2015 AICPA FAR

2015 AICPA FAR
RELEASED Level: HARD

QUESTIONS
Please Note:
These questions are released to the CPA Review providers with the letter answer only
(i.e. no explanation given).
This document contains copyrighted material from the American Institute of Certified
Public Accountants and is licensed to NINJA CPA Review for use by its customers only.
Clear Co.'s trial balance has the following selected accounts:
1
No.
Cash (includes $10,000 in bond-sinking fund
for long-term bond payable)
Accounts receivable
$50,000
20,000
Allowance for doubtful accounts 5,000
Deposits received from customers 3,000
Merchandise inventory 7,000
Unearned rent 1,000
Investment in trading securities 2,000
What amount should Clear report as total current assets in its

balance sheet?
a. $64,000
b. $67,000
c. $72,000
d. $74,000
2015 AICPA Released Questions - Financial Accounting and Reporting (Hard) - www.dojo.ninjacpareview.com
Clear Co.'s trial balance has the following selected accounts:
1
No.
Cash (includes $10,000 in bond-sinking fund
for long-term bond payable)
Accounts receivable
$50,000
20,000
Allowance for doubtful accounts 5,000
Deposits received from customers 3,000
Merchandise inventory 7,000
Unearned rent 1,000
Investment in trading securities 2,000
What amount should Clear report as total current assets in its

balance sheet?
a. $64,000
b. $67,000
c. $72,000
d. $74,000
Martin Co. had net income of $70,000 during the year. Depreciation
2
No.
expense was $10,000. The following information is available:
Accounts receivable increase $20,000

Equipment gain on sale increase 10,000
Nontrade notes payable increase 50,000
Prepaid insurance increase 40,000
Accounts payable increase 30,000
What amount should Martin report as net cash provided by

operating activities in its statement of cash flows for the year?
a. $0
b. $40,000
c. $50,000
d. $100,000
Martin Co. had net income of $70,000 during the year. Depreciation
2
No.
expense was $10,000. The following information is available:
Accounts receivable increase $20,000

Equipment gain on sale increase 10,000
Nontrade notes payable increase 50,000
Prepaid insurance increase 40,000
Accounts payable increase 30,000
What amount should Martin report as net cash provided by

operating activities in its statement of cash flows for the year?
a. $0
b. $40,000
c. $50,000
d. $100,000
3
No.
Which of the following should be disclosed in a summary of
significant accounting policies?
a. Basis of consolidation.
b. Concentration of credit risk of financial instruments.
c. Composition of plant assets.
d. Adequacy of pension plan assets in relation to vested benefits.
3
No.
Which of the following should be disclosed in a summary of
significant accounting policies?
a. Basis of consolidation.
b. Concentration of credit risk of financial instruments.
c. Composition of plant assets.
d. Adequacy of pension plan assets in relation to vested benefits.
4
No.
Each of the following events is required to be reported to the
United States Securities and Exchange Commission on
Form 8-K, except
a. The creation of an obligation under an off-balance sheet

arrangement of a registrant.
b. The unregistered sale of equity securities.
c. A change in a registrant's certifying accountant.
d. The quarterly results of operations and financial condition of a

registrant.
4
No.
Each of the following events is required to be reported to the
United States Securities and Exchange Commission on
Form 8-K, except
a. The creation of an obligation under an off-balance sheet

arrangement of a registrant.
b. The unregistered sale of equity securities.
c. A change in a registrant's certifying accountant.
d. The quarterly results of operations and financial condition of a

registrant.
5
No. Garcel, Inc. held unfinished inventory at a cost of $85,000
with a sales value of $125,000. The inventory will cost $10,500
to complete. The normal profit margin is 30% of sales. The
replacement cost of the inventory was $75,000. What amount
should Garcel report as inventory on balance sheet?
a. $114,500
b. $85,000
c. $77,000
d. $75,000
5
No. Garcel, Inc. held unfinished inventory at a cost of $85,000
with a sales value of $125,000. The inventory will cost $10,500
to complete. The normal profit margin is 30% of sales. The
replacement cost of the inventory was $75,000. What amount
should Garcel report as inventory on balance sheet?
a. $114,500
b. $85,000
c. $77,000
d. $75,000
Sea Manufacturing Corp. is constructing a new factory
6
No. building. During the current calendar year, Sea made the
following payments to the construction company:
January 2 $1,000,000
December 31 1,000,000
Sea has an 8%, three-year construction loan of $3,000,000.

What is the amount of interest costs that Sea may capitalize
during the current year?
a. $0
b. $80,000
c. $160,000
d. $240,000
Sea Manufacturing Corp. is constructing a new factory
6
No. building. During the current calendar year, Sea made the
following payments to the construction company:
January 2 $1,000,000
December 31 1,000,000
Sea has an 8%, three-year construction loan of $3,000,000.

What is the amount of interest costs that Sea may capitalize
during the current year?
a. $0
b. $80,000
c. $160,000
d. $240,000
7
No. Under IFRS, which of the following statements about
intangible assets is correct?
a. Internally generated goodwill cannot be recognized as an asset.
b. Intangible assets within a class may be measured differently

using either the cost model or the revaluation model.
c. Research and development costs are capitalized as incurred.
d. Intangible assets with indefinite lives must be amortized

annually.
7
No. Under IFRS, which of the following statements about
intangible assets is correct?
a. Internally generated goodwill cannot be recognized as an asset.
b. Intangible assets within a class may be measured differently

using either the cost model or the revaluation model.
c. Research and development costs are capitalized as incurred.
d. Intangible assets with indefinite lives must be amortized

annually.
8
No.
A note payable was issued in payment for services received.
The services had a fair value less than the face amount of the
note payable. The note payable has no stated interest rate.
How should the note payable be presented in the statement
of financial position?
a. At the face amount.

b. At the face amount with a separate deferred asset for the
discount calculated at the imputed interest rate.
c. At the face amount with a separate deferred credit for the
d. At the face amount minus a discount calculated at the imputed
interest rate.
8
No.
A note payable was issued in payment for services received.
The services had a fair value less than the face amount of the
note payable. The note payable has no stated interest rate.
How should the note payable be presented in the statement
of financial position?
a. At the face amount.

b. At the face amount with a separate deferred asset for the
c. At the face amount with a separate deferred credit for the
d. At the face amount minus a discount calculated at the imputed
interest rate.
9
No. Which of the following statements is correct regarding
valuation allowances in accounting for income taxes?
a. The effect of a change in the opening balance of a valuation

allowance that results from a change of circumstances
ordinarily is included in income from operations.
b. Both deferred tax assets and deferred tax liabilities can be
reduced by a valuation allowance.
c. Only negative evidence, not positive evidence, should be
considered when determining whether a valuation allowance is
needed.
d. A valuation allowance is necessary when the realistic probability
standard of evidence is satisfied.
9
No. Which of the following statements is correct regarding
valuation allowances in accounting for income taxes?
a. The effect of a change in the opening balance of a valuation

allowance that results from a change of circumstances
ordinarily is included in income from operations.
b. Both deferred tax assets and deferred tax liabilities can be
reduced by a valuation allowance.
c. Only negative evidence, not positive evidence, should be
considered when determining whether a valuation allowance is
needed.
d. A valuation allowance is necessary when the realistic probability
standard of evidence is satisfied.
A company issues $1,500,000 of par bonds at 98 on January 1, year 1,
10
No.
with a maturity date of December 31, year 30. Bond issue costs are
$90,000, and the stated interest rate of the bonds is 6%. Interest is
paid semiannually on January 1 and July 1. Ten years after the issue
date, the entire issue was called at 102 and canceled. The company
uses the straight-line method of amortization for bond discounts
and issue costs, and the result of this method is not materially
different from the effective interest method. The company should
classify what amount as the loss on extinguishment of debt at the
time the bonds are called?
a. $30,000
b. $50,000
c. $90,000
d. $110,000
A company issues $1,500,000 of par bonds at 98 on January 1, year 1,
10
No.
with a maturity date of December 31, year 30. Bond issue costs are
$90,000, and the stated interest rate of the bonds is 6%. Interest is
paid semiannually on January 1 and July 1. Ten years after the issue
date, the entire issue was called at 102 and canceled. The company
uses the straight-line method of amortization for bond discounts
and issue costs, and the result of this method is not materially
different from the effective interest method. The company should
classify what amount as the loss on extinguishment of debt at the
time the bonds are called?
a. $30,000
b. $50,000
c. $90,000
d. $110,000
On day 1, Clothes Co., sells clothing to Link Corp. for $40,000.
11
No.
Clothes ships the clothing on day 1 and Link is obligated to
pay Clothes within six months. Link is given 12 months to
return any of the clothing for a refund if they experience low
demand. Link is also given 18 months to exchange any
clothing due to low demand. At the time of sale, Clothes
cannot reasonably estimate returns, but estimates $5,000 in
exchanged goods. Clothes should recognize revenue for the
aforementioned transaction
a. On the day of the sale.
b. Six months after the date of sale.
c. 12 months after the date of sale.
d. 18 months after the date of sale.
On day 1, Clothes Co., sells clothing to Link Corp. for $40,000.
11
No.
Clothes ships the clothing on day 1 and Link is obligated to
pay Clothes within six months. Link is given 12 months to
return any of the clothing for a refund if they experience low
demand. Link is also given 18 months to exchange any
clothing due to low demand. At the time of sale, Clothes
cannot reasonably estimate returns, but estimates $5,000 in
exchanged goods. Clothes should recognize revenue for the
aforementioned transaction
a. On the day of the sale.
b. Six months after the date of sale.
c. 12 months after the date of sale.
d. 18 months after the date of sale.
12
No.
At the beginning of year 1, a company amends its defined
benefit pension plan for an additional $500,000 in prior
service cost. The amendment covers employees with a 10-
year average remaining service life. At the end of year 1, what
is the net entry to accumulated other comprehensive
income, ignoring income tax effects?
a. A $450,000 debit.
b. A $500,000 debit.
c. A $550,000 credit.
d. A $450,000 credit.
12
No.
At the beginning of year 1, a company amends its defined
benefit pension plan for an additional $500,000 in prior
service cost. The amendment covers employees with a 10-
year average remaining service life. At the end of year 1, what
is the net entry to accumulated other comprehensive
income, ignoring income tax effects?
a. A $450,000 debit.
b. A $500,000 debit.
c. A $550,000 credit.
d. A $450,000 credit.
A company recorded a decommissioning liability and
13
No.
recognized the amount recorded as part of the cost of the
related property. After the property was fully depreciated, the
decommissioning liability was reviewed and adjusted. How
should this change in the decommissioning liability be
recognized under IFRS?
a. The change in the liability is recognized in other comprehensive income.

b. The change in the liability is recognized in profit or loss.
c. The change in the liability is recognized as a change in the carrying
amount of the property if the liability increases but is otherwise
recognized in profit or loss.
d. The change in the decommissioning liability is not recognized until it is
settled.
A company recorded a decommissioning liability and
13
No.
recognized the amount recorded as part of the cost of the
related property. After the property was fully depreciated, the
decommissioning liability was reviewed and adjusted. How
should this change in the decommissioning liability be
recognized under IFRS?
a. The change in the liability is recognized in other comprehensive income.

b. The change in the liability is recognized in profit or loss.
c. The change in the liability is recognized as a change in the carrying
amount of the property if the liability increases but is otherwise
recognized in profit or loss.
d. The change in the decommissioning liability is not recognized until it is
settled.
A company incurred the following costs to complete a
14
No. business combination in the current year:
Issuing debt securities $30,000
Registering debt securities 25,000
Legal fees 10,000
Due diligence costs 1,000
What amount should be reported as current-year expenses,

not subject to amortization?
a. $1,000
b. $11,000
c. $36,000
d. $66,000
A company incurred the following costs to complete a
14
No. business combination in the current year:
Issuing debt securities $30,000
Registering debt securities 25,000
Legal fees 10,000
Due diligence costs 1,000
What amount should be reported as current-year expenses,

not subject to amortization?
a. $1,000
b. $11,000
c. $36,000
d. $66,000
Based on the stock transactions below, what is the weighted average
15
No. number of shares outstanding as of December 31, year 1, that should
be used in the calculation of basic earnings per share in financial
statements issued on March 1, year 2?
Date Transactions
January 1, year 1 Beginning balance 100,000
April 1, year 1 Issued 30,000 shares for cash
June 1, year 1 50% stock dividend
February 15, year 2 2 for 1 stock split
March 15, year 2 Issued 40,000 shares for cash
a. 147,500
b. 183,750
c. 295,000
d. 367,500
Based on the stock transactions below, what is the weighted average
15
No. number of shares outstanding as of December 31, year 1, that should
be used in the calculation of basic earnings per share in financial
statements issued on March 1, year 2?
Date Transactions
January 1, year 1 Beginning balance 100,000
April 1, year 1 Issued 30,000 shares for cash
June 1, year 1 50% stock dividend
February 15, year 2 2 for 1 stock split
March 15, year 2 Issued 40,000 shares for cash
a. 147,500
b. 183,750
c. 295,000
d. 367,500
16
No.
Which of the following phrases best describes a Level 1 input
for measuring the fair value of an asset or liability?
a. Inputs for the asset or liability based on the reporting entity's internal
data.
b. Quoted prices for similar assets or liabilities in active markets.
c. Inputs that are principally derived from or corroborated by
observable market data.
d. Unadjusted quoted prices for identical assets or liabilities in active
markets.
16
No.
Which of the following phrases best describes a Level 1 input
for measuring the fair value of an asset or liability?
a. Inputs for the asset or liability based on the reporting entity's internal
data.
b. Quoted prices for similar assets or liabilities in active markets.
c. Inputs that are principally derived from or corroborated by
observable market data.
d. Unadjusted quoted prices for identical assets or liabilities in active
markets.
On June 1, year 1, ABC Co. issued a 200,000 euro purchase order for equipment to be
supplied by a German company. ABC's functional currency is the U.S. dollar. The
17
No. equipment was delivered to ABC on November 1, year 1, and ABC recorded a payable
due to the German company. ABC paid for the equipment on January 31, year 2. The
following are the exchange rates in effect:
June 1, year 1 1 euro = 1.40 U.S. dollars

November 1, year 1 1 euro = 1.50 U.S. dollars
December 31, year 1 1 euro = 1.35 U.S. dollars
January 31, year 2 1 euro = 1.30 U.S. dollars
Under IFRS, what is the foreign currency gain or loss that ABC should record for
the year ended December 31, year 1?
a. A loss of $30,000.
b. A loss of $20,000.
c. A gain of $10,000.
d. A gain of $30,000.
On June 1, year 1, ABC Co. issued a 200,000 euro purchase order for equipment to be
supplied by a German company. ABC's functional currency is the U.S. dollar. The
17
No. equipment was delivered to ABC on November 1, year 1, and ABC recorded a payable
due to the German company. ABC paid for the equipment on January 31, year 2. The
following are the exchange rates in effect:
June 1, year 1 1 euro = 1.40 U.S. dollars

November 1, year 1 1 euro = 1.50 U.S. dollars
December 31, year 1 1 euro = 1.35 U.S. dollars
January 31, year 2 1 euro = 1.30 U.S. dollars
Under IFRS, what is the foreign currency gain or loss that ABC should record for
the year ended December 31, year 1?
a. A loss of $30,000.
b. A loss of $20,000.
c. A gain of $10,000.
d. A gain of $30,000.
A company leases a machine from Leasing, Inc. on January 1, year 1. The lease
terms include a $100,000 annual payment beginning January 1, year 1. The
18
No.
machine's fair value is $500,000 and the residual value is estimated at
$20,000. The company guarantees the residual value. The useful life of the
machine is six years, and the lease term is five years. The implicit rate of
interest is 6% and is known by the company. The following present value
factors are provided:
Five years Six years
Present value of $1 at 6% 0.7473 0.7050
Present value of an annuity due at 6% 4.4651 5.2124
Present value of an ordinary annuity at 6% 4.2124 4.9173
What is the value of the machine in the company's balance sheet at lease
inception?
a. $446,510
b. $461,456
c. $520,000
d. $535,340
A company leases a machine from Leasing, Inc. on January 1, year 1. The lease
terms include a $100,000 annual payment beginning January 1, year 1. The
18
No.
machine's fair value is $500,000 and the residual value is estimated at
$20,000. The company guarantees the residual value. The useful life of the
machine is six years, and the lease term is five years. The implicit rate of
interest is 6% and is known by the company. The following present value
factors are provided:
Five years Six years
Present value of $1 at 6% 0.7473 0.7050
Present value of an annuity due at 6% 4.4651 5.2124
Present value of an ordinary annuity at 6% 4.2124 4.9173
What is the value of the machine in the company's balance sheet at lease
inception?
a. $446,510
b. $461,456
c. $520,000
d. $535,340
19
No.
Isle Co. owned a copy machine that cost $5,000 and had
accumulated depreciation of $2,000. Isle exchanged the copy
machine for a computer that cost $4,000. Isle's future cash
flows are not expected to change significantly as a result of the
exchange. What amount of gain or loss should Isle report and at
what amount should it record the asset?
a. No gain or loss in the income statement; $3,000 asset in the balance sheet.
b. No gain or loss in the income statement; $4,000 asset in the balance sheet.
c. $1,000 gain in the income statement; $3,000 asset in the balance sheet.
d. $1,000 gain in the income statement; $4,000 asset in the balance sheet.
19
No.
Isle Co. owned a copy machine that cost $5,000 and had
accumulated depreciation of $2,000. Isle exchanged the copy
machine for a computer that cost $4,000. Isle's future cash
flows are not expected to change significantly as a result of the
exchange. What amount of gain or loss should Isle report and at
what amount should it record the asset?
a. No gain or loss in the income statement; $3,000 asset in the balance sheet.
b. No gain or loss in the income statement; $4,000 asset in the balance sheet.
c. $1,000 gain in the income statement; $3,000 asset in the balance sheet.
d. $1,000 gain in the income statement; $4,000 asset in the balance sheet.
On January 1, year 1, a company capitalized $100,000 of costs
20
No.
for software that is to be sold. The company amortizes the
software costs on a straight-line basis over five years. The
carrying value of the software costs on January 1, year 3, was
$60,000. As of December 31, year 3, the estimated future
gross revenue to be generated from the sale of the software
is $23,000, and the estimated future cost of disposing of the
software is $8,000. What amount should the company
expense related to the software costs for the year ended
December 31, year 3?
a. $18,400
b. $20,000
c. $37,000
d. $45,000
On January 1, year 1, a company capitalized $100,000 of costs
20
No.
for software that is to be sold. The company amortizes the
software costs on a straight-line basis over five years. The
carrying value of the software costs on January 1, year 3, was
$60,000. As of December 31, year 3, the estimated future
gross revenue to be generated from the sale of the software
is $23,000, and the estimated future cost of disposing of the
software is $8,000. What amount should the company
expense related to the software costs for the year ended
December 31, year 3?
a. $18,400
b. $20,000
c. $37,000
d. $45,000
21
No.
Which of the following is a required part of a local
government's management's discussion and analysis
(MD&A) as part of its financial statements?
a. The MD&A should be presented with other required

supplementary information.
b. The MD&A should compare current-year results to the prior year

with emphasis on the current year.
c. The MD&A should include an analysis for each fund.
d. The MD&A should present condensed financial information from

the fund financial statements.
21
No.
Which of the following is a required part of a local
government's management's discussion and analysis
(MD&A) as part of its financial statements?
a. The MD&A should be presented with other required

supplementary information.
b. The MD&A should compare current-year results to the prior year

with emphasis on the current year.
c. The MD&A should include an analysis for each fund.
d. The MD&A should present condensed financial information from

the fund financial statements.
22
No.
A city government reported a $9,000 increase in net position
in the motor pool internal service fund, a $12,000 increase in
net position in the water enterprise fund, and a $7,000
increase in the employee pension fund. The motor pool
internal service fund provides service primarily to the police
department. What amount should the city report as the
change in net position for business-type activities in its
statement of activities?
a. $9,000
b. $12,000
c. $21,000
d. $28,000
22
No.
A city government reported a $9,000 increase in net position
in the motor pool internal service fund, a $12,000 increase in
net position in the water enterprise fund, and a $7,000
increase in the employee pension fund. The motor pool
internal service fund provides service primarily to the police
department. What amount should the city report as the
change in net position for business-type activities in its
statement of activities?
a. $9,000
b. $12,000
c. $21,000
d. $28,000
23
No. Land and other real estate held as investments by
endowments in a government's permanent fund should be
reported at
a. Historical cost.
b. The lower of cost and net realizable value.
c. Fair value.
d. Fair value less costs of disposal.
23
No. Land and other real estate held as investments by
endowments in a government's permanent fund should be
reported at
a. Historical cost.
b. The lower of cost and net realizable value.
c. Fair value.
d. Fair value less costs of disposal.
24
No. A statement of financial position for a nongovernmental not-
for-profit organization reports amounts for which of the
following classes of net assets?
a. Current.
b. Long-term.
c. Permanently restricted.
d. Temporarily unrestricted.
24
No. A statement of financial position for a nongovernmental not-
for-profit organization reports amounts for which of the
following classes of net assets?
a. Current.
b. Long-term.
c. Permanently restricted.
d. Temporarily unrestricted.
A nongovernmental not-for-profit college has a portfolio of
25
No.
bond investments that had an original cost of $2,000,000.
The college's board of trustees voted to hold the principal of
this fund intact in perpetuity and designated the earnings to
reimburse faculty for travel to academic conferences. During
the year, interest of $50,000 was earned in cash. The fair
value of the bonds was $1,980,000. What amount should the
college report as permanently restricted net assets at year
end?
a. $0
b. $1,980,000
c. $2,000,000
d. $2,030,000
A nongovernmental not-for-profit college has a portfolio of
25
No.
bond investments that had an original cost of $2,000,000.
The college's board of trustees voted to hold the principal of
this fund intact in perpetuity and designated the earnings to
reimburse faculty for travel to academic conferences. During
the year, interest of $50,000 was earned in cash. The fair
value of the bonds was $1,980,000. What amount should the
college report as permanently restricted net assets at year
end?
a. $0
b. $1,980,000
c. $2,000,000
d. $2,030,000

2015 AICPA FAR - Difficult

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RELEASED Level: HARD

What amount should Clear report as total current assets in its

What amount should Clear report as total current assets in its

Accounts receivable increase $20,000

What amount should Martin report as net cash provided by

Accounts receivable increase $20,000

What amount should Martin report as net cash provided by

b. Concentration of credit risk of financial instruments.

c. Composition of plant assets.

d. Adequacy of pension plan assets in relation to vested benefits.

b. Concentration of credit risk of financial instruments.

c. Composition of plant assets.

d. Adequacy of pension plan assets in relation to vested benefits.

a. The creation of an obligation under an off-balance sheet

b. The unregistered sale of equity securities.

c. A change in a registrant's certifying accountant.

d. The quarterly results of operations and financial condition of a

a. The creation of an obligation under an off-balance sheet

b. The unregistered sale of equity securities.

c. A change in a registrant's certifying accountant.

d. The quarterly results of operations and financial condition of a

Sea has an 8%, three-year construction loan of $3,000,000.

Sea has an 8%, three-year construction loan of $3,000,000.

a. Internally generated goodwill cannot be recognized as an asset.

b. Intangible assets within a class may be measured differently

c. Research and development costs are capitalized as incurred.

d. Intangible assets with indefinite lives must be amortized

a. Internally generated goodwill cannot be recognized as an asset.

b. Intangible assets within a class may be measured differently

c. Research and development costs are capitalized as incurred.

d. Intangible assets with indefinite lives must be amortized

a. At the face amount.

a. At the face amount.

a. The effect of a change in the opening balance of a valuation

a. The effect of a change in the opening balance of a valuation

a. On the day of the sale.

b. Six months after the date of sale.

c. 12 months after the date of sale.

d. 18 months after the date of sale.

a. On the day of the sale.

b. Six months after the date of sale.

c. 12 months after the date of sale.

d. 18 months after the date of sale.

a. The change in the liability is recognized in other comprehensive income.

a. The change in the liability is recognized in other comprehensive income.

What amount should be reported as current-year expenses,

What amount should be reported as current-year expenses,

June 1, year 1 1 euro = 1.40 U.S. dollars

June 1, year 1 1 euro = 1.40 U.S. dollars

a. The MD&A should be presented with other required

b. The MD&A should compare current-year results to the prior year

c. The MD&A should include an analysis for each fund.

d. The MD&A should present condensed financial information from

a. The MD&A should be presented with other required

b. The MD&A should compare current-year results to the prior year

c. The MD&A should include an analysis for each fund.

d. The MD&A should present condensed financial information from

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