2016 AICPA FAR

2016 AICPA FAR
RELEASED Level: MODERATE

QUESTIONS
Please Note:
These questions are released to the CPA Review providers with the letter answer only
(i.e. no explanation given).
This document contains copyrighted material from the American Institute of Certified
Public Accountants and is licensed to NINJA CPA Review for use by its customers only.
A partial listing of a company's accounts is presented below:
1
No.
Revenues $80,000
Operating expenses $50,000
Foreign currency translation adjustment gain, net of tax $4,000
Income tax expense $10,000
What amount should the company report as net income?
a. $20,000
b. $24,000
c. $30,000
d. $34,000
2016 AICPA Released Questions – Financial Accounting and Reporting (Moderate) - www.dojo.ninjacpareview.com
A partial listing of a company's accounts is presented below:
1
No.
Revenues $80,000
Operating expenses $50,000
Foreign currency translation adjustment gain, net of tax $4,000
Income tax expense $10,000
What amount should the company report as net income?
a. $20,000
b. $24,000
c. $30,000
d. $34,000
2
No. Which of the following items is included in accumulated
other comprehensive income or loss?
a. Unrealized gains and losses from the ineffective portion of a

derivative properly designated as a cash flow hedge.
b. Unrealized holding gains or losses on securities classified as

trading securities.
c. A reduction of shareholders' equity related to employee

stock ownership plans.
d. Prior service costs not previously recognized as a

component of net periodic pension costs.
2
No. Which of the following items is included in accumulated
other comprehensive income or loss?
a. Unrealized gains and losses from the ineffective portion of a

derivative properly designated as a cash flow hedge.
b. Unrealized holding gains or losses on securities classified as

trading securities.
c. A reduction of shareholders' equity related to employee

stock ownership plans.
d. Prior service costs not previously recognized as a

component of net periodic pension costs.
A company reports the following information for year 1:
3
No.
Sale of equipment
Issuance of the company’s bonds
$20,000
10,000
Dividends paid 5,000
Purchase of stock of another company 2,000
Purchase of U.S. Treasury note 2,000
Income taxes paid 2,000
Interest income received 500
What is the company's net cash flow from financing

activities?
a. ($9,000)
b. $5,000
c. $5,500
d. $15,000
A company reports the following information for year 1:
3
No.
Sale of equipment
Issuance of the company’s bonds
$20,000
10,000
Dividends paid 5,000
Purchase of stock of another company 2,000
Purchase of U.S. Treasury note 2,000
Income taxes paid 2,000
Interest income received 500
What is the company's net cash flow from financing

activities?
a. ($9,000)
b. $5,000
c. $5,500
d. $15,000
4
No.
U.S. Securities and Exchange Commission (SEC) regulations

for the financial statement presentation and disclosure
requirements of SEC filings can be found in
a. Regulation S-B.
b. Regulation S-K.
c. Regulation S-T.
d. Regulation S-X.
4
No.
U.S. Securities and Exchange Commission (SEC) regulations

for the financial statement presentation and disclosure
requirements of SEC filings can be found in
a. Regulation S-B.
b. Regulation S-K.
c. Regulation S-T.
d. Regulation S-X.
5
No.
At the end of year one, Boller Co. had an ending balance in
allowance for uncollectible accounts of $30,000. During year
two, Boller wrote-off $40,000 of accounts receivable. At the
end of year two, Boller had $300,000 in accounts receivable
and determined that 8% of these would be uncollectible.
What amount should be reported as uncollectible accounts
expense on Boller's year two income statement?
a. $64,000
b. $34,000
c. $24,000
d. $14,000
5
No.
At the end of year one, Boller Co. had an ending balance in
allowance for uncollectible accounts of $30,000. During year
two, Boller wrote-off $40,000 of accounts receivable. At the
end of year two, Boller had $300,000 in accounts receivable
and determined that 8% of these would be uncollectible.
What amount should be reported as uncollectible accounts
expense on Boller's year two income statement?
a. $64,000
b. $34,000
c. $24,000
d. $14,000
The following information relates to a company's year-end
6
No. inventory:
Inventory cost $910
Selling price of inventory $1,000
Normal profit margin 10% of selling price
Current replacement cost $740
Cost of completion and disposal $100
Under IFRS, what is the company’s year-end inventory

balance?
a. $740
b. $800
c. $900
d. $910
The following information relates to a company's year-end
6
No. inventory:
Inventory cost $910
Selling price of inventory $1,000
Normal profit margin 10% of selling price
Current replacement cost $740
Cost of completion and disposal $100
Under IFRS, what is the company’s year-end inventory

balance?
a. $740
b. $800
c. $900
d. $910
A transportation company purchased a passenger bus for $100,000
on January 1, year 1. The company expects the bus to be used for 20
7
No.
years if it follows a maintenance schedule of replacing the engine
after 10 years and replacing the seats every eight years. It estimates
that the current cost to replace the engine is $25,000 and the
current cost to replace the seats is $10,000. The company uses
straight-line depreciation and the bus has no residual value. The
company considers any component equal to or greater than 10% of
the overall cost to be significant. Under IFRS, how much depreciation
expense should the company recognize for the bus for the year
ended December 31, year 1?
a. $5,000
b. $7,000
c. $7,250
d. $8,500
A transportation company purchased a passenger bus for $100,000
on January 1, year 1. The company expects the bus to be used for 20
7
No.
years if it follows a maintenance schedule of replacing the engine
after 10 years and replacing the seats every eight years. It estimates
that the current cost to replace the engine is $25,000 and the
current cost to replace the seats is $10,000. The company uses
straight-line depreciation and the bus has no residual value. The
company considers any component equal to or greater than 10% of
the overall cost to be significant. Under IFRS, how much depreciation
expense should the company recognize for the bus for the year
ended December 31, year 1?
a. $5,000
b. $7,000
c. $7,250
d. $8,500
8
No.
Long Co. invested in marketable securities. At year-end, fair-
value changes in this investment were included in Long's
other comprehensive income. How would Long classify this
investment?
a. Held-to-maturity securities.
b. Trading securities.
c. Equity securities.
d. Available-for-sale securities.
8
No.
Long Co. invested in marketable securities. At year-end, fair-
value changes in this investment were included in Long's
other comprehensive income. How would Long classify this
investment?
a. Held-to-maturity securities.
b. Trading securities.
c. Equity securities.
d. Available-for-sale securities.
9
No.
On June 1, Greendale Corp. issued $700,000, five-year bonds
at 8%, with interest payable annually on May 31. The bonds
sold for $728,700 when the market rate of interest was 7%.
Greendale uses the effective interest method for amortizing
premiums on bonds payable. What is the balance of the
premiums on bonds payable account immediately following
the first interest payment?
a. $22,960
b. $23,709
c. $33,691
d. $34,440
9
No.
On June 1, Greendale Corp. issued $700,000, five-year bonds
at 8%, with interest payable annually on May 31. The bonds
sold for $728,700 when the market rate of interest was 7%.
Greendale uses the effective interest method for amortizing
premiums on bonds payable. What is the balance of the
premiums on bonds payable account immediately following
the first interest payment?
a. $22,960
b. $23,709
c. $33,691
d. $34,440
Howard Co. had the following first-year amounts for a
10
No.
$7,000,000 construction contract:
Actual costs $2,000,000

Estimated costs to complete 6,000,000
Progress billings 1,800,000
Cash collected 1,500,000
What amount should Howard recognize as gross profit (loss)

using the percentage-of-completion method?
a. ($1,000,000)
b. ($200,000)
c. $800,000
d. $1,750,000
Howard Co. had the following first-year amounts for a
10
No.
$7,000,000 construction contract:
Actual costs $2,000,000

Estimated costs to complete 6,000,000
Progress billings 1,800,000
Cash collected 1,500,000
What amount should Howard recognize as gross profit (loss)

using the percentage-of-completion method?
a. ($1,000,000)
b. ($200,000)
c. $800,000
d. $1,750,000
The following information relates to a company's defined
11
No.
benefit pension plan at December 31:
Accumulated benefit obligation $1,035,000
Projected benefit obligation 1,250,000
Prior service cost 113,000
Net gain on plan assets 167,000
Plan assets (fair value) 737,000
What amount should the company report as its pension

liability at December 31?
a. $567,000
b. $513,000
c. $400,000
d. $352,000
The following information relates to a company's defined
11
No.
benefit pension plan at December 31:
Accumulated benefit obligation $1,035,000
Projected benefit obligation 1,250,000
Prior service cost 113,000
Net gain on plan assets 167,000
Plan assets (fair value) 737,000
What amount should the company report as its pension

liability at December 31?
a. $567,000
b. $513,000
c. $400,000
d. $352,000
12
No.
On January 1, year 1, the board of directors of a corporation
granted 10,000 stock options to the CEO. Each option permits
the purchase of one share of stock at $25 per share, the
current market price of the stock. The options are exercisable
on December 31, year 4, as long as the CEO is still employed.
The options expire on December 31, year 5. The grant date fair
value of each option is $5. The corporation must recognize
a. $50,000 of compensation expense when the options are

exercised.
b. $50,000 of compensation expense in year 1.
c. $12,500 of compensation expense per year for four years.
d. $10,000 of compensation expense per year for five years.
12
No.
On January 1, year 1, the board of directors of a corporation
granted 10,000 stock options to the CEO. Each option permits
the purchase of one share of stock at $25 per share, the
current market price of the stock. The options are exercisable
on December 31, year 4, as long as the CEO is still employed.
The options expire on December 31, year 5. The grant date fair
value of each option is $5. The corporation must recognize
a. $50,000 of compensation expense when the options are

exercised.
b. $50,000 of compensation expense in year 1.
c. $12,500 of compensation expense per year for four years.
d. $10,000 of compensation expense per year for five years.
13
No.
A company reported net income available to common
stockholders of $2,000,000 for the year ended December 31,
year 2. The company had 1,500,000 shares of common stock
outstanding as of January 1, year 2, and issued 500,000
additional shares of common stock on May 1, year 2. What
amount is the company's basic earnings per share for the
year ended December 31, year 2?
a. $1.00
b. $1.09
c. $1.20
d. $1.33
13
No.
A company reported net income available to common
stockholders of $2,000,000 for the year ended December 31,
year 2. The company had 1,500,000 shares of common stock
outstanding as of January 1, year 2, and issued 500,000
additional shares of common stock on May 1, year 2. What
amount is the company's basic earnings per share for the
year ended December 31, year 2?
a. $1.00
b. $1.09
c. $1.20
d. $1.33
A company leases trucks and properly classifies the leases
14
No.
as capital leases. The leases have a 10-year term, and the
lease calculations were done three years ago when interest
rates were lower. Which of the following is the appropriate
accounting treatment, if any, for the application of the fair
value option to lease transactions?
a. Leases are not eligible for the fair value option.
b. Recognize the change to fair value accounting with a cumulative

adjustment to beginning retained earnings.
c. Recognize the change to fair value accounting with an unrealized

loss in the income statement.
d. Recognize the change to fair value accounting with an unrealized

loss in accumulated other comprehensive income.
A company leases trucks and properly classifies the leases
14
No.
as capital leases. The leases have a 10-year term, and the
lease calculations were done three years ago when interest
rates were lower. Which of the following is the appropriate
accounting treatment, if any, for the application of the fair
value option to lease transactions?
a. Leases are not eligible for the fair value option.
b. Recognize the change to fair value accounting with a cumulative

adjustment to beginning retained earnings.
c. Recognize the change to fair value accounting with an unrealized

loss in the income statement.
d. Recognize the change to fair value accounting with an unrealized

loss in accumulated other comprehensive income.
An asset group is being evaluated for an impairment loss.
15
No.
The following financial information is available for the asset
group:
Carrying value $100,000,000
Sum of the undiscounted cash flows 95,000,000
Fair value 80,000,000
What amount of impairment loss, if any, should be

recognized?
a. $0
b. $5,000,000
c. $15,000,000
d. $20,000,000
An asset group is being evaluated for an impairment loss.
15
No.
The following financial information is available for the asset
group:
Carrying value $100,000,000
Sum of the undiscounted cash flows 95,000,000
Fair value 80,000,000
What amount of impairment loss, if any, should be

recognized?
a. $0
b. $5,000,000
c. $15,000,000
d. $20,000,000
16
No. A company has an operating lease for its office space. The
lease term is 120 months and requires monthly rent of
$15,000. As an incentive for the company to enter into the
lease, the lessor granted the first eight months' rent at no
cost. What amount of monthly rent expense should be
recognized over the life of the lease?
a. $14,000
b. $14,062
c. $15,000
d. $16,072
16
No. A company has an operating lease for its office space. The
lease term is 120 months and requires monthly rent of
$15,000. As an incentive for the company to enter into the
lease, the lessor granted the first eight months' rent at no
cost. What amount of monthly rent expense should be
recognized over the life of the lease?
a. $14,000
b. $14,062
c. $15,000
d. $16,072
Bayberry Co. has an asset with a cost of $200,000 and
17
No.
accumulated depreciation of $120,000. Driftwood Co. has an
asset with a cost of $250,000 and accumulated depreciation
of $160,000. Both assets have a fair value of $100,000.
Bayberry and Driftwood find it mutually advantageous to
exchange assets, and the exchange results in improved
future cash flows for both companies. What amount, if any, is
Bayberry's gain on the exchange?
a. $0
b. $10,000
c. $20,000
d. $50,000
Bayberry Co. has an asset with a cost of $200,000 and
17
No.
accumulated depreciation of $120,000. Driftwood Co. has an
asset with a cost of $250,000 and accumulated depreciation
of $160,000. Both assets have a fair value of $100,000.
Bayberry and Driftwood find it mutually advantageous to
exchange assets, and the exchange results in improved
future cash flows for both companies. What amount, if any, is
Bayberry's gain on the exchange?
a. $0
b. $10,000
c. $20,000
d. $50,000
18
No. A company's research department incurred $1,000,000 in
material, labor, and overhead costs to construct a prototype of
a new product and $100,000 to test and modify the prototype.
Which of the following statements correctly describes the
accounting treatment of prototype costs incurred by the
company?
a. Capitalize $1,100,000 and amortize it over the expected sales

life of the new product.
b. Capitalize $1,100,000 and amortize it over the life of the
prototype.
c. Capitalize $1,000,000 and amortize it over the life of the
prototype and expense $100,000 as incurred.
d. Expense $1,100,000 as incurred.
18
No. A company's research department incurred $1,000,000 in
material, labor, and overhead costs to construct a prototype of
a new product and $100,000 to test and modify the prototype.
Which of the following statements correctly describes the
accounting treatment of prototype costs incurred by the
company?
a. Capitalize $1,100,000 and amortize it over the expected sales

life of the new product.
b. Capitalize $1,100,000 and amortize it over the life of the
prototype.
c. Capitalize $1,000,000 and amortize it over the life of the
prototype and expense $100,000 as incurred.
d. Expense $1,100,000 as incurred.
A company has a total revenue of $1,000,000, profits of
19
No.
$90,000, total assets of $10,000,000, and total liabilities of
$5,000,000. Operating segment Sun has revenues of
$95,000, profit of $10,000, assets of $900,000, and
liabilities of $550,000. Which of the following tests makes
Sun a reportable segment?
a. Revenue test.
b. Profit test.
c. Asset test.
d. Liability test.
A company has a total revenue of $1,000,000, profits of
19
No.
$90,000, total assets of $10,000,000, and total liabilities of
$5,000,000. Operating segment Sun has revenues of
$95,000, profit of $10,000, assets of $900,000, and
liabilities of $550,000. Which of the following tests makes
Sun a reportable segment?
a. Revenue test.
b. Profit test.
c. Asset test.
d. Liability test.
20
No.
Which of the following is a governmental fund that uses the
current financial resources measurement focus?
a. Enterprise fund.
b. Internal service fund.
c. Special revenue fund.
d. Private-purpose trust fund.
20
No.
Which of the following is a governmental fund that uses the
current financial resources measurement focus?
a. Enterprise fund.
b. Internal service fund.
c. Special revenue fund.
d. Private-purpose trust fund.
21
No. Seaview City received a pass-through grant from the state.
The money is to be distributed to families who, as
determined by the state, are eligible for summer camp
scholarships for their children. Seaview does not have
administrative or direct financial involvement in the
program. In which fund should Seaview record the grant?
a. Agency.
b. General.
c. Internal service.
d. Enterprise.
21
No. Seaview City received a pass-through grant from the state.
The money is to be distributed to families who, as
determined by the state, are eligible for summer camp
scholarships for their children. Seaview does not have
administrative or direct financial involvement in the
program. In which fund should Seaview record the grant?
a. Agency.
b. General.
c. Internal service.
d. Enterprise.
22
No. The budget for the City of Goodville for the year ending
December 31 was adopted and recorded on January 2 of the
same year. After recording the budget, the accounting
records showed a debit balance of $50,000 in the Budgetary
Fund Balance account. What does this indicate?
a. Appropriations are $50,000 greater than estimated revenues.
b. Estimated revenues are $50,000 greater than appropriations.
c. Appropriations are $50,000 greater than revenues.
d. Revenues are $50,000 greater than appropriations.
22
No. The budget for the City of Goodville for the year ending
December 31 was adopted and recorded on January 2 of the
same year. After recording the budget, the accounting
records showed a debit balance of $50,000 in the Budgetary
Fund Balance account. What does this indicate?
a. Appropriations are $50,000 greater than estimated revenues.
b. Estimated revenues are $50,000 greater than appropriations.
c. Appropriations are $50,000 greater than revenues.
d. Revenues are $50,000 greater than appropriations.
A donor provided a $10 million gift for a specific program to
23
No.
a nongovernmental, not-for-profit organization. The
organization cannot spend the $10 million, but it may use
the income on the gift for the donor-specified program. In
the organization's statement of activities, the gift should
be reported as part of the change in
a. Temporarily restricted net assets.
b. Permanently restricted net assets.
c. Restricted - nonspendable.
d. Unrestricted net assets.
A donor provided a $10 million gift for a specific program to
23
No.
a nongovernmental, not-for-profit organization. The
organization cannot spend the $10 million, but it may use
the income on the gift for the donor-specified program. In
the organization's statement of activities, the gift should
be reported as part of the change in
a. Temporarily restricted net assets.
b. Permanently restricted net assets.
c. Restricted - nonspendable.
d. Unrestricted net assets.
During the current year, a nongovernmental, not-for-profit hospital
24
No. received a gift of $10 million to be used for an addition to the
physical therapy unit. In addition, the hospital also received an
investment valued at $3 million with a donor-imposed restriction
allowing only the use of the investment earnings for paying the
salary of an additional physical therapist. As of the end of the current
year, a physical therapist had not been hired, and earnings on the
investment for the year were $150,000. What amount should be
reported as temporarily restricted net assets in the year-end
statement of financial position?
a. $150,000
b. B. $10,000,000
c. C. $10,150,000
d. D. $13,150,000
During the current year, a nongovernmental, not-for-profit hospital
24
No. received a gift of $10 million to be used for an addition to the
physical therapy unit. In addition, the hospital also received an
investment valued at $3 million with a donor-imposed restriction
allowing only the use of the investment earnings for paying the
salary of an additional physical therapist. As of the end of the current
year, a physical therapist had not been hired, and earnings on the
investment for the year were $150,000. What amount should be
reported as temporarily restricted net assets in the year-end
statement of financial position?
a. $150,000
b. B. $10,000,000
c. C. $10,150,000
d. D. $13,150,000
25
No.
A portfolio of equity securities that are traded on a national
exchange is donated to a private, not-for-profit college as an
endowment fund. How should the equity portfolio be valued
in the college's year-end financial statements three years
after the donation?
a. Using the donor's original cost basis.
b. Using the fair value at the time of donation.
c. Using fair value at the date of the financial statements.
d. Using the lower of fair value at donation and fair value at the
date of the financial statements.
25
No.
A portfolio of equity securities that are traded on a national
exchange is donated to a private, not-for-profit college as an
endowment fund. How should the equity portfolio be valued
in the college's year-end financial statements three years
after the donation?
a. Using the donor's original cost basis.
b. Using the fair value at the time of donation.
c. Using fair value at the date of the financial statements.
d. Using the lower of fair value at donation and fair value at the
date of the financial statements.

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RELEASED Level: MODERATE

What amount should the company report as net income?

What amount should the company report as net income?

a. Unrealized gains and losses from the ineffective portion of a

b. Unrealized holding gains or losses on securities classified as

c. A reduction of shareholders' equity related to employee

d. Prior service costs not previously recognized as a

a. Unrealized gains and losses from the ineffective portion of a

b. Unrealized holding gains or losses on securities classified as

c. A reduction of shareholders' equity related to employee

d. Prior service costs not previously recognized as a

What is the company's net cash flow from financing

What is the company's net cash flow from financing

U.S. Securities and Exchange Commission (SEC) regulations

U.S. Securities and Exchange Commission (SEC) regulations

Under IFRS, what is the company’s year-end inventory

Under IFRS, what is the company’s year-end inventory

Actual costs $2,000,000

What amount should Howard recognize as gross profit (loss)

Actual costs $2,000,000

What amount should Howard recognize as gross profit (loss)

What amount should the company report as its pension

What amount should the company report as its pension

a. $50,000 of compensation expense when the options are

a. $50,000 of compensation expense when the options are

a. Leases are not eligible for the fair value option.

b. Recognize the change to fair value accounting with a cumulative

c. Recognize the change to fair value accounting with an unrealized

d. Recognize the change to fair value accounting with an unrealized

a. Leases are not eligible for the fair value option.

b. Recognize the change to fair value accounting with a cumulative

c. Recognize the change to fair value accounting with an unrealized

d. Recognize the change to fair value accounting with an unrealized

What amount of impairment loss, if any, should be

What amount of impairment loss, if any, should be

a. Capitalize $1,100,000 and amortize it over the expected sales

a. Capitalize $1,100,000 and amortize it over the expected sales

b. Internal service fund.

c. Special revenue fund.

d. Private-purpose trust fund.

b. Internal service fund.

c. Special revenue fund.

d. Private-purpose trust fund.

a. Appropriations are $50,000 greater than estimated revenues.

b. Estimated revenues are $50,000 greater than appropriations.

c. Appropriations are $50,000 greater than revenues.

d. Revenues are $50,000 greater than appropriations.

a. Appropriations are $50,000 greater than estimated revenues.

b. Estimated revenues are $50,000 greater than appropriations.

c. Appropriations are $50,000 greater than revenues.

d. Revenues are $50,000 greater than appropriations.

a. Temporarily restricted net assets.

b. Permanently restricted net assets.

d. Unrestricted net assets.

a. Temporarily restricted net assets.

b. Permanently restricted net assets.

d. Unrestricted net assets.

a. Using the donor's original cost basis.

b. Using the fair value at the time of donation.

c. Using fair value at the date of the financial statements.

a. Using the donor's original cost basis.

b. Using the fair value at the time of donation.

c. Using fair value at the date of the financial statements.