AICPA FAR Practice Exam Questions

AICPA FAR Sample Question Answers

Question # 1

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 decrease in the first quarter.   
B. 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.   
C. Decrease in the first quarter by the amount of the market price decline and not be affected in the third quarter.   
D. Not be affected in either the first quarter or the third quarter.

Show Answer

Question # 2

Kell Corp.'s $95,000 net income for the quarter ended September 30, 1990, included the following aftertaxitems:. A $60,000 extraordinary gain, realized on April 30, 1990, was allocated equally to the second, third, andfourth quarters of 1990.. A $16,000 cumulative-effect loss resulting from a change in inventory valuation method was recognizedon 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. $91,000  
B. $103,000  
C. $111,000  
D. $115,000  

Show Answer

Question # 3

An inventory loss from a permanent market decline of $360,000 occurred in May 1989. Cox Co.appropriately recorded this loss in May 1989 after its March 31, 1989 quarterly report was issued. Whatamount of inventory loss should be reported in Cox's quarterly income statement for the three monthsended June 30, 1989? 

A. $0  
B. $90,000  
C. $180,000  
o. $360,000  

Show Answer

Question # 4

During the second quarter of 1988, Buzz Company sold a piece of equipment at a $12,000 gain. What portion of the gain should Buzz report in its income statement for the second quarter of 1988? 

A. $12,000  
B. $0,000  
C. $4,000  
o. $0  

Show Answer

Question # 5

Reclassification adjustments must be shown in the financial statement that discloses comprehensive income:

A. To show what portion of comprehensive income is from the realization of current assets.  
B. To show the tax effect of items of comprehensive income.  
C. To avoid double counting in comprehensive income items, which are currently displayed in net income.  
D. To avoid including transactions with shareholders in items of comprehensive income.  

Show Answer

Question # 6

Conn Co. reported a retained earnings balance of $400,000 at December 31, 1991. In August 1992, Conn determined that insurance premiums of $60,000 for the three-year period beginning January 1, 1991, had been paid and fully expensed in 1991. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its 1992 statement of retained earnings? 

A. $420,000  
B. $428,000  
C. $440,000  
D. $442,000  

Show Answer

Question # 7

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 January 1, 1992.  
B. As of August 31, 1992.  
C. During the eight months ending August 31, 1992, by a weighted average of the purchases.  
D. During 1992 by a weighted average of the purchases.  

Show Answer

Question # 8

In 1990, Brighton Co. changed from the indMdual item approach to the aggregate approach in applying the lower of FIFO cost or market to inventories. The cumulative effect of this change should be reported in Brighton's financial statements as a:

A. Retrospective adjustment on the retained earnings statement, with separate disclosure.  
B. Component of income from continuing operations, with separate disclosure.  
C. Component of income from continuing operations, without separate disclosure.  
D. Component of income after continuing operations, with separate disclosure.  

Show Answer

Question # 9

In single period statements, which of the following should not be refilected as an adjustment to the opening balance of retained earnings? 

A. Effect of a failure to provide for uncollectible accounts in the previous period.  
B. Effect of a decrease in the estimated useful life of depreciable equipment.  
C. Cumulative effect of a change from the percentage of completion to the completed contract method of accounting for long-term construction projects. 
D. Cumulative effect of a change from LIFO to FIFO in valuing merchandise inventory.  

Show Answer

Question # 10

The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reported:

A. By restating the financial statements of all prior periods presented.  
B. As a correction of an error.  
C. As a component of income from continuing operations, in the period of change and future periods if the change affects both. 
D. As a separate disclosure after income from continuing operations, in the period of change and future periods if the change affects both. 

Show Answer