2012 AICPA Newly Released Questions – Financial 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 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial AICPA QUESTIONS RATED MEDIUM DIFFICULTY CPAA company has the following items on its year-end trial balance: Net sales $500,000 Common stock 100,000 Insurance expense 75,000 Wages 50,000 Cost of goods sold 100,000 Cash 40,000 Accounts payable 25,000 Interest payable 20,000 What is the company's gross profit? a b c d $230,000 $275,000 $400,000 $500,000 Explanation Choice "c" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPABurns Corp had the following items: Sales revenue $45,000 Loss on early extinguishment of bonds 36,000 Realized gain on sale of available-for-sale securities 28,000 Realized gain on sale of available-for-sale securities 17,000 Loss on write-down of inventory 3,100 Which of the following amounts would the statement of comprehensive income report as other comprehensive income or loss? a b c d $11,000 other comprehensive income $16,900 other comprehensive income $17,000 other comprehensive loss $28,100 other comprehensive loss Explanation Choice "c" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPABaler Co prepared its statement of cash flows at year-end using the direct method The following amounts were used in the computation of cash flows from operating activities: Beginning inventory $200,000 Ending Inventory 150,000 Cost of goods sold 1,200,000 Beginning accounts payable 300,000 Ending accounts payable 200,000 What amount should Baler report as cash paid to suppliers for inventory purchases? a b c d $1,200,000 $1,250,000 $1,300,000 $1,350,000 Explanation Choice "b" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPAWhich of the following transactions is included in the operating activities section of a cash flow statement prepared using the indirect method? a b c d Gain on sale of plant asset Sale of property, plant and equipment Payment of cash dividend to the shareholders Issuance of common stock to the shareholders Explanation Choice "a" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPATinsel Co.'s balances in allowance for uncollectible accounts were $70,000 at the beginning of the current year and $55,000 at year end During the year, receivables of $35,000 were written off as uncollectible What amount should Tinsel report as uncollectible accounts expense at year end? a b c d $15,000 $20,000 $35,000 $50,000 Explanation Choice "b" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPAAlta Co spent $400,000 during the current year developing a new idea for a product that was patented during the year The legal cost of applying for a patent license was $40,000 Also, $50,000 was spent to successfully defend the rights of the patent against a competitor The patent has a life of 20 years What amount should Alta capitalize related to the patent? a b c d $40,000 $50,000 $90,000 $490,000 Explanation Choice "c" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPAA retail store sold gift certificates that are redeemable in merchandise The gift certificates lapse one year after they are issued How would the deferred revenue account be affected by each of the following? a b c d Redemption of certificates Lapse of certificates Decrease Decrease No effect No effect Decrease No effect Decrease No effect Explanation Choice "a" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPAOn January 2, Vole Co issued bonds with a face value of $480,000 at a discount to yield 10% The bonds pay interest semiannually On June 30, Vole paid bond interest of $14,400 After Vole recorded amortization of the bond discount of $3,600, the bonds had a carrying amount of $363,600 What amount did Vole receive upon issuing the bonds? a b c d $360,000 $367,200 $476,400 $480,000 Explanation Choice "a" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPAWhat type of bonds mature in installments? a b c d Debenture Term Variable rate Serial Explanation Choice "d" is correct 10 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 36 CPAOn January of the current year, Barton Co paid $900,000 to purchase two-year, 8%, $1,000,000 face value bonds that were issued by another publicly-traded corporation Barton plans to sell the bonds in the first quarter of the following year The fair value of the bonds at the end of the current year was $1,020,000 At what amount should Barton report the bonds in its balance sheet at the end of the current year? a b c d $900,000 $950,000 $1,000,000 $1,020,000 Explanation Choice "d" is correct 37 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 37 CPAThe funded status of a defined benefit pension plan for a company should be reported in a b c d The income statement The statement of cash flows The statement of financial position The notes to the financial statements only Explanation Choice "c" is correct 38 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 38 CPAMartin Pharmaceutical Co is currently involved in two lawsuits One is a class-action suit in which consumers claim that one of Martin's best selling drugs caused severe health problems It is reasonably possible that Martin will lose the suit and have to pay $20 million in damages Martin is suing another company for false advertising and false claims against Martin It is probable that Martin will win the suit and be awarded $5 million in damages What amount should Martin report on its financial statements as a result of these two lawsuits? a b c d $0 $5 million income $15 million expense $20 million expense Explanation Choice "a" is correct 39 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 39 CPAWood Co.'s dividends on noncumulative preferred stock have been declared but not paid Wood has not declared or paid dividends on its cumulative preferred stock in the current or the prior year and has reported a net loss in the current year For the purpose of computing basic earnings per share, how should the income available to common stockholders be calculated? a The current-year dividends and the dividends in arrears on the cumulative preferred stock should be added to the net loss, but the dividends on the noncumulative preferred stock should not be included in the calculation b The dividends on the noncumulative preferred stock should be added to the net loss, but the currentyear dividends and the dividends in arrears on the cumulative preferred stock should not be included in the calculation c The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss d Neither the dividends on the noncumulative preferred stock nor the current-year dividends and the dividends in arrears on cumulative preferred stock should be included in the calculation Explanation Choice "c" is correct 40 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 40 CPAThe fair value for an asset or liability is measured as: a The appraised value of the asset or liability b The price that would be paid to acquire the asset or received to assume the liability in an orderly transaction between market participants c The price that would be received when selling an asset or paid when transferring a liability in an orderly transaction between market participants d The cost of the asset less any accumulated depreciation or the carrying value of the liability on the date of the sale Explanation Choice "c" is correct 41 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 41 CPAHudson Corp operates several factories that manufacture medical equipment The factories have a historical cost of $200 million Near the end of the company's fiscal year, a change in business climate related to a competitor's innovative products indicated to Hudson's management that the $170 million carrying amount of the assets of one of Hudson's factories may not be recoverable Management identified cash flows from this factory and estimated that the undiscounted future cash flows over the remaining useful life of the factory would be $150 million The fair value of the factory's assets is reliably estimated to be $135 million The change in business climate requires investigation of possible impairment Which of the following amounts is the impairment loss? a b c d $15 million $20 million $35 million $65 million Explanation Choice "c" is correct 42 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 42 CPAOn January 1, year 1, Peabody Co purchased an investment for $400,000 that represented 30% of Newman Corp.'s outstanding voting stock For year 1, Newman reported net income of $60,000 and paid dividends of $20,000 At year end, the fair value of Peabody's investment in Newman was $410,000 Peabody elected the fair value option for this investment What amount should Peabody recognize in net income for year attributable to the investment? a b c d $6,000 $10,000 $16,000 $18,000 Explanation Choice "c" is correct 43 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 43 CPAOn June 19, Don Co., a U.S company, sold and delivered merchandise on a 30-day account to Cologne GmbH, a German corporation, for 200,000 euros On July 19, Cologne paid Don in full Relevant currency exchange rates were: Spot rate 30-day forward rate June 19 July 19 $.988 $.995 990 1.000 What amount should Don record on June 19 as an account receivable for its sale to Cologne? a b c d $197,600 $198,000 $199,000 $200,000 Explanation Choice "a" is correct 44 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 44 CPAOn June of the current year, a company entered into a real estate lease agreement for a new building The lease is an operating lease and is fully executed on that day According to the terms of the lease, payments of $28,900 per month are scheduled to begin on October of the current year and to continue each month thereafter for 56 months The lease term spans five years The company has a calendar year end What amount is the company's lease expense for the current calendar year? a b c d $86,700 $161,838 $188,813 $202,300 Explanation Choice "c" is correct 45 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 45 CPAOn March 21, year 2, a company with a calendar year end issued its year financial statements On February 28, year 2, the company's only manufacturing plant was severely damaged by a storm and had to be shut down Total property losses were $10 million and determined to be material The amount of business disruption losses is unknown How should the impact of the storm be reflected in the company's year financial statements? a Provide no information related to the storm losses in the financial statements until losses and expenses become fully known b Accrue and disclose the property loss with no accrual or disclosure of the business disruption loss c Do not accrue the property loss or the business disruption loss, but disclose them in the notes to the financial statements d Accrue and disclose the property loss and additional business disruption losses in the financial statements Explanation Choice "c" is correct 46 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 46 CPAOn January 1, Fonk City approved the following general fund resources for the new fiscal period: Property taxes $5,000,000 Licenses and permits 400,000 Intergovernmental revenues 150,000 Transfers in from other funds 350,000 What amount should Fonk record as estimated revenues for the new fiscal year? a b c d $5,400,000 $5,550,000 $5,750,000 $5,900,000 Explanation Choice "b" is correct 47 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 47 CPAWhich of the following is one of the three standard sections of a governmental comprehensive annual financial report? a b c d Investment Actuarial Statistical Single audit Explanation Choice "c" is correct 48 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 48 CPAA government makes a contribution to its pension plan in the amount of $10,000 for year The actuarially-determined annual required contribution for year was $13,500 The pension plan paid benefits of $8,200 and refunded employee contributions of $800 for year What is the pension expenditure for the general fund for year 1? a b c d $8,200 $9,000 $10,000 $13,500 Explanation Choice "c" is correct 49 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 49 CPAOn January 1, Read, a nongovernmental not-for-profit organization, received $20,000 and an unconditional pledge of $20,000 for each of the next four calendar years to be paid on the first day of each year The present value of an ordinary annuity for four years at a constant interest rate of 8% is 3.312 What amount of restricted net assets is reported in the year the pledge was received? a b c d $66,240 $80,000 $86,240 $100,000 Explanation Choice "a" is correct 50 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial 50 CPAWhich of the following financial categories are used in a nongovernmental not-for-profit organization's statement of financial position? a b c d Net assets, income, and expenses Income, expenses, and unrestricted net assets Assets, liabilities, and net assets Changes in unrestricted, temporarily restricted, and permanently restricted net assets Explanation Choice "c" is correct 51 © 2012 DeVry/Becker Educational Development Corp All rights reserved ... Explanation Choice "c" is correct 26 © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial AICPA QUESTIONS RATED HARD DIFFICULTY 26... $400,000 $500,000 Explanation Choice "c" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPABurns Corp had the following... comprehensive loss Explanation Choice "c" is correct © 2012 DeVry/Becker Educational Development Corp All rights reserved 2012 AICPA Newly Released Questions – Financial CPABaler Co prepared its statement