[FAR] quiz #2/2

1
Kale Co. purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Kale should account for these bonds at
A. Cost.
B. Amortized cost.
C. Fair value.
D. Lower of cost or market.

→ D TBC
bonds, as an investment, to maturity

2
On April 1, 20x1, Saxe, Inc. purchased $200,000 face value, 9% US Treasury notes for $198,500, including accrued interest of $4,500. The notes mature July 1, 20x2, and pay interest semiannually on January 1 and July 1. Saxe uses the straight-line method of amortization and intends to hold the notes to maturity. In its October 31, 20x1 balance sheet, the carrying amount of this investment should be
A. $194,000
B. $196,800
C. $197,200
D. $199,000

→ TBC
US Treasury notes, pay interest semiannually, straight-line method

3
Under FASB Statement of Financial Accounting Concepts 5, which of the following items would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles?
A. Unrealized loss on investments classified as available-for-sale securities.
B. Unrealized loss on investments classified as trading securities.
C. Loss on exchange of similar assets.
D. Loss on exchange of dissimilar assets.

4
Which of the following falls into a notional amount?
A. Number of barrels of oil.
B. Interest swaps.
C. Security prices.
D. Credit rating.

5
Which of the following criteria must be met for a hedging instrument?
A. Sufficient documentation must be provided at the beginning of the process.
B. Must contain a nonperformance clause that makes the counterparty execute an agreement.
C. Must contain one or more underlyings and notional amounts.
D. Must be "highly effective" only at inception of the hedge.

6
Justification for the method of determining periodic deferred tax expense is based on the concept of
A. Matching of periodic expense to periodic revenue.
B. Objectivity in the calculation of periodic expense.
C. Recognition of assets and liabilities.
D. Consistency of tax expense measurements with actual tax planning strategies.

7
The primary purpose of a statement of cash flows is to provide relevant information about
A. Differences between net income and associated cash receipts and disbursements.
B. An enterprise's ability to generate future positive net cash flows.
C. The cash receipts and cash disbursements of an enterprise during a period.
D. An enterprise's ability to meet cash operating needs.

8
King Corp. owns 100% of Lee Corp.'s common stock. During October 20x1, Lee sold merchandise to King for $100,000. At December 31, 20x1, one half of the merchandise remained in King's inventory. For 20x1, gross profit percentages were 30% for King and 40% for Lee.
The amount of unrealized intercompany profit in ending inventory at December 31, 20x1 that should be eliminated in consolidation is
A. $40,000
B. $20,000
C. $16,000
D. $15,000

9
On January 1, 20x1, Flax Co. purchased a machine for $528,000 and depreciated it by the straight-line method using an estimated useful life of 8 years with no salvage value. On January 1, 20x4, Flax determined that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value of $48,000. An accounting change was made in 20x4 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 20x4 of
A. $292,000
B. $308,000
C. $320,000
D. $352,000

10
Oak Co. offers a 3-year warranty on its products. Oak previously estimated warranty costs to be 2% of sales. Due to a technological advance in production at the beginning of 20x3, Oak now believes 1% of sales to be a better estimate of warranty costs. Warranty costs of $80,000 and $96,000 were reported in 20x1 and 20x2, respectively. Sales for 20x3 were $5,000,000. What amount should be disclosed in Oak's 20x3 financial statements as warranty expense?
A. $50,000
B. $88,000
C. $100,000
D. $138,000

11
Personal financial statements usually consist of
A. A statement of net worth and a statement of changes in net worth.
B. A statement of net worth, an income statement, and a statement of changes in net worth.
C. A statement of financial condition and a statement of changes in net worth.
D. A statement of financial condition, a statement of changes in net worth, and a statement of cash flows.

12
ASC 270, Interim Reporting, concluded that interim financial reporting should be viewed primarily in which of the following ways?
A. As useful only if activity is spread evenly throughout the year.
B. As if the interim period were an annual accounting period.
C. As reporting for an integral part of an annual period.
D. As reporting under a comprehensive basis of accounting other than GAAP.

13
For the year ended December 31, 20x1, the general fund of Meckleston Village reported revenues from the following sources on the statement of revenues, expenditures, and changes in fund balances:

Sales taxes $ 35,000
Property taxes 145,000
Liquor licenses 25,000
Fines 10,000

In accordance with GASB 33, Accounting and Financial Reporting for Nonexchange Transactions, what is the amount of revenues that came from imposed nonexchange transactions?
A. $215,000
B. $180,000
C. $170,000
D. $155,000

14
Which of the following accounts of a governmental unit is credited when taxpayers are billed for property taxes?
A. Appropriations.
B. Taxes receivable-current.
C. Estimated revenues.
D. Revenues.

15
In November 20x1, Maple Township received an unexpected state grant of $100,000 to finance the purchase of school buses, and an additional grant of $5,000 was received for bus maintenance and operations. According to the terms of the grant, the State reimbursed Maple Township for $60,000 for the purchase of school buses and an additional $5,000 for bus maintenance during the year ended June 30, 20x2. The remaining $40,000 of the capital grant is expected to be expended during the year ending June 30, 20x3. Maple's school bus system is appropriately accounted for in the special revenue fund. In connection with the grants for the purchase of school buses and bus maintenance, what amount should be reported as grant revenues for the year ending June 30, 20x2, when using modified accrual accounting?
A. $5,000
B. $60,000
C. $65,000
D. $100,000

16
Elm City issued a purchase order for supplies with an estimated cost of $5,000. When the supplies were received, the accompanying invoice indicated an actual price of $4,950. What amount should Elm debit (credit) to Budgetary Fund Balance--Reserved for Encumbrances after the supplies and invoice were received?
A. $(50)
B. $50
C. $4,950
D. $5,000

17
Dale City is accumulating financial resources that are legally restricted to payments of general long-term debt principal and interest maturing in future years. At December 31, 20x1, $5,000,000 has been accumulated for principal payments and $300,000 has been accumulated for interest payments. These restricted funds should be accounted for in the

Debt service fund General fund
A. $0 $5,300,000
B. $300,000 $5,000,000
C. $5,000,000 $300,000
D. $5,300,000 $0

18
Which of the following transactions is an expenditure of a governmental unit's general fund?
A. Contribution of enterprise fund capital by the general fund.
B. Transfer from the general fund to a capital projects fund.
C. Operating subsidy transfer from the general fund to an enterprise fund.
D. Routine employer contributions from the general fund to a pension trust fund.

19
Reed College, a private not-for-profit college, received the following contributions during 20x1:

I. $3,000,000 from alumni for construction of a new wing on the science building to be constructed in 20x2.
II. $1,500,000 from a donor who stipulated that the contribution be invested indefinitely and that the earnings be used for scholarships. As of December 31, 20x1, earnings from investments amounted to $60,000.

For the year ended December 31, 20x1, what amount of these contributions should be reported as temporarily restricted revenues on the statement of activities?
A. $60,000
B. $3,060,000
C. $3,000,000
D. $4,560,000

20
Foster Hospital, a nonprofit hospital affiliated with a private university, provided $100,000 of charity care for patients during the year ended December 31, 20x1. The hospital should report this charity care
A. As accounts receivable of $100,000 on the balance sheet at December 31, 20x1.
B. As net patient service revenue of $100,000 on the statement of operations.
C. As net patient service revenue of $100,000 and as an operating expense of $100,000 on the statement of operations.
D. Only in the notes to the financial statements for 20x1.

tag : CPA USCPA FAR

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