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Admission Test Certified Public Accountant (Financial Accounting & Reporting) Sample Questions:

1. An inventory loss from a permanent market decline of $360,000 occurred in May 1989. Cox Co. appropriately recorded this loss in May 1989 after its March 31, 1989 quarterly report was issued. What amount of inventory loss should be reported in Cox's quarterly income statement for the three months ended June 30, 1989?

A) $180,000
B) $0
C) $360,000
D) $90,000

2. What are the Statements of Financial Accounting Concepts intended to establish?

A) The hierarchy of sources of generally accepted accounting principles.
B) Generally accepted accounting principles in financial reporting by business enterprises.
C) The meaning of "Present fairly in accordance with generally accepted accounting principles."
D) The objectives and concepts for use in developing standards of financial accounting and reporting.

3. 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.
Item to Be Answered
As a result of a production breakthrough, Quo determined that manufacturing equipment previously depreciated over 15 years should be depreciated over 20 years.
List A (Select one)

A) Correction of an error in previously presented financial statements.
B) Change in accounting principal.
C) Change in accounting estimate.
D) Neither an accounting change nor an accounting error.

4. Tack, Inc. reported a retained earnings balance of $150,000 at December 31,1990. In June 1991, Tack discovered that merchandise costing $40,000 had not been included in inventory in its 1990 financial statements. Tack has a 30% tax rate. What amount should Tack report as adjusted beginning retained earnings in its statement of retained earnings at December 31, 1991?

A) $178,000
B) $150,000
C) $190,000
D) $122,000

5. 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 only.
D) I and III.

Solutions: