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AICPA FAR Questions - Quick Tips To Pass [2025]

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Financial Accounting and Reporting (FAR) Exam Certification Path

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AICPA CPA Financial Accounting and Reporting Sample Questions (Q40-Q45):

NEW QUESTION # 40
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. I and II only.
B. II and III only.
C. II only.
D. I and III only.

Answer: A

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 # 41
In which of the following situations should a company report a prior-period adjustment?

A. A change in the estimated useful lives of fixed assets purchased in prior years.
B. The scrapping of an asset prior to the end of its expected useful life.
C. The correction of a mathematical error in the calculation of prior years' depreciation.
D. A switch from the straight-line to double-declining balance method of depreciation.

Answer: C

Explanation:
Choice "b" is correct. Prior period adjustments consist of: corrections of errors in the financial statements
of prior periods, retroactive restatements required by new GAAP pronouncements, and changes from a
non-GAAP method of accounting to a GAAP method of accounting (which are corrections of errors).
Choice "a" is incorrect. This change is a change in accounting estimate. Choice "c" is incorrect. This
change is a change for one GAAP method of depreciation to another GAAP method of depreciation.
Under SFAS No. 154, it is treated as a change in accounting estimate effected by a change in accounting
principle and is handled prospectively, and not as a prior-period adjustment. Choice "d" is incorrect. This
is a business activity ordinary in nature.

NEW QUESTION # 42
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
Quo changed from FIFO to average cost to account for its raw materials and work in process inventories.
List B (Select one)

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

Answer: B

Explanation:
Choice "B" is correct. A change in accounting principle should be shown in the retained earnings
statement of the earliest year presented as an adjustment of the beginning balance. All prior year financial
statements are recast.

NEW QUESTION # 43
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. $4,000,000
B. $300,000
C. $5,000,000
D. $1,500,000

Answer: C

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 # 44
In 1990, Teller Co. incurred losses arising from its guilty plea in its first antitrust action, and from a
substantial increase in production costs caused when a major supplier's workers went on strike.
Which of these losses should be reported as an extraordinary item?

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

Answer: A

Explanation:
Choice "c" is correct. Yes - No. Rule: Losses arising from a company's first (and probably "last")
"anti-trust" action are unusual and extraordinary and should be reported as an extraordinary item. Losses
resulting from additional costs caused by a strike at a major supplier or even at one's own company are
not extraordinary and should be disclosed as a separate component of "income from continuing
operations."

NEW QUESTION # 45
......

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