AICPA AICPA Certifications CPA-TEST Questions & Answers

• Question 81:

  On June 30, 1991, ABC Corp. incurred a $100,000 net loss from disposal of a component of a business. Also, on June 30, 1991, ABC paid $40,000 for property taxes assessed for the calendar year 1991. What amount of the foregoing items should be included in the determination of ABC's net income or loss for the six-month interim period ended June 30, 1991?

  A. $140,000

  B. $120,000

  C. $90,000

  D. $70,000

  Correct Answer: B

  Explanation:

  Choice "b" is correct. $120,000 expense included in the determination of net income or loss for the six-

  month interim period ended June 30, 1991.

  

• Question 82:

  A planned volume variance in the first quarter, which is expected to be absorbed by the end of the fiscal period, ordinarily should be deferred at the end of the first quarter if it is:

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: D

  Explanation:

  Choice "d" is correct. Yes - Yes.

  Rule: Volume variances that are planned or expected to be absorbed by the end of the year should be

  deferred at interim whether favorable or unfavorable.

• Question 83:

  ABC Corp.'s $95,000 net income for the quarter ended September 30, 1990, included the following aftertax items:

  •

  A $60,000 extraordinary gain, realized on April 30, 1990, was allocated equally to the second, third, and fourth quarters of 1990.

  •

  A $16,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized on August 2, 1990.

  In addition, ABC paid $48,000 on February 1, 1990, for 1990 calendar-year property taxes. Of this amount,

  $12,000 was allocated to the third quarter of 1990.

  For the quarter ended September 30, 1990, ABC should report net income of:

  A. $91,000

  B. $103,000

  C. $111,000

  D. $115,000

  Correct Answer: A

  Explanation:

  Choice "a" is correct. $91,000 net income for the third quarter ended 9-30-90.

  Rules: The entire amount of an "extraordinary" item should be reported during the period incurred.

  A "cumulative effect" type accounting change is not included in the net income of the period of change;

  instead, the beginning of the year retained earnings is restated.

  Expenses, which benefit more than one interim period, such as property taxes, are allocated among the

  periods benefited.

  

• Question 84:

  Advertising costs may be accrued or deferred to provide an appropriate expense in each period for:

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: B

  Explanation:

  Choice "b" is correct. Yes - Yes.

  Advertising costs may be accrued or deferred to provide an appropriate expense in each period for both

  "interim" and "year-end" financial reporting.

• Question 85:

  For interim financial reporting, the computation of a company's second quarter provision for income taxes uses an effective tax rate expected to be applicable for the full fiscal year. The effective tax rate should reflect anticipated:

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: D

  Explanation:

  Choice "d" is correct. Yes - Yes.

  The effective income tax rates for operations for the full year should reflect anticipated foreign tax rates

  and available tax planning alternatives. In addition, the effect of other anticipated tax credits, capital gains

  rates, and foreign tax credits should be included.

• Question 86:

  An inventory loss from a permanent market decline of $360,000 occurred in May 1989. ABC 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 ABC's quarterly income statement for the three months ended June 30, 1989?

  A. $0

  B. $90,000

  C. $180,000

  D. $360,000

  Correct Answer: D

  Explanation:

  Choice "d" is correct. $360,000 inventory loss reported for the quarter ended 6-30-89.

  Rule: Inventory losses from "permanent market declines" are recognized in the interim period, incurred and

  later, if they "turn-around," are recognized as gains in a subsequent interim period only to the extent of

  previously reported losses.

  Rule: "Temporary" market declines need not be recognized at interim when a "turn-around" can reasonably

  be expected to occur before the end of the fiscal year.

  Facts: This $360,000 inventory decline is permanent and the entire loss would be recognized in the quarter

  interim period incurred (6-30-89).

• Question 87:

  During the second quarter of 1988, ABC Company sold a piece of equipment at a $12,000 gain. What portion of the gain should ABC report in its income statement for the second quarter of 1988?

  A. $12,000

  B. $6,000

  C. $4,000

  D. $0

  Correct Answer: A

  Explanation:

  Choice "a" is correct. $12,000.

  Rule: The entire amount of an "extraordinary gain or loss" or an "unusual or infrequently occurring item,"

  e.g., a gain or loss from sale of fixed assets, should be reported during the period (quarter) incurred.

  Choices "b", "c", and "d" are incorrect. The full gain should be reported in the second quarter when it

  occurred.

• Question 88:

  ABC Corp. experienced a $50,000 decline in the market value of its inventory in the first quarter of its fiscal year. ABC had expected this decline to reverse in the third quarter, and in fact, the third quarter recovery exceeded the previous decline by $10,000. ABC's inventory did not experience any other declines in market value during the fiscal year. What amounts of loss and/or gain should ABC report in its interim financial statements for the first and third quarters?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: A

  Explanation:

  Choice "a" is correct. Temporary market declines in inventory need not be recognized at interim when a

  turn-around can reasonably be expected to occur before the end of the fiscal year.

• Question 89:

  ABC Co. acquired 100% of XYZ Corp. prior to 1989. During 1989, the individual companies included in their financial statements the following:

  

  What amount should be reported as related party disclosures in the notes to ABC's 1989 consolidated financial statements?

  A. $150,000

  B. $155,000

  C. $175,000

  D. $330,000

  Correct Answer: C

  Explanation: Choice "c" is correct. The only related party transaction that would require disclosure (assuming that all amounts are material to the financial statements) would be the loans to officers since they are outside of the ordinary course of business. Choices "a", "b", and "d" are incorrect. Officers' salaries, officers' expenses and intercompany sales (between entities included in a consolidated set of financial statements) are all transactions in the ordinary course of business and generally would not require disclosure.

• Question 90:

  Which of the following is true regarding the presentation of "comprehensive income."

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: C

  Explanation:

  Choice "c" is correct. No - Yes.

  Comprehensive income may be shown on the face of a combined "statement of income and

  comprehensive income" a separate section below net income, or in:

  1.

  Separate "statement of comprehensive income," or as a

  2.

  Component of the "statement of changes of owners' equity."

  The income tax expense or benefit allocated to components must be disclosed, either on the face of the

  statement or in notes to the statement.

  Choices "a", "b", and "d" are incorrect, per the above rules.