Extra Practice FAR Progress Test CPA PassMaster Questions

Question CPA-00102 One of the elements of a financial statement is comprehensive income. Comprehensive income excludes changes in equity resulting from which of the following? a. Dividends paid to stockholders. b. Loss from discontinued operations. c. Unrealized loss on investments in noncurrent marketable equity securities. d. Prior period error correction. Explanation Choice "a" is correct. Comprehensive income includes all changes in equity during a period except those resulting from owner investments and distributions to owners. Choice "b" is incorrect. Loss from discontinued operations is included in net income, which is a component of comprehensive income. Choice "d" is incorrect. Prior period error correction is a change in stockholders' equity not resulting from owner investments and distributions to owners and so is included in comprehensive income. Choice "c" is incorrect. Unrealized loss on investments in noncurrent marketable equity securities is a change in stockholders' equity not resulting from owner investments and distributions to owners and so is included in comprehensive income. Becker Professional Education Registered to: Dominique DAntonio Question CPA-00233 Reclassification adjustments must be shown in the financial statement that discloses comprehensive income: a. To show the tax effect of items of comprehensive income. b. To avoid including transactions with shareholders in items of comprehensive income. c. To avoid double counting in comprehensive income items, which are currently displayed in net income. d. To show what portion of comprehensive income is from the realization of current assets. Explanation Choice "c" is correct. Reclassification entries may be necessary to avoid double counting an item previously reported as comprehensive income (i.e., unrealized gain), which are now reported as part of net income (i.e., realized gain). Choice "d" is incorrect. The classification of assets as current or noncurrent has no bearing on reporting comprehensive income. Choice "a" is incorrect. All items of comprehensive income must be shown net of the related tax effects, but it is not done with reclassification adjustments. Choice "b" is incorrect. Transactions with shareholders such as paying dividends and issuing capital stock are not included in comprehensive income, thus, reclassification adjustments are not necessary to exclude them. Becker Professional Education Registered to: Dominique DAntonio Question CPA-00086 On January 2, Year 1, Union Co. purchased a machine for $264,000 and depreciated it by the straight-line method using an estimated useful life of eight year s with no salvage value. On January 2, Year 4, Union determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $24,000. An accounting change was made in Year 4 to reflect the additional data. The accumulated depreciation for this machine should have a balance at December 31, Year 4, of: a. $176,000 b. $154,000 c. $160,000 d. $146,000 Explanation Choice "d" is correct, $146,000 accumulated depreciation balance at Dec. 31, Year 4. Depreciable cost Useful life Annual deprec. Years elapsed Original $264 ÷ 8 yrs = $33 × 3 yrs Accum. deprec. (99) NBV 12/31/Year 3 165 Salvage (24) Page 1 of 2 Becker Professional Education Registered to: Dominique DAntonio Question CPA-00050 During the current year, both Raim Co. and Cane Co. suffered losses due to the flooding of the Mississippi River. Raim is located two miles from the river and sustains flood losses every two to three years. Cane, which has been located 50 miles from the river for the past 20 years, has never before had flood losses. How should the flood losses be reported in each company's income statement under U.S. GAAP? Raim Cane a. As an extraordinary item As an extraordinary item b. As an extraordinary item As a component of income from continuing operations c. As a component of income from continuing operations As an extraordinary item d. As a component of income from continuing operations As a component of income from continuing operations Explanation Choice "c" is correct. Raim - component of income from continuing operations. Because Raim sustains flood losses every two to three years, the flood losses are not "infrequent." Thus, the flood loss is not an "extraordinary item." Cane - as an extraordinary item. Here, the flood losses are infrequent because Cane never before (in the last 20 years) had flood losses. Furthermore, the flood losses are unusual in nature in that they are unrelated to the ordinary and typical activities of the company. Note that under IFRS, the flood losses of both companies would be reported as a component of income from continuing operations because IFRS prohibits the reporting of gains/losses as extraordinary. Choices "d", "b", and "a" are incorrect, per rules above.