FREE Certified Public Accountant (Financial Accounting & Reporting) Questions and Answers

Question 1

Which two of the following accounting concepts are most similar to consistency and feedback, respectively?

Accepted Answer

Predictive value and confirmatory value

Answer

Recognition and full disclosure

Answer

Recognition and matching

Answer

Conservatism and cost/benefit

Question 2

According to Catastrophe Corporation, it is not a going concern and is most certainly going out of business. Which accounting principle will Catastrophe use?

Accepted Answer

Liquidation basis

Answer

Remain with GAAP

Answer

Tax basis

Answer

Cash basis

Question 3

When a company decides it is not a going concern, there is a good chance it won't be able to pay its debts, which are due at least a year after the financial accounts are released. The entity will change to the liquidation basis of accounting when liquidation is imminent, which occurs when the entity has adopted a plan of liquidation or when one is being imposed upon it. Whether or not an entity will use the tax or cash basis of accounting is unrelated to whether or not it is a going concern.

Accepted Answer

Foreign currency translation adjustments

Answer

Unrealized gains or losses at fair value on assets held to maturity

Answer

Certain gains and losses on derivative financial instruments designated as fair value hedges.

Question 4

A customer gave Misk, Inc. a $750,000 note with a one-year term and 9% yearly interest. Misk discounted the note at National Bank for a 12% effective interest rate after holding it for six months. How much money did Misk get from the bank?

Accepted Answer

$768,450

Answer

$719,400

Answer

$700,950

Answer

$780,713

Question 5

Which of the following statements regarding the effect a collection of an account previously written off would have on accounts receivable and allowance for doubtful account balances is correct when the allowance method of recognizing uncollectible performances is used?

Accepted Answer

The allowance for doubtful accounts would rise, but accounts receivable would remain the same.

Answer

Allowance for Doubtful Accounts would decline but Accounts Receivable would remain the same.

Answer

The allowance for doubtful accounts would remain constant, while accounts receivable would rise.

Answer

The allowance for doubtful accounts would decline while accounts receivable would rise.

Question 6

The Candy Company and Dandy Company traded inventory in an ineffective business deal. The list for Candy and Dandy had fair values that were 30% more than their expenses. However, Candy paid Dandy cash to make up the difference because Dandy's inventory was more valuable. Who, if anyone, will count the deal as a gain?

Accepted Answer

Dandy only

Answer

Candy only

Answer

Neither Candy nor Dandy

Answer

Both Candy and Dandy

Question 7

Which of the following claims about donated assets are true?

Accepted Answer

Under GAAP the donation of an asset will result in a credit to either revenue or gain

Answer

Donated assets are recorded at historical cost on a company’s balance sheet.

Answer

If the donor wishes anonymity, the assets are not listed on the company's balance sheet.

Answer

A donation asset cannot have a gain recorded under GAAP until it is sold to a third party.