
Explanation:
Choice "a" is correct. When the effect of a change in accounting principle is inseparable from the effect of
a change in accounting estimate, the reporting treatment for the overall effect is as a change in estimate.
Thus, the effect is reported prospectively as a component of income from continuing operations. Under
SFAS No. 154, this type of change is now called a change in accounting estimate affected by a change in
accounting principle. Choice "b" is incorrect. Restatement of all prior periods is the retroactive accounting
treatment that is applied to the correction of an error and the retrospective accounting treatment given to
changes in accounting principle. However, a change in accounting principle that is inseparable from the
effect of a change in accounting estimate is now treated as a change in accounting estimate. Choice "c" is
incorrect. Correction of an error is given retroactive treatment as a prior period adjustment to retained
earnings with restatement of prior periods. This is not the treatment appropriate for the effect of a change
in accounting principle that is inseparable from the effect of a change in accounting estimate. Choice "d"
is incorrect. While footnote disclosure is always appropriate for an accounting change, such disclosure
alone is never the appropriate accounting treatment.
NEW QUESTION # 97
Grum Corp., a publicly-owned corporation, is subject to the requirements for segment reporting. In its
income statement for the year ended December 31, 1991, Grum reported revenues of $50,000,000,
operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll
costs of $ 15,000,000. Grum's combined identifiable assets of all industry segments at December 31,
1 991, were $40,000,000.
In its 1991 financial statements, Grum should disclose major customer data if sales to any single
customer amount to at least:
- A. $300,000
- B. $1,500,000
- C. $4,000,000
- D. $5,000,000
Answer: D
Explanation:
Choice "d" is correct. $5,000,000 (10% x $50,000,000 revenue). If revenue from a single external
customer is 10% or more of total revenue, then the company should disclose this fact, the total amount of
revenue from the customer, and the segment or segments reporting the revenues. The identity of the
customer need not be disclosed.
NEW QUESTION # 98
Income tax-basis financial statements differ from those prepared under GAAP in that income tax-basis
financial statements:
- A. Do not include nontaxable revenues and nondeductible expenses in determining income.
- B. Include detailed information about current and deferred income tax liabilities.
- C. Contain no disclosures about capital and operating lease transactions.
- D. Recognize certain revenues and expenses in different reporting periods.
Answer: D
Explanation:
Choice "d" is correct. Income tax-basis financial statements recognize events when taxable income or
deductible expenses are recognized on the entity's tax return. Non-taxable income and non-deductible
expenses are shown on the financial statement and included in the determination of income (and become
M-1 adjustments to arrive at taxable income). Please Note: This question appeared in the releases for
1 999 in FARE; however, it may also apply to OCBOA financial statements discussed in the Auditing
textbook. The question did not apply well to any FARE CSO line item, so we included it here so that you
could read the Explanation: and learn from it.
NEW QUESTION # 99
Tanker Oil Co., a development stage enterprise, incurred the following costs during its first year of
operations:
Tanker had no revenue during its first year of operation. What amount may Tanker capitalize as
organizational costs?
- A. $95,000
- B. $0
- C. $55,000
- D. $115,000
Answer: B
Explanation:
Choice "d" is correct. $0.
All organizational costs (start-up costs) should be expensed when incurred (per SOP 98-5).
NEW QUESTION # 100
In September 1996, Koff Co.'s operating plant was destroyed by an earthquake. Earthquakes are rare in
the area in which the plant was located. The portion of the resultant loss not covered by insurance was
$ 700,000. Koff's income tax rate for 1996 was 40%. In its 1996 income statement, what amount should
Koff report as extraordinary loss?
- A. $0
- B. $280,000
- C. $700,000
- D. $420,000
Answer: D
Explanation:
Choice "c" is correct. For a loss to be reported as an extraordinary loss, the event causing the loss must
be both unusual in nature and infrequent in occurrence. The earthquake in this case does meet these
criteria so the loss is reported net of income tax effect as an extraordinary loss of
$ 420,000 (60% of the total $700,000 loss). APB 30.11, .19-.26
Choice "a" is incorrect. Review the criteria for reporting an extraordinary loss.
Choice "b" is incorrect. This is the tax effect of the loss. Review your calculations.
Choice "d" is incorrect. It is not appropriate to report the full loss as an extraordinary loss.
NEW QUESTION # 101
According to the FASB conceptual framework, what does the concept of reliability in financial reporting
include?
- A. Certainty.
- B. Precision.
- C. Neutrality.
- D. Effectiveness.
Answer: C
Explanation:
Choice "d" is correct. The concept of reliability in financial reporting includes; neutrality, representational
faithfulness and verifiability.
Choices "a", "b", and "c" are incorrect, per the above.
NEW QUESTION # 102
Which of the following statements best describes an operating procedure for issuing a new Financial
Accounting Standards Board (FASB) statement?
- A. A new statement is issued only after a majority vote by the members of the FASB.
- B. A new FASB statement can be rescinded by a majority vote of the AICPA membership.
- C. The emerging issues task force must approve a discussion memorandum before it is disseminated to
the public. - D. The exposure draft is modified per public opinion before issuing the discussion memorandum.
Answer: A
Explanation:
Choice "c" is correct. A new statement from the FASB is issued only after a majority vote of the members
of the FASB.
Choice "a" is incorrect. There is no necessity for the EITF to approve a discussion memorandum
(presumably the question means a discussion memorandum of the FASB statement itself and not an EITF
statement) before it is disseminated to the public.
Choice "b" is incorrect. There is no necessity for an exposure draft to be modified per public option before
issuing the discussion memorandum (a question can be raised here as to "what" discussion
memorandum"). Exposure drafts are quite/most often modified before they are issued as FASB
statements, but they do not have to be. Whether they are or are not modified is a function of whether the
FASB thinks they should be modified, partly due to the public comments that have been received.
Choice "d" is incorrect. There is no way to rescind a new FASB statement, although, in reality, a FASB
statement can be rescinded by the issuance of a new statement on the same subject. However, even if
there was a way to rescind a new FASB statement, it would not be by a majority vote of the AICPA
membership, but by a majority vote of the members of the FASB. Reporting Net Income
NEW QUESTION # 103
While preparing its 1991 financial statements, Dek Corp. discovered computational errors in its 1990 and
1 989 depreciation expense. These errors resulted in overstatement of each year's income by $25,000,
net of income taxes. The following amounts were reported in the previously issued financial statements:
Dek's 1991 net income is correctly reported at $180,000. Which of the following amounts should be
reported as prior period adjustments and net income in Dek's 1991 and 1990 comparative financial
statements?
- A. Option D
- B. Option B
- C. Option A
- D. Option C
Answer: D
Explanation:
Choice "c" is correct. 1990 ($25,000) $125,000 1991 -- 180,000
Because these are comparative financial statements, prior period adjustments require retroactive
treatment for the years presented. Because 1989 is not presented, the 1989 correction is shown as a prior
period adjustment of $25,000 to retained earnings statement of 1990.
NEW QUESTION # 104
The following question is based on the following:
Vane Co.'s trial balance of income statement accounts for the year ended December 31, 2002, included
the following: Vane's income tax rate is 30%.
In Vane's 2002 multiple-step income statement, what amount should Vane report as income from
continuing operations?
- A. $147,000
- B. $129,500
- C. $126,000
- D. $140,000
Answer: D
Explanation:
Choice "c" is correct, $140,000.
NEW QUESTION # 105
According to the FASB's conceptual framework, the process of reporting an item in the financial
statements of an entity is:
- A. Matching.
- B. Realization.
- C. Allocation.
- D. Recognition.
Answer: D
Explanation:
Choice "a" is correct. Recognition.
According to the FASB's conceptual framework, the process of reporting an item in the financial
statements of an entity is recognition.
NEW QUESTION # 106
In 1992, hail damaged several of Toncan Co.'s vans. Hailstorms had frequently inflicted similar damage to
Toncan's vans. Over the years, Toncan had saved money by not buying hail insurance and either paying
for repairs, or selling damaged vans and then replacing them. In 1992, the damaged vans were sold for
less than their carrying amount. How should the hail damage cost be reported in Toncan's 1992 financial
statements?
- A. The actual 1992 hail damage loss in continuing operations, with no separate disclosure.
- B. The expected average hail damage loss in continuing operations, with no separate disclosure.
- C. The actual 1992 hail damage loss as an extraordinary loss, net of income taxes.
- D. The expected average hail damage loss in continuing operations, with separate disclosure.
Answer: A
Explanation:
Choice "b" is correct. Actual hail damage must be reported. Since the hailstorms are frequent, the
damage is not considered an extraordinary gain/loss. Thus, the damages would be shown in continuing
operations. No separate disclosure is necessary since hail damage is a common occurrence. Choice "a"
is incorrect. Hailstorms are not unusual and infrequent so the loss could not be classified as extraordinary.
APB 30 para. 20 Choice "c" is incorrect. Actual hail damage must be reported. Estimated hail damage
may be probable but is not estimable; so it should not be included in income calculations. Choice "d" is
incorrect. Estimated hail damage may be probable but is not estimable; so it should not be included in
income calculations.
NEW QUESTION # 107
On August 31, 1992, Harvey Co. decided to change from the FIFO periodic inventory system to the
weighted average periodic inventory system. Harvey is on a calendar year basis. The cumulative effect of
the change is determined:
- A. As of August 31, 1992.
- B. As of January 1, 1992.
- C. During 1992 by a weighted average of the purchases.
- D. During the eight months ending August 31, 1992, by a weighted average of the purchases.
Answer: B
Explanation:
Rule: The cumulative effect of a change in accounting principle equals the difference between retained
earnings at the beginning of period of the change and what retained earnings would have been if the
change was applied to all affected prior periods. Choice "a" is correct. As of January 1, 1992, the
beginning of the year. This assumes that the company is not presenting comparative financial statements.
If comparative financial statements are presented, then the adjustment is made to the beginning retained
earnings of the earliest year presented. Choice "b" is incorrect. The cumulative effect of the change is not
determined as of the date the decision is made. Choices "c" and "d" are incorrect. The cumulative effect of
the change is not determined by a weighted average. (A far out distractor.)
NEW QUESTION # 108
Taft Corp. discloses supplemental industry segment information. The following information is available for
1 992:
Additional 1992 expenses, not included above, are as follows:
Indirect operating expenses $7,200
General corporate expenses 4,800
Segment C's 1992 operating profit was:
- A. $2,600
- B. $2,000
- C. $3,200
- D. $5,000
Answer: D
Explanation:
Choice "a" is correct. $5,000 operating profit for Segment C.
Rule: Operating profit by segments is based on the measure of profit reported to the "Chief Operating
Decision Maker."
Interest expense, income taxes, and general corporate expenses are not allocated to the divisions solely
for the purposes of segment disclosures; they may be allocated if that is how the segments report to the
"Chief Operating Decision Maker."
NEW QUESTION # 109
According to the FASB conceptual framework, which of the following statements conforms to the
realization concept?
- A. Product unit costs were assigned to cost of goods sold when the units were sold.
- B. Equipment depreciation was assigned to a production department and then to product unit costs.
- C. Depreciated equipment was sold in exchange for a note receivable.
- D. Cash was collected on accounts receivable.
Answer: C
Explanation:
Choice "b" is correct. Revenues and gains are realized when assets are exchanged for cash or claims to
cash. SFAC 5 para. 83.
Choice "a" is incorrect. Assigning depreciation in a production department is an example of allocating
overhead. There is no realization associated with the assignment.
Choice "c" is incorrect. The realization concept is integral to accounting for revenues and expenses and is
not connected to collection of receivables.
Choice "d" is incorrect. Assignment of overhead costs to products and thus to cost of goods sold is an
example of matching. There is no realization associated with this assignment.
NEW QUESTION # 110
An inventory loss from a market price decline occurred in the first quarter, and the decline was not
expected to reverse during the fiscal year. However, in the third quarter the inventory's market price
recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting, the
dollar amount of net inventory should:
- A. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter
by the amount of the market price recovery. - B. Not be affected in either the first quarter or the third quarter.
- C. Decrease in the first quarter by the amount of the market price decline and not be affected in the third
quarter. - D. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter
by the amount of the decrease in the first quarter.
Answer: C
Explanation:
Choice "a" is correct. Market price declines should be recognized in the interim period in which decline is
judged permanent and later, if they "turn around," are recognized as gains in subsequent periods only to
the extent of previously reported losses.
Choice "b" is incorrect. Recovery should not cause an increase in inventory value above original cost.
Choice "c" is incorrect. The recovery should be recognized to the extent of the first quarter write down.
Choice "d" is incorrect.
NEW QUESTION # 111
Kell Corp.'s $95,000 net income for the quarter ended September 30, 1990, included the following aftertax
items:
. A $60,000 extraordinary gain, realized on April 30, 1990, was allocated equally to the second, third, and
fourth quarters of 1990.
. A $16,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized
on August 2, 1990.
In addition, Kell paid $48,000 on February 1, 1990, for 1990 calendar-year property taxes. Of this amount,
$ 12,000 was allocated to the third quarter of 1990.
For the quarter ended September 30, 1990, Kell should report net income of:
- A. $103,000
- B. $111,000
- C. $115,000
- D. $91,000
Answer: D
Explanation:
Choice "a" is correct. $91,000 net income for the third quarter ended 9-30-90.
Rules: The entire amount of an "extraordinary" item should be reported during the period incurred.
A "cumulative effect" type accounting change is not included in the net income of the period of change;
instead, the beginning of the year retained earnings is restated.
Expenses, which benefit more than one interim period, such as property taxes, are allocated among the
periods benefited.
NEW QUESTION # 112
In general, an enterprise preparing interim financial statements should:
- A. Use the same accounting principles followed in preparing its latest annual financial statements.
- B. Disregard permanent decreases in the market value of its inventory.
- C. Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred.
- D. Defer recognition of seasonal revenue.
Answer: A
Explanation:
Choice "d" is correct. Generally accepted accounting principles that were used in the most recent annual
report of an enterprise should be applied to interim financial statements of the current year, unless a
change in accounting principle is adopted in the current year.
Choices "a", "b", and "c" are incorrect, per above.
NEW QUESTION # 113
Advertising costs may be accrued or deferred to provide an appropriate expense in each period for:
- A. Option D
- B. Option A
- C. Option B
- D. Option C
Answer: C
Explanation:
Choice "b" is correct. Yes - Yes.
Advertising costs may be accrued or deferred to provide an appropriate expense in each period for both
"interim" and "year-end" financial reporting.
NEW QUESTION # 114
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