Question 1

In general, an enterprise preparing interim financial statements should:

Options :

A : Defer recognition of seasonal revenue.

B : Disregard permanent decreases in the market value of its inventory.

C : Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred.

D : Use the same accounting principles followed in preparing its latest annual financial statements.

Answer: D

Question 2

In April 30, 20X4, Deer Corp. approved a plan to dispose of a component of its business. For the period January 1 through April 30, 20X4, the component had revenues of $500,000 and expenses of $800,000. The assets of the component were sold on October 15, 20X4 at a loss. In its income statement for the year ended December 31, 20X4, how should Deer report the component's operations from January 1 to April 30, 20X4?

Options :

A : $500,000 and $800,000 should be included with revenues and expenses, respectively, as part of continuing operations.

B : $300,000 should be reported as part of the loss on disposal of a component and included as part of continuing operations.

C : $300,000 should be reported as an extraordinary loss.

D : $300,000 should be reported as a loss from operations of a component and included in loss from discontinued operations.

Answer: D

Question 3

Reclassification adjustments must be shown in the financial statement that discloses comprehensive income:

Options :

A : To show what portion of comprehensive income is from the realization of current assets.

B : To show the tax effect of items of comprehensive income.

C : To avoid double counting in comprehensive income items, which are currently displayed in net income.

D : To avoid including transactions with shareholders in items of comprehensive income.

Answer: C

Question 4

In which of the following situations should a company report a prior-period adjustment?

Options :

A : A change in the estimated useful lives of fixed assets purchased in prior years.

B : The correction of a mathematical error in the calculation of prior years' depreciation.

C : A switch from the straight-line to double-declining balance method of depreciation.

D : The scrapping of an asset prior to the end of its expected useful life.

Answer: B

Question 5

If a company is not presenting comparative financial statements, the correction of an error in the financial statements of a prior period should be reported, net of applicable income taxes, in the current:

Options :

A : Retained earnings statement after net income but before dividends.

B : Retained earnings statement as an adjustment of the opening balance.

C : Income statement after income from continuing operations and before extraordinary items.

D : Income statement after income from continuing operations and after extraordinary items.

Answer: B

Free CPA-Financial Mock Exam – Practice Online Confidently

Buying Options: