In open market transactions, Gold Corp. simultaneously sold its long-term investment in Iron Corp. bonds and purchased its own outstanding bonds. The broker remitted the net cash from the two transactions.Gold's gain on the purchase of its own bonds exceeded its loss on the sale of the Iron bonds. Assume the transaction to purchase its own outstanding bonds is unusual in nature and has occurred infrequently.Gold should report the:
Answer(s): D
Choice "d" is correct, these are two separate transactions because Gold Corp. (1) sold Iron Corp. bonds (an investment) for a loss, and, (2) bought back its own (Gold) Corp. bonds (a debt) for a gain. This is not a "refinancing" (where one would sell new bond debt to buy back old bond debt outstanding).The gain from the purchase of its own bonds is an "extraordinary gain" because it is both unusual in nature and infrequently occurring (per APB Opinion No. 30 and SFAS No. 145). The Iron Corp. transaction is a loss in "income before extraordinary items." Choices "a" and "b" are incorrect. The two transactions are separate and cannot be netted. Choice "c" is incorrect. Just the opposite. The sale of the investment is a loss in "income before extraordinary items," while the purchase of its bond debt is an "extraordinary gain" according to the provisions of APB Opinion No. 30.
Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during 1994. The cumulative effect of this change should be reported in Lore's 1994 financial statements as a:
Answer(s): A
Choice "a" is correct. The cash basis for financial reporting is not a generally accepted accounting basis of accounting (GAAP); therefore, it is an error. Correction of an error from a prior period is a reported as prior period adjustment to retained earnings. Choice "b" is incorrect. Cash basis reporting is not an accounting principle under accrual accounting principles. Thus, the change from cash basis is not reported as a change in accounting principle. In addition, changes in accounting principle are not prior period adjustments; instead, they are treated retrospectively.Choices "c" and "d" are incorrect. Correction of prior period errors has no effect on the current year's income statement.
A material loss should be presented separately as a component of income from continuing operations when it is:
Choice "d" is correct. Gains or losses that are unusual in nature or occur infrequently but not both, are presented as a component of income from continuing operations. Choice "a" is incorrect. Extraordinary items are shown net of tax in a separate section of the income statement after income from continuing operations.Choice "b" is incorrect. Cumulative effects of changes in accounting principle are now shown net of tax as an adjustment to the opening balance of retained earnings in the retained earnings statement. This treatment is called retrospective application. There really are no longer any cumulative effect types of changes in accounting principle. The cumulative effect is merely how the amount of the change is measured.Choice "c" is incorrect. This is the definition of an extraordinary item.
During 1994, Orca Corp. decided to change from the FIFO method of inventory valuation to the weightedaverage method. Inventory balances under each method were as follows:Orca's income tax rate is 30%.Orca should report the cumulative effect of this accounting change as a(n):
Choice "a" is correct. The cumulative effect of a change in accounting principle is shown as an adjustment to beginning retained earnings.Choice "b" is incorrect. The cumulative effect of a change in accounting principle is now presented as a separate category on the retained earnings statement and is not a component of net income. Choice "c" is incorrect. Extraordinary items are unusual and infrequent in nature. Extraordinary items have nothing to do with changes in accounting principle. Choice "d" is incorrect. A change in accounting principle affects retained earnings, not the income statement, under SFAS No. 154.
A transaction that is unusual in nature and infrequent in occurrence should be reported separately as a component of income:
Choice "d" is correct. An extraordinary item (a transaction that is both "unusual in nature" and "infrequent in occurrence") should be reported separately as a component of income after discontinued operations of a segment of a business.The cumulative effect of a change in accounting principle is shown on the retained earnings statement.This is why memorizing the mnemonic "idea" is so important.
Share your comments for AICPA FAR exam with other users:
i need questions/dumps for this exam.
i need this exam, when will it be uploaded
i need the dumps !
very helpful
good source
my 3rd test and passed on first try. hats off to this brain dumps site.
please upload it
does anybody know if are these real exam questions?
are these questions similar to actual questions in the exam? because they seem to be too easy
i have a lot of experience but what comes in the exam is totally different from the practical day to day tasks. so i thought i would rather rely on these brain dumps rather failing the exam.
good questions
valied exam dumps. they were very helpful and i got a pretty good score. i am very grateful for this service and exam questions
will it help?
very useful to verify knowledge before exam
good stuffs
question 17 : responses arent b and c ?
just passed the exam on my first try using these dumps.
these questions look good.
this is very helpful content
please provide the dumps
it is amazing
quesion 178 about "a banking system that predicts whether a loan will be repaid is an example of the" the answer is classification. not regresion, you should fix it.
please upload apache spark dumps
q14 is b&c to reduce you will switch off mail for every single alert and you will switch on daily digest to get a mail once per day, you might even skip the empty digest mail but i see this as a part of the daily digest adjustment
i think it is good question
good for students who wish to give certification.
is there a google drive link to the images? the links in questions are not working.
very promising, looks great, so much wow!
i scored 87% on the az-204 exam. thanks! i always trust
good need more
sample questions seems good
huawei is ok
good one nice
Keeping this site free takes real effort. We constantly battle automated scraping and unauthorized content copying. A quick account helps us protect the community and keep the site free.
To continue studying for your FAR, please sign in or create a free account.