Updated Apr-2023 FAR Free Exam Files Downloaded Instantly
Practice Exams and Training Solutions for Certifications
What is the duration, language, and format of the Financial Accounting and Reporting (FAR) Exam
- Language of Exam: English
- Duration of Exam: 4 hours
- Format: Multiple choice, Task-based simulations, research prompts
- Passing score: 75
The benefit of obtaining the Financial Accounting and Reporting (FAR) Exam Certification
This qualification helps both new and seasoned accountants to test their qualifications, develop their abilities, and enhance their understanding of the overall discipline. Via their local state board, prospective applicants can learn more about the licensing process specifics and visit the NASBA website for information about the standardized CPA test. The growing demand for CPAs across the job market is motivated by many factors, so the trend is likely to continue soon. Accountants winning their FAR earn 10 percent more on average than non-FAR colleagues and have more chances to grow their careers. In job searching, being FAR certified can also be a big boon as it shows professional dedication and makes the candidate stand out from others. Among several other specialist fields, FAR certification demonstrates qualification for auditing, business strategy, bookkeeping, and forensic accounting. Becoming accredited opens the doors to hundreds of various career paths and is essential for foreign positions in particular.
Many accountants joining the profession are curious about the advantages of being Financial Accounting and Reporting (FAR) certified so that they can determine if the time and energy to undertake this achievement are worth devoting. The certification process may undoubtedly be rigorous and difficult, but for those employed in industry or finance, success offers some notable advantages. In the US, several states have their board that regulates the certification in their jurisdiction of public accountants.
NEW QUESTION 96
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 Technical Bulletins.
- B. AICPA Technical Practice Aids.
- C. FASB Statements of Financial Accounting Concepts.
- D. AICPA Accounting Interpretations.
Answer: A
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 97
Ocean Corp.'s comprehensive insurance policy allows its assets to be replaced at current value. The
policy has a $50,000 deductible clause. One of Ocean's waterfront warehouses was destroyed in a winter
storm. Such storms occur approximately every four years. Ocean incurred $20,000 of costs in dismantling
the warehouse and plans to replace it. The tax rate is 30%. The following data relate to the warehouse:
Current carrying amount $ 300,000
Replacement cost 1,100,000
What amount of gain should Ocean report as a separate component of income before extraordinary
items?
- A. $1,030,000
- B. $730,000
- C. $0
- D. $780,000
Answer: B
Explanation:
Choice "c" is correct. $730,000 gain reported as a separate component of income before extraordinary
items.
NEW QUESTION 98
While preparing its 1991 financial statements, Dek Corp. discovered computational errors in its 1990 and
1 989 depreciation expense. These errors resulted in overstatement of each year's income by $25,000,
net of income taxes. The following amounts were reported in the previously issued financial statements:
Dek's 1991 net income is correctly reported at $180,000. Which of the following amounts should be
reported as prior period adjustments and net income in Dek's 1991 and 1990 comparative financial
statements?
- A. Option C
- B. Option D
- C. Option B
- D. Option A
Answer: A
Explanation:
Choice "c" is correct. 1990 ($25,000) $125,000 1991 -- 180,000
Because these are comparative financial statements, prior period adjustments require retroactive
treatment for the years presented. Because 1989 is not presented, the 1989 correction is shown as a prior
period adjustment of $25,000 to retained earnings statement of 1990.
NEW QUESTION 99
Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market
price is expected to return to previous levels by the end of the year. At the end of the year the decline had
not reversed. When should the loss be reported in Petal's interim income statements?
- A. In the fourth quarter only.
- B. Ratably over the second, third, and forth [sic] quarters.
- C. In the second quarter only.
- D. Ratably over the third and fourth quarters.
Answer: A
Explanation:
Choice "d" is correct. When the loss is probable and estimable, the expected loss must be recorded in full.
This loss becomes such at the end of the fourth quarter. Therefore, the inventory must be valued on the
year-end at the lower of cost or market, recognizing the loss at that time. Choice "a" is incorrect. Expected
losses must be recorded in full when the loss is probable and estimable and not ratably over several
quarters. Choice "b" is incorrect. Expected losses must be recorded in full when the loss is probable and
estimable and not ratably over several quarters. Choice "c" is incorrect. Since the loss is not probable at
the end of the second quarter, no amount should be recognized at that time.
NEW QUESTION 100
The cumulative effect of a change in accounting estimate should be shown separately:
- A. On the income statement above income from continuing operations.
- B. It should not be recorded separately on any financial statement.
- C. On the retained earnings statement as an adjustment to the beginning balance.
- D. On the income statement after income from continuing operations and before extraordinary items.
Answer: B
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 101
Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its
small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest
of Envoy's operations. Envoy plans to sell the small appliance group with its operations. What is the
earliest point at which Envoy should report the small appliance group as a discontinued operation?
- A. When Envoy sells the majority of the assets of the segment.
- B. When Envoy classifies it as held for sale.
- C. When Envoy receives an offer for the segment.
- D. When Envoy first sells any of the assets of the segment.
Answer: B
Explanation:
Choice "a" is correct. The earliest period that a component of an entity can be reported in discontinued
operations is when the component meets the following "held for sale" criteria:
1 . Management commits to a plan to sell the component.
2 . The component is available for immediate sale in its present condition.
3 . An active program to locate a buyer has been initiated.
4 . The sale of the component is probable and the sale is expected to be completed within one year.
5 . The sale of the component is being actively marketed.
6 . It is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn.
Choices "b", "c", and "d" are incorrect, per the Explanation: above.
NEW QUESTION 102
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 actual 1992 hail damage loss as an extraordinary loss, net of income taxes.
- C. The expected average hail damage loss in continuing operations, with no separate disclosure.
- D. The expected average hail damage loss in continuing operations, with 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 103
Chester Corp. was a development stage enterprise from its inception on September 1, 1987 to December
3 1, 1988. The following information was taken from Chester's accounting records for the above period:
For the period September 1, 1987 to December 31, 1988, what amount should Chester report as net
loss?
- A. $150,000
- B. $ 50,000
- C. $350,000
- D. $450,000
Answer: D
Explanation:
Choice "d" is correct. $450,000 net loss for the period Sept. 1, 1987 to DeC. 31, 1988.
Rule: "Development stage enterprises" present their FS in accordance with GAAP and make additional
disclosures such as: cumulative net losses, cumulative deficit, cumulative sales and expenses.
NEW QUESTION 104
In September 1996, Koff Co.'s operating plant was destroyed by an earthquake. Earthquakes are rare in
the area in which the plant was located. The portion of the resultant loss not covered by insurance was
$ 700,000. Koff's income tax rate for 1996 was 40%. In its 1996 income statement, what amount should
Koff report as extraordinary loss?
- A. $700,000
- B. $280,000
- C. $0
- D. $420,000
Answer: D
Explanation:
Choice "c" is correct. For a loss to be reported as an extraordinary loss, the event causing the loss must
be both unusual in nature and infrequent in occurrence. The earthquake in this case does meet these
criteria so the loss is reported net of income tax effect as an extraordinary loss of
$ 420,000 (60% of the total $700,000 loss). APB 30.11, .19-.26
Choice "a" is incorrect. Review the criteria for reporting an extraordinary loss.
Choice "b" is incorrect. This is the tax effect of the loss. Review your calculations.
Choice "d" is incorrect. It is not appropriate to report the full loss as an extraordinary loss.
NEW QUESTION 105
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.
During 1993, Quo increased its investment in Worth, Inc. from a 10% interest, purchased in 1992, to 30%,
and acquired a seat on Worth's board of directors. As a result of its increased investment, Quo changed
its method of accounting for investment in Worth, Inc. from the cost method to the equity method.
List A
- A. Change in accounting principle.
- B. Correction of an error in previously presented financial statements.
- C. Change in accounting estimate.
- D. Neither an accounting change nor an accounting error.
Answer: D
Explanation:
Choice "d" is correct. A change from the cost method (less than 20% ownership) to the equity method
(20% or more ownership or a Board seat or other significant influence) of accounting for investment in an
investee is neither an accounting change nor an accounting error. If it is not an accounting change, it
cannot be a change in accounting principle or a change in accounting estimate since those two types of
changes are both accounting changes.
There is a considerable amount of controversy on this particular answer. Some people think that this
change is a change in accounting principle (something certainly changed, but was it the accounting
principle?), and others think it is a change in accounting entity (which is not one of the available answers;
anyway, did the accounting entity actually change or is it the same entity accounted for differently?).
Under SFAS No. 154, a change in accounting principle is treated retrospectively and a change in
accounting entity is treated retrospectively.
This kind of change (cost to equity) has never been specifically identified in any accounting literature as
either a change in accounting principle or a change in accounting entity. The words "cost method" were
never mentioned in APB 20 (other than the full cost method for oil & gas companies, which is an entirely
different subject), nor was it mentioned in SFAS No. 154. It was, however, discussed in APB 18 (the
pronouncement for the equity method) in Paragraph 19m (bold added): "An investment in common stock
of an investee that was previously accounted for on other than the equity method may become qualified
for use of the equity method by an increase in the level of ownership described in paragraph 17 (i.e.,
acquisition of additional voting stock by the investor, acquisition or retirement of voting stock by the
investee, or other transactions). When an investment qualifies for use of the equity method, the investor
should adopt the equity method of accounting. The investment, results of operations (current and prior
periods presented), and retained earnings of the investor should be adjusted retroactively in a manner
consistent with the accounting for a step-by-step acquisition of a subsidiary."
What does all this mean? It means that, when there is a change in the percentage of ownership that
changes accounting from the cost method to the equity method, the change is treated retroactively (just
like changes in accounting entity used to be treated, although they are now treated retrospectively). It
does not say that the change is a change in accounting principle or anything else. Nothing in SFAS
No.154 changed this treatment. So all this still makes Choice "d" correct. This whole issue might easily be
considered to be splitting hairs, at the very least. Some questions on the CPA exam are just that way.
Most are not.
NEW QUESTION 106
A material loss should be presented separately as a component of income from continuing operations
when it is:
- A. Not unusual in nature but infrequent in occurrence.
- B. An extraordinary item.
- C. Unusual in nature and infrequent in occurrence.
- D. A cumulative effect type change in accounting principle.
Answer: A
Explanation:
Choice "d" is correct. Gains or losses that are unusual in nature or occur infrequently but not both, are
presented as a component of income from continuing operations. Choice "a" is incorrect. Extraordinary
items are shown net of tax in a separate section of the income statement after income from continuing
operations. Choice "b" is incorrect. Cumulative effects of changes in accounting principle are now shown
net of tax as an adjustment to the opening balance of retained earnings in the retained earnings statement.
This treatment is called retrospective application. There really are no longer any cumulative effect types of
changes in accounting principle. The cumulative effect is merely how the amount of the change is
measured.
Choice "c" is incorrect. This is the definition of an extraordinary item.
NEW QUESTION 107
Tanker Oil Co., a development stage enterprise, incurred the following costs during its first year of
operations:
Tanker had no revenue during its first year of operation. What amount may Tanker capitalize as
organizational costs?
- A. $115,000
- B. $55,000
- C. $95,000
- D. $0
Answer: D
Explanation:
Choice "d" is correct. $0.
All organizational costs (start-up costs) should be expensed when incurred (per SOP 98-5).
NEW QUESTION 108
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. $140,000 credit.
- C. $98,000 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 109
A segment of Ace Inc. was discontinued during 1992. Ace's loss from discontinued operations should not:
- A. Exclude operating losses from the date the decision to dispose of the segment was made until the end
of 1992. - B. Include operating losses of the current period up to the date the decision to dispose of the segment
was made. - C. Include employee relocation costs associated with the decision to dispose.
- D. Include additional pension costs associated with the decision to dispose.
Answer: A
Explanation:
Choice "b" is correct. Ace's loss on discontinued operations should not exclude operating losses from the
date the decision to dispose of the segment was made until the end of 1992. All 1992 operating losses
should be included.
Choice "a" is incorrect. Employee relocation costs associated with the decision to dispose should be
included in the loss from discontinued operations.
Choice "c" is incorrect. Additional pension costs associated with the decision to dispose should be
included in the loss from discontinued operations.
Choice "d" is incorrect. Ace's loss on discontinued operations should include operating losses of the
current period up to the date the decision to dispose of the segment was made and also after that date.
All 1992 operating losses should be included.
NEW QUESTION 110
Thorpe Co.'s income statement for the year ended December 31, 1990, reported net income of $74,100.
The auditor raised questions about the following amounts that had been included in net income:
The loss from the fire was an infrequent but not unusual occurrence in Thorpe's line of business.
Thorpe's December 31, 1990, income statement should report net income of:
- A. $65,000
- B. $87,000
- C. $81,600
- D. $66,100
Answer: B
Explanation:
Net income before adjustments
Rule: Unrealized losses (or gains) resulting from changes in market value of available-for-sale
investments should be reported as a component of other comprehensive income in shareholders' equity.
Unrealized gains and losses on investments held for trading would be included in net income.
Correction of errors of prior periods should be reported as an adjustment to beginning retained earnings,
not as an item of net income.
Choice "d" is correct. $87,000.
NEW QUESTION 111
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. $500,000
- C. $325,000
- D. $290,000
Answer: D
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 112
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 the eight months ending August 31, 1992, by a weighted average of the purchases.
- B. As of January 1, 1992.
- C. As of August 31, 1992.
- D. During 1992 by a weighted average of the purchases.
Answer: B
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 113
According to the FASB conceptual framework, the objectives of financial reporting for business
enterprises are based on:
- A. The needs of the users of the information.
- B. Generally accepted accounting principles.
- C. Reporting on management's stewardship.
- D. The need for conservatism.
Answer: A
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 114
A transaction that is unusual, but not infrequent, should be reported separately as a(an):
- A. Extraordinary item, net of applicable income taxes.
- B. Component of income from continuing operations, net of applicable income taxes.
- C. Extraordinary item, but not net of applicable income taxes.
- D. Component of income from continuing operations, but not net of applicable income taxes.
Answer: D
Explanation:
Choice "d" is correct. A transaction that is unusual, but not "infrequent" should be reported separately as a
component of continuing operations, (gross) but not net of applicable income taxes.
Choices "a" and "b" are incorrect. An extraordinary item has to be both "unusual" and "infrequent."
Choice "c" is incorrect, per "d" above.
NEW QUESTION 115
According to the FASB conceptual framework, the usefulness of providing information in financial
statements is subject to the constraint of:
- A. Consistency.
- B. Reliability.
- C. Cost-benefit.
- D. Representational faithfulness.
Answer: C
Explanation:
Choice "b" is correct. The pervasive constraint on providing information in financial statements is that the
cost should be outweighed by the benefit to be derived from providing the information. SFAC 1 para. 23,
SFAC 2 para. 133 Choice "a" is incorrect. Consistency is an underlying concept for financial statements
(and a secondary quality of accounting information), but it is not a constraint on providing information.
SFAC 2 para. 120 Choice "c" is incorrect. Reliability is a primary quality of accounting information and an
underlying concept for financial statements, but it is not a constraint on providing information. SFAC 2
para. 58 Choice "d" is incorrect. Representational faithfulness is an underlying concept for financial
statements (as an element of reliability), but it is not a constraint on providing information. SFAC 2 para.
NEW QUESTION 116
......
Q&As with Explanations Verified & Correct Answers: https://www.actualcollection.com/FAR-exam-questions.html
Dumps Free Test Engine Player Verified Answers: https://drive.google.com/open?id=1eEEZMYLWKxyMxob02dHb3QqUclnXFOrc