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released FAR CPA Questions 2013
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2013 AICPA Newly Released Questions – Financial
1 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
Following are multiple choice questions recently released by the AICPA. These
questions were released by the AICPA with letter answers only. Our editorial board is
currently working on providing detailed explanations for these questions, so please
check back to the Becker Knowledgebase soon for the updated file.
Please note that the AICPA generally releases questions that it does NOT intend to use
again. These questions and content may or may not be representative of questions you
may see on any upcoming exams.
Click here to view 2013 AICPA Released Simulations.
2013 AICPA Newly Released Questions – Financial
2 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
AICPA QUESTIONS RATED MODERATE DIFFICULTY 1. CPA-
Which of the following is the paramount objective of financial reporting by state and local governments?
a. Reliability. b. Consistency. c. Comparability. d. Accountability. Explanation
Choice "d" is correct.
2013 AICPA Newly Released Questions – Financial
3 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
2. CPA-
A company is preparing its year-end cash flow statement using the indirect method. During the year, the following transactions occurred:
Dividends paid $300
Proceeds from the issuance of common stock 250
Borrowings under a line of credit 200
Proceeds from the issuance of convertible bonds 100
Proceeds from the sale of a building 150
What is the company's increase in cash flows provided by financing activities for the year?
a. $50 b. $150 c. $250 d. $550 Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
4 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
3. CPA-
A company has a 22% investment in another company that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?
a. The names and ownership percentages of the other stockholders in the investee company. b. The reason for the company's decision to invest in the investee company. c. The company's accounting policy for the investment. d. Whether the investee company is involved in any litigation. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
5 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
4. CPA-
King, Inc. owns 70% of Simmon Co.'s outstanding common stock. King's liabilities total $450,000, and Simmon's liabilities total $200,000. Included in Simmon's financial statements is a $100,000 note payable to King. What amount of total liabilities should be reported in the consolidated financial statements?
a. $520,000 b. $550,000 c. $590,000 d. $650,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
6 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
5. CPA-
In the financial statements of employee benefit pension plans and trusts, the plan investments are reported at:
a. Fair value. b. Historical cost. c. Net realizable value. d. Lower of historical cost or market. Explanation
Choice "a" is correct.
2013 AICPA Newly Released Questions – Financial
7 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
6. CPA-
A company should recognize goodwill in its balance sheet at which of the following points?
a. Costs have been incurred in the development of goodwill. b. Goodwill has been created in the purchase of a business. c. The company expects a future benefit from the creation of goodwill. d. The fair market value of the company's assets exceeds the book value of the company's assets. Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
8 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
7. CPA-
Hemple Co. maintains escrow accounts for various mortgage companies. Hemple collects the receipts and pays the bills on behalf of the customers. Hemple holds the escrow monies in interest-bearing accounts. They charge a 10% maintenance fee to the customers based on interest earned. Hemple reported the following account data:
Escrow liability beginning of year $ 500,000 Escrow receipts during the year 1,200,000 Real estate taxes paid during the year 1,450,000 Interest earned during the year 40,000
What amount represents the escrow liability balance on Hemple's books?
a. $290,000 b. $286,000 c. $214,000 d. $210,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
9 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
8. CPA-
An entity authorized 500,000 shares of common stock. At January 1, year 2, the entity had 110,000 shares of common stock issued and 100,000 shares of common stock outstanding. The entity had the following transactions in year 2:
March 1 Issued 15,000 shares of common stock
June 1 Resold 2,500 shares of treasury stock
September 1 Completed a 2-for-1 common stock split
What is the total number of shares of common stock that the entity has outstanding at the end of year 2?
a. 117,500 b. 230,000 c. 235,000 d. 250,000 Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
10 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
9. CPA-
A shoe retailer allows customers to return shoes within 90 days of purchase. The company estimates that 5% of sales will be returned within the 90-day period. During the month, the company has sales of $200,000 and returns of sales made in prior months of $5,000. What amount should the company record as net sales revenue for new sales made during the month?
a. $185,000 b. $190,000 c. $195,000 d. $200,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
11 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
10. CPA-
On January 1, year 1, Alpha Co. signed an annual maintenance agreement with a software provider for $15,000 and the maintenance period begins on March 1, year 1. Alpha also incurred $5,000 of costs on January 1, year 1, related to software modification requests that will increase the functionality of the software. Alpha depreciates and amortizes its computer and software assets over five years using the straight-line method. What amount is the total expense that Alpha should recognize related to the maintenance agreement and the software modifications for the year ended December 31, year 1?
a. $5,000 b. $13,500 c. $16,000 d. $20,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
12 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
11. CPA-
On October 31, year 1, a company with a calendar year end paid $90,000 for services that will be performed evenly over a six-month period from November 1, year 1, through April 30, year 2. The company expensed the $90,000 cash payment in October, year 1, to its services expense general ledger account. The company did not record any additional journal entries in year 1 related to the payment. What is the adjusting journal entry that the company should record to properly report the prepayment in its year 1 financial statements?
a. Debit prepaid services and credit services expense for $30,000. b. Debit prepaid services and credit services expense for $60,000. c. Debit services expense and credit prepaid services for $30,000. d. Debit services expense and credit prepaid services for $60,000. Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
13 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
12. CPA-
A company sponsors two defined benefit pension plans. The following information relates to the plans at year end:
Plan A Plan B
Fair value of plan assets $ 800,000 $1,000,000
Projected benefit obligation 1,000,000 700,000
What amount(s) should the company report in its balance sheet related to the plans?
a. Liability of $200,000; asset of $300,000. b. Asset of $100,000. c. Asset of $1,800,000; liability of $1,700,000. d. Liability of $100,000. Explanation
Choice "a" is correct.
2013 AICPA Newly Released Questions – Financial
14 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
13. CPA-
An overfunded single-employer defined benefit postretirement plan should be recognized in a classified statement of financial position as a:
a. Noncurrent liability. b. Current liability. c. Noncurrent asset. d. Current asset. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
15 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
14. CPA-
Which of the following statements is correct as it relates to changes in accounting estimates?
a. Most changes in accounting estimates are accounted for retrospectively. b. Whenever it is impossible to determine whether a change in an estimate or a change in accounting
principle occurred, the change should be considered a change in principle. c. Whenever it is impossible to determine whether a change in accounting estimate or a change in
accounting principle has occurred, the change should be considered a change in estimate. d. It is easier to differentiate between a change in accounting estimate and a change in accounting
principle than it is to differentiate between a change in accounting estimate and a correction of an error.
Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
16 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
15. CPA-
A company had the following outstanding shares as of January 1, year 2:
Preferred stock, $60 par, 4%, cumulative 10,000 shares Common stock, $3 par 50,000 shares
On April 1, year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, year 2, and no dividends were declared or paid during year 2. Net income for year 2 totaled $236,000. What amount is basic earnings per share for the year ended December 31, year 2?
a. $3.66 b. $3.79 c. $4.07 d. $4.21 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
17 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
16. CPA-
A company is completing its annual impairment analysis of the goodwill included in one of its cash generating units (CGUs). The recoverable amount of the CGU is $32,000. The company noted the following related to the CGU:
Goodwill Patents Other assets Total
Historical cost $15,000 $10,000 $35,000 $60,000
Depreciation and amortization 0 3,333 11,667 15,000
Carrying amount, December 31 $15,000 $6,667 $23,333 $45,000
Under IFRS, which of the following adjustments should be recognized in the company's consolidated financial statements?
a. Decrease goodwill by $13,000. b. Decrease goodwill by $15,000. c. Decrease goodwill by $3,250; patents by $2,167; and other assets by $7,583. d. Decrease goodwill by $4,333; patents by $1,926; and other assets by $6,741. Explanation
Choice "a" is correct.
2013 AICPA Newly Released Questions – Financial
18 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
17. CPA-
On January 1, a company enters into an operating lease for office space and receives control of the property to make leasehold improvements. The company begins alterations to the property on March 1 and the company's staff moves into the property on May 1. The monthly rental payments begin on July 1. The recognition of rental expense for the new offices should begin in which of the following months?
a. January. b. March. c. May. d. July. Explanation
Choice "a" is correct.
2013 AICPA Newly Released Questions – Financial
19 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
18. CPA-
On January 1, year 1, a shipping company sells a boat and leases it from the buyer in a sale-leaseback transaction. At the end of the 10-year lease, ownership of the boat reverts to the shipping company. The fair value of the boat, at the time of the transaction, was less than its undepreciated cost. Which of the following outcomes most likely will result from the sale-leaseback transaction?
a. The boat will not be classified in property, plant and equipment of the shipping company. b. The shipping company will recognize the total profit on the sale of the boat in the current year. c. The shipping company will not recognize depreciation expense for the boat in the current year. d. The shipping company will recognize in the current year a loss on the sale of the boat. Explanation
Choice "d" is correct.
2013 AICPA Newly Released Questions – Financial
20 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
19. CPA-
Markson Co. traded a concrete-mixing truck with a book value of $10,000 to Pro Co. for a cement-mixing machine with a fair value of $11,000. Markson needs to know the answer to which of the following questions in order to determine whether the exchange has commercial substance?
a. Does the book value of the asset given up exceed the fair value of the asset received? b. Is the gain on the exchange less than the increase in future cash flows? c. Are the future cash flows expected to change significantly as a result of the exchange? d. Is the exchange nontaxable? Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
21 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
20. CPA-
Which of the following is the proper treatment of the cost of equipment used in research and development activities that will have alternative future uses?
a. Expensed in the year in which the research and development project started. b. Capitalized and depreciated over the term of the research and development project. c. Capitalized and depreciated over its estimated useful life. d. Either capitalized or expensed, but not both, depending on the term of the research and development
project. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
22 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
21. CPA-
Which of the following local government funds uses the accrual basis of accounting?
a. Enterprise. b. Debt service. c. Capital projects. d. Special revenue. Explanation
Choice "a" is correct.
2013 AICPA Newly Released Questions – Financial
23 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
22. CPA-
Which of the following statements is the most significant characteristic in determining the classification of an enterprise fund?
a. The predominant customer is the primary government. b. The pricing policies of the activity establish fees and charges designed to recover its cost. c. The activity is financed by debt that is secured partially by a pledge of the net revenues from fees and
charges of the activity. d. Laws or regulations require that the activity's costs of providing services including capital costs be
recovered with taxes or similar revenues. Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
24 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
23. CPA-
How should a city's general fund report the acquisition of a new police car in its governmental fund statement of revenues, expenditures and changes in fund balances?
a. Noncurrent asset. b. Expenditure. c. Expense. d. Property, plant, and equipment. Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
25 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
24. CPA-
Which of the following types of information would be included in total net assets in the statement of financial position for a nongovernmental not-for-profit organization?
a. Total current net assets and total other assets. b. Total current assets and restricted assets. c. Unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. d. Unrestricted net assets, restricted net assets, and total current assets. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
26 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
25. CPA-
Which of the following resources increases the temporarily restricted net assets of a nongovernmental, not-for-profit voluntary health and welfare organization?
a. Refundable advances for purchasing playground equipment. b. Donor contributions to fund a resident camp program. c. Membership fees to fund general operations. d. Participants' deposits for an entity-sponsored trip. Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
27 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
AICPA QUESTIONS RATED HARD DIFFICULTY 26. CPA-
Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification?
a. A proposed statement of position. b. A proposed accounting standards update. c. A proposed accounting research bulletin. d. A proposed staff accounting bulletin. Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
28 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
27. CPA-
As of December 1, year 2 a company obtained a $1,000,000 line of credit maturing in one year on which it has drawn $250,000, a $750,000 secured note due in five annual installments, and a $300,000 three-year balloon note. The company has no other liabilities. How should the company's debt be presented in its classified balance sheet on December 31, year 2 if no debt repayments were made in December?
a. Current liabilities of $1,000,000; long-term liabilities of $1,050,000. b. Current liabilities of $500,000; long-term liabilities of $1,550,000. c. Current liabilities of $400,000; long-term liabilities of $900,000. d. Current liabilities of $500,000; long-term liabilities of $800,000. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
29 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
28. CPA-
Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in accounting principle, a $3,000 unrealized loss on available-for-sale securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Palmyra's comprehensive income?
a. $4,000 b. $10,000 c. $11,000 d. $17,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
30 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
29. CPA-
A company's first IFRS reporting period is for the year ended December 31, year 2. While preparing the year 2 statement of financial position, management identified an error in which a $90,000 loss accrual was not recorded. $40,000 of the loss accrual related to a year 1 event and $50,000 related to a year 2 event. What amount of loss accrual should the company report in its December 31, year 1, IFRS statement of financial position?
a. $0 b. $40,000 c. $50,000 d. $90,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
31 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
30. CPA-
A company manufactures and distributes replacement parts for various industries. As of December 31, year 1, the following amounts pertain to the company’s inventory:
Item
Cost
Net replacement
cost
Sale price Cost to sell
or dispose Normal profit margin
Blades $41,000 $ 38,000 $ 50,000 $ 2,000 $15,000
Towers 52,000 40,000 54,000 4,000 14,000
Generators 20,000 24,000 30,000 2,000 6,000
Gearboxes 80,000 105,000 120,000 12,000 8,000
What is the total carrying value of the company’s inventory as of December 31, year 1, under IFRS?
a. $178,000 b. $191,000 c. $193,000 d. $207,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
32 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
31. CPA-
A company obtained a $300,000 loan with a 10% interest rate on January 1, year 1, to finance the construction of an office building for its own use. Building construction began on January 1, year 1, and the project was not completed as of December 31, year 1. The following payments were made in year 1 related to the construction project:
January 1 Purchased land for $120,000
September 1 Progress payment to contractor for $150,000
What amount of interest should be capitalized for the year ended December 31, year 1?
a. $13,500 b. $15,000 c. $17,000 d. $30,000 Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
33 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
32. CPA-
A company recently moved to a new building. The old building is being actively marketed for sale, and the company expects to complete the sale in four months. Each of the following statements is correct regarding the old building, except:
a. It will be reclassified as an asset held for sale. b. It will be classified as a current asset. c. It will no longer be depreciated. d. It will be valued at historical cost. Explanation
Choice "d" is correct.
2013 AICPA Newly Released Questions – Financial
34 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
33. CPA-
A company has a parcel of land to be used for a future production facility. The company applies the revaluation model under IFRS to this class of assets. In year 1, the company acquired the land for $100,000. At the end of year 1, the carrying amount was reduced to $90,000, which represented the fair value at that date. At the end of year 2, the land was revalued, and the fair value increased to $105,000. How should the company account for the year 2 change in fair value?
a. By recognizing $10,000 in other comprehensive income. b. By recognizing $15,000 in other comprehensive income. c. By recognizing $15,000 in profit or loss. d. By recognizing $10,000 in profit or loss and $5,000 in other comprehensive income. Explanation
Choice "d" is correct.
2013 AICPA Newly Released Questions – Financial
35 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
34. CPA-
A company whose stock is trading at $10 per share has 1,000 shares of $1 par common stock outstanding when the board of directors declares a 30% common stock dividend. Which of the following adjustments should be made when recording the stock dividend?
a. Treasury stock is debited for $300. b. Additional paid-in capital is credited for $2,700. c. Retained earnings is debited for $300. d. Common stock is debited for $3,000. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
36 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
35. CPA-
Ina Co. had the following beginning and ending balances in its prepaid expense and accrued liabilities accounts for the current year:
Prepaid expenses Accrued liabilities Beginning balance $ 5,000 $ 8,000 Ending balance 10,000 20,000
Debits to operating expenses totaled $100,000. What amount did Ina pay for operating expenses during the current year?
a. $83,000 b. $93,000 c. $107,000 d. $117,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
37 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
36. CPA-
On January 1, year 1, a company issued its employees 10,000 shares of restricted stock. On January 1, year 2, the company issued to its employees an additional 20,000 shares of restricted stock. Additional information about the company's stock is as follows:
Date Fair value of stock (per share) January 1, year 1 $20 December 31, year 1 22 January 1, year 2 25 December 31, year 2 30
The shares vest at the end of a four-year period. There are no forfeitures. What amount should be recorded as compensation expense for the 12-month period ended December 31, year 2?
a. $175,000 b. $205,000 c. $225,000 d. $500,000 Explanation
Choice "a" is correct.
2013 AICPA Newly Released Questions – Financial
38 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
37. CPA-
Which of the following items is not subject to the application of intra-period income tax allocation?
a. Discontinued operations. b. Income from continuing operations. c. Extraordinary gains and losses. d. Operating income. Explanation
Choice "d" is correct.
2013 AICPA Newly Released Questions – Financial
39 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
38. CPA-
Cuthbert Industrials, Inc. prepares three-year comparative financial statements. In year 3, Cuthbert discovered an error in the previously issued financial statements for year 1. The error affects the financial statements that were issued in years 1 and 2. How should the company report the error?
a. The financial statements for years 1 and 2 should be restated; an offsetting adjustment to the cumulative effect of the error should be made to the comprehensive income in the year 3 financial statements.
b. The financial statements for years 1 and 2 should not be restated; financial statements for year 3 should disclose the fact that the error was made in prior years.
c. The financial statements for years 1 and 2 should not be restated; the cumulative effect of the error on years 1 and 2 should be reflected in the carrying amounts of assets and liabilities as of the beginning of year 3.
d. The financial statements for years 1 and 2 should be restated; the cumulative effect of the error on years 1 and 2 should be reflected in the carrying amounts of assets and liabilities as of the beginning of year 3.
Explanation
Choice "d" is correct.
2013 AICPA Newly Released Questions – Financial
40 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
39. CPA-
How should the acquirer recognize a bargain purchase in a business acquisition?
a. As negative goodwill in the statement of financial position. b. As goodwill in the statement of financial position. c. As a gain in earnings at the acquisition date. d. As a deferred gain that is amortized into earnings over the estimated future periods benefited. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
41 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
40. CPA-
Bale Co. incurred $100,000 of acquisition costs related to the purchase of the net assets of Dixon Co. The $100,000 should be:
a. Allocated on a pro rata basis to the nonmonetary assets acquired. b. Capitalized as part of goodwill and tested annually for impairment. c. Capitalized as an other asset and amortized over five years. d. Expensed as incurred in the current period. Explanation
Choice "d" is correct.
2013 AICPA Newly Released Questions – Financial
42 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
41. CPA-
Each of the following would be considered a Level 2 observable input that could be used to determine an asset or liability's fair value, except:
a. Quoted prices for identical assets and liabilities in markets that are not active. b. Quoted prices for similar assets and liabilities in markets that are active. c. Internally generated cash flow projections for a related asset or liability. d. Interest rates that are observable at commonly quoted intervals. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
43 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
42. CPA-
Smythe Co. invested $200 in a call option for 100 shares of Gin Co. $.50 par common stock, when the market price was $10 per share. The option expired in three months and had an exercise price of $9 per share. What was the intrinsic value of the call option at the time of initial investment?
a. $50 b. $100 c. $200 d. $900 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
44 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
43. CPA-
Which of the following financial instruments issued by a public company should be reported on the issuer's books as a liability on the date of issuance?
a. Cumulative preferred stock. b. Preferred stock that is convertible to common stock five years from the issue date. c. Common stock that contains an unconditional redemption feature. d. Common stock that is issued at a 5% discount as part of an employee share purchase plan. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
45 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
44. CPA-
A company exchanged land with an appraised value of $50,000 and an original cost of $20,000 for machinery with a fair value of $55,000. Assuming that the transaction has commercial substance, what is the gain on the exchange?
a. $0 b. $5,000 c. $30,000 d. $35,000 Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
46 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
45. CPA-
During the current year ended December 31, Metal, Inc. incurred the following costs:
Laboratory research aimed at discovery of new knowledge $ 75,000 Design of tools, jigs, molds, and dies involving new technology 22,000
Quality control during commercial production, including routine testing 35,000
Equipment acquired two years ago, having an estimated useful life of five years with no salvage value, used in various R & D projects
150,000
Research and development services performed by Stone Co. for Metal, Inc. 23,000
Research and development services performed by Metal, Inc. for Clay Co. 32,000
What amount of research and development expenses should Metal report in its current-year income statement?
a. $120,000 b. $150,000 c. $187,000 d. $217,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
47 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
46. CPA-
Lily City uses a pay-as-you-go approach for funding postemployment benefits other than pensions. The city reports no other postemployment benefits (OPEB) liability at the beginning of the year. At the end of the year, Lily City reported the following information related to OPEB for the water enterprise fund:
Benefits paid $100,000 Annual required contribution 500,000 Unfunded actuarial accrued liability 800,000
What amount of expense for OPEB should Lily City's water enterprise fund report in its fund level statements?
a. $100,000 b. $500,000 c. $600,000 d. $1,400,000 Explanation
Choice "b" is correct.
2013 AICPA Newly Released Questions – Financial
48 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
47. CPA-
Clay City levied property taxes of $600,000 for the current year, and estimated that $25,000 would be uncollectible. Which of the following is the correct general fund journal entry to record the property tax levy?
Debit Credit
a. Property taxes receivable–current $600,000 Property tax revenue $600,000
b. Property taxes receivable–current $575,000 Bad debt expense 25,000
Property tax revenue $600,000
c. Property taxes receivable–current $600,000 Property tax revenue $575,000 Allowance for uncollectible property taxes–current 25,000
d. Property taxes receivable–current $600,000 Bad debt expense 25,000
Property tax revenue $600,000 Allowance for uncollectible property taxes–current 25,000
Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
49 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
48. CPA-
The City of Curtain had the following interfund transactions during the month of May:
• Billing by the internal service fund to a department financed by the general fund, for services rendered in the amount of $5,000.
• Transfer of $200,000 from the general fund to establish a new enterprise fund. • Routine transfer of $50,000 from the general fund to the debt service fund.
What was the total reciprocal interfund activity for Curtain during May?
a. $5,000 b. $55,000 c. $200,000 d. $255,000 Explanation
Choice "a" is correct.
2013 AICPA Newly Released Questions – Financial
50 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
49. CPA-
How should a nongovernmental not-for-profit organization classify gains and losses on investments purchased with permanently restricted assets?
a. Gains may not be netted against losses in the statement of activities. b. Gains and losses can only be reported net of expenses in the statement of activities. c. Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of
activities as increases or decreases in unrestricted net assets. d. Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of
activities as increases or decreases in permanently restricted net assets. Explanation
Choice "c" is correct.
2013 AICPA Newly Released Questions – Financial
51 © 2013 DeVry/Becker Educational Development Corp. All rights reserved.
50. CPA-
At which of the following amounts should a nongovernmental not-for-profit organization report investments in debt securities?
a. Potential proceeds from liquidation sale. b. Discounted expected future cash flows. c. Quoted market prices. d. Historical cost. Explanation
Choice "c" is correct.