Financial Accounting and
Reporting (FAR)
AICPA
Released Questions
- 2025
Material from Uniform CPA Examination Selected Questions
and Unofficial Answers, 2025, copyright ©️ by American Institute
of Certified Public Accountants, Inc., is reprinted and/or
adapted with permission.
Note: Any knowing solicitation or disclosure of any questions or
answers included on any CPA examination is prohibited
Multiple Choice Question #1:
As of December 31, year 2, a company reported retained earnings of $600,000. The following
occurred during year 3:
• 2,000 shares of stock that were issued in year 1 at their $100 par were repurchased for
constructive retirement at a cost of $90 per share.
• A stock dividend with a fair value of $150,000 was declared and issued.
• Net income of $400,000 was recorded.
What amount should be reported as retained earnings in the company’s December 31, year 3,
classified balance sheet?
A. $850,000
B. $870,000
C. $1,000,000
D. $1,020,000
Correct Answer: A
Multiple Choice Question #2:
A company reported $100,000 of interest expense for the current year. Items affecting this
calculation are listed below:
Item Amount
Total interest paid during the year $106,000
Interest accrued at year end $3,000
Interest capitalized during building construction $14,000
Interest recognized on zero-coupon bonds due in four years $5,000
If the company uses the indirect method of preparing the cash flow statement, what amount
should the company report as its supplemental disclosure for interest paid during the year?
A. $86,000
B. $92,000
C. $101,000
D. $114,000
Correct Answer: B
Multiple Choice Question #3:
Quality Corp. owns 90% of the outstanding common stock of Excellence Co. The remaining 10%
ownership interest in Excellence is held by other owners. The noncontrolling interest in
Excellence should be
A. Eliminated from Quality’s consolidated financial statements.
B. Presented as a long-term liability of Quality as a separate line item.
C. Presented as a part of the equity of Quality.
D. Classified as equity and presented separately from the equity of Quality.
Correct Answer: D
Multiple Choice Question #4:
At December 31, year 1, the trial balance for a nongovernmental, not-for-profit entity includes
$2,200,000 of assets before considering the following:
• On May 1, year 1, a donor contributed to the entity a painting with a fair value of
$350,000. The entity determined that the painting qualifies for held-for-sale accounting
treatment.
• On July 15, year 1, a donor transferred to the entity historical artifacts with a fair value
of $225,000. The artifacts were placed in the entity’s library as a named collection for
use by students in its archeology lab.
If the entity’s policy is not to capitalize collections in its financial statements, what amount
should be reported as total assets in the December 31, year 1, statement of financial position?
A. $2,200,000
B. $2,425,000
C. $2,550,000
D. $2,775,000
Correct Answer: C
Multiple Choice Question #5:
When preparing the statement of financial position for a nongovernmental not-for-profit
organization, in which of the following locations are net assets reported?
A. Recording a prepaid expense for the costs of the brochures, staff, and market research
expenses, and recognizing the expense when the materials are mailed.
B. Recording a prepaid expense for the cost of the brochures only, and recognizing the expense
when the materials are mailed.
C. Recording the deferred costs of the brochures, recognizing the expense over the period in
which related contributions are expected to be received, and recording as expense the
market research and staff costs as incurred.
D. Recording the costs of the brochures, market research, and staff time as expense in the
period in which the costs are incurred.
Correct Answer: D
Multiple Choice Question #6:
During the current year, as part of its fundraising efforts, a nongovernmental, not-for-profit
entity collected $10,000 on behalf of other third-party entities and distributed $3,000 to those
entities. If the nongovernmental, not-for-profit entity uses the indirect method to calculate its
statement of cash flows, how would these agency transactions appropriately be presented?
A. As a $7,000 increase to net cash provided by investing activities.
B. As a $7,000 decrease to net cash provided by investing activities.
C. As a $7,000 increase to net cash provided by operating activities.
D. As a $7,000 decrease to net cash provided by operating activities.
Correct Answer: C
Multiple Choice Question #7:
During the current year, Carp City plans to construct a new city hall and to purchase six new
police vehicles. The city commission adopted a resolution that requires the city’s accounting
department to set up a special fund to track the construction expenditures of the city hall
project. In which fund should Carp City record these transactions?
A. General fund for city hall and internal service fund for vehicles.
B. General fund for city hall and capital project fund for vehicles.
C. Capital project fund for city hall and general fund for vehicles.
D. Capital project fund for city hall and internal service fund for vehicles.
Correct Answer: C
Multiple Choice Question #8:
Condensed financial statements related to a public company’s operations are a component of
which of the following forms filed with the U.S. SEC?
A. Form 4.
B. Form 10-K.
C. Form 10-Q.
D. Form 11-K.
Correct Answer: C
Multiple Choice Question #9:
Which of the following is a proper title for a financial statement prepared using the income tax
basis of accounting?
A. Statement of assets, liabilities, and equity–income tax basis.
B. Statement of financial position.
C. Statement of operations.
D. Statement of net assets.
Correct Answer: A
Multiple Choice Question #10:
A corporation has the following balances at year end:
Cash in bank $3,000
Petty cash $120
Money market account $10,000
The cashier is holding postdated checks from customers totaling $500 to be deposited on the
date of the check. Further, $5,000 of the money market account is subject to a compensating-
balance arrangement for a loan due in three years. What amount should be reported as cash
and cash equivalents in the year-end balance sheet?
A. $8,120
B. $8,500
C. $8,620
D. $18,620
Correct Answer: A
Multiple Choice Question #11:
Yellow Co. is reviewing its accounts receivable aging to assess its allowance for credit losses.
Yellow’s balances are as follows at year end:
Accounts receivable $100,000
Allowance for credit losses $15,000
Credit loss expense $5,000
At December 31 of the current year, Yellow’s management identified $5,000 in potentially
uncollectible accounts from one of Yellow’s customers. What balance amount should be in
Yellow’s accounts receivable account in the trial balance at December 31 of the current year
after the provision is made?
A. $80,000
B. $85,000
C. $95,000
D. $100,000
Correct Answer: D
Multiple Choice Question #12:
A company that uses the periodic inventory system had the following information regarding
its inventory:
Description Units Unit price Total
January 1 balance 5 $7 $35
Purchase 1 4 $9 $36
Purchase 2 6 $10 $60
Purchase 3 3 $12 $36
Available 18 $167
The company has 8 units remaining in inventory at year end and uses the FIFO method to
account for its inventory. What amount of cost of goods sold should be reported for its year
end?
A. $105.00
B. $92.80
C. $86.00
D. $81.00
Correct Answer: D
Multiple Choice Question #13:
Rally Co. purchased some real estate to build a parking lot. It paid a purchase price of
$35,000, real estate commission of $2,100, and delinquent property taxes of $3,000. The
company tore down a shed on the land at a cost of $2,500 and sold the salvage lumber for
$500. Paving the land cost $4,000. At what value should the land be recorded?
A. $40,100
B. $42,100
C. $42,600
D. $46,100
Correct Answer: B
Multiple Choice Question #14:
On January 1 of the current year, a company paid $92,000 to purchase $100,000 of 5% bonds
and classified the investment as a trading security. The company elected to use the straight-line
method of amortizing the discount on the bond investment. The bonds mature in 10 years and
pay interest on December 31. If the fair value of the bond was $98,000 at the end of the current
year, what amount should be reported as interest income?
A. $4,600
B. $5,000
C. $5,400
D. $5,800
Correct Answer: D
Multiple Choice Question #15:
During the current year, a company purchased a debt investment that it intends to hold to
maturity. At year end, the company assessed that the investment had experienced a significant
deterioration in credit quality. The face value of the investment is $600,000, its amortized cost
at year end is $620,000, and the company now expects the net amount collected to be
$555,000. Which of the following journal entries is required to properly report the investment?
A. Dr. Credit loss expense $45,000; Cr. Allowance for credit losses $45,000
B. Dr. Credit loss expense $45,000; Cr. Held-to-maturity debt investment $45,000
C. Dr. Credit loss expense $65,000; Cr. Allowance for credit losses $65,000
D. Dr. Credit loss expense $65,000; Cr. Held-to-maturity debt investment $65,000
Correct Answer: C
Multiple Choice Question #16:
A company holds a patent that it purchased for $140,000. As of the end of the current year,
the carrying amount of the patent is $90,000. Because of technological changes, the patent
might be impaired. Management estimates that before the patent expires, it will generate
net cash flows of $80,000 that have a discounted present value of $74,000. What amount, if
any, should the company recognize as an impairment loss for the current year?
A. $0
B. $10,000
C. $16,000
D. $66,000
Correct Answer: C
Multiple Choice Question #17:
A company with a calendar year end provides its 10 hourly employees with 12 paid vacation
days per year that are earned at a rate of one day per month based on an eight-hour workday.
The company believes that it is probable that the hourly employees will use 90% of their
vacation days and forfeit the remaining 10%. In addition, the employees earn $15 per hour and
have used a total of 50 vacation days through September 30, year 1. Assuming that the
company records adjusting journal entries monthly, what amount of vacation expense should
the company have recognized for the nine months ended September 30, year 1?
A. $14,400
B. $12,960
C. $9,720
D. $6,000
Correct Answer: C
Multiple Choice Question #18:
A nonpublic company performed a review of its accounting records before finalizing its
income statement for the year ended December 31, year 2. The company identified the
following errors:
• A $600,000 payment for insurance coverage for the period January 1, year 1, through
December 31, year 3, was expensed in full when paid on January 1, year 1.
• A year 2 advertising campaign totaling $75,000 was recorded as travel expense on
June 30, year 2. The campaign ran evenly throughout year 2.
• A salary accrual of $40,000 for wages earned during year 1, but paid on January 7,
year 2, was not recorded in year 1.
• A December 31, year 2, entry to record a utilities accrual of $4,500 was incorrectly
recorded as $45,000.
In the company’s income statement for the year ended December 31, year 2, the net
impact of the errors caused total expenses reported to be understated by what amount?
A. $119,500
B. $157,000
C. $194,500
D. $219,500
Correct Answer: A
Multiple Choice Question #19:
Which of the following is a loss contingency that generally does not require recognition in the
financial statements?
A. A threatened strike.
B. Manufacturers’ product guarantees.
C. Obligations due to cash rebate offers.
D. Claims by government agencies with probable negative outcomes.
Correct Answer: A
Multiple Choice Question #20:
A company sells mobile phones and telecommunication service plans from a retail store. Sales
agents employed at the store signed 200 customers to two-year service contracts during
December. The company pays its sales agents commissions for the sale of service contracts in
addition to their salaries. Salaries paid to sales agents during December were $12,000, and
commissions paid were $2,400. The retail store also incurred $2,000 in advertising costs during
the month. All selling costs are expected to be recoverable. In accounting for December’s
contract costs for its customers, the company should capitalize
A. All expenses of $16,400.
B. Commissions of $2,400 and expense all other costs as incurred.
C. Salaries and commissions of $14,400 and expense advertising costs as incurred.
D. Commissions and advertising costs of $4,400 and expense salaries as incurred.
Correct Answer: B
Multiple Choice Question #21:
Each of the following items is a permanent difference in accounting for income taxes, except
A. Interest earned on municipal bond investments.
B. The cost of premiums paid on life insurance policies of key officers for which the company is
the beneficiary.
C. Changes in the allowance for doubtful accounts.
D. Fines paid for a tax law violation.
Correct Answer: C
Multiple Choice Question #22:
When developing fair value assumptions, the reporting entity need not perform which of
the following tasks?
A. Identifying specific market participants.
B. Identifying characteristics that distinguish market participants.
C. Considering factors specific to the asset or liability.
D. Considering factors specific to the principal (or most advantageous) market for the asset or
liability.
Correct Answer: A
Multiple Choice Question #23:
Which of the following contractual provisions should cause a customer to recognize a lease
liability?
A. The customer has the right to return the identified asset to the supplier at any point in
time.
B. The supplier has the right to direct the use of the identified asset throughout the period of
use.
C. The supplier has the substantive right to substitute the identified asset throughout the
period of use.
D. The customer has the right to control the use of an identified asset for a period of time in
exchange for consideration.
Correct Answer: D
Multiple Choice Question #24:
Which of the following items should be considered in the classification of a lease arrangement
by a lessee?
A. A residual value guarantee by the lessee that is not included in the lease payments.
B. Lessee indemnification for environmental contamination related to the underlying asset.
C. The lessee’s guarantee of the lessor’s debt related to the underlying asset in the lease
arrangement.
D. Additional payments that must be made if the lessee exceeds metrics defined in the lease
arrangement.
Correct Answer: A
Multiple Choice Question #25:
On February 4, year 2, a company declared a dividend of $0.10 per share for the year ended
December 31, year 1. The dividend was declared before the financial statements were issued.
There were 2,000,000 shares outstanding on December 31, year 1, and 3,000,000 shares
outstanding on February 4, year 2. How much, if any, should the company recognize as a
liability for the dividend in its December 31, year 1, financial statements?
A. $0
B. $150,000
C. $200,000
D. $300,000
Correct Answer: A
Simulation #1:
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Exhibits Information
No exhibits in this item.
Blueprint Information
Uniform CPA Examination Blueprints effective January 1, 2025: FAR.003.003.000
Skill: Application
Simulation #2:
- Option List Details -
Column B, C, D List
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Exhibits Information
Exhibits included in this item
Exhibit 1: General Ledger Detail
Exhibit 2: Product U Invoice
Exhibit 3: Email Regarding Significant Inventory Matters
Exhibit 4: Analysis of Product Y Costs
Blueprint Information
Uniform CPA Examination Blueprints effective January 1, 2025: FAR.002.003.000
Skill: Analysis
