10 exam-style questions with answers and explanations, straight from our 1,030-question bank. Tap an answer to check yourself. When you're ready, take the scored version in the free practice test.
The FAR exam has 57 questions and runs 4 hours.
These 10 free FAR questions are organized by exam domain, so you can see how each part of the Uniform CPA Examination: Financial Accounting and Reporting (FAR) blueprint is tested. Reveal the answer and explanation under each question.
Ridge Co. reported net income of $420,000. Depreciation expense was $55,000, a gain on an equipment sale was $18,000, accounts receivable decreased $24,000, inventory increased $31,000, and accounts payable increased $12,000. The sale produced $70,000 of cash, and Ridge paid $40,000 of cash dividends. Using the indirect method, what amount should Ridge report as net cash provided by operating activities?
Correct answer: C - $462,000
A parent owns 80% of a subsidiary. During the year, the subsidiary sold inventory to the parent and recognized a $30,000 gross profit. At year-end, $12,000 of that profit remains in the parent's ending inventory. After eliminating the intercompany sale and purchase, how should the unrealized profit be handled in consolidation?
Correct answer: A - Reduce inventory and increase cost of goods sold by $12,000; allocate the upstream income reduction between the parent and noncontrolling interest.
A donor transfers $300,000 to a nongovernmental not-for-profit to provide 6,000 counseling sessions. The agreement contains a measurable service barrier and a right of return for the unperformed portion. The barrier is satisfied ratably as sessions are delivered. By year-end, completed sessions have satisfied $225,000 of the barrier; $75,000 remains refundable. The donor receives no commensurate value. How should the not-for-profit report the arrangement at year-end?
Correct answer: D - Recognize $225,000 of contribution revenue and report a $75,000 refundable advance.
A city operates a water utility that sells services primarily to external customers. Revenue bonds for the utility are payable solely from customer charges, and the pricing policy is designed to recover operating and capital costs. Which reporting model applies to the utility?
Correct answer: B - Enterprise Fund using accrual accounting and an economic resources focus
A public company reports income from continuing operations of $1,200,000 and a current-year cumulative preferred dividend requirement of $60,000. It had 400,000 common shares outstanding all year. Also outstanding all year were 40,000 options with an $18 exercise price when the average market price was $30, and convertible debt that would add $50,000 of after-tax interest and 50,000 common shares. What is diluted earnings per share, rounded to the nearest cent?
Correct answer: A - $2.55
A company maintained cash-basis records and collected $900,000 from customers during the year. Accounts receivable increased from $120,000 to $160,000, while unearned revenue increased from $25,000 to $40,000. When the company converts its records to the accrual basis, which revenue amount and conversion logic are correct?
Correct answer: D - $925,000; add the receivable increase and subtract the unearned-revenue increase
Company A has a current ratio of 2.10 and a quick ratio of 0.80. Company B has a current ratio of 1.50 and a quick ratio of 1.20. The companies have similar operating cycles and comparable current-liability quality. Which interpretation is most directly supported by the ratios?
Correct answer: C - Company B has more quick assets per dollar of current liabilities; Company A relies more heavily on inventory and prepaids.
At month-end, the bank collected a $50,000 note plus $2,000 interest for a company and charged a $500 service fee; none of these amounts is in the general ledger. The reconciliation also includes a $14,000 deposit in transit, $21,000 of outstanding checks, and a $3,000 check belonging to another customer that the bank charged to the company's account. What should the company record before finalizing its cash balance?
Correct answer: B - Record the note collection, interest revenue, and service fee; make no entry for the deposit in transit, outstanding checks, or bank error.
A company transfers trade receivables to a factor for cash. The receivables are legally isolated, and the factor may pledge or exchange them. However, the agreement both entitles and obligates the company to repurchase the receivables before maturity at a fixed price. Which accounting treatment follows from these terms?
Correct answer: D - Account for a secured borrowing; the mandatory repurchase provision retains effective control over the receivables.
A year-end inventory count excluded merchandise purchased from a supplier that was shipped FOB shipping point on December 29 and received January 3. The count also included merchandise physically held for that supplier under a consignment arrangement. Which correction gives the proper December 31 inventory?
Correct answer: A - Add the goods shipped FOB shipping point and remove the consigned goods.
The FAR exam also covers these domains. Drill them in the full free practice test:
The full bank has 1,020 more FAR questions with explanations.
Continue in the free practice test →
View plans