CPA Exam: FAR Deck (F1, F2) Questions and Correct Answers

CPA Exam: FAR Deck (F1, F2) Questions and Correct Answers How is the level in fair value hierarchy determined? - Correct Answer By the lowest level of significant input What the the fundamental and enhancing qualitative characteristics of financial information? - Correct Answer Fundamental Characteristics: Relevance and Faithful Representation. Relevance requires information be complete, neutral, and free from error. Faithful representation requires information have predictive and confirmatory value, and be material Enhancing Characteristics: Comparability, Understandability, Timeliness, and Verifiability What is the primary objective of financial reporting? - Correct Answer The primary objective of financial reporting is to provide financial information that is useful to the primary users of financial reports (SFAC 8, Chapter 1). Those primary users are lenders, creditors, and investors. SFAC - Statements of Financial Accounting Concepts How are activities grouped on an income statement and how do they differ for single vs. multi step statements? - Correct Answer They are grouped into continuing operations and discontinued operations. Disc ops will always be at the bottom. For a multi-step income statement the continued operations are separated into operating activities and continuing but non-operating activities. These includes things like interest, gain/loss on asset, gain/loss on available for sales securities, transaction costs, etc. How are prior period adjustments booked? - Correct Answer They are booked through equity in retained earnings and do not impact the P&L How should a segregated bank account used to pay a long-term liabilities be classified? - Correct Answer It should be classified as a non-current asset. What is the minimum operating cycle for the purposes of reporting current assets and current liabiliti