Far CPA

Question 1

The underlying concept governing the recording of gain constingencies

Answer 1

Conservatism

Question 2

The joint FASB and IASB conceptual framework project is intended to establish:

Answer 2

A common set of objectives and concepts for use in developing standards of financial accounting and reporting

Question 3

Financial information provided in general purpose financial reports doesnotinclude information about:

Answer 3

“How effectively and efficiently the entity’s shareholders’ have discharged their responsibility to use the entity’s resources
“

Question 4

According to the FASB conceptual framework, which of the following statements conforms to the realization concept

Answer 4

Revenues and gains are realized when assets are exchanged for cash or claims to cash

Question 5

According to the FASB and IASB conceptual frameworks, which of the following is an enhancing qualitative characteristic

Answer 5

Timeliness, understandability, comparability and verifiability are characteristics that enhance the usefulness of information that is relevant and faithfully represented.

Question 6

A U.S. public company needs guidance in accounting for and reporting a complex derivative transaction that it entered into with a European subsidiary. This company ismost likelyto find the appropriate guidance in the:

Answer 6

The FASB Accounting Standards Codification is the single source of U.S. GAAP. U.S. public companies are required to follow U.S. GAAP.

Question 7

Which of the following isnotdefined in FASB Statement of Financial Accounting Concepts Number 7 as one of the five elements of present value (or economic value) measurement used to establish the value of assets or liabilities using cash flow information?

Answer 7

The risk tolerance of management is not defined by SFAC #7 as an element of present value measurement used to establish the value of assets or liabilities using cash flows. SFAC defines the following elements of present value measurement identified by the mnemonicUVOTE: (U- The price of Bearing Uncertaintiy, V - Exceptations about TIming Varaitions of Future Cash Flows, O - Other Factors, T- Time Value of Money, E- Estimate of future cash flow

Question 8

According to the FASB and IASB conceptual frameworks, the quality of information that helps users forecast future outcomes is

Answer 8

Predictive Value - The quality of information that helps users forecast future outcomes is predictive value. Forecasting is predicting.

Question 9

Which of the following characteristics enhances relevance and faithful representation

Answer 9

Timeliness

Question 10

According to the FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept

Answer 10

Replacement cost is defined as the amount of cash or its equivalent that would be paid to acquire or replace an asset currently. Replacement cost is an acquisition cost.

Question 11

What best describes an operating procedure for issuing FASB Accounting Standards Update?

Answer 11

In Accounting Standards Update is issued only after a majority vote of the members of the FASB.

Question 12

According to the FASB and IASB conceptual frameworks, to be relevant, information should have which of the following

Answer 12

To be relevant, information should have predictive value and/or confirming value, and must be material.

Question 13

According to the FASB and IASB conceptual frameworks, one of the fundamental qualitative characteristics of useful financial information is

Answer 13

Relevance and faithful representation are the fundamental qualitative characteristics of useful financial information.

Question 14

According to the FASB and IASB conceptual frameworks, neutrality is an ingredient of:

Answer 14

“Faithful Representation - Neutrality, which is freedom from bias in selection or presentation, is an ingredient of faithful representation.
“

Question 15

According to the IASB conceptual framework, which of the following is an underlying assumption of financial statement preparation and presentation

Answer 15

Going Concern - Under the IASB framework, going concern and accrual accounting are the two underlying assumptions of financial statement preparation and presentation.

Question 16

Which of the following is the most authoritative source of U.S. GAAP

Answer 16

The FASB Accounting Standards Codification is the single source of authoritative nongovernmental U.S. GAAP.

Question 17

Which of the following statements best describes an operating procedure for issuing a new International Financial Reporting Standard?

Answer 17

Before an exposure draft is issued for public comment, it must be approved by at least nine members of the IASB.

Question 18

According to the FASB and IASB conceptual frameworks, which of the following correctly pairs a fundamental qualitative characteristic of useful information with one of its components

Answer 18

Relevance is a fundamental qualitative characteristic, and materiality is a component of relevance.

Question 19

Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification?

Answer 19

A proposed accounting standards update is prepared by the FASB as part of the due-process activities.

Question 20

Under U.S. GAAP, a transaction that is unusual in nature and infrequent in occurrence should be reported separately as a component of income:

Answer 20

An extraordinary item (a transaction that is both “unusual in nature” and “infrequent in occurrence”) should be reported separately as a component of income after discontinued operations of a segment of a business.

Question 21

How should the effect of a change in accounting estimate be accounted for

Answer 21

change in accounting estimate” affects only the current and subsequent (future) periods, if the change affects both. It does not affect “prior periods,” nor “retained earnings.”

Question 22

Per U.S. GAAP, which of the following statements is correct regarding accounting changes that result in financial statements that are, in effect, the statements of a different reporting entity?

Answer 22

Financial statements of all prior periods presented should be restated when there is a “change in entity” such as resulting from: 1. Changing companies in consolidated financial statements. 2. Consolidated financial statements vs. Previous individual financial statements.

Question 23

Under U.S. GAAP, 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 23

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.

Question 24

The cumulative effect of a change in accounting estimate should be shown separately:

Answer 24

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.

Question 25

How should a company report its decision to change from a cash-basis of accounting to accrual-basis of accounting?

Answer 25

A change from a non-GAAP/IFRS method to a GAAP/IFRS method is an error correction that is accounted for by adjusting beginning retained earnings.

Question 26

Which of the following describes the appropriate reporting treatment for a change in accounting estimate?

Answer 26

In the period of change and future periods if the change affects both.

Question 27

Under U.S. GAAP, an extraordinary gain should be reported as a direct increase to which of the following

Answer 27

Net Income-  Under U.S. GAAP, extraordinary items are reported as a component of net income, after income from continuing operations and discontinued operations. The reporting of gains/losses as extraordinary is prohibited under IFRS.

Question 28

Which of the following is a cost associated with exit and disposal activities

Answer 28

Costs to relocate employees are costs associated with exit and disposal activities. Exit and disposal activities include benefits related to involuntary (not voluntary) employee termination. Exit and disposal activities include costs to terminate a contract that is not a capital lease. Capital lease termination costs are accounted for separately from exit and disposal activities.

Question 29

Which of the following is not a criteria for recognizing a liability associated with exit or disposal activities?

Answer 29

" An entity's commitment to an exit or disposal plan, by itself, is not enough to result in liability recognition. A liability is only recognized when all of the following criteria are met: An obligating event has occurred. The event results in a present obligation to transfer assets or to provide services in the future. The entity has little or no discretion to avoid the future transfer of assets or providing of services."

Question 30

Which of the following transactions qualify as a discontinued operation

Answer 30

The planned and approved sale of a segment qualifies as a discontinued operation. Because a segment is a component of the entity. Segments may be functional in nature, like a major product category or service division, or they can be geographical as well. 

Question 31

A transaction that is unusual in nature or infrequent in occurrence should be reported as a(an):

Answer 31

Items of income or loss that are either unusual OR infrequent are not extraordinary. These items should be reported as part of income from continuing operations and not net of tax.

Question 32

What is OCI (Other Comprehensive Income)

Answer 32

PUFE (Pension Adjustments, Unrealized Gains and Losses, Foreign Currency Items, Effective Portion Cash Flow Hedges, Revaluation Surplus (IFRS)

Question 33

FASB Accounting Standards Codification

Answer 33

In 2009, the Codification became the single source of authoritative nongovernmental US GAAP Accounting and Financial reporting practices not included in the Codification are not GAAP.

Question 34

Literature Included in the Codification

Answer 34

FEDPRIA - FASB, Emerging Task Force, Derivative Implementation Group, Accounting Principles Board Opinion, Accounting Research Bulletins, Accounting Interpretations, AICPA

Question 35

Five Elements of Present Value Measurements

Answer 35

Estimate of future cash flows, Expectations about timing variations of future cash flows, Time Value of Money, The price for bearing uncertainty, Other Factors

Question 36

Presentation Order of the Major Components of an Income and Retained Earnings Statement

Answer 36

IDEA (Income from Continuing Operations, Income from Discounted Operations, Extraordinary Items, and Cumulative Effect of Change in Accounting Principles (RE))

Question 37

What is a change in Accounting Principle

Answer 37

Presented net of tax. Change from one acceptable method of accounting to another (GAAP to GAAP) because the new method presents the financial information more fairly than the old method.