[Q37-Q61] FAR Certification - The Ultimate Guide [Updated 2023]

FAR Certification - The Ultimate Guide [Updated 2023]

FAR Practice Exam and Study Guides - Verified By Dumpexams

NEW QUESTION 37
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with
Quo's president and outside accountants, made changes in accounting policies, corrected several errors
dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these
transactions as: a change in accounting principle, a change in accounting estimate, a correction of an
error in previously presented financial statements, or neither an accounting change nor an accounting
error.
Item to Be Answered
The equipment that Quo manufactures is sold with a five-year warranty. Because of a production
breakthrough, Quo reduced its computation of warranty costs from 3% of sales to 1% of sales.
List A (Select one)

• A. Change in accounting estimate.
• B. Correction of an error in previously presented financial statements.
• C. Change in accounting principal.
• D. Neither an accounting change nor an accounting error.

Answer: A

Explanation:
Choice "b" is correct. Change in the computation of warranty costs from 3% of sales to 1% of sales is a
change in accounting estimate.

 

NEW QUESTION 38
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. $115,000
• C. $55,000
• D. $0

Answer: D

Explanation:

Choice "d" is correct. $0.
All organizational costs (start-up costs) should be expensed when incurred (per SOP 98-5).

 

NEW QUESTION 39
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 separate disclosure.
• C. The expected average hail damage loss in continuing operations, with no separate disclosure.
• D. The actual 1992 hail damage loss as an extraordinary loss, net of income taxes.

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 40
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. By restating the financial statements of all prior periods presented.
• B. By footnote disclosure only.
• C. As a component of income from continuing operations.
• D. As a correction of an error.

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 41
Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its
small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest
of Envoy's operations. Envoy plans to sell the small appliance group with its operations. What is the
earliest point at which Envoy should report the small appliance group as a discontinued operation?

• A. When Envoy receives an offer for the segment.
• B. When Envoy first sells any of the assets of the segment.
• C. When Envoy sells the majority of the assets of the segment.
• D. When Envoy classifies it as held for sale.

Answer: D

Explanation:
Choice "a" is correct. The earliest period that a component of an entity can be reported in discontinued
operations is when the component meets the following "held for sale" criteria:
1 . Management commits to a plan to sell the component.
2 . The component is available for immediate sale in its present condition.
3 . An active program to locate a buyer has been initiated.
4 . The sale of the component is probable and the sale is expected to be completed within one year.
5 . The sale of the component is being actively marketed.
6 . It is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn.
Choices "b", "c", and "d" are incorrect, per the Explanation: above.

 

NEW QUESTION 42
Which of the following should be disclosed for each reportable operating segment of an enterprise?

• A. Option C
• B. Option D
• C. Option A
• D. Option B

Answer: C

Explanation:
Choice "a" is correct. For each reportable segment of an enterprise, both profit or loss and total assets
should be disclosed. In disclosure questions, if you are not sure, disclose the most rather than the least.
Choice "b" is incorrect. For each reportable segment of an enterprise, both profit or loss and total assets
should be disclosed. Choice "c" is incorrect. For each reportable segment of an enterprise, both profit or
loss and total assets should be disclosed. Choice "d" is incorrect. For each reportable segment of an
enterprise, both profit or loss and total assets should be disclosed.

 

NEW QUESTION 43
Brock Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative.
The adjusted trial balance at December 31, 1989 included the following expense and loss accounts:

One-half of the rented premises is occupied by the sales department. Brock's total selling expenses for
1 989 are:

• A. $370,000
• B. $360,000
• C. $480,000
• D. $400,000

Answer: C

Explanation:

Note: Only one-half of rent for office space was used for sales office. Choice "a" is correct. $480,000.

 

NEW QUESTION 44
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with
Quo's president and outside accountants, made changes in accounting policies, corrected several errors
dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these
transactions as: a change in accounting principle, a change in accounting estimate, a correction of an
error in previously presented financial statements, or neither an accounting change nor an accounting error.
Item to Be Answered
Quo manufactures heavy equipment to customer specifications on a contract basis. On the basis that it is
preferable, accounting for these long-term contracts was switched from the completed-contract method to
the percentage-of-completion method.
List A (Select one)

• A. Change in accounting estimate.
• B. Change in accounting principal.
• C. Correction of an error in previously presented financial statements.
• D. Neither an accounting change nor an accounting error.

Answer: B

Explanation:
Choice "a" is correct. Switching from the completed-contract method of accounting to the percentage-of
completion method is a "change in accounting principle."

 

NEW QUESTION 45
According to the FASB conceptual framework, which of the following is an essential characteristic of an
asset?

• A. The claims to an asset's benefits are legally enforceable.
• B. An asset provides future benefits.
• C. An asset is tangible.
• D. An asset is obtained at a cost.

Answer: B

Explanation:
Choice "d" is correct. An asset provides future benefits.
Rule: According to the FASB conceptual framework, assets are probable future economic benefits
obtained or controlled by a particular entity as a result of past transactions or events.

 

NEW QUESTION 46
According to the FASB conceptual framework, comprehensive income includes which of the following?

• A. Option C
• B. Option B
• C. Option D
• D. Option A

Answer: B

Explanation:
Choice "b" is correct. Comprehensive income is the change in equity of a business during a period from
transactions and other events and circumstances from non-owner sources. It includes all changes in
equity except those resulting from investments by owners and distributions to owners. SFAC 6 para 70.

 

NEW QUESTION 47
What are the Statements of Financial Accounting Concepts intended to establish?

• A. Generally accepted accounting principles in financial reporting by business enterprises.
• B. The hierarchy of sources of generally accepted accounting principles.
• C. The meaning of "Present fairly in accordance with generally accepted accounting principles."
• D. The objectives and concepts for use in developing standards of financial accounting and reporting.

Answer: D

Explanation:
Choice "c" is correct. Statements of Financial Accounting Concepts are intended to establish the
objectives and concepts that the Financial Accounting Standards Board will use in developing standards
of financial accounting and reporting. SFAC 1 para. 3 Choice "a" is incorrect. The Statements of Financial
Accounting Concepts do not specify financial accounting standards prescribing accounting procedures or
practices. SFAC 1 para. 3 Choice "b" is incorrect. Auditing standards develop the meaning of "Present
fairly in accordance with generally accepted accounting principles." Choice "d" is incorrect. The hierarchy
of sources of generally accepted accounting principles is determined by GAAP.

 

NEW QUESTION 48
FASB Interpretations of Statements of Financial Accounting Standards have the same authority as the
FASB:

• A. Emerging Issues Task Force Consensus.
• B. Statements of Financial Accounting Standards.
• C. Technical Bulletins.
• D. Statements of Financial Accounting Concepts.

Answer: B

Explanation:
Choice "d" is correct. FASB interpretations of the "statements of financial accounting standards" (SFAS)
have the same authority as the FASB statements of financial accounting standards (SFAS), which by
themselves determine GAAP. Choice "a" is incorrect. Statements of financial accounting concepts (FAC's)
have much less authority (fifth floor) and do not by themselves determine GAAP as is the case with
SFASs and interpretations of SFASs. Choice "b" is incorrect. Emerging issues task force (EITF)
consensus is in the nature of a "third floor" authority. The EITF was established in 1984 to aid the FASB in
identifying and implementing emerging issues before they become widespread and ultimately require
action by the FASB. After discussing the issues and the relevant accounting pronouncements, the group
can sometimes reach a consensus on an issue, in which case no action by the FASB is usually needed.
Choice "c" is incorrect. Technical bulletins of the FASB (second floor) do not by themselves determine
GAAP.

 

NEW QUESTION 49
Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during 1994. The
cumulative effect of this change should be reported in Lore's 1994 financial statements as a:

• A. Prior period adjustment resulting from the correction of an error.
• B. Component of income before extraordinary item.
• C. Component of income after extraordinary item.
• D. Prior period adjustment resulting from the change in accounting principle.

Answer: A

Explanation:
Choice "a" is correct. The cash basis for financial reporting is not a generally accepted accounting basis of
accounting (GAAP); therefore, it is an error. Correction of an error from a prior period is a reported as prior
period adjustment to retained earnings. Choice "b" is incorrect. Cash basis reporting is not an accounting
principle under accrual accounting principles. Thus, the change from cash basis is not reported as a
change in accounting principle. In addition, changes in accounting principle are not prior period
adjustments; instead, they are treated retrospectively. Choices "c" and "d" are incorrect. Correction of
prior period errors has no effect on the current year's income statement.

 

NEW QUESTION 50
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with
Quo's president and outside accountants, made changes in accounting policies, corrected several errors
dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List B represents the general accounting treatment
required for these transactions. These treatments are:
. Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the
accounting change or error correction in the 1993 financial statements, and do not restate the 1992
financial statements.
. Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust
1 992 beginning retained earnings if the error or change affects a period prior to 1992.
. Prospective approach - Report 1993 and future financial statements on the new basis but do not restate
1 992 financial statements.
Item to Be Answered
As a result of a production breakthrough, Quo determined that manufacturing equipment previously
depreciated over 15 years should be depreciated over 20 years.
List B (Select one)

• A. Retroactive or retrospective restatement approach.
• B. Prospective approach.
• C. Cumulative effect approach.

Answer: B

Explanation:
Choice "C" is correct. This affects only the prospective (current and subsequent) periods - not prior
periods, not retained earnings.

 

NEW QUESTION 51
An extraordinary gain should be reported as a direct increase to which of the following?

• A. Income from continuing operations, net of tax.
• B. Income from discontinued operations, net of tax.
• C. Net income.
• D. Comprehensive income.

Answer: C

Explanation:
Choice "a" is correct. Extraordinary items are reported as a component of net income, after income from
continuing operations and discontinued operations.
Choice "b" is incorrect. An extraordinary gain (or loss) only indirectly affects comprehensive income as a
component of net income.
Choice "c" is incorrect. Extraordinary items are reported net of tax after income from continuing operations
and discontinued operations.
Choice "d" is incorrect. Extraordinary items are reported net of tax after income from continuing
operations and discontinued operations.

 

NEW QUESTION 52
On November 1, 20X2, Smith Co. contracted to dispose of an industry segment. Throughout 20X2 the
segment had operating losses. These losses were expected to continue until the segment's disposition.
If a loss is projected on final disposition, how much of the operating losses should be included in the loss
from discontinued operations reported in Smith's 20X2 income statement?
I. Operating losses for the period January 1 to October 31, 20X2.
II. Operating losses for the period November 1 to December 31, 20X2.
III. Estimated operating losses for the period January 1 to February 28, 20X3.

• A. II only.
• B. I and II only.
• C. I and III only.
• D. II and III only.

Answer: B

Explanation:
Choice "d" is correct. The operating losses to be included in Smith's 20X2 income statement would be the
total 20X2 operating losses, regardless of whether those losses occurred before or after the date the
decision to dispose of the component was made, and not any 20X3 operating losses. Projected operating
losses are not anticipated and accrued. Choice "a" is incorrect. The operating losses to be included in
Smith's 20X2 income statement would be the total 20X2 operating losses, regardless of whether those
losses occurred before or after the date the decision to dispose of the component was made, and not any
2 0X3 operating losses. Choice "b" is incorrect. The operating losses to be included in Smith's 20X2
income statement would be the total 20X2 operating losses, regardless of whether those losses occurred
before or after the date the decision to dispose of the component was made, and not any 20X3 operating
losses. Choice "c" is incorrect. The operating losses to be included in Smith's 20X2 income statement
would be the total 20X2 operating losses, regardless of whether those losses occurred before or after the
date the decision to dispose of the component was made, and not any 20X3 operating losses.

 

NEW QUESTION 53
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?

• A. $97,500
• B. $37,500
• C. $172,500
• D. $72,500

Answer: D

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 54
A material loss should be presented separately as a component of income from continuing operations
when it is:

• A. An extraordinary item.
• B. A cumulative effect type change in accounting principle.
• C. Not unusual in nature but infrequent in occurrence.
• D. Unusual in nature and infrequent in occurrence.

Answer: C

Explanation:
Choice "d" is correct. Gains or losses that are unusual in nature or occur infrequently but not both, are
presented as a component of income from continuing operations. Choice "a" is incorrect. Extraordinary
items are shown net of tax in a separate section of the income statement after income from continuing
operations. Choice "b" is incorrect. Cumulative effects of changes in accounting principle are now shown
net of tax as an adjustment to the opening balance of retained earnings in the retained earnings statement.
This treatment is called retrospective application. There really are no longer any cumulative effect types of
changes in accounting principle. The cumulative effect is merely how the amount of the change is
measured.
Choice "c" is incorrect. This is the definition of an extraordinary item.

 

NEW QUESTION 55
Terra Co.'s total revenues from its three operating segments were as follows:

Which operating segment(s) is (are) deemed to be reportable segments?

• A. Lion, Monk, and Nevi.
• B. Lion only.
• C. Lion and Monk only.
• D. None.

Answer: A

Explanation:
Choice "d" is correct. A reportable operating segment is one having 10% of all revenue, including revenue
from unaffiliated sales and from intersegment sales:
Lion's revenue percentage is 66.7% [$100,000/150,000].
Monk's revenue percentage is 17.3% [$26,000/150,000].
Nevi's revenue percentage is 16% [$24,000/150,000].
Thus, all three segments meet the 10% of total revenues test and are reportable as operating segments.
SFAS 14 para. 10 and 15 as amended by SFAS 131
Choice "a" is incorrect. All segments with revenue percentages exceeding 10% of total revenues are
reportable operating segments.
Choice "b" is incorrect. Lion is not the only segment with revenue percentages exceeding 10% of total
revenues.
Choice "c" is incorrect. Nevi has a revenue percentage exceeding 10% of total revenues.

 

NEW QUESTION 56
Which of the following must be included in a company's summary of significant accounting policies in the
notes to the financial statements?

• A. Revenue recognition policies.
• B. Summary of long-term debt outstanding.
• C. Schedule of fixed assets.
• D. Description of current year equity transactions.

Answer: A

Explanation:
Choice "d" is correct. The summary of significant accounting policies should include "policies." The only
policy in the choices listed is the revenue recognition policies.
Choice "a" is incorrect. A description of current year equity transactions is not a policy. It should be
disclosed somewhere in the footnotes but not in the summary of significant accounting policies.
Choice "b" is incorrect. A summary of long-term debt outstanding is not a policy. It should be disclosed
somewhere in the footnotes but not in the summary of significant accounting policies.
Choice "c" is incorrect. A schedule of fixed assets is not a policy. It should be disclosed somewhere in the
footnotes but not in the summary of significant accounting policies.

 

NEW QUESTION 57
Dean Co. acquired 100% of Morey Corp. prior to 1989. During 1989, the individual companies included in
their financial statements the following:

What amount should be reported as related party disclosures in the notes to Dean's 1989 consolidated
financial statements?

• A. $330,000
• B. $175,000
• C. $155,000
• D. $150,000

Answer: B

Explanation:
Choice "c" is correct. The only related party transaction that would require disclosure (assuming that all
amounts are material to the financial statements) would be the loans to officers since they are outside of
the ordinary course of business. Choices "a", "b", and "d" are incorrect. Officers' salaries, officers'
expenses and intercompany sales (between entities included in a consolidated set of financial statements)
are all transactions in the ordinary course of business and generally would not require disclosure.

 

NEW QUESTION 58
Adam Corp. had the following infrequent transactions during 1989:
. A $190,000 gain on reacquisition and retirement of bonds. This material event is also considered
unusual for Adam Corp.
. A $260,000 gain on the disposal of a component of a business. Adam continues similar operations at
another location.
. A $90,000 loss on the abandonment of equipment.
In its 1989 income statement, what amount should Adam report as total infrequent net gains that are not
considered extraordinary?

• A. $100,000
• B. $170,000
• C. $360,000
• D. $450,000

Answer: B

Explanation:
Infrequent net gains not considered extraordinary include:

Choice "b" is correct. $170,000.

 

NEW QUESTION 59
Which of the following describes how comprehensive income should be reported?

• A. Must be reported in a separate statement, as part of a complete set of financial statements.
• B. May be reported in a combined statement of income and comprehensive income or disclosed within a
  statement of stockholders' equity; separate statements of comprehensive income are not permitted.
• C. Should not be reported in the financial statements but should only be disclosed in the footnotes.
• D. May be reported in a separate statement, in a combined statement of income and comprehensive
  income, or within a statement of stockholders' equity.

Answer: D

Explanation:
Choice "c" is correct.
Comprehensive income must be presented in one of three formats:
1 . In a combined statement of income and comprehensive income;
2 . In a separate statement of comprehensive income that begins with net income; or
3 . In a statement of changes in equity.
Choices "a", "b", and "d" are incorrect, per the above.

 

NEW QUESTION 60
In open market transactions, Gold Corp. simultaneously sold its long-term investment in Iron Corp. bonds
and purchased its own outstanding bonds. The broker remitted the net cash from the two transactions.
Gold's gain on the purchase of its own bonds exceeded its loss on the sale of the Iron bonds. Assume the
transaction to purchase its own outstanding bonds is unusual in nature and has occurred infrequently.
Gold should report the:

• A. Net effect of the two transactions in income before extraordinary items.
• B. Effect of its own bond transaction as an extraordinary gain, and report the Iron bond transaction loss in
  income before extraordinary items.
• C. Net effect of the two transactions as an extraordinary gain.
• D. Effect of its own bond transaction gain in income before extraordinary items, and report the Iron bond
  transaction as an extraordinary loss.

Answer: B

Explanation:
Choice "d" is correct, these are two separate transactions because Gold Corp. (1) sold Iron Corp. bonds
(an investment) for a loss, and, (2) bought back its own (Gold) Corp. bonds (a debt) for a gain. This is not
a "refinancing" (where one would sell new bond debt to buy back old bond debt outstanding).
The gain from the purchase of its own bonds is an "extraordinary gain" because it is both unusual in
nature and infrequently occurring (per APB Opinion No. 30 and SFAS No. 145). The Iron Corp.
transaction is a loss in "income before extraordinary items."
Choices "a" and "b" are incorrect. The two transactions are separate and cannot be netted.
Choice "c" is incorrect. Just the opposite. The sale of the investment is a loss in "income before
extraordinary items," while the purchase of its bond debt is an "extraordinary gain" according to the
provisions of APB Opinion No. 30.

 

NEW QUESTION 61
......

Ultimate Guide to the FAR - Latest Edition Available Now: https://www.dumpexams.com/FAR-real-answers.html

2023 Updated Verified Pass FAR Study Guides & Best Courses: https://drive.google.com/open?id=1MwpE5Mbuya_Zz-6k6U3L-8wv4DJwClE1