Use the best ways of preparing for FAR Exam Dumps with TestKingFree AICPA FAR dump PDF [2025]
AICPA FAR exam candidates will surely pass the Exam if they consider the FAR dumps learning material presented by TestKingFree.
NEW QUESTION # 51
Which of the following facts concerning fixed assets should be included in the summary of significant
accounting policies?
- A. Option A
- B. Option D
- C. Option C
- D. Option B
Answer: C
Explanation:
Choice "c" is correct. Yes - No.
Yes - "Depreciation methods" should be disclosed in the "summary of significant accounting policies."
No - Composition of fixed assets (or any other account) should not be disclosed in the "summary of
significant accounting policies."
NEW QUESTION # 52
Which of the following must be included in a company's summary of significant accounting policies in the
notes to the financial statements?
- A. Schedule of fixed assets.
- B. Revenue recognition policies.
- C. Description of current year equity transactions.
- D. Summary of long-term debt outstanding.
Answer: B
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 # 53
A change from the cost approach to the market approach of measuring fair value is considered to be what
type of accounting change?
- A. Change in accounting estimate.
- B. Change in valuation technique.
- C. Change in accounting principle.
- D. Error correction.
Answer: A
Explanation:
Choice "a" is correct. A change in the valuation technique used to measure fair value is a change in
accounting estimate. Choice "b" is incorrect. Per SFAS No. 157, a change in valuation technique is a
change in accounting estimate, not a change in accounting principal. Choice "c" is incorrect. Although a
change from the cost approach to the market approach is a change in valuation technique, a change in
valuation technique is not defined as a type of accounting change, but instead falls into the category of
changes in accounting estimate. Choice "d" is incorrect. Both the market approach and the cost approach
are acceptable methods of measuring fair value per SFAS No. 157; therefore, switching between these
methods is not the correction of an error. Additionally, an error correction is not a type of accounting
change.
NEW QUESTION # 54
The cumulative effect of a change in accounting estimate should be shown separately:
- A. On the income statement above income from continuing operations.
- B. On the income statement after income from continuing operations and before extraordinary items.
- C. It should not be recorded separately on any financial statement.
- D. On the retained earnings statement as an adjustment to the beginning balance.
Answer: C
Explanation:
Choice "d" is correct. 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.
Choices "a", "b", and "c" are incorrect, per the above Explanation: .
NEW QUESTION # 55
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 changed from LIFO to FIFO to account for its finished goods inventory.
List A (Select one)
- A. Change in accounting principal.
- B. Neither an accounting change nor an accounting error.
- C. Change in accounting estimate.
- D. Correction of an error in previously presented financial statements.
Answer: A
Explanation:
Choice "a" is correct. Change from LIFO to FIFO is a change in accounting principle.
NEW QUESTION # 56
Which of the following statements regarding fair value is/are correct?
I. The fair value of an asset or liability is specific to the entity making the fair value measurement.
II. Fair value is the price to acquire an asset or assume a liability.
III. Fair value includes transportation costs, but not transaction costs.
IV. The price in the principal market for an asset or liability will be the fair value measurement.
- A. I & II
- B. II & III
- C. I & IV
- D. III & IV
Answer: D
Explanation:
Choice "d" is correct. Statements III and IV are correct. Statement I is incorrect because fair value is a
market-specific measure, not an entity-specific measure. Statement II is incorrect because fair value is an
exit price (the price to sell an asset or transfer a liability), not an entrance price. Choices "a", "b" and "c"
are incorrect, per the above Explanation: .
NEW QUESTION # 57
According to the FASB conceptual framework, the objectives of financial reporting for business
enterprises are based on:
- A. The need for conservatism.
- B. The needs of the users of the information.
- C. Generally accepted accounting principles.
- D. Reporting on management's stewardship.
Answer: B
Explanation:
Choice "d" is correct. The FASB conceptual framework states that the objectives of financial reporting
stem from the informational needs of the external users of the information. SFAC 1 para. 28 Choice "a" is
incorrect. Generally accepted accounting principles (GAAP) are derived from and based on the objectives
of financial reporting, not the other way around. Choice "b" is incorrect. Information concerning
management's stewardship is only one aspect of the information financial statements are intended to
provide. SFAC 1 para. 50 Choice "c" is incorrect. Conservatism is an underlying concept for financial
accounting but is not the basis for the objectives. SFAC 2 para. 91-97
NEW QUESTION # 58
Deficits accumulated during the development stage of a company should be:
- A. Reported as a part of stockholders' equity.
- B. Capitalized and written off in the first year of principal operations.
- C. Reported as organization costs.
- D. Capitalized and amortized over a five year period beginning when principal operations commence.
Answer: A
Explanation:
Choice "b" is correct. Deficits accumulated during the development stage of a company should be
reported as a part of stockholders' equity.
Rule: Development stage enterprises should present FS in accordance with GAAP and make additional
disclosures such as: cumulative net losses, cumulative deficit (as part of equity), cumulative sales &
expenses (part of I/S), cumulative statement of cash flows and supplementary "shareholders equity."
Choices "a", "c", and "d" are incorrect, per the rule above.
NEW QUESTION # 59
On August 31, 1992, Harvey Co. decided to change from the FIFO periodic inventory system to the
weighted average periodic inventory system. Harvey is on a calendar year basis. The cumulative effect of
the change is determined:
- A. As of January 1, 1992.
- B. During the eight months ending August 31, 1992, by a weighted average of the purchases.
- C. As of August 31, 1992.
- D. During 1992 by a weighted average of the purchases.
Answer: A
Explanation:
Rule: The cumulative effect of a change in accounting principle equals the difference between retained
earnings at the beginning of period of the change and what retained earnings would have been if the
change was applied to all affected prior periods. Choice "a" is correct. As of January 1, 1992, the
beginning of the year. This assumes that the company is not presenting comparative financial statements.
If comparative financial statements are presented, then the adjustment is made to the beginning retained
earnings of the earliest year presented. Choice "b" is incorrect. The cumulative effect of the change is not
determined as of the date the decision is made. Choices "c" and "d" are incorrect. The cumulative effect of
the change is not determined by a weighted average. (A far out distractor.)
NEW QUESTION # 60
According to the FASB conceptual framework, which of the following statements conforms to the
realization concept?
- A. Equipment depreciation was assigned to a production department and then to product unit costs.
- B. Cash was collected on accounts receivable.
- C. Product unit costs were assigned to cost of goods sold when the units were sold.
- D. Depreciated equipment was sold in exchange for a note receivable.
Answer: D
Explanation:
Choice "b" is correct. Revenues and gains are realized when assets are exchanged for cash or claims to
cash. SFAC 5 para. 83.
Choice "a" is incorrect. Assigning depreciation in a production department is an example of allocating
overhead. There is no realization associated with the assignment.
Choice "c" is incorrect. The realization concept is integral to accounting for revenues and expenses and is
not connected to collection of receivables.
Choice "d" is incorrect. Assignment of overhead costs to products and thus to cost of goods sold is an
example of matching. There is no realization associated with this assignment.
NEW QUESTION # 61
Which of the following is true regarding the presentation of "comprehensive income."
- A. Option A
- B. Option D
- C. Option C
- D. Option B
Answer: C
Explanation:
Choice "c" is correct. No - Yes.
Comprehensive income may be shown on the face of a combined "statement of income and
comprehensive income" a separate section below net income, or in:
1 . Separate "statement of comprehensive income," or as a
2 . Component of the "statement of changes of owners' equity."
The income tax expense or benefit allocated to components must be disclosed, either on the face of the
statement or in notes to the statement.
Choices "a", "b", and "d" are incorrect, per the above rules.
NEW QUESTION # 62
According to the FASB conceptual framework, the objectives of financial reporting for business
enterprises are based on:
- A. The need for conservatism.
- B. The needs of the users of the information.
- C. Generally accepted accounting principles.
- D. Reporting on management's stewardship.
Answer: B
Explanation:
Choice "d" is correct. The FASB conceptual framework states that the objectives of financial reporting
stem from the informational needs of the external users of the information. SFAC 1 para.
Choice "a" is incorrect. Conservatism is an underlying concept for financial accounting but is not the basis
for the objectives. SFAC 2 para. 91-97 Choice "b" is incorrect. Information concerning management's
stewardship is only one aspect of the information financial statements are intended to provide. SFAC 1
para. 50 Choice "c" is incorrect. Generally accepted accounting principles (GAAP) are derived from and
based on the objectives of financial reporting, not the other way around.
NEW QUESTION # 63
Several sources of GAAP consulted by an auditor are in conflict as to the application of an accounting
principle. Which of the following should the auditor consider the most authoritative?
- A. FASB Statements of Financial Accounting Concepts.
- B. AICPA Technical Practice Aids.
- C. FASB Technical Bulletins.
- D. AICPA Accounting Interpretations.
Answer: C
Explanation:
Choice "a" is correct. The most authoritative pronouncements (first floor) are FASB Statements, FASB
Staff Positions, FASB Statement 133 Implementation Issues, FASB Interpretations, AICPA APB opinions,
and AICPA Accounting Research Bulletins. When these pronouncements do not provide appropriate
guidance, the next level of pronouncements (second floor) are AICPA Industry Audit and Accounting
Guides, AICPA Statements of Position, and FASB Technical Bulletins. Choice "b" is incorrect. AICPA
Accounting Interpretations are not as authoritative as FASB Technical Bulletins, since they are on the
fourth floor. Choices "c" and "d" are incorrect. FASB Concepts Statements and AICPA Technical Practice
Aids are among the least authoritative of accounting literature (fifth floor).
NEW QUESTION # 64
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
During 1993, Quo determined that an insurance premium paid and entirely expensed in 1992 was for the
period January 1, 1992, through January 1, 1994.
List A (Select one)
- A. Neither an accounting change nor an accounting error.
- B. Change in accounting principal.
- C. Change in accounting estimate.
- D. Correction of an error in previously presented financial statements.
Answer: D
Explanation:
Choice "c" is correct. Expensing insurance premiums when paid (rather than allocating them to the
periods benefited) is a correction of an error in previously presented financial statements.
NEW QUESTION # 65
On January 2, 20X5, to better reflect the variable use of its only machine, Holly, Inc. elected to change its
method of depreciation from the straight-line method to the units of production method. The original cost
of the machine on January 2, 20X3, was $50,000, and its estimated life was 10 years. Holly estimates that
the machine's total life is 50,000 machine hours. Machine hours usage was 8,500 during 20X4 and 3,500
during 20X3.
Holly's income tax rate is 30%. Holly should report the accounting change in its 20X5 financial statements
as a(n):
- A. Adjustment to beginning retained earnings of $2,000.
- B. None of the above.
- C. Cumulative effect of a change in accounting principle of $2,000 in its income statement.
- D. Cumulative effect of a change in accounting principle of $1,400 in its income statement.
Answer: B
Explanation:
Choice "d" is correct. A change in the method of depreciation is now considered to be both a change in
method and a change in estimate. These changes should be accounted for as changes in estimate and
handled prospectively. The new depreciation method should be used as of the beginning of the year of
change and should start with the current book value of the underlying asset. No retroactive or
retrospective calculations should be made, and no adjustment should be made to retained earnings. The
cumulative effect treatment on the income statement was the treatment of most changes in accounting
principle prior to SFAS No. 154. The adjustment to beginning retained earnings is the treatment now
given to changes in accounting principle by SFAS No. 154. However a change in depreciation method is
no longer accounted for as a change in accounting principle. Choices "a", "b", and "c" are incorrect, per
the above Explanation: .
NEW QUESTION # 66
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 LIFO to FIFO to account for its finished goods inventory.
List B (Select one)
- A. Retroactive or retrospective restatement approach.
- B. Cumulative effect approach.
- C. Prospective approach.
Answer: A
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 # 67
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:
- A. Income statement after income from continuing operations and after extraordinary items.
- B. Income statement after income from continuing operations and before extraordinary items.
- C. Retained earnings statement as an adjustment of the opening balance.
- D. Retained earnings statement after net income but before dividends.
Answer: C
Explanation:
Choice "b" is correct. 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.
Choice "a" is incorrect. The adjustment is before net income, not after net income.
Choices "c" and "d" are incorrect. Corrections of errors of prior periods go to retained earnings and do not
affect the income statement.
NEW QUESTION # 68
Rock Co.'s financial statements had the following balances at December 31:
What amount should Rock report as comprehensive income for the year ended December 31?
- A. $420,000
- B. $570,000
- C. $520,000
- D. $400,000
Answer: C
Explanation:
Choice "c" is correct. Comprehensive Income includes all items included in "Net Income" plus "Other
Comprehensive Income" items. Since the $50,000 extraordinary gain is already included in Net Income,
Comprehensive Income is:
NEW QUESTION # 69
On January 1, 20X1, Pell Corp. purchased a machine having an estimated useful life of 10 years and no
salvage. The machine was depreciated by the double declining balance method for both financial
statement and income tax reporting. On January 1, 20X6, Pell changed to the straight-line method for
financial statement reporting but not for income tax reporting. Accumulated depreciation at December 31,
2 0X5, was $560,000. If the straight-line method had been used, the accumulated depreciation at
December 31, 20X5, would have been $420,000. Pell's enacted income tax rate for 20X6 and thereafter is
3 0%. The amount shown in the 20X6 income statement for the cumulative effect of changing to the
straight-line method should be:
- A. $0.
- B. $98,000 credit.
- C. $140,000 credit.
- D. $98,000 debit.
Answer: A
Explanation:
Choice "d" is correct. A change in the method of depreciation is now considered to be both a change in
method and a change in estimate. These changes should be accounted for as changes in estimate and
handled prospectively. The new depreciation method should be used as of the beginning of the year of
change and should start with the current book value of the underlying asset. No retroactive or
retrospective calculations should be made, and no adjustment should be made to retained earnings. And,
certainly, the cumulative effect should not be reflected on the income statement any more. Choices "a",
"b", and "c" are incorrect, per the above Explanation: .
NEW QUESTION # 70
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. $480,000
- C. $400,000
- D. $360,000
Answer: B
Explanation:
Note: Only one-half of rent for office space was used for sales office. Choice "a" is correct. $480,000.
NEW QUESTION # 71
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 changed from FIFO to average cost to account for its raw materials and work in process inventories.
List A (Select one)
- A. Change in accounting principal.
- B. Neither an accounting change nor an accounting error.
- C. Change in accounting estimate.
- D. Correction of an error in previously presented financial statements.
Answer: A
Explanation:
Choice "a" is correct. Change in inventory pricing method from FIFO to average cost is a change in
accounting principle.
NEW QUESTION # 72
Which of the following statements is incorrect regarding the inputs that can be used to measure fair
value?
I. Level I inputs are the most reliable fair value measurements and Level III inputs are the least reliable.
II. Level I measurements are quoted prices in active markets for identical or similar assets or liabilities.
III. A fair value measurement based on management assumptions only (no market data) would not be
acceptable per GAAP.
IV. The level in the fair value hierarchy of a fair value measurement is determined by the level of the
highest level significant input.
- A. II, III, IV.
- B. I, II, III, IV.
- C. I, II, IV.
- D. I only.
Answer: A
Explanation:
Choice "c" is correct. Statement I is correct and statements II, III, and IV are incorrect. Statement II is
incorrect because Level I measurements are quoted prices in active markets for identical assets or
liabilities only. Quoted prices in active markets for similar assets or liabilities are Level II inputs. Statement
III is incorrect because a fair value measurement based on management assumptions only is a Level III
measurement and is acceptable when there are no Level I or Level II inputs or when undo cost or effort is
required to obtain Level I or Level II inputs. Statement IV is incorrect because the level in the fair value
hierarchy of a fair value measurement is determined by the level of the lowest level significant input.
NEW QUESTION # 73
......
Full FAR Practice Test and 165 unique questions with explanations waiting just for you, get it now: https://drive.google.com/open?id=158v-w6GvaA0HH-0vJSK8e_LhjF-EfwFx
Accurate & Verified Answers As Seen in the Real Exam here: https://www.testkingfree.com/AICPA/FAR-practice-exam-dumps.html