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Who should take the Financial Accounting and Reporting (FAR) Exam
Candidates must see the FAR exam dumps pdf to see if they are interested in the contents. People who wish to become Financial Accounting and Reporting experts and explore the dynamic culture of this field to jump-start their certification and lifelong learning goals should take this exam. Many businesses prefer that their accountants are Financial Accounting and Reporting (FAR) certified. Applicants winning their FAR title will find themselves more hirable and will be better paid. To become eligible for the exam, a candidate must have completed a 120 program approved by NYSED. Also, they must have completed their bachelor's degree with accounting as their major.
Introduction to Financial Accounting and Reporting (FAR) Exam
The Standardized CPA Evaluation is the exam portion of the Financial Accounting and Reporting (FAR) which measures the expertise and skills that a newly qualified CPA must demonstrate in the financial accounting and reporting systems used by enterprise (public and non-public), non-profit, and state and local government agencies.
In the FAR portion of the test, the examination contains the requirements and regulations provided by:
- Governmental Accounting Standards Board (GASB)
- International Accounting Standards Board (IASB)
- Financial Accounting Standards Board (FASB)
- American Institute of Certified Public Accountants (AICPA)
- U.S. Securities and Exchange Commission (U.S. SEC)
The FAR section consists of questions that emphasize the conceptual structure and financial reporting, the selection of accounts of financial statements, the selection of transactions, and the application of state and local governments to accounting work. These sections can be overviewed from the FAR practice test. References at the end of this introduction provide a list of guidelines and regulations provided by these bodies and other reference materials that are available for evaluation in the FAR portion of the review.
How to Prepare For Financial Accounting and Reporting (FAR) Exam
Preparation Guide for Financial Accounting and Reporting (FAR) Exam
Introduction
The Financial Accounting and Reporting FAR exam test is part of the uniform CPA examination and is administered by the American Institute of Certified Public Accountants (AICPA). The American Institute of Certified Public Accountants (AICPA) is the United States national professional association of Certified Public Accountants (CPAs), with more than 418,000 members in business and industry, public practice, government, education, student affiliates, and foreign associates in 143 countries. Established in 1887, the association sets ethical guidelines for audits of private businesses, non-profit organizations, federal, state, and local governments for the profession and U.S. auditing standards. It also establishes the Standardized CPA Test and rates it. The AICPA has offices in New York City; Durham, NC; Washington DC; and Ewing, NJ.
For practitioners aspiring to become CPAs, the Standardized Certified Public Accountant test is a credentialing exam. It is graded and governed by the American Institute of Certified Public Accountants (AICPA) and by the National Association of State Accountancy Boards (NASBA).
This exam guide is intended to get you to know about the exam details and help you to prepare for the Financial Accounting and Reporting FAR exam test successfully. This guide includes information on the certification test target audience, recommended preparation FAR exam dumps and documentation, and a full list of exam targets, all to help you obtain a passing grade. To increase your chances of passing the test, AICPA strongly recommends a mix of on-the-job experience, course attendance, and self-study.
NEW QUESTION 82
During 1990, Fuqua Steel Co. had the following unusual financial events occur:
. Bonds payable were retired five years before their scheduled maturity, resulting in a $260,000 gain.
Fuqua has frequently retired bonds early when interest rates declined significantly.
. A steel forming segment suffered $255,000 in losses due to hurricane damage. This was the fourth
similar loss sustained in a 5-year period at that location.
. A component of Fuqua's operations, steel transportation, was sold at a net loss of $350,000.
This was Fuqua's first divestiture of one of its operating segments.
Before income taxes, what amount of gain (loss) should be reported separately as a component of
income from continuing operations in 1990?
- A. $5,000
- B. $(255,000)
- C. $260,000
- D. $(350,000)
Answer: A
Explanation:
Choice "b" is correct. $5,000.
The steel forming segment's hurricane damage (4th in 5 years) of $255,000 is only "unusual in nature"
and does not occur infrequently, therefore, it is not an "extraordinary item," and should be reported
separately as a component of "income from continuing operations."
The retirement of debt, although unusual, is not infrequent for the company; therefore, the gain does not
qualify for classification as an extraordinary item per APBO No. 30 (and SFAS No. 145).
NEW QUESTION 83
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. During 1992 by a weighted average of the purchases.
- B. During the eight months ending August 31, 1992, by a weighted average of the purchases.
- C. As of August 31, 1992.
- D. As of January 1, 1992.
Answer: D
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 84
The following items were among those that were reported on Lee Co.'s income statement for the year
ended December 31, 1989:
The office space is used equally by Lee's sales and accounting departments. What amount of the above
listed items should be classified as general and administrative expenses in Lee's multiple-step income
statement?
- A. $410,000
- B. $325,000
- C. $290,000
- D. $500,000
Answer: C
Explanation:
Note: 1/2 of the office space of $240,000 was used by the sales department, which should be allocated to
"selling expenses" (not general and administrative).
Choice "a" is correct. $290,000.
NEW QUESTION 85
Dean Co. acquired 100% of Morey Corp. prior to 1989. During 1989, the individual companies included in
their financial statements the following:
What amount should be reported as related party disclosures in the notes to Dean's 1989 consolidated
financial statements?
- A. $175,000
- B. $150,000
- C. $155,000
- D. $330,000
Answer: A
Explanation:
Choice "c" is correct. The only related party transaction that would require disclosure (assuming that all
amounts are material to the financial statements) would be the loans to officers since they are outside of
the ordinary course of business. Choices "a", "b", and "d" are incorrect. Officers' salaries, officers'
expenses and intercompany sales (between entities included in a consolidated set of financial statements)
are all transactions in the ordinary course of business and generally would not require disclosure.
NEW QUESTION 86
The following costs were incurred by Griff Co., a manufacturer, during 1992: What amount of these costs
should be reported as general and administrative expenses for 1992?
- A. $635,000
- B. $260,000
- C. $550,000
- D. $810,000
Answer: B
Explanation:
Choice "a" is correct. $260,000. General and administrative
"Freight-in" is part of "cost of goods sold."
"Freight-out" is a "selling" expense.
Sales representative salaries is a selling expense.
NEW QUESTION 87
Which of the following types of entities are required to report on business segments?
- A. Publicly-traded enterprises.
- B. Not-for-profit enterprises.
- C. Joint ventures.
- D. Nonpublic business enterprises.
Answer: D
Explanation:
Choice "b" is correct. Only publicly-traded enterprises are required to report on business segments.
Choices "a", "c", and "d" are incorrect, per the Explanation: above.
NEW QUESTION 88
During 1990, Fuqua Steel Co. had the following unusual financial events occur:
. Bonds payable were retired five years before their scheduled maturity, resulting in a $260,000 gain.
Fuqua has frequently retired bonds early when interest rates declined significantly.
. A steel forming segment suffered $255,000 in losses due to hurricane damage. This was the fourth
similar loss sustained in a 5-year period at that location.
. A component of Fuqua's operations, steel transportation, was sold at a net loss of $350,000.
This was Fuqua's first divestiture of one of its operating segments.
Before income taxes, what amount should be disclosed as the gain (loss) from extraordinary items in
1 990?
- A. $5,000
- B. $0
- C. $(90,000)
- D. $(350,000)
Answer: B
Explanation:
Choice "a" is correct. $0. Note: The sale of the steel transportation component resulted in a loss from
discontinued operations and is reported after "income from continuing operations." The steel forming
segment's hurricane damage (4th in 5 years) of $255,000 is only "unusual in nature" and does not occur
infrequently, therefore, it is not an "extraordinary item," and should be reported separately as a
component of "income from continuing operations." The retirement of debt, although unusual, is not
infrequent for the company; therefore, the gain does not qualify for classification as an extraordinary item
per APBO No. 30 (and SFAS No. 145).
NEW QUESTION 89
According to the FASB's conceptual framework, the process of reporting an item in the financial
statements of an entity is:
- A. Recognition.
- B. Matching.
- C. Allocation.
- D. Realization.
Answer: A
Explanation:
Choice "a" is correct. Recognition.
According to the FASB's conceptual framework, the process of reporting an item in the financial
statements of an entity is recognition.
NEW QUESTION 90
A statement of cash flows for a development stage enterprise:
- A. Is not presented.
- B. Is the same as that of an established operating enterprise, but does not show cumulative amounts from
the enterprise's inception. - C. Is the same as that of an established operating enterprise and, in addition, shows cumulative amounts
from the enterprise's inception. - D. Shows only cumulative amounts from the enterprise's inception.
Answer: C
Explanation:
Rule: Development stage enterprises should present financial statements in accordance with
GAAP and make additional disclosures such as cumulative amounts from inception for: net losses,
deficits, sales, expenses, and cash flows and supplementary data.
Choice "a" is correct, per the rule shown above.
Choice "b" is incorrect. Current amounts are shown as well as cumulative amounts.
Choice "c" is incorrect. Cumulative amounts from inception are shown.
Choice "d" is incorrect. A statement of cash flows is required.
NEW QUESTION 91
According to the FASB conceptual framework, the quality of information that helps users increase the
likelihood of correctly forecasting the outcome of past or present events is called:
- A. Representational faithfulness.
- B. Feedback value.
- C. Reliability.
- D. Predictive value.
Answer: D
Explanation:
Choice "b" is correct. The quality of information that helps users increase the likelihood of correctly
forecasting the outcome of past or present events is called predictive value. Forecasting is predicting.
Choice "a" is incorrect. The quality of information that helps users increase the likelihood of correctly
forecasting the outcome of past or present events is called predictive value, not feedback value.
Feedback value enables decision makers to confirm prior expectations or to adjust or correct the
decisions made previously. Choice "c" is incorrect. The quality of information that helps users increase
the likelihood of correctly forecasting the outcome of past or present events is called predictive value, not
representational faithfulness. Representational faithfulness is the agreement between financial reporting
and the resources or events represented. Choice "d" is incorrect. The quality of information that helps
users increase the likelihood of correctly forecasting the outcome of past or present events is called
predictive value, not reliability. Reliability is the combination of neutrality, representational faithfulness,
and verifiability.
NEW QUESTION 92
The following information pertains to Aria Corp. and its divisions for the year ended December 31, 1988:
Aria and all of its divisions are engaged solely in manufacturing operations. Aria has a reportable segment
if that segment's revenue exceeds:
- A. $260,000
- B. $200,000
- C. $264,000
- D. $204,000
Answer: A
Explanation:
Choice "b" is correct. $260,000 represents a reportable segment (10% of total sales):
Rule: To be significant enough to report on, a segment must be at least 10% of:
1 . Combined revenues (whether intersegment or unaffiliated customers), or
2 . Operating income, or
3 . Identifiable assets.
NEW QUESTION 93
Advertising costs may be accrued or deferred to provide an appropriate expense in each period for:
- A. Option B
- B. Option D
- C. Option C
- D. Option A
Answer: A
Explanation:
Choice "b" is correct. Yes - Yes.
Advertising costs may be accrued or deferred to provide an appropriate expense in each period for both
"interim" and "year-end" financial reporting.
NEW QUESTION 94
Which of the following should be disclosed in a summary of significant accounting policies?
I. Management's intention to maintain or vary the dividend payout ratio.
II. Criteria for determining which investments are treated as cash equivalents.
III. Composition of the sales order backlog by segment.
- A. II and III.
- B. II only.
- C. I and III.
- D. I only.
Answer: B
Explanation:
Choice "c" is correct. Il only.
The criteria for determining which investments are treated as "cash equivalents" is a method of
accounting policies that needs to be disclosed in the summary of significant accounting policies.
Choice "a" is incorrect. Management's intention to maintain or vary the "dividend payout ratio" is not an
"accounting policy."
Choices "b" and "d" are incorrect. Composition of the sales order backlog by segment is not an
"accounting policy."
NEW QUESTION 95
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
The equipment that Quo manufactures is sold with a five-year warranty. Because of a production
breakthrough, Quo reduced its computation of warranty costs from 3% of sales to 1% of sales.
List B (Select one)
- A. Cumulative effect approach.
- B. Retroactive or retrospective restatement approach.
- C. Prospective approach.
Answer: C
Explanation:
Choice "C" is correct. This affects only the prospective (current and subsequent) periods - not prior
periods, not retained earnings.
NEW QUESTION 96
In 1992, hail damaged several of Toncan Co.'s vans. Hailstorms had frequently inflicted similar damage to
Toncan's vans. Over the years, Toncan had saved money by not buying hail insurance and either paying
for repairs, or selling damaged vans and then replacing them. In 1992, the damaged vans were sold for
less than their carrying amount. How should the hail damage cost be reported in Toncan's 1992 financial
statements?
- A. The actual 1992 hail damage loss in continuing operations, with no separate disclosure.
- B. The expected average hail damage loss in continuing operations, with separate disclosure.
- C. The actual 1992 hail damage loss as an extraordinary loss, net of income taxes.
- D. The expected average hail damage loss in continuing operations, with no separate disclosure.
Answer: A
Explanation:
Choice "b" is correct. Actual hail damage must be reported. Since the hailstorms are frequent, the
damage is not considered an extraordinary gain/loss. Thus, the damages would be shown in continuing
operations. No separate disclosure is necessary since hail damage is a common occurrence. Choice "a"
is incorrect. Hailstorms are not unusual and infrequent so the loss could not be classified as extraordinary.
APB 30 para. 20 Choice "c" is incorrect. Actual hail damage must be reported. Estimated hail damage
may be probable but is not estimable; so it should not be included in income calculations. Choice "d" is
incorrect. Estimated hail damage may be probable but is not estimable; so it should not be included in
income calculations.
NEW QUESTION 97
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
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 B (Select one)
- A. Retroactive or retrospective restatement approach.
- B. Cumulative effect approach.
- C. Prospective approach.
Answer: A
Explanation:
Choice "B" is correct. If comparative FS are issued, restate prior year's FS. If comparative FS are not
issued, restate prior year-end's retained earnings account by "adjusting" (net of tax) the opening balance
of the current retained earnings statement.
NEW QUESTION 98
FASB Interpretations of Statements of Financial Accounting Standards have the same authority as the
FASB:
- A. Statements of Financial Accounting Standards.
- B. Technical Bulletins.
- C. Emerging Issues Task Force Consensus.
- D. Statements of Financial Accounting Concepts.
Answer: A
Explanation:
Choice "d" is correct. FASB interpretations of the "statements of financial accounting standards" (SFAS)
have the same authority as the FASB statements of financial accounting standards (SFAS), which by
themselves determine GAAP. Choice "a" is incorrect. Statements of financial accounting concepts (FAC's)
have much less authority (fifth floor) and do not by themselves determine GAAP as is the case with
SFASs and interpretations of SFASs. Choice "b" is incorrect. Emerging issues task force (EITF)
consensus is in the nature of a "third floor" authority. The EITF was established in 1984 to aid the FASB in
identifying and implementing emerging issues before they become widespread and ultimately require
action by the FASB. After discussing the issues and the relevant accounting pronouncements, the group
can sometimes reach a consensus on an issue, in which case no action by the FASB is usually needed.
Choice "c" is incorrect. Technical bulletins of the FASB (second floor) do not by themselves determine
GAAP.
NEW QUESTION 99
In single period statements, which of the following should not be reflected as an adjustment to the
opening balance of retained earnings?
- A. Cumulative effect of a change from LIFO to FIFO in valuing merchandise inventory.
- B. Effect of a failure to provide for uncollectible accounts in the previous period.
- C. Cumulative effect of a change from the percentage of completion to the completed contract method of
accounting for long-term construction projects. - D. Effect of a decrease in the estimated useful life of depreciable equipment.
Answer: D
Explanation:
Choice "b" is correct. A change in the estimated useful life of a depreciable asset is a change in estimate
handled prospectively. No adjustment to retained earnings is necessary. Choice "a" is incorrect. The
correction of a failure to provide for uncollectible accounts is considered to be a correction of an error. The
opening balance of retained earnings would be adjusted to correct the error. Choice "c" is incorrect. This
change is a change in accounting principle and is handled retrospectively. With retrospective application,
the opening balance of retained earnings would be adjusted to reflect the cumulative effect of the changes.
Choice "d" is incorrect. This change is a change in accounting principle and is handled retrospectively.
With retrospective application, the opening balance of retained earnings would be adjusted to reflect the
cumulative effect of the changes.
NEW QUESTION 100
YIV, Inc. is a multidivisional corporation, which has both intersegment sales and sales to unaffiliated
customers. YIV should report segment financial information for each division meeting which of the
following criteria?
- A. Segment revenue is 10% or more of consolidated revenue.
- B. Segment operating profit or loss is 10% or more of consolidated profit or loss.
- C. Segment revenue is 10% or more of combined revenue of all the company segments.
- D. Segment operating profit or loss is 10% or more of combined operating profit or loss of all company
segments.
Answer: C
Explanation:
Choice "c" is correct. Segment revenue is 10% or more of combined revenue of all the company
segments.
Rule: To be significant enough to report on, a segment must be at least 10% of:
1 . Combined revenues (whether intersegment or affiliated customers) or
2 . Operating profit (of all segments not having an operating loss), or
3 . Identifiable assets.
Choice "a" is incorrect. Rule is 10% of "operating profit," not "consolidated profit."
Choice "b" is incorrect. Segments with "operating losses" are not combined with those having "operating
profits" in determining a segment.
Choice "d" is incorrect. "Consolidated revenue" would not include "intersegment revenue." Rule is
"combined revenue," not "consolidated revenue."
NEW QUESTION 101
What information should a public company present about revenues from its reporting segments?
- A. Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany
sales. - B. No disclosure of revenues from foreign operations need be reported.
- C. Disclose as a combined amount sales to unaffiliated customers and intracompany sales between
geographic areas. - D. Disclose separately the amount of sales to unaffiliated customers but not the amount of intracompany
sales between geographic areas.
Answer: A
Explanation:
Choice "a" is correct. Unaffiliated customers sales and intracompany sales must be disclosed separately.
NEW QUESTION 102
According to the FASB conceptual framework, comprehensive income includes which of the following?
- A. Option B
- B. Option D
- C. Option C
- D. Option A
Answer: A
Explanation:
Choice "b" is correct. Comprehensive income is the change in equity of a business during a period from
transactions and other events and circumstances from non-owner sources. It includes all changes in
equity except those resulting from investments by owners and distributions to owners. SFAC 6 para 70.
NEW QUESTION 103
In the hierarchy of generally accepted accounting principles, APB Opinions have the same authority as
AICPA:
- A. Issues Papers.
- B. Statements of Position.
- C. Accounting Research Bulletins.
- D. Industry Audit and Accounting Guides.
Answer: C
Explanation:
Choice "d" is correct. AICPA Accounting Research Bulletins, FASB Standards, FASB Interpretations,
FASB Staff Positions, FASB Statement 133 Implementation Issues, and APB Opinions and
Interpretations are the most authoritative sources of generally accepted accounting principles. Choice "a"
is incorrect. AICPA Statements of Position, AICPA Accounting and Auditing Guides, and FASB Technical
Bulletins are secondary sources of generally accepted accounting principles. Choice "b" is incorrect.
AICPA Statements of Position, AICPA Accounting and Auditing Guides, and FASB Technical Bulletins
are secondary sources of generally accepted accounting principles. Choice "c" is incorrect. AICPA Issues
Papers and Practice Bulletins, FASB Concepts Statements, and other authoritative pronouncements are
tertiary sources for generally accepted accounting principles.
NEW QUESTION 104
......
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