You are on page 1of 61

2017 AICPA Newly Released Questions—Financial

FINANCIAL
2017 AICPA Newly
Released MCQs

Page 1 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

2017 AICPA Financial Newly Released MCQs—Medium (Moderate) Rating

1. CPA-05287
Which of the following defines equity as it relates to a business entity?
a. Net revenues.
b. Total revenues less total expenses.
c. Total assets and liabilities.
d. Total assets less total liabilities.

Unit & Module to be Assigned To: F-1, M-1


Representative Task: FI-A1.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 9
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. The basic accounting equation states that Assets = Liabilities + Stockholders'
Equity. This equation can be rearranged such that Stockholders' Equity = Assets – Liabilities. By
definition, equity is the residual interest in the assets of a company that remains after deducting its
liabilities.
Choice "a" is incorrect. Equity consists of contributed capital and earned capital (retained earnings).
Revenues are a component of the retained earnings of a company, but do not represent the full value of
equity.
Choice "b" is incorrect. Revenues less expenses contribute to the retained earnings portion of equity, but
equity also includes contributed capital (contributions by owners).
Choice "c" is incorrect. Liabilities are deducted from assets to calculate equity, not added to assets.

Page 2 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

2. CPA-05307
What basis of accounting should be used when preparing a governmental funds statement of revenues,
expenditures, and changes in fund balances?
a. Accrual basis of accounting.
b. Modified accrual basis of accounting.
c. Modified cash basis of accounting.
d. Cash basis of accounting.

Unit & Module to be Assigned To: F-9, M-2


Representative Task: FIV-A2.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 11
Correct Answer Choice: B

ANSWER:
Choice "b" is correct. Governmental (GRaSPP) funds use the modified accrual basis of accounting in
combination with the current resources measurement focus to measure and present transactions.
Choice "a" is incorrect. Proprietary and fiduciary funds (SE PAPI) use the accrual basis of accounting in
combination with the economic resources measurement focus to measure and present transactions.
Choice "c" is incorrect. The modified cash basis of accounting is not appropriate for GAAP presentations
of governmental funds or any other type of fund.
Choice "d" is incorrect. The cash basis of accounting is not appropriate for GAAP presentations of
governmental funds or any other type of fund.

Page 3 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

3. CPA-05319
A city received a $9,000,000 federal grant to finance the construction of a homeless shelter. In which
fund should the proceeds be recorded?
a. Permanent.
b. General.
c. Capital project.
d. Special revenue.

Unit & Module to be Assigned To: F-9, M-6


Representative Task: FIV–A3.1
Skill Level (Must be R&U or Application Only): Application
Page Reference: 57
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. The capital projects funds would account for a federal grant for the construction of a
homeless shelter. Capital projects are established for the construction, purchase, or leasing of significant
fixed assets used for general governmental activities.
Choice "a" is incorrect. A federal grant to finance a homeless shelter would be appropriately accounted
for in a capital projects fund, which is the fund typically used to account for the construction, purchase, or
lease of significant fixed assets, not a permanent fund. Permanent funds should be used to report
resources that are legally restricted to the extent that only earnings and not principal may be used for the
benefit of the public, such as public cemeteries.
Choice "b" is incorrect. A federal grant to finance a homeless shelter would be appropriately accounted
for in a capital projects fund, which is the fund typically used to account for the construction, purchase, or
lease of significant fixed assets, not the general fund. The general fund accounts for the general activities
of governments such as administration, public safety, etc. The general fund would also account for
transactions not appropriately accounted for in any other fund.
Choice "d" is incorrect. A federal grant to finance a homeless shelter would be appropriately accounted
for in a capital projects fund, which is the fund typically used to account for the construction, purchase, or
lease of significant fixed assets, not a special revenue fund. Special revenue funds account for resources
that are restricted for purposes other than debt service or capital projects.

Page 4 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

4. CPA-05327
Hill Corp. began production of a new product. During the first calendar year, 1,000 units of the product
were sold for $1,200 per unit. Each unit had a two-year warranty. Based on warranty costs for similar
products, Hill estimates that warranty costs will average $100 per unit. Hill incurred $12,000 in warranty
costs during the first year and $22,000 in warranty costs during the second year. The company uses the
expense warranty accrual method. What should be the balance in the estimated liability under warranties
account at the end of the first calendar year?
a. $66,000
b. $88,000
c. $100,000
d. $112,000

Unit & Module to be Assigned To: F-5, M-2


Representative Task: FIII-C.2
Skill Level (Must be R&U or Application Only): Application
Page Reference: 22
Correct Answer Choice: B

ANSWER:
Choice "b" is correct. Hill Corp. should accrue the full value of the estimated warranty expense in the
year of sale. 1,000 units sold × estimated warranty costs of $100 per unit results in an initial warranty
liability of $100,000. Hill incurred $12,000 of actual expense in Year 1, which results in a debit to
"warranty liability" for $12,000 and a credit to "inventory" for $12,000. Therefore, the balance at year-end
totals $88,000.
Choice "a" is incorrect. The balance at the end of Year 2 would total $66,000 ($100,000 – $12,000 –
$22,000), assuming no future sales and additional warranty accruals. The question asks for the balance
at the end of Year1.
Choice "c" is incorrect. $100,000 is the estimate of the initial warranty liability before any actual warranty
expenses are incurred.
Choice "d" is incorrect. $112,000 is the value of the initial warranty liability plus the actual warranty
expense in Year 1. The actual expense will reduce the warranty liability, not increase it.

Page 5 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

5. CPA-05331
Alton Co. had a cash balance of $32,300 recorded in its general ledger at the end of the month, prior to
receiving its bank statement. Reconciliation of the bank statement reveals the following information:
Bank service charge: $15
Check deposited and returned for insufficient funds check: $120
Deposit recorded in the general ledger as $258 but should be $285
Checks outstanding: $1,800
After reconciling its bank statement, what amount should Alton report as its cash account balance?
a. $30,338
b. $30,392
c. $32,138
d. $32,192

Unit & Module to be Assigned To: F-3, M-1


Representative Task: FII-A.2
Skill Level (Must be R&U or Application Only): Application
Page Reference: 5
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. When the bank statement is received, all items that are unknown by Alton Co.
should be recorded in the general ledger. The following adjustments should be made:
General ledger $32,300
Bank service charge (15)
NSF Check (120)
Book error 27
Adjusted cash $32,192
No adjustment is made for the outstanding checks because the cash balance per the general ledger
already reflects the reduction in cash that occurred when the checks were recorded. Checks are
considered outstanding when they have not cleared the bank, thereby reducing the bank balance.
Choice "a" is incorrect. The $30,338 takes into account the outstanding checks as an adjustment to the
general ledger, which is incorrect. It properly adjusts the ledger balance for the service charge and NSF
check, but subtracts the book error of $27 rather than adding it ($32,300 – $1,800 – $15 – $120 – $27 =
$30,338).
Choice "b" is incorrect. The $30,392 properly adjusts for the service charge, NSF check and book error,
but subtracts the outstanding check balance of 1,800 ($32,300 – $15 – $120 + $27 – $1,800 = $30,392).
These checks have already been reflected in the general ledger balance of $32,300.
Choice "c" is incorrect. The $32,138 properly adjusts for the service charge and NSF check, but subtracts
the book error of $27 ($32,300 – $15 – $120 – $27 = $32,138). The deposit recorded in the ledger
initially was too small. The error of $27 should be added to the ledger balance of $32,300.

Page 6 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

6. CPA-05335
What is the primary objective of financial reporting?
a. To provide economic information that is comprehensible to all users.
b. To provide management with an accurate evaluation of their financial performance.
c. To provide forecasts for future cash flows and financial performance.
d. To provide information that is useful for economic decision making.

Unit & Module to be Assigned To: F-1, M-1


Representative Task: FI-A1.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 4
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. The objective of financial reporting is to provide financial information about the
reporting entity that is useful to the primary users of general-purpose financial reports. This information
will help the users make decisions about providing resources to the reporting entity.
Choice "a" is incorrect. Financial reporting users are considered to have a reasonable understanding of
business and include those using the reports to make decisions. Primary users include investors and
creditors.
Choice "b" is incorrect. The focus of financial reporting is on external users, not internal users such as
management. Managerial accounting focuses on internal users.
Choice "c" is incorrect. Financial reporting information should be relevant and allow for predictive value
(an attribute of the fundamental qualitative characteristic relevance), but this is not the primary objective
of financial reporting.

Page 7 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

7. CPA-05338
During a reporting period, a computer manufacturing company used raw materials of $50,000, had direct
labor costs of $75,000, and factory overhead of $30,000. Other expenses were for advertising of $5,000,
staff salaries of $10,000, and bad debt of $3,000. The company did not have a beginning balance in any
inventory account. All goods manufactured during the period were sold during the period. What amount
was the company's cost of goods sold during the reporting period?
a. $155,000
b. $160,000
c. $170,000
d. $173,000

Unit & Module to be Assigned To: F-3, M-3


Representative Task: FII-C.1
Skill Level (Must be R&U or Application Only): Application
Page Reference: 21
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. Inventoriable costs include any cost required to get an inventory item in a state
where it is ready to be sold. For manufactured inventory, this would include the cost of raw materials,
direct labor, and the factory overhead. There may be instances in which 100 percent of factory overhead
is not included in the inventoriable cost, but this problem assumes that all factory overhead is attributable
to the inventory. As all inventory was sold during the period, the cost of goods available for sale equals
the cost of goods sold. Cost of goods sold totals $155,000 ($50,000 + $75,000 + $30,000).
Choice "b" is incorrect. The $160,000 includes the $5,000 advertising cost as an inventoriable cost. This
is a period cost and will be reported as a selling expense in the income statement.
Choice "c" is incorrect. The $170,000 includes the $5,000 advertising cost and the $10,000 staff salaries
as inventoriable costs. These are period costs and will be reported as selling, general, and administrative
expenses in the income statement.
Choice "d" is incorrect. The $173,000 includes the $5,000 advertising cost, the $10,000 staff salaries,
and the $3,000 bad debt as inventoriable costs. These are period costs and will be reported as selling,
general, and administrative expenses in the income statement.

Page 8 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

8. CPA-05352
Which of the following types of assets would typically be reported on a company's balance sheet as an
intangible asset?
a. Derivative securities.
b. Cost of research and development.
c. Leasehold improvements.
d. Cost of patent registrations.

Unit & Module to be Assigned To: F-3, M-7


Representative Task: FII-F.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 69
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. Patents are intangible assets. Legal and registration fees incurred to obtain a
patent are capitalized and reported as an asset.
Choice "a" is incorrect. Derivative securities are financial instruments and are recognized as either assets
or liabilities on the balance sheet depending on the rights or obligations under the contract.
Choice "b" is incorrect. Research and development costs are expensed immediately in the income
statement.
Choice "c" is incorrect. Leasehold improvements are capitalized and added to the property, plant, and
equipment section of the balance sheet.

Page 9 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

9. CPA-05380
Which of the following methods should a company use to account for a contingent liability when the loss
is probable but not reasonably estimated?
a. The liability should not be reported.
b. The liability should be reported as a short-term liability.
c. The liability should be reported as a long-term liability.
d. The liability should only be disclosed in the notes to the financial statements.

Unit & Module to be Assigned To: F-5, M-2


Representative Task: FIII-C.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 19
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. A contingent liability that is probable but cannot be reasonably estimated should be
disclosed in the financial statements but not recorded as an adjustment in the financial statements. If a
reasonable range of the loss cannot be estimated, then a statement saying such must be included in the
notes.
Choice "a" is incorrect. A disclosure is required in the notes to the financial statements even though an
amount is not recorded in the financial statements.
Choice "b" is incorrect. No entry is made in the financial statements when a contingent liability cannot be
estimated; therefore no liability exists.
Choice "c" is incorrect. No entry is made in the financial statements when a contingent liability cannot be
estimated; therefore no liability exists.

Page 10 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

10. CPA-05383
How should unearned rent that has already been paid by tenants for the next eight months of occupancy
be reported in a landlord's financial statements?
a. Current asset.
b. Current liability.
c. Long-term asset.
d. Long-term liability.

Unit & Module to be Assigned To: F-1, M-3


Representative Task: FII-J.4
Skill Level (Must be R&U or Application Only): Application
Page Reference: 21
Correct Answer Choice: B

ANSWER:
Choice "b" is correct. Cash received in advance of earning the revenue is reported as a liability,
specifically unearned revenue. Because the liability will be satisfied within a year from the financial
statement date, it will be reported as a current liability. Note that the question is asked from the landlord's
perspective. If the question was asked from the tenant's perspective, it would be reported as a current
asset (prepaid rent).
Choice "a" is incorrect. Current asset is incorrect because the question asks for the treatment on the
landlord's financial statements. Cash received in advance of earning it is reported as a liability.
Choice "c" is incorrect. Long-term asset is incorrect because the question asks for the treatment on the
landlord's financial statements. Cash received in advance of earning it is reported as a liability.
Choice "d" is incorrect. Liability treatment is correct, but the cash received will be earned as revenue
within the next eight months. Any liabilities that will be satisfied within a year from the financial statement
are reported as current liabilities.

Page 11 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

11. CPA-05384
Ott Co. purchased a machine at an original cost of $90,000 on January 2, Year 1. The estimated useful
life of the machine is 10 years, and the machine has no salvage value. Ott uses the straight-line method
to calculate depreciation. On July 1, Year 10, Ott sold the machine for $5,000. What is the amount of
gain or loss on the disposal of the machine?
a. $500 loss.
b. $500 gain.
c. $4,500 loss.
d. $4,500 gain.

Unit & Module to be Assigned To: F-3, M-5


Representative Task: FII-D.2
Skill Level (Must be R&U or Application Only): Application
Page Reference: 56
Correct Answer Choice: B

ANSWER:
Choice "b" is correct. Using the straight-line method of depreciation with $0 salvage value, Ott Co. will
record $9,000 ($90,000/10) of depreciation expense and accumulated depreciation per year. Through
the sale date, Ott has used the machine for 9.5 years. Depreciation must be recorded up to the date of
disposal. In total, $85,500 ($9,000 × 9.5 years) of depreciation has been recorded, which results in a net
book value of $4,500 (net book value is historical cost less accumulated depreciation or $90,000 –
$85,500). The difference between the cash received and the net book value results in a gain of $500.
Cash $ 5,000
Accumulated depreciation 85,500
Equipment $90,000
Gain on sale of equipment 500

Choice "a" is incorrect. Receiving more cash than the book value of the machine results in a gain, not a
loss.
Choice "c" is incorrect. The book value of the machine is $4,500, not the loss that results from the sale.
A loss would result if less cash was received than the book value of the machine.
Choice "d" is incorrect. The book value of the machine is $4,500, not the gain that results from the sale.

Page 12 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

12. CPA-05386
Which of the following is a pair of values that are compared to determine the amount of a possible
impairment loss on an intangible asset, with an indefinite life, other than goodwill?
a. Fair value, present value.
b. Carrying value, book value.
c. Future value, carrying value.
d. Fair value, carrying value.

Unit & Module to be Assigned To: F-3, M-8


Representative Task: FII-F.2
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 79
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. An intangible asset with an indefinite life is tested for impairment by comparing the
fair value of the intangible asset to its carrying amount.
Choice "a" is incorrect. The fair value of an intangible asset is based on the present value of future cash
flows, so these values are synonymous.
Choice "b" is incorrect. Carrying value and book value are synonymous terms.
Choice "c" is incorrect. The carrying value must be compared with the fair value (present value of future
cash flows).

Page 13 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

13. CPA-05399
A company issued a purchase order on December 15, Year 1, for a piece of capital equipment that costs
$100,000. The capital equipment was shipped from the vendor on December 31, Year 1, and received by
the company on January 5, Year 2. The equipment was installed and placed in service on February 1,
Year 2. On what date should the depreciation expense begin?
a. December 15, Year 1.
b. December 31, Year 1.
c. January 5, Year 2.
d. February 1, Year 2.

Unit & Module to be Assigned To: F-3, M-4


Representative Task: FII-D.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 43
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. The cost of equipment includes amounts such as the invoice price, freight-in, and
installation charges. All equipment costs must be incurred before depreciation of the equipment begins;
therefore the installation date is the appropriate date to begin depreciation.
Choice "a" is incorrect. A purchase order does not indicate ownership, therefore this is not the
appropriate date to begin depreciation.
Choice "b" is incorrect. Shipment of the equipment may transfer ownership, but this is not the appropriate
date to begin depreciation as other costs remain for the equipment to be fully functioning.
Choice "c" is incorrect. The equipment is officially owned as of January 5, Year 2; however, depreciation
should not begin until all costs required to place the equipment in service have been incurred.

Page 14 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

14. CPA-05412
Which of the following statements is correct regarding fair value measurement?
a. Fair value is a market-based measurement.
b. Fair value is an entity-specific measurement.
c. Fair value measurement does not consider risk.
d. Fair value measurement does not consider restrictions.

Unit & Module to be Assigned To: F-2, M-4


Representative Task: FIII-K.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 15
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants in the principal market at the measurement
date. It is a market-based measure, not an entity-based measure.
Choice "b" is incorrect. Fair value measurement is a market-based measure, not an entity-based
measure.
Choice "c" is incorrect. Fair value measurement should include all the assumptions that a market
participant would make, including assumptions about risk.
Choice "d" is incorrect. Fair value measurement should include all the assumptions that a market
participant would make, including any information about restrictions.

Page 15 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

15. CPA-05413
On June 1, Year 2, Archer Inc. issued a purchase order to Cotton Co. for a new copier machine. The
machine requires one month to produce and is shipped FOB destination on July 1, Year 2, and is
received by Archer on July 15, Year 2. Cotton issues a sales invoice dated July 2, Year 2, for the
machine. As of what date should Archer record a liability for the machine?
a. June 1, Year 2.
b. July 1, Year 2.
c. July 2, Year 2.
d. July 15, Year 2.

Unit & Module to be Assigned To: F-3, M-3


Representative Task: FII-D.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 39
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. The machine should be recorded as a liability when Archer Inc. has legal title to the
machine. According to the shipping terms of FOB destination, title does not pass until the machine is
received at its destination by Archer Inc. Therefore, the asset and related liability will be recorded on July
15, Year 2.
Choice "a" is incorrect. A purchase order is simply a request and bears no relationship to the legal title of
the machine.
Choice "b" is incorrect. The shipment date could indicate legal transfer of title, but because the goods are
shipped FOB destination, title does not transfer until the machine has reached its destination.
Choice "c" is incorrect. Shipping terms determine the transfer of legal title to the machine (and recording
of the related liability), therefore the invoice date is irrelevant.

Page 16 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

16. CPA-05414
On January 1, Year 1, a company with a calendar year-end began developing a software program that it
intends to market and sell to its customers. The software coding was completed on March 31, Year 1, at
a cost of $200,000, and the software testing was completed on June 30, Year 1, at a cost of $100,000.
The company achieved technological feasibility on July 31, Year 1, at which time the company began
producing product masters at a cost of $125,000. What amount should the company report for the total
research and development expense for the year ended December 31, Year 1?
a. $100,000
b. $200,000
c. $300,000
d. $425,000

Unit & Module to be Assigned To: F-3, M-7


Representative Task: FIII-I.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 76
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. Costs related to the planning, design, coding, and testing of software that are
incurred until technological feasibility has been reached will be recorded as research and development
expense. Therefore, the coding of $200,000 and the testing of $100,000 will both be expensed.
Choice "a" is incorrect. Any costs incurred prior to technological feasibility will be expensed as research
and development; therefore, it is appropriate to include the $200,000 of coding costs in addition to the
$100,000 of testing costs.
Choice "b" is incorrect. Any costs incurred prior to technological feasibility will be expensed as research
and development; therefore, it is appropriate to include the $100,000 of testing costs in addition to the
$200,000 of coding costs.
Choice "d" is incorrect. Once a company has achieved technological feasibility, any subsequent costs are
capitalized. Therefore, the $125,000 cost to produce product masters is not recorded as research and
development expense.

Page 17 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

17. CPA-05416
For purposes of consolidating financial interests, a majority voting interest is deemed to be:
a. 50 percent of the directly or indirectly owned outstanding voting shares of another entity.
b. 50 percent of the directly or indirectly owned outstanding voting shares and at least 50 percent of
the directly or indirectly owned outstanding nonvoting shares of another entity.
c. Greater than 50 percent of the directly or indirectly owned outstanding voting shares of another
entity.
d. Greater than 50 percent of the directly or indirectly owned outstanding voting shares and at least 50
percent of the directly or indirectly owned outstanding nonvoting shares of another entity.

Unit & Module to be Assigned To: F-4, M-3


Representative Task: FI-B7.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 29
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. A majority voting interest is achieved when control over an investee is established
or more than 50 percent of the voting stock of the investee has been acquired.
Choice "a" is incorrect. Control is exhibited by owning more than 50 percent of the voting stock.
Choice "b" is incorrect. Ownership of nonvoting shares is irrelevant when determining whether a majority
ownership exists.
Choice "d" is incorrect. Ownership of nonvoting shares is irrelevant when determining whether a majority
ownership exists.

Page 18 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

18. CPA-05470
Which of the following is the annual report that is filed with the United States Securities and Exchange
Commission?
a. Form 8-K.
b. Form 10-K.
c. Form S-1.
d. Form 10-Q.

Unit & Module to be Assigned To: F-2, M-6


Representative Task: FI-D.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 27
Correct Answer Choice: B

ANSWER:
Choice "b" is correct. The 10-K is the report filed annually with the SEC by U.S. registered companies.
Choice "a" is incorrect. Form 8-K is filed to report major corporate events such as corporate asset
acquisitions/disposals, changes in accountants, etc.
Choice "c" is incorrect. Form S-1 is the report used to register securities with the SEC.
Choice "d" is incorrect. The 10-Q is the report filed quarterly with the SEC by U.S. registered companies.

Page 19 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

19. CPA-05471
A public entity sells steel for use in construction. One of its customers accounts for 43 percent of sales,
and another customer accounts for 40 percent of sales. What should the entity disclose in its annual
financial statements about these two customers?
a. The payment terms of accounts receivable due from each of the two customers.
b. The amount of the entity's revenue from each of the two customers.
c. The names of the two customers.
d. The financial condition of the two customers.

Unit & Module to be Assigned To: F-2, M-1


Representative Task: FI-D.3
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 6
Correct Answer Choice: B

ANSWER:
Choice "b" is correct. Concentrations in the volume of business transacted with a particular customer
should be disclosed in the notes to the financial statements because these two customers individually
contribute to significant sales. These concentrations increase the risk of loss, and information stating that
fact should be disclosed to the financial statement user.
Choice "a" is incorrect. Information about the credit terms does not require disclosure as it does not affect
risk.
Choice "c" is incorrect. The names of the customers involved in the concentration of business
transactions do not require disclosure.
Choice "d" is incorrect. The financial condition of the customers involved in the concentration of business
transactions does not require disclosure.

Page 20 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

20. CPA-05473
On December 31, Year 1, Andover Co. acquired Barrelman Inc. Before the acquisition, a product lawsuit
seeking $10 million in damages was filed against Barrelman. As of the acquisition date, Andover
believed that it was probable that a liability existed and that the fair value of the liability was $5 million.
What amount should Andover record as a liability as of December 31, Year 1?
a. $0
b. $5,000,000
c. $7,500,000
d. $10,000,000

Unit & Module to be Assigned To: F-5, M-2


Representative Task: FIII-C.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 18
Correct Answer Choice: B

ANSWER:
Choice "b" is correct. In a business combination, the investment is valued at the fair value of the
consideration given or the fair value of the consideration received, whichever is more clearly evident. In
this example, the rules related to contingencies are relevant, as well. If a lawsuit settlement is probable
and can be reasonably estimated, then it must be accrued as a contingency. In this case, although the
claim totaled $10 million, the reasonable estimate and fair value totals $5 million and should be the
amount of the contingency recorded on Andover Co.'s books upon acquisition.
Choice "a" is incorrect. When settlement of a lawsuit is probable and can be reasonably estimated, it
must be recorded as a contingent liability in the financial statements.
Choice "c" is incorrect. Recording a contingency amount that falls in the middle of the estimated amount
and the lawsuit amount is not appropriate. The amount that best represents the company's estimated
settlement is $5 million and is the appropriate value to report.
Choice "d" is incorrect. The lawsuit claim totaled $10 million and although it is possible that the suit could
be settled for that amount, the reasonable estimate (and fair value) of $5 million should be recorded upon
acquisition of Barrelman Inc.

Page 21 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

21. CPA-05502
Which of the following should a company classify as a research and development expense?
a. Periodic design changes to existing products.
b. Routine design of tools, jigs, molds, and dies.
c. Redesign of a product prerelease.
d. Legal work on patent applications.

Unit & Module to be Assigned To: F-3, M-7


Representative Task: FIII-H.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 74
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. The redesign of a product does qualify as research and development expense as
the costs incurred contribute to creating an improved product.
Choice "a" is incorrect. Routine or periodic design changes to old products are considered manufacturing
costs, not research and development costs.
Choice "b" is incorrect. Routine or periodic design changes to old products are considered manufacturing
costs, not research and development costs.
Choice "d" is incorrect. Legal fees related to a patent application can be capitalized and recorded along
with the intangible asset.

Page 22 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

22. CPA-05517
Palm City uses the modified approach for reporting eligible infrastructure assets. In which of the following
components of its basic financial statements, if any, would Palm report this information?
a. Letter of transmittal.
b. Statement of activities.
c. Notes to the financial statements.
d. Not required to report.

Unit & Module to be Assigned To: F10, M-7


Representative Task: FIV-B5.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 80
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. As part of their generic disclosures, governments would report a description of the
modified approach for reporting infrastructure, if used.
Choice "a" is incorrect. The letter of transmittal is not part of the basic financial statements. The basic
financial statements include the government-wide financial statements, fund financial statements, and the
notes to the financial statements.
Choice "b" is incorrect. Eligible infrastructure assets would not be reported on the statement of activities.
Eligible infrastructure assets (additions after the implementation of GASB 34) would be reported on the
government-wide statement of financial position and fully disclosed in the notes to the financial
statements.
Choice "d" is incorrect. The government is required to report. As part of their generic disclosures,
governments would report a description of the modified approach for reporting infrastructure, if used.

Page 23 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

23. CPA-05587
When should a conditional pledge to a nongovernmental not-for-profit organization be recognized as
revenue?
a. Immediately.
b. When the cash is received.
c. When the pledge conditions are met.
d. At the beginning of the next fiscal period.

Unit & Module to be Assigned To: F-8, M-5


Representative Task: FIII-G.1
Skill Level (Must be R&U or Application Only): Application
Page Reference: 48
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. Only unconditional pledges and receipts are recognized as revenue. Conditional
pledges would be recognized as a receivable and revenue only when they become unconditional, namely
when the pledge conditions (contingencies) are met (resolved). A conditional pledge, however, would not
be recognized as receivable and revenue while identified as "conditional."
Choice "a" is incorrect. Conditional pledges receive no recognition. Immediate recognition of a
conditional pledge is not appropriate.
Choice "b" is incorrect. Conditional pledges receive no recognition. Conditional receipts are recognized
as a liability (refundable advance), not revenue. Recognition of a receipt of a conditional pledge as
revenue is not appropriate.
Choice "d" is incorrect. Conditional pledges receive no recognition. Only unconditional pledges are
recognized. The beginning of new fiscal period would likely not have any relevance to the resolution of
conditions.

Page 24 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

24. CPA-05595
Within the context of the qualitative characteristics of accounting information, which of the following is a
fundamental qualitative characteristic?
a. Relevance.
b. Timeliness.
c. Comparability.
d. Feedback value.

Unit & Module to be Assigned To: F-1, M-1


Representative Task: FI-A1.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 5
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. As defined in the Statements of Financial Accounting Concepts, relevance and
faithful representation are the two fundamental qualitative characteristics of accounting information.
Choice "b" is incorrect. According to the Statements of Financial Accounting Concepts, timeliness is an
enhancing qualitative characteristic. These enhance the usefulness of relevant, faithfully represented
information.
Choice "c" is incorrect. According to the Statements of Financial Accounting Concepts, comparability is
an enhancing qualitative characteristic. These enhance the usefulness of relevant, faithfully represented
information.
Choice "d" is incorrect. Feedback value is no longer used in the conceptual framework.

Page 25 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

2017 AICPA Financial Newly Released MCQs—Difficult (Hard) Rating

25. CPA-05605
The following information pertains to Ash Co., which prepares its statement of cash flows using the
indirect method:
Interest payable at beginning of year $15,000
Interest expense during the year 20,000
Interest payable at end of year 5,000
What amount of interest should Ash report as a supplemental disclosure of cash flow information?
a. $10,000
b. $20,000
c. $30,000
d. $35,000

Unit & Module to be Assigned To: F-8, M-2


Representative Task: FI-B5.2
Skill Level (Must be R&U or Application Only): Application
Page Reference: 18
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. Using the indirect method, a $10,000 decrease in interest payable will be
subtracted from net income to generate cash flows from operating activities. A decrease in this liability
account indicates that more cash was paid than expense incurred (more by the amount of the decrease).
The greater cash outflow needs to be captured in the statement of cash flows. Therefore if $20,000
interest expense was incurred, $30,000 of cash was paid.

Interest payable
15,000
20,000
30,000
5,000
Choice "a" is incorrect. $10,000 is the amount of the decrease and represents the difference between
interest expenses incurred and interest payments in cash.
Choice "b" is incorrect. $20,000 is the amount of interest expense incurred during the year. It would only
be equal to interest payments in cash if there had been no change in the interest payable balance.
Choice "d" is incorrect. $30,000 is the amount of the cash interest payment based on the change in
interest payable. $5,000 is the ending balance. These amounts should not be combined to generate the
interest payment, but rather the ending balance should be used to calculate the $30,000 interest payment
in cash.

Page 26 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

26. CPA-05608
Delar Co. completed its year-end physical count of inventory. The inventory was valued at first-in, first-
out (FIFO) costs and totaled $500,000. Delar subsequently noted the following two items:
1. 1,000 units of inventory with a FIFO cost of $10 each were shipped and billed to a customer, FOB
destination. These items were included in the physical count.
2. 6,000 units at a FIFO cost of $5 each were held on consignment for one of its suppliers, but were
excluded from the physical count.
What amount should Delar report as inventory at year-end?
a. $530,000
b. $520,000
c. $500,000
d. $490,000

Unit & Module to be Assigned To: F-3, M-3


Representative Task: FII-C.1
Skill Level (Must be R&U or Application Only): Application
Page Reference: 21
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. The $500,000 inventory value according to the count and application of FIFO is
correct. The goods shipped FOB destination should be included in the inventory value because
ownership does not transfer until the goods have been delivered to the buyer. The goods held on
consignment, which were excluded, should be excluded because they are still the consignor's inventory.
Choice "a" is incorrect. The $530,000 incorrectly includes the consigned inventory of $30,000; however, it
is not Delar Co.'s inventory at year-end and should be excluded for the year-end inventory value.
Choice "b" is incorrect. The $520,000 incorrectly includes the consigned inventory of $30,000 and
incorrectly adjusts out the $10,000 of inventory shipped at year-end.
Choice "d" is incorrect. The $490,000 adjusts out the $10,000 of inventory shipped at year-end; however,
as the shipment was FOB destination, the inventory should still be included in the year-end inventory
value.

Page 27 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

27. CPA-05610
Kind Nurses Assoc. is a voluntary health and welfare organization. Nurses are paid to visit homes of
elderly people and are reimbursed for mileage and supplies. Which of the following items should Kind
record as a support activity expense in its statement of functional expense?
a. Nurses' mileage expense.
b. Payment for nurses' employee benefits.
c. Payment for nurses' supplies.
d. Fundraising costs.

Unit & Module to be Assigned To: F-8, M-4


Representative Task: FI-C4.2
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 42
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. Fundraising expenses would be appropriately classified as supporting activities.
Supporting activities generally include fundraising, administrative services, and membership development
expenses.
Choice "a" is incorrect. Nurses' mileage expenses are not support activities of the Kind Nurses Assoc.;
they are program services. Supporting activities generally include fundraising, administrative services,
and membership development expenses. Program services are directly related to the organization's
mission. Kind Nurses Assoc. pays nurses to visit the homes of elderly people and pays reimbursement
for mileage and supplies.
Choice "b" is incorrect. Payment for nurses' employee benefits is not a support activity of the Kind
Nurses Assoc.; it is a program service. Supporting activities generally include fundraising, administrative
services, and membership development expenses. Program services are directly related to the
organization's mission. Payment for nurses' employee benefits is a component of compensation paid to
professionals delivering services.
Choice "c" is incorrect. Nurses' supplies expenses are not support activities of the Kind Nurses Assoc.,
they are program services. Supporting activities generally include fundraising, administrative services,
and membership development expenses. Program services are directly related to the organization's
mission. Kind Nurses Assoc. pays nurses to visit the homes of elderly people and pays reimbursement
for mileage and supplies.

Page 28 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

28. CPA-05611
A government's assets include inventory of $2 million, roads constructed for $25 million with accumulated
depreciation of $10 million, and equipment acquired for $5 million with accumulated depreciation of $1
million. Its liabilities include an outstanding balance of $5 million for bonds payable issued to construct
the roads and a $1 million short-term loan for inventory purchases. What amount should be reported as
the net investment in capital assets in the government-wide statement of net position?
a. $26 million.
b. $25 million.
c. $14 million.
d. $10 million.

Unit & Module to be Assigned To: F-9, M-4


Representative Task: FIV-D1.1
Skill Level (Must be R&U or Application Only): Application
Page Reference: 40
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. The net investment in capital assets reported on the government-wide financial
statements is $14 million and is computed as follows (in millions):
Roads $25
Accumulated depreciation (10)
$15
Equipment 5
Accumulated depreciation (1)
4
Debt (road construction bonds) (5)

Net investment in capital assets $14

Choice "a" is incorrect. The net investment in capital assets is the difference between the net book value
of long-lived assets and related debt. The proposed solution includes current assets (inventory and
related debt) in the computation in error.
Choice "b" is incorrect. The net investment in capital assets is the difference between the net book value
of long-lived assets and related debt. The proposed solution does not reduce the cost of long-lived
assets by related accumulated depreciation in error.
Choice "d" is incorrect. The net investment in capital assets is the difference between the net book value
of all long-lived assets and related debt. The proposed solution excluded equipment from the
computation in error.

Page 29 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

29. CPA-05622
Which of the following information about threatened litigation should not be considered to determine
whether an accrual is appropriate prior to an issuance of a company's financial statements?
a. The period in which the underlying cause of the threatened litigation occurred.
b. The degree of probability of an unfavorable outcome.
c. The ability to make a reasonable estimate of the amount of loss.
d. The period in which the threatened litigation became known to management.

Unit & Module to be Assigned To: F-5, M-2


Representative Task: FIII-C.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 18
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. Provision for a loss contingency, such as pending litigation, should be charged to
income if two things are true:
1. It is probable that a liability has been incurred as of the financial statement date.
2. The amount of the loss can be reasonably estimated.
Even if the pending litigation is not made known to management until after the financial statement date (a
subsequent event), as long as the financial statements have not been issued, the contingency should be
recorded to fairly reflect the financial statements at year-end, assuming that the liability existed at year-
end. Therefore, choice "d" does not need to be considered in order to record a contingency.
Choices "a", "b", and "c" are incorrect based on the answer provided above.

Page 30 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

30. CPA-05623
What is the appropriate characterization of the net assets of a nongovernmental not-for-profit
organization?
a. Residual interest.
b. Ownership interest.
c. Donor's interest.
d. Equity interest.

Unit & Module to be Assigned To: F-8, M-3


Representative Task: FI-C1.2
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 32
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. Net assets of a nongovernmental not-for-profit organization are most appropriately
characterized as the residual interest of the not-for-profit entity. The ownership interests of not-for-profit
organizations are unlike business enterprises. Resources do not belong to a defined class of owners,
only the not-for-profit entity itself and the mission for which it was formed. The net assets represent the
difference between the not-for-profit organization's assets and liabilities.
Choice "b" is incorrect. Ownership interest is not an appropriate characterization of the net assets of a
nongovernmental not-for-profit organization. Ownership interests do not exist as they would in
commercial settings.
Choice "c" is incorrect. Donor's interest is not an appropriate characterization of the net assets of a
nongovernmental not-for-profit organization. Donors do not have a direct interest in the resources or net
assets of a not-for-profit organization.
Choice "d" is incorrect. Equity interest is not an appropriate characterization of the net assets of a
nongovernmental not-for-profit organization. Equity interests do not exist as they would in commercial
settings.

Page 31 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

31. CPA-05625
A nongovernmental, not-for-profit organization had the following investments:
Fair Value Fair Value
Investment Cost (Beginning of Year) (End of Year)
Bonds $9,900 $10,000 $9,950
Stock A (100 shares) $50 per share $45 $51
Stock B (200 shares) $40 per share $41 $49

What amount should be the total value of investments reported in the year-end statement of financial
position?
a. $24,850
b. $24,800
c. $23,800
d. $22,900

Unit & Module to be Assigned To: F-8, M-6


Representative Task: FIII-G.3
Skill Level (Must be R&U or Application Only): Application
Page Reference: 62
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. The total value of investment reported in the year-end statement of financial
position should be the fair value. The entire portfolio should be marked to market as follows:
Bonds $ 9,950
Stock A (100 shares x $51) 5,100
Stock B (200 shares x $49) 9,800
Total reported investment value $24,850

Choice "b" is incorrect. The proposed solution correctly marks the stock portfolio to market but uses the
original cost of the bonds to value the bond portfolio in error. The entire portfolio should be marked to
market at the balance sheet date.
Choice "c" is incorrect. The proposed solution is incorrect per above and cannot be logically recomputed.
Choice "d" is incorrect. The proposed solution values the entire portfolio at cost in error. The entire
portfolio should be marked to market at the balance sheet date.

Page 32 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

32. CPA-05626
Pane Co. had the following borrowings on its books at the end of the current year:
• $100,000, 12 percent interest rate, borrowed five years ago on September 30; interest payable
March 31 and September 30.
• $75,000, 10 percent interest rate, borrowed two years ago on July 1; interest paid April 1, July 1,
October 1, and January 1.
• $200,000, noninterest-bearing note, borrowed July 1 of current year, due January 2 of next year;
proceeds $178,000.
What amount should Pane report as interest payable in its December 31 balance sheet?
a. $4,875
b. $6,750
c. $26,875
d. $41,500

Unit & Module to be Assigned To: F-1, M-8


Representative Task: FI-B1.2
Skill Level (Must be R&U or Application Only): Application
Page Reference: 67
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. The interest payable will total the amount of interest incurred that has not been paid
in cash. As interest payments are made periodically for both notes, the interest must be prorated based
on the number of months outstanding (October–December for both notes). No interest payable will be
recorded for the noninterest bearing note, as the interest is implicit in the face value of the note and will
already be accounted for in the carrying value of the note payable on the balance sheet. The following is
the correct calculation for the two interest bearing notes:
$100,000 × 12% × (3/12) = $3,000
$75,000 × 10% × (3/12) = 1,875
Interest payable = $4,875
Choice "b" is incorrect. The $6,750 amount includes the correct amount of interest for the $100,000 note
($3,000) but prorates the $75,000 for six months out of 12 instead of three months ($75,000 × 10% × 6/12
= $3,750). Only three months of interest should be accrued for the $75,000 note as the last interest
payment occurred October 1.
Choice "c" is incorrect. The $26,875 amount includes the correct amount of interest for the first two notes
($4,875) but also includes the $22,000 discount on the noninterest bearing note. This amount does
represent interest as it is additional cash that will be paid in excess of the amount borrowed; however, it is
already included in the carrying value of the note on the balance sheet and would not be separately
recorded as interest payable.
Choice "d" is incorrect. The $41,500 amount includes not only the discount related to the noninterest
bearing note, which is incorrect, but it also includes the yearly interest for both interest bearing notes
($22,000 + $12,000 + $7,500). Interest must be prorated and only related to the periods in which interest
has been incurred but not paid in cash.

Page 33 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

33. CPA-05627
Which of the following financial statements would provide information about the ongoing revenues and
expenses associated with a voluntary health and welfare organization?
a. The statement of activities.
b. The statement of cash flows.
c. The statement of functional expenses.
d. The statement of financial position.

Unit & Module to be Assigned To: F-8, M-3


Representative Task: FI-C2.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 34
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. The statement of activities provides information about the ongoing revenues and
expenses associated with a voluntary health and welfare organization similar to the income statement in
commercial settings.
Choice "b" is incorrect. The statement of cash flows provides information about sources and uses of cash
and cash equivalents similar to a commercial statement of cash flows, not information about the ongoing
revenues and expenses.
Choice "c" is incorrect. The statement of functional expenses provides information about a voluntary
health and welfare organization's uses of resources (expenses by function), not revenues and expenses.
Choice "d" is incorrect. The statement of financial position provides information about the assets,
liabilities, and net assets of a voluntary health and welfare organization, not the revenues and expenses.

Page 34 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

34. CPA-05631
Dannon Co. mistakenly reported its expenses of $35,200 on the cash basis. Corporate records revealed
the following information:
Beginning prepaid expense $1,300
Beginning accrued expense 1,650
Ending prepaid expense 1,800
Ending accrued expense 1,200
What amount of expense should Dannon report on its books under the accrual basis?
a. $34,250
b. $35,150
c. $35,300
d. $36,150

Unit & Module to be Assigned To: F-2, M-7


Representative Task: FI-F.2
Skill Level (Must be R&U or Application Only): Application
Page Reference: 37
Correct Answer Choice: A

Page 35 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

ANSWER:
Choice "a" is correct. The cash basis does not account for expenses incurred where there was no cash
outflow, and it may include cash payments that did not relate to expenses incurred during the period. The
cash basis expense of $35,200 must be reduced by $500 for the change in prepaid expenses, as this
change indicates that more cash was paid than expense incurred. It must also be reduced by the change
in accrued expenses as this $450 decrease indicates more cash was paid than expense incurred. Once
these two adjustments are made ($35,200 – $500 – $450), Dannon Co. will report the correct accrual
basis expense number of $34,250.

Prepaid Expenses Accrued Expense


1,300 1,650
cash expense cash expense
1,800 1,200

An alternative way to answer this problem is to adjust for the beginning and ending balances.
$35,200 Cash basis expense.
+1,300 Beginning balance is an expense that will be incurred this period (cash paid last period).
-1,800 Ending balance relates to cash payment for expense that will be incurred next year.
-1,650 Beginning balance was expensed last year and will be paid in cash this year.
+1,200 Ending balance is expense this year that will be paid in cash next year.
$34,250 Accrual basis expense.
Choice "b" is incorrect. The $35,150 results from adding the beginning accrued expense number and
subtracting the ending accrued expense balance. Those adjustments are incorrect as they indicate more
expense was incurred during the year than cash paid.
Choice "c" is incorrect. Adjusting in any way for the change in prepaid expenses and the change in
accrued expenses does not result in $35,300.
Choice "d" is incorrect. The $36,150 results from making the opposite adjustments for both accounts, as
if an accrual basis expense number was being converted to a cash basis expense number.

Page 36 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

35. CPA-05632
Arena Corp. leased equipment from Bolton Corp. and correctly classified the lease as a capital lease.
The present value of the minimum lease payments at lease inception was $1,000,000. The executory
costs to be paid by Bolton were $50,000, and the fair value of the equipment at lease inception was
$900,000. What amount should Arena report as the capital lease obligation at the lease's inception?
a. $900,000
b. $950,000
c. $1,000,000
d. $1,050,000

Unit & Module to be Assigned To: F-6, M-2


Representative Task: FIII-F.3
Skill Level (Must be R&U or Application Only): Application
Page Reference: 12
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. Arena Corp. should record the asset and lease obligation at the lower of:
• fair value of the asset at inception of the lease; or
• cost, which equals the present value of the minimum lease payments.
In this case, the fair value of $900,000 is less than the cost and is the proper amount to record.
Executory costs are not included in the lease obligation.
Choice "b" is incorrect. The fair value of $900,000 is the correct amount to record as the lease obligation,
but the $50,000 executory costs should be excluded.
Choice "c" is incorrect. The $1,000,000 present value of the minimum lease payments is higher than the
fair value and is not the correct cost of the asset and lease liability.
Choice "d" is incorrect. The $1,050,000 includes the present value of minimum lease payments in the
amount and the $50,000 executory costs, both of which are incorrect.

Page 37 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

36. CPA-05633
West Co. paid $50,000 for an intangible asset other than goodwill. Fair value of the asset is $55,000.
West signed a contract to sell the asset for $10,000 in 10 years. What amount of amortization expense
should West record each year?
a. $4,000
b. $4,500
c. $5,000
d. $5,500

Unit & Module to be Assigned To: F-3, M-7


Representative Task: FII-F.3
Skill Level (Must be R&U or Application Only): Application
Page Reference: 70
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. Purchased intangible assets are recorded at cost; therefore West Co. will record
the intangible at a value of $50,000. The intangible should be amortized under the straight-line method
over the shorter of its estimated life or remaining legal life. As West Co. intends to sell the asset for
$10,000 in 10 years, it will be amortized down to $10,000 ($40,000 total amortization) over a period of 10
years, or $4,000 per year.
Choice "b" is incorrect. The $4,500 amount incorrectly assumes that the fair value of $55,000 is the
intangible's recorded value, amortized down to $10,000 over 10 years.
Choice "c" is incorrect. The $5,000 amount records the correct intangible value of $50,000, but does not
take into account the residual value of the intangible when it is sold in 10 years (assumes $50,000 total
amortization).
Choice "d" is incorrect. The initial recorded value of $55,000 is incorrect and the calculation does not
account for the residual value at the end of the 10 years.

Page 38 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

37. CPA-05634
Which of the following is a Level 3 input to valuation techniques used to measure the fair value of an
asset?
a. Quoted prices in active markets for identical assets.
b. Quoted prices for similar assets in active markets.
c. Unobservable inputs for the asset.
d. Inputs other than quoted prices that are observable for the asset.

Unit & Module to be Assigned To: F-2, M-4


Representative Task: FIII-K.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 18
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. Level 3 inputs are unobservable inputs for the asset or liability, reflecting the entity's
judgment about the assumptions that a market participant would use.
Choice "a" is incorrect. A Level 1 valuation is a quoted price in an active market for the identical asset or
liability.
Choice "b" is incorrect. A Level 2 valuation uses inputs other than quoted market prices that are either
observable or unobservable. Applying fair value based on a similar asset's value is a Level 2 valuation.
Choice "d" is incorrect. A Level 2 valuation uses inputs other than quoted market prices that are either
observable or unobservable. Applying fair value based on inputs other than quoted prices that are
observable for the asset is a Level 2 valuation.

Page 39 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

38. CPA-05635
Which of the following statements is a primary objective of accounting for income taxes?
a. To compare an enterprise's federal tax liability to its state tax liability.
b. To identify all of the permanent and temporary differences of an enterprise.
c. To estimate the effect of the tax consequences of future events.
d. To recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax
consequences.

Unit & Module to be Assigned To: F-6, M-6


Representative Task: FII-L.2
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 58
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. The objective of inter-period tax allocation is to recognize the amount of current and
future tax related to events that have been recognized in financial accounting income. Both permanent
and temporary differences exist between GAAP financial income and taxable income; these differences
will be used to determine the current year taxes (taxes payable/refundable) and future year taxes
(deferred tax asset/liability).
Choices "a", "b", and "c" are incorrect based on the answer provided above.

Page 40 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

39. CPA-05637
Thyme Inc. owns 16,000 of Sage Co.'s 20,000 outstanding common shares. The carrying value of Sage's
equity is $500,000. Sage subsequently issues an additional 5,000 previously unissued shares for
$200,000 to an outside party that is unrelated to either Thyme or Sage. What is the total noncontrolling
interest after the additional shares are issued?
a. $140,000
b. $172,000
c. $252,000
d. $300,000

Unit & Module to be Assigned To: F-4, M-7


Representative Task: FI-B7.2
Skill Level (Must be R&U or Application Only): Application
Page Reference: 71
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. Sage's equity (assets – liabilities) is $500,000 prior to the stock issuance. When
Sage issues the additional shares, equity increases by $200,000 to $700,000. Thyme Inc. still owns
16,000 shares, but outstanding shares total 25,000 after issuance. Thyme owns 64 percent of the stock
(16,000 / 25,000); therefore the noncontrolling interest (the portion Thyme does not own) is 36 percent.
$700,000 × 36% = $252,000.
Choice "a" is incorrect. The $140,000 answer uses the correct equity amount of $700,000 but multiplies it
by a 20 percent noncontrolling interest, which was the noncontrolling interest prior to the stock issuance
((20,000 – 16,000) / 20,000).
Choice "b" is incorrect. The $172,000 answer does not use the correct equity value of $700,000 or the
correct noncontrolling interest percentage of 36 percent.
Choice "d" is incorrect. The $300,000 answer accounts for the stock issuance as a reduction of equity
and does not calculate the noncontrolling interest portion of equity.

Page 41 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

40. CPA-05638
At year-end, a company has a defined benefit pension plan with a projected benefit obligation of
$350,000; a net gain of $140,000 that was not previously recognized in net periodic pension cost; and
prior service cost of $210,000 that was not previously recognized in net periodic pension cost. What
amount should be reported in accumulated other comprehensive income related to the company's defined
benefit pension plan at year-end?
a. A credit balance of $420,000.
b. A debit balance of $420,000.
c. A credit balance of $70,000.
d. A debit balance of $70,000.

Unit & Module to be Assigned To: F-7, M-1


Representative Task: FII-K2.1
Skill Level (Must be R&U or Application Only): Application
Page Reference: 9
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. Gains and losses related to pensions can be recorded in the income statement,
although the most common option is to record them in other comprehensive income and amortize the
impact through pension expense over time. Unrecognized prior service cost increases the projected
benefit obligation (PBO) and is recorded in other comprehensive income (OCI) as a decrease (debit to
OCI). The gain is favorable for the company (an increase in OCI) and the unrecognized prior service cost
is unfavorable for the company (a decrease in OCI). The net of these two amounts is $70,000
unfavorable, which will cause a decrease or debit to OCI.
Choice "a" is incorrect. The question asks for the effect on accumulated other comprehensive income at
year-end. A credit balance of $420,000 would be the projected benefit obligation reported on the balance
sheet, including the PBO, gain, and unrecognized prior service cost ($350,000 – $140,000 + $210,000).
Choice "b" is incorrect. $420,000 is the correct PBO, but the entire amount is not recorded in OCI. Only
the unrecognized prior service cost and net gain will be recorded in OCI.
Choice "c" is incorrect. The impact of the $140,000 gain and the $210,000 unrecognized prior service
cost totals $70,000; however, the impact only results in a credit to PBO, not to OCI.

Page 42 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

41. CPA-05639
A collection agency spent $50,000 in staff payroll costs investigating the feasibility of developing its own
software program for tracking customer contacts. After committing to funding the project, software
developers were paid $200,000 to write the code, and the company incurred $70,000 in general and
administrative costs related to training and software maintenance. What amount should be capitalized?
a. $200,000
b. $250,000
c. $270,000
d. $320,000

Unit & Module to be Assigned To: F-3, M-7


Representative Task: FIII-I.1
Skill Level (Must be R&U or Application Only): Application
Page Reference: 77
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. Any costs incurred during the preliminary project state, as well as costs for training
and maintenance, should be expensed. Costs incurred after the preliminary project state, once
commitment to the project has been made, can be capitalized. These costs include costs for materials
and services, direct labor costs, and interest costs incurred for the project. In this case, the only expense
eligible for capitalization is the $200,000 to write the code. The $50,000 payroll costs were incurred in the
preliminary phase, and the $70,000 general and administrative costs cannot be capitalized because they
relate to training and maintenance.
Choices "b", "c", and "d" are incorrect based on the answer provided above.

Page 43 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

42. CPA-05640
A company granted its employees 100,000 stock options on January 1, Year 1. The stock options had a
grant date fair value of $15 per option and a three-year vesting period. On January 1, Year 2, the
company estimated the fair value of the stock options to be $18 per option. Assuming that the company
did not grant any additional options or modify the terms of any existing option grants during Year 2, what
amount of share-based compensation expense should the company report for the year ended December
31, Year 2?
a. $500,000
b. $600,000
c. $700,000
d. $800,000

Unit & Module to be Assigned To: F-7, M-7


Representative Task: FII-K3.2
Skill Level (Must be R&U or Application Only): Application
Page Reference: 60
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. Stock options are valued at the fair value of the options issued. The value is
determined based on the fair value on the grant date. This amount is recorded as compensation expense
over the service period, which is the time between the grant date and the vesting date. Total
compensation expense related to these options is $1,500,000 (100,000 shares × $15/share). The vesting
period is three years, therefore $500,000 of expense will be recorded in fiscal Years 1, 2, and 3.
Choice "b" is incorrect. The $600,000 amount is calculated using the new fair value at January 1, Year 2
(100,000 shares × $18/share), and dividing the total value over three years. The compensation expense
recorded in each year should be based on the fair value on the grant date and is not affected by
subsequent changes in fair value.
Choice "c" is incorrect. The $700,000 is calculated by using the new fair value at January 1, Year 2
(100,000 shares × $18/share), and dividing the total value over three years. The amount is then
increased for the $100,000 of additional expense not recorded in the previous year. The compensation
expense recorded in each year should be based on the fair value on the grant date and is not affected by
subsequent changes in fair value.
Choice "d" is incorrect. The $800,000 is not calculated using the fair value of the options on the grant
date or the fair value of the options on January 1, Year 2. The compensation expense recorded in each
year should be based on the fair value on the grant date and is not affected by subsequent changes in
fair value.

Page 44 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

43. CPA-05704
A company acquires another company for $3,000,000 in cash, $10,000,000 in stock, and the following
contingent consideration: $1,000,000 after Year 1, $1,000,000 after Year 2, and $500,000 after Year 3, if
earnings of the subsidiary exceed $10,000,000 in each of the three years. The fair value of the
contingent-based consideration portion is $2,100,000. What is the total consideration transferred for this
business combination?
a. $15,500,000
b. $15,100,000
c. $13,000,000
d. $5,100,000

Unit & Module to be Assigned To: F-4, M-4


Representative Task: FIII-B.1
Skill Level (Must be R&U or Application Only): Application
Page Reference: 37
Correct Answer Choice: B

ANSWER:
Choice "b" is correct. In a business combination, the investment is valued at the fair value of the
consideration given. The $15,100,000 acquisition value includes the cash of $3 million, the common
stock of $10 million, and the fair value of the contingencies, which total $2.1 million.
Choice "a" is incorrect. The $15,500,000 value correctly includes the cash and common stock
consideration, but incorrectly includes the undiscounted values of $2,500,000 related to the contingency
payments, which is not a fair value amount.
Choice "c" is incorrect. The $13,000,000 value only includes the cash and common stock consideration.
The fair value of the contingency payments should also be included in the consideration and recorded as
a part of the acquisition.
Choice "d" is incorrect. The $5,100,000 correctly includes the cash and fair value of the contingency
payments, but incorrectly excludes the value of the stock exchanged for the purchase.

Page 45 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

44. CPA-05737
Which of the following factors would not be an indicator of an investor's ability to exercise significant
influence over the operating and financial policies of an investee?
a. Investor recommendation for the investee to hire a specific executive.
b. Interchange of managerial personnel between investor and investee.
c. Investor representation on the investee board of directors.
d. Dependence by the investee on the investor's proprietary technology.

Unit & Module to be Assigned To: F-4, M-2


Representative Task: FII-E3.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 17
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. Significant influence exists when a company owns between 20 percent and 50
percent of the voting stock of another company. But even if this threshold is not met, the investor is seen
to have significant influence if it has representation on the board of directors of the investee, participates
in policy-making processes, has material intercompany transactions, interchanges managerial personnel,
or the investee has technological dependency on the investor. Choice "a" states that the investor is
making a recommendation to hire a particular individual. If the investor mandated a particular choice, that
influence would more likely meet the "significant influence" definition. Choices "b", "c", and "d" do fall
under the examples of significant influence.
Choices "b", "c", and "d" are incorrect based on the answer provided above.

Page 46 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

45. CPA-05740
The FASB amends the Accounting Standards Codification through the issuance of:
a. Accounting Standards Updates.
b. Statements of Financial Accounting Standards.
c. Technical Bulletins.
d. Staff Accounting Bulletins.

Unit & Module to be Assigned To: F-1, M-1


Representative Task: FI-A2.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 4
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. The FASB updates the Accounting Standards Codification (ASC) for new U.S.
GAAP issued by the FASB, and for any changes to existing GAAP, with Accounting Standards Updates.
Choice "b" is incorrect. Statements of Financial Accounting Standards are a pre-codification term and
were used to issue U.S. GAAP. All of the relevant rules issued through these standards are now included
in the ASC.
Choice "c" is incorrect. Technical Bulletins, a pre-codification term, were used to provide FASB staff
guidance on implementation and practice problems that would assist in the application of GAAP. This
information is now included in the ASC.
Choice "d" is incorrect. Staff Accounting Bulletins are issued by the Securities and Exchange
Commission and are a summarization of the views of the SEC's staff regarding how GAAP are to be
applied.

Page 47 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

46. CPA-05753
A company has experienced operating losses from its appliances division for the past five years. The
division is the lowest level of identifiable cash flows. Having determined the division is the lowest level of
identifiable cash flows, the company's next step in performing its impairment test is to:
a. Perform a recoverability test on the carrying amount of the division's assets.
b. Reduce the carrying amount of the division's assets to the amount of expected divisional cash
flows.
c. Adjust the carrying amount of the division's assets to fair value.
d. Adjust the carrying amount of the division's assets to replacement value.

Unit & Module to be Assigned To: F-3, M-8


Representative Task: FII-D.3
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 82
Correct Answer Choice: A

ANSWER:
Choice "a" is correct. Performance of an impairment test on fixed assets held for use and to be disposed
of begins with a recoverability test, in which the sum of undiscounted future cash flows is compared with
the carrying amount. If the undiscounted future cash flows are less than the carrying value, then an
impairment loss would be calculated.
Choice "b" is incorrect. An impairment loss would be recorded after the recoverability test is performed.
In addition, using undiscounted cash flows is not how the impairment loss would be calculated.
Choice "c" is incorrect. An impairment loss would be recorded after the recoverability test is performed.
The loss would be based on the difference between the fair value and the carrying value of the assets.
Choice "d" is incorrect. An impairment loss would be recorded after the recoverability test is performed.
In addition, using replacement is not how the impairment loss would be calculated.

Page 48 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

47. CPA-05759
As of December 31, Year 2, a company has an inventory item that was originally purchased for $80 in
Year 1. The inventory item was written down to its net realizable value of $60 as of December 31, Year
1. As of December 31, Year 2, the inventory item had a net realizable value of $75 and a replacement
cost of $65. Normal profit margins for this company are 20 percent. Under IFRS, what is the carrying
amount of the inventory item as of December 31, Year 2?
a. $60
b. $65
c. $75
d. $80

Unit & Module to be Assigned To: F-3, M-3


Representative Task: FIII-L.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 24
Correct Answer Choice: C

ANSWER:
Choice "c" is correct. Under U.S. GAAP, reversals of inventory write-downs are prohibited. IFRS allow
the reversal of an inventory write-down for subsequent recoveries of inventory value. As the net
realizable value of the inventory items has increased by $15 by the end of Year 2, a reversal will be
recorded and the inventory item will be reported at $75. This amount still represents the lower of cost or
net realizable value for this particular item. The reversal could not have exceeded $20, which is the
amount of the original write-down.
Choice "a" is incorrect. The inventory value reported under U.S. GAAP would be $60 at the end of Year 2
as reversals of inventory write-downs are not allowed. However, reversals are allowed under IFRS.
Choice "b" is incorrect. Replacement cost is only considered under lower of cost or market, which is used
under U.S. GAAP. Replacement cost has no impact on lower of cost or net realizable value, which is
required according to IFRS.
Choice "d" is incorrect. Reporting the inventory at $80 would result in an overstatement of inventory, as
the requirement under IFRS is to report it at lower of cost or net realizable value. The $80 cost is higher
than the NRV value of $75.

Page 49 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

48. CPA-05764
A government-wide statement of net position must include which of the following?
a. Prior-year comparative financial data.
b. Primary government fiduciary fund data.
c. A consolidation of all government-wide activities.
d. A distinction between governmental and business-type activities.

Unit & Module to be Assigned To: F-10, M-4


Representative Task: FIV-B1.2
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 37
Correct Answer Choice: D

ANSWER:
Choice "d" is correct. The government-wide statement of net position must include a distinction between
governmental and business-type activities. Transactions from the governmental (GRaSPP) funds and
(usually) the internal service funds (the "S") are displayed as governmental activities, and enterprise
funds are displayed as business-type activities.
Choice "a" is incorrect. Prior-year comparative financial data is useful but not required.
Choice "b" is incorrect. Primary government fiduciary fund data is only presented in the fund financial
statements and is specifically excluded from government-wide financial statement display.
Choice "c" is incorrect. The government-wide statement of net position reports separate columns for
governmental and business-type activities; it does not report all government-wide activities on a
consolidated basis.

Page 50 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Questions—Financial

49. CPA-05803
Which of the following should be considered part of one of the three primary user groups of the external
financial reports of a state government?
a. Citizens of a neighboring state.
b. Advocate groups within the state.
c. Preparers of state government financial reports.
d. Internal managers in the executive branch of the state government.

Unit & Module to be Assigned To: F-9, M1


Representative Task: FIV-A1.1
Skill Level (Must be R&U or Application Only): R&U
Page Reference: 5
Correct Answer Choice: B

ANSWER:
Choice "b" is correct. External financial reports are used by three primary user groups including citizens,
legislative/oversight groups, and investors/creditors. Advocate groups within the state are logically
associated with citizens, citizen groups, etc.
Choice "a" is incorrect. Citizens of a neighboring state would not be included in the three primary user
groups commonly identified with use of external financial reports. Primary user groups include citizens of
the jurisdiction, individuals and groups charged with oversight (e.g., executives, legislative bodies, etc.),
and investors/creditors.
Choice "c" is incorrect. Preparers of state government financial reports would not be included in the three
primary user groups commonly identified with use of external financial reports. Primary user groups
include citizens of the jurisdiction, individuals and groups charged with oversight (e.g., executives,
legislative bodies, etc.), and investors/creditors.
Choice "d" is incorrect. Internal managers in the executive branch of the state government would not be
included in the three primary user groups commonly identified with use of external financial reports.
Primary user groups include citizens of the jurisdiction, individuals and groups charged with oversight
(e.g., executives, legislative bodies, etc.), and investors/creditors. Internal managers within the executive
branch would likely not have oversight authority.

Page 51 of 51

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

FINANCIAL
2017 AICPA Newly
Released Sims

Page 1 of 10

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

Task 3614_01

Unit & Sim # / Task Position F3_Sim 1 (122) / Task 8


Sim Task Name: New Corporate Headquarters (AICPA R-2017)
Skill Level: Application
Representative Task: FII-D.1
Web Repo ID: 2096

Page 2 of 10

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

Task 3614_01 (Selection List)

Page 3 of 10

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

Task 3614_01 (Solution)

When land is purchased for the construction of a new building, all costs incurred up to excavation for the new building are
considered land costs. Examples of these costs include purchase price, site development fees, and existing obligations
assumed by the buyer, less proceeds from the sale of existing buildings/timber. The cost of land to AC Corp. is calculated
below:

Purchase of land $500,000


Payment of accrued property tax 6,000
Demolition of old building 54,000
Settlement of lien on land 25,000
Proceeds from sale of material
salvaged from existing building (40,000)
Cost of land $545,000

It is not appropriate to record the demolition of the building as an expense. Any costs incurred to get the land ready as a
building site (including demolition costs) may be included as the cost of the land.

The cost of plant or buildings includes the purchase price, deferred maintenance costs, architect and building fees, and
construction period interest. The cost of buildings to AC Corp. is calculated below:

Construction costs for new building $700,000


Building permit 7,000
Cost of building $707,000

The cost of equipment includes all expenditures directly related to the acquisition or construction of the equipment.
Examples of these costs include invoice price less discounts, freight-in, insurance, taxes, installation charges, and
possible construction period interest. The cost of equipment to AC Corp. is calculated below:

Factory equipment $51,000


Insurance on factory equipment while in transit 5,000
Cost of equipment $56,000

As AC Corp. maintains an “office furniture” account in the general ledger, it is appropriate to record the cost of office
furniture separately from equipment. The inclusion of the costs mentioned for equipment above also relates to
expenditures for office furniture. The cost of office furniture to AC Corp. is calculated below:

Office furniture and fixtures $100,000


Installation of office furniture 13,000
Cost of office furniture $113,000

Expenses paid in advance that have not yet been incurred are considered prepaid expenses. These prepayments are
initially recorded as an asset and then expensed over the benefit period. The cost of prepaid expenses to AC Corp. is
calculated below:

Annual property insurance policy premium


beginning July 1, Year 1 $12,000
Annual maintenance contract for equipment
beginning July 1, Year 1 2,000
Cost of prepaid expenses $14,000

Page 4 of 10

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

It is not appropriate to record these payments as insurance and maintenance expense, respectively, because the benefit
period runs from July 1, Year 1, to June 30, Year 2. Therefore no expense has been incurred.

Depreciation expense was offered as an account option; however depreciation expense would not be recorded on these
assets until time has passed.

The total corporate headquarters cost recorded through the journal entry is $1,435,000. AC Corp. paid for the corporate
headquarters through the issuance of bonds and cash. As the bonds were issued at face value, bonds payable will be
credited for $1,000,000 with no associated premium or discount. The remainder of the cost, $435,000, will be credited to
cash.

Page 5 of 10

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

Task 619_01

Unit & Sim # / Task Position F4_Sim 1 (320) / Task 6


Sim Task Name: Financial Reporting (AICPA R-2017)
Skill Level: Application
Representative Task: FII-E2.2
Web Repo ID: 2098

Page 6 of 10

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

Task 619_01 (Selection List)

Selection List – Column B Selection List – Column D

Page 7 of 10

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

Task 619_01 (Solution)


100 Shares of ABC Co.: Trading security / $2,200 / Current

An equity security includes ownership interest in another company's stock. Equity securities can either be trading
securities or available-for-sale securities. Trading securities are bought and held with the principal purpose of selling
them in the near term. As the company intends to sell the shares within 30 days of year-end, the investment should be
classified as a trading security. Adell Corp. has not elected the fair value option, but valuing trading securities at fair value
is not an option, it is a requirement. Valuing other financial instruments, such as notes receivable and notes payable, at
fair value is an option. As such, the fair value of the trading securities at year-end totals the number of shares owned
times the market value per share at year-end (100 shares x $22 per share = $2,200). Trading securities are always
classified as current on the balance sheet, as the intent is to sell them in the near term (i.e., within one year).

$525,000 Sinking Fund: Restricted cash / $525,000 / Noncurrent

Cash that has been set aside for a certain purpose and is not available for current operations is considered to be
restricted. The $525,000 has been set aside to repay bond principal due in five years. The classification of the restricted
cash in the balance sheet depends on the restricted purpose. As the restriction is associated with noncurrent bonds, the
restricted cash is classified as noncurrent.

$100,000 Government Bond: Held-to-maturity security / $100,000 / Noncurrent

A debt security is any security representing a creditor relationship with an entity. The government bond that Adell Corp.
purchased is classified as a held-to-maturity security because Adell intends to hold it until maturity and then use the
proceeds to pay for an expansion project. (It is possible for bonds to be classified as available-for-sale if the company did
not intend to hold the bonds to maturity.) Held-to-maturity bonds are valued at amortized cost. The value of the reported
security is its face value of $100,000, as there is no mention of a premium or discount. The bonds mature two years from
the balance sheet date, and therefore should be classified as noncurrent.

1,000 Shares of Equity Securities: Available-for-sale security / $75,000 / Noncurrent

An equity security includes ownership interest in another company’s stock. Equity securities can either be trading
securities or available-for-sale securities. Available-for-sale securities can be equity or debt securities that don’t meet the
definition of trading or held-to-maturity securities. As Adell Corp. does not intend to sell the securities in the near term,
they are not trading securities. As the securities represent ownership in another entity, they do not have a maturity date
and therefore cannot be held-to-maturity securities. Therefore they are classified as available-for-sale securities. Adell
Corp. has not elected the fair value option, but valuing available-for-sale securities at fair value is not an option, it is a
requirement. As such, the fair value of the available-for-sale securities at year-end totals the number of shares owned
times the market value per share at year-end (1,000 shares x $75 per share = $75,000). Management does not expect to
sell the securities in the near term; hence they are classified as noncurrent on the year-end balance sheet.

Students may consider other classifications including investment in affiliates and treasury stock as possible answers.
Investment in affiliates would require more information regarding the percentage of stock owned by Adell (between 20
percent and 50 percent ownership). Treasury stock represents shares of the company’s own stock that it purchased back
from its shareholders.

Page 8 of 10

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

Task 4547_01_Research

Unit & Sim # / Task Position F6_Sim 1 (132) / Task 6


Sim Task Name: Research (AICPA R-2017)
Skill Level: Application
Representative Task: FIII-F.6
Web Repo ID: 2099

Page 9 of 10

Registered to Andrea Rosillo (#818104)


2017 AICPA Newly Released Simulations—Financial

Task 4547_01_Research (Solution)


Source of the answer for this question:

FASB ASC 840-40-50-2

Keyword: Sale-leaseback deposit method

The question asks for the guidance that addresses additional disclosure requirements for sale-leaseback transactions.

Lease transactions are covered under Broad Transactions specifically in sections 840 and 842. Drilling down in section
840 shows that sale-leaseback transactions are covered in paragraph 40. Under paragraph 40, paragraph 50 discusses
disclosure requirements. Paragraph 2 addresses disclosure requirements for a seller-lessee that has used the deposit
method.

Page 10 of 10

Registered to Andrea Rosillo (#818104)

You might also like