FAR Becker Final Review Exam UPDATED
ACTUAL QUESTIONS AND CORRECT
ANSWERS
*Fundamental Qualitative Characteristics* - The fundamental qualitative characteristics of useful
financial information are *relevance and faithful representation.* Both characteristics must be present
for financial information to be useful.
*Relevance:* Financial information is relevant if it is capable of making a difference in the decisions
made by the users. To be relevant, financial information must have predictive value and/or confirming
value, and must be material *(PCM)*.
1. *P*redictive value
2. *C*onfirmatory value
3. *M*aterial
*Faithful Representation:* To be useful, financial information must faithfully represent the reported
economic phenomena. Faithful representation requires financial information to be *complete, neutral,
and free from error.* Although perfect faithful representation is generally not achievable, these
characteristics must be maximized.
1. Complete
2. Neutral
3. Free from error
MCQ-08471
Materiality and relevance are both defined by:
A. The consistency in the application of methods over time.
B. The perceived benefits to be denied that exceed the perceived costs associated with it.
C. What influences or makes the difference to a decision maker.
D. Quantitative criteria set by the Financial Accounting Standards Board. - C. What influences or
makes the difference to a decision maker.
The accountant's determination of materiality and relevance is based on professional judgment and is
affected by the needs of those who will be using the financial statements to make decisions.
,Choice "1" is incorrect. Materiality and relevance are not defined by consistency in the application of
methods over time. Consistency in the application of methods over time is a quality needed for the
overall accounting process.
Choice "2" is incorrect. The perceived benefits to be denied that exceed the perceived costs associated
with it does not define materiality and relevance. The perceived benefits achieved that exceed the
costs associated with them better describes the cost constraint, which holds that the benefits of
financial reporting must be greater than the costs of obtaining and presenting the information.
Choice "4" is incorrect. The Financial Accounting Standards Board does not establish quantitative
criteria that define materiality and relevance.
Going Concern Assumption - Under U.S. GAAP, preparation of financial statements presumes that the
reporting entity will continue as a going concern (to stay in business). Under this presumption,
financial statements are prepared under the going concern basis of accounting.
*If an entity's liquidation is imminent (and the entity is therefore no longer considered to be a going
concern), financial statements are prepared under the liquidation basis of accounting.*
Management is required to evaluate whether there is substantial doubt about an entity's ability to
continue as a going concern within one year after the date that the financial statements are issued.
MCQ-04833
Under U.S. GAAP, what method of accounting must be used in the preparation of financial statements
for an entity that is not considered a going concern?
A. Liquidation basis.
B. Historical cost basis.
C. Realization basis.
C. Market basis. - A. Liquidation basis.
Under U.S. GAAP, preparation of financial statements presumes that the reporting entity will continue
as a going concern (to stay in business). Under this presumption, financial statements are prepared
under the going concern basis of accounting.
If an entity's liquidation is imminent (and the entity is therefore no longer considered to be a going
concern), financial statements are prepared under the liquidation basis of accounting.
Simple Bank Reconciliation (Cash & cash equivalents) - *Banks adjustments*
,Company's records (starting point)
Deposits in transit: Add to bank
Outstanding checks: Deduct from bank
*Bank add it, LOC (less outstanding checks)*
*Book adjustments*
Bank stmt. cash bal (starting point)
Service charge: Deduct from books
Bank collections: Add to books
Non-sufficient funds (NSF): Deduct from books
Interest Income: Add to books
*Bank or both adjustments*
Errors
Errors made by either *bank or the depositors* are another cause for a difference.
MCQ-12641
Light Co. had the following bank reconciliation at March 31:
Balance per bank statement, March 31 $23,250
Add: Deposit in transit 5,150
Total balance 28,400
Less: Outstanding checks 6,300
Balance per books, March 31 $22,100
Additional information from Light's bank statement for the month of April is as follows:
Deposits $29,200
Disbursements 24,800
, All reconciling items at March 31 cleared through the bank in April. Outstanding checks at April 30
totaled $3,200. What is the amount of cash disbursements per books in April?
A. $24,800
B. $21,700
C. $28,000
D. $27,900 - April disbursements per bank statement$24,800
March checks cleared (paid) in April statement(6,300)
Checks outstanding end of April 3,200 [have not cleared yet]
Total cash disbursements in April $21,700
According to the bank statement, disbursements in April totaled $24,800. However, the question says
that all outstanding checks from the March reconciliation *cleared (were paid) the bank in April.*
This means that $6,300 of the $24,800 disbursement amount was recorded in the company's books
during the month of March but paid in April. As a result, $18,500 ($24,800 - $6,300) of the April
disbursements per the bank were actually recorded in the company's books during April and cleared
the bank during April. The last component to consider are the outstanding checks in the April
reconciliation. *These are checks written and recorded in the books that did not clear (have not been
paid and are outstanding still) the bank.* Because they are not included in the adjusted disbursement
amount of $18,500, the $3,200 of outstanding checks are added to determine total April disbursements
per the books of $21,700.
Choice "1" is incorrect. The $24,800 considers only the disbursements recorded by the bank during
the month of April. This choice does not account for disbursements recorded in the company's books
that did not clear the bank ($3,200), nor does it exclude the disbursements that cleared the bank in
April that were recorded in the company's books in March ($6,300).
Choice "3" is incorrect. The $28,000 includes the $24,800 disbursement total from the bank and adds
in the $3,200 of outstanding checks in the April reconciliation. However, the choice does not reduce
the bank disbursement total for the checks that were already recorded in the books during March
($6,300) and cleared the bank in April.
Choice "4" is incorrect. The
Single-step Income Statement - Single-step income statement:
Step 1: Total revenues and gains - Total expenses and losses other than tax = Earning before tax
Step 2: Earning before tax x Tax rate = Tax expense
Step 3: Earning before tax - Tax expense = NI
ACTUAL QUESTIONS AND CORRECT
ANSWERS
*Fundamental Qualitative Characteristics* - The fundamental qualitative characteristics of useful
financial information are *relevance and faithful representation.* Both characteristics must be present
for financial information to be useful.
*Relevance:* Financial information is relevant if it is capable of making a difference in the decisions
made by the users. To be relevant, financial information must have predictive value and/or confirming
value, and must be material *(PCM)*.
1. *P*redictive value
2. *C*onfirmatory value
3. *M*aterial
*Faithful Representation:* To be useful, financial information must faithfully represent the reported
economic phenomena. Faithful representation requires financial information to be *complete, neutral,
and free from error.* Although perfect faithful representation is generally not achievable, these
characteristics must be maximized.
1. Complete
2. Neutral
3. Free from error
MCQ-08471
Materiality and relevance are both defined by:
A. The consistency in the application of methods over time.
B. The perceived benefits to be denied that exceed the perceived costs associated with it.
C. What influences or makes the difference to a decision maker.
D. Quantitative criteria set by the Financial Accounting Standards Board. - C. What influences or
makes the difference to a decision maker.
The accountant's determination of materiality and relevance is based on professional judgment and is
affected by the needs of those who will be using the financial statements to make decisions.
,Choice "1" is incorrect. Materiality and relevance are not defined by consistency in the application of
methods over time. Consistency in the application of methods over time is a quality needed for the
overall accounting process.
Choice "2" is incorrect. The perceived benefits to be denied that exceed the perceived costs associated
with it does not define materiality and relevance. The perceived benefits achieved that exceed the
costs associated with them better describes the cost constraint, which holds that the benefits of
financial reporting must be greater than the costs of obtaining and presenting the information.
Choice "4" is incorrect. The Financial Accounting Standards Board does not establish quantitative
criteria that define materiality and relevance.
Going Concern Assumption - Under U.S. GAAP, preparation of financial statements presumes that the
reporting entity will continue as a going concern (to stay in business). Under this presumption,
financial statements are prepared under the going concern basis of accounting.
*If an entity's liquidation is imminent (and the entity is therefore no longer considered to be a going
concern), financial statements are prepared under the liquidation basis of accounting.*
Management is required to evaluate whether there is substantial doubt about an entity's ability to
continue as a going concern within one year after the date that the financial statements are issued.
MCQ-04833
Under U.S. GAAP, what method of accounting must be used in the preparation of financial statements
for an entity that is not considered a going concern?
A. Liquidation basis.
B. Historical cost basis.
C. Realization basis.
C. Market basis. - A. Liquidation basis.
Under U.S. GAAP, preparation of financial statements presumes that the reporting entity will continue
as a going concern (to stay in business). Under this presumption, financial statements are prepared
under the going concern basis of accounting.
If an entity's liquidation is imminent (and the entity is therefore no longer considered to be a going
concern), financial statements are prepared under the liquidation basis of accounting.
Simple Bank Reconciliation (Cash & cash equivalents) - *Banks adjustments*
,Company's records (starting point)
Deposits in transit: Add to bank
Outstanding checks: Deduct from bank
*Bank add it, LOC (less outstanding checks)*
*Book adjustments*
Bank stmt. cash bal (starting point)
Service charge: Deduct from books
Bank collections: Add to books
Non-sufficient funds (NSF): Deduct from books
Interest Income: Add to books
*Bank or both adjustments*
Errors
Errors made by either *bank or the depositors* are another cause for a difference.
MCQ-12641
Light Co. had the following bank reconciliation at March 31:
Balance per bank statement, March 31 $23,250
Add: Deposit in transit 5,150
Total balance 28,400
Less: Outstanding checks 6,300
Balance per books, March 31 $22,100
Additional information from Light's bank statement for the month of April is as follows:
Deposits $29,200
Disbursements 24,800
, All reconciling items at March 31 cleared through the bank in April. Outstanding checks at April 30
totaled $3,200. What is the amount of cash disbursements per books in April?
A. $24,800
B. $21,700
C. $28,000
D. $27,900 - April disbursements per bank statement$24,800
March checks cleared (paid) in April statement(6,300)
Checks outstanding end of April 3,200 [have not cleared yet]
Total cash disbursements in April $21,700
According to the bank statement, disbursements in April totaled $24,800. However, the question says
that all outstanding checks from the March reconciliation *cleared (were paid) the bank in April.*
This means that $6,300 of the $24,800 disbursement amount was recorded in the company's books
during the month of March but paid in April. As a result, $18,500 ($24,800 - $6,300) of the April
disbursements per the bank were actually recorded in the company's books during April and cleared
the bank during April. The last component to consider are the outstanding checks in the April
reconciliation. *These are checks written and recorded in the books that did not clear (have not been
paid and are outstanding still) the bank.* Because they are not included in the adjusted disbursement
amount of $18,500, the $3,200 of outstanding checks are added to determine total April disbursements
per the books of $21,700.
Choice "1" is incorrect. The $24,800 considers only the disbursements recorded by the bank during
the month of April. This choice does not account for disbursements recorded in the company's books
that did not clear the bank ($3,200), nor does it exclude the disbursements that cleared the bank in
April that were recorded in the company's books in March ($6,300).
Choice "3" is incorrect. The $28,000 includes the $24,800 disbursement total from the bank and adds
in the $3,200 of outstanding checks in the April reconciliation. However, the choice does not reduce
the bank disbursement total for the checks that were already recorded in the books during March
($6,300) and cleared the bank in April.
Choice "4" is incorrect. The
Single-step Income Statement - Single-step income statement:
Step 1: Total revenues and gains - Total expenses and losses other than tax = Earning before tax
Step 2: Earning before tax x Tax rate = Tax expense
Step 3: Earning before tax - Tax expense = NI
