Quiz Unparalleled AICPA - FAR - Exam CPA Financial Accounting and Reporting Study Guide
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AICPA CPA Financial Accounting and Reporting Sample Questions (Q42-Q47):
NEW QUESTION # 42
On December 31, 20X2, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to
discontinue the operations of its Alpha division. Maxy estimated that Alpha's 20X3 operating loss would
be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts.
Alpha's 20X2 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its
carrying amount in 20X3. Maxy's effective tax rate is 30%.
In its 20X2 income statement, what amount should Maxy report as loss from discontinued operations?
Answer: A
Explanation:
Choice "b" is correct. Since the fair value of Alpha's facilities was $300,000 less than its carrying value,
there has been an impairment loss, and that loss should be recognized in 20X2. That $300,000
impairment loss plus the $1,400,000 20X2 operating loss would be recognized in 20X2 net of tax. The
total loss would be $1,700,000 * 70% (100% - 30%) or $1,190,000. Choice "a" is incorrect. It includes the
2 0X2 operating loss of $1,400,000 but not the $300,000 impairment loss but does report the 20X2
operating loss net of tax. Choice "c" is incorrect. It includes the 20X2 operating loss of $1,400,000, but not
the $300,000 impairment loss, and reports the 20X2 operating loss gross of tax and not net of tax. Choice
"d" is incorrect. It reports the 20X2 loss from discontinued operations gross of tax and not net of tax.
NEW QUESTION # 43
If a company is not presenting comparative financial statements, the correction of an error in the financial
statements of a prior period should be reported, net of applicable income taxes, in the current:
Answer: C
Explanation:
Choice "b" is correct. The correction of an error in the financial statements of a prior period should be
reported, net of tax, in the current statement of retained earnings as an adjustment of the opening
balance.
Choice "a" is incorrect. The adjustment is before net income, not after net income.
Choices "c" and "d" are incorrect. Corrections of errors of prior periods go to retained earnings and do not
affect the income statement.
NEW QUESTION # 44
On March 15, 1992, Krol Co. paid property taxes of $90,000 on its office building for the calendar year
1 992. On April 1, 1992, Krol paid $150,000 for unanticipated repairs to its office equipment. The repairs
will benefit operations for the remainder of 1992. What is the total amount of these expenses that Krol
should include in its quarterly income statement for the three months ended June 30, 1992?
Answer: A
Explanation:
Rule: Actual and estimated expenditures benefiting all interim periods equally should be expensed ratably
throughout the year.
Choice "c" is correct. $72,500 total expense for the three months ended June 30, 1992.
NEW QUESTION # 45
The cumulative effect of a change in accounting estimate should be shown separately:
Answer: B
Explanation:
Choice "d" is correct. A change in estimate is handled prospectively. No cumulative effect adjustment is
made and no separate line item presentation is made on any financial statement. If a material change is
being made, appropriate footnote disclosure is necessary.
Choices "a", "b", and "c" are incorrect, per the above Explanation: .
NEW QUESTION # 46
Which of the following information should be included in Melay, Inc.'s 1992 summary of significant
accounting policies?
Answer: B
Explanation:
Choice "a" is correct. Computing depreciation principally by the straight-line method is a GAAP method of
depreciation that should be described in the "summary of significant accounting policies." Choice "b" is
incorrect. Disclosing the sale of a component of a business is required (and is covered in the lecture on
"discontinued operations" in the F1 class) but is not a "significant accounting policy."
Choice "c" is incorrect. Disclosing "sales" of segments is required, but is not a "significant accounting
policy."
Choice "d" is incorrect. "Estimates of future common share dividends" are not appropriate disclosures for
the financial statements. They might be appropriate for the "presidents letter to shareholders."
NEW QUESTION # 47
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