CPA Exam Review Questions Financial
Accounting & Reporting (FAR) Exam
Questions and Answers Graded A+
Which of the following is not a comprehensive basis of accounting other than
generally accepted accounting principles?
A. Basis of accounting used by an entity to comply with the financial reporting
requirements of a government regulatory agency
B. Cash receipts and disbursements basis of accounting
C. Basis of accounting used by an entity to file its income tax return
D. Basis of accounting used by an entity to comply with the financial reporting
requirements of a lending institution - Correct answer-D.
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,The following accounting bases may be used to prepare financial statements in
conformity with a comprehensive basis of accounting other that GAAP:
1. income tax basis of accounting
2. cash basis of accounting
3. modified cash basis of accounting
4. basis of accounting used by an entity to comply with the financial reporting
requirements of a government regulatory agency.
5. a definite set of criteria having substantial support that is applied to all material
items in the financial statements.
An other comprehensive basis of accounting (OCBOA) outside of the permitted
bases listed above is prohibited. A basis of accounting used by an entity to comply
with the financial reporting requirements of a lending institution is not a permitted
OCBOA.
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,One criterion for a capital lease is that the term of the lease must equal a minimum
percentage of the leased property's economic life at the inception of the lease. The
minimum percentage is:
A. 75%
B. 41%
C. 50%
D. 90% - Correct answer-A.
A lease is classified as a capital lease if one of the following criteria is met:
1. the title is transferred to the lease at the end of the lease period.
2. a bargain purchase option exists
3. the lease period is a t least 75% of the asset's life.
4. the present value of the minimum lease payments is at least 90% of the fair
value of the asset
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, On January 15, Year 5 Rice Co. declared its annual cash dividend on common
stock for the year ended January 31, Year 5. The dividend was paid on February 9,
Year 5, to stockholders of record as of January 28, Year 5. On what date should
Rice decrease retained earnings by the amount of the dividend?
A. January 15, year 5
B. January 31, year 5
C. January 28, year 5
D. February 9, year 5 - Correct answer-A.
Retained earnings is decreased and a current liability for the cash dividend is
recorded on the declaration date, in this case, January 15, year 5
For interim financial reporting, a company's income tax provision for the second
quarter of a given year should be determined using the:
A. Statutory tax rate for the year
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Accounting & Reporting (FAR) Exam
Questions and Answers Graded A+
Which of the following is not a comprehensive basis of accounting other than
generally accepted accounting principles?
A. Basis of accounting used by an entity to comply with the financial reporting
requirements of a government regulatory agency
B. Cash receipts and disbursements basis of accounting
C. Basis of accounting used by an entity to file its income tax return
D. Basis of accounting used by an entity to comply with the financial reporting
requirements of a lending institution - Correct answer-D.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,The following accounting bases may be used to prepare financial statements in
conformity with a comprehensive basis of accounting other that GAAP:
1. income tax basis of accounting
2. cash basis of accounting
3. modified cash basis of accounting
4. basis of accounting used by an entity to comply with the financial reporting
requirements of a government regulatory agency.
5. a definite set of criteria having substantial support that is applied to all material
items in the financial statements.
An other comprehensive basis of accounting (OCBOA) outside of the permitted
bases listed above is prohibited. A basis of accounting used by an entity to comply
with the financial reporting requirements of a lending institution is not a permitted
OCBOA.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,One criterion for a capital lease is that the term of the lease must equal a minimum
percentage of the leased property's economic life at the inception of the lease. The
minimum percentage is:
A. 75%
B. 41%
C. 50%
D. 90% - Correct answer-A.
A lease is classified as a capital lease if one of the following criteria is met:
1. the title is transferred to the lease at the end of the lease period.
2. a bargain purchase option exists
3. the lease period is a t least 75% of the asset's life.
4. the present value of the minimum lease payments is at least 90% of the fair
value of the asset
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, On January 15, Year 5 Rice Co. declared its annual cash dividend on common
stock for the year ended January 31, Year 5. The dividend was paid on February 9,
Year 5, to stockholders of record as of January 28, Year 5. On what date should
Rice decrease retained earnings by the amount of the dividend?
A. January 15, year 5
B. January 31, year 5
C. January 28, year 5
D. February 9, year 5 - Correct answer-A.
Retained earnings is decreased and a current liability for the cash dividend is
recorded on the declaration date, in this case, January 15, year 5
For interim financial reporting, a company's income tax provision for the second
quarter of a given year should be determined using the:
A. Statutory tax rate for the year
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