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AICPA CPA Financial Accounting and Reporting Sample Questions (Q129-Q134):

NEW QUESTION # 129
Mellow Co. depreciated a $12,000 asset over five years, using the straight-line method with no salvage
value. At the beginning of the fifth year, it was determined that the asset will last another four years. What
amount should Mellow report as depreciation expense for year 5?

A. $600
B. $900
C. $2,400
D. $1,500

Answer: A

Explanation:
Choice "a" is correct. Over the first 4 years, the asset would be depreciated down to $2,400. Once it was
determined that the asset would last for another 4 years, $600 would be depreciated each year of that 4
year period. This change is a change in accounting estimate (the estimate being the life of the asset).
Changes is accounting estimate are accounted for in the current year and future years if the change
affects both. Choice "b" is incorrect. This answer is the annual difference between the depreciation
expense IF depreciation expense had been retroactively restated ($24,000 / 8 = $1,500) and the correct
depreciation expense. Retroactive restatement is not appropriate for changes in accounting estimate.
Choice "c" is incorrect. This answer is the depreciation expense IF depreciation had been retroactively
restated ($24,000 / 8 = $1,500). Retroactive restatement is not appropriate for changes in accounting
estimate. Choice "d" is incorrect. This answer is the undepreciated amount at the beginning of the fifth
year or the amount of the annual depreciation expense for each of the first 4 years. Either way, it certainly
is not going to be the depreciation expense for that year because the remaining cost will depreciated over
the remaining period.

NEW QUESTION # 130
During 1994, Orca Corp. decided to change from the FIFO method of inventory valuation to the weighted
average method. Inventory balances under each method were as follows:

Orca's income tax rate is 30%.
Orca should report the cumulative effect of this accounting change as a(n):

A. Component of income from continuing operations.
B. Extraordinary item.
C. Component of income after extraordinary items.
D. Adjustment to beginning retained earnings.

Answer: D

Explanation:
Choice "a" is correct. The cumulative effect of a change in accounting principle is shown as an adjustment
to beginning retained earnings.
Choice "b" is incorrect. The cumulative effect of a change in accounting principle is now presented as a
separate category on the retained earnings statement and is not a component of net income.
Choice "c" is incorrect. Extraordinary items are unusual and infrequent in nature. Extraordinary items
have nothing to do with changes in accounting principle.
Choice "d" is incorrect. A change in accounting principle affects retained earnings, not the income
statement, under SFAS No. 154.

NEW QUESTION # 131
During the first quarter of 1993, Tech Co. had income before taxes of $200,000, and its effective income
tax rate was 15%. Tech's 1992 effective annual income tax rate was 30%, but Tech expects its 1993
effective annual income tax rate to be 25%. In its first quarter interim income statement, what amount of
income tax expense should Tech report?

A. $0
B. $30,000
C. $50,000
D. $60,000

Answer: C

Explanation:
Choice "c" is correct. Interim period tax expense is the estimated annual effective tax rate (25% in this
case) applied to the year-to-date income before taxes minus the tax expense recognized in previous
interim periods. Since this question involves the first quarter, there are no previous interim periods. 25% *
$ 200,000 = $50,000. FIN 18, para. 16
Choice "a" is incorrect. Income tax expense is reported in interim income statements.
Choice "b" is incorrect. The 1993 annual estimated tax rate, not the first quarter effective tax rate, is used
to calculate income tax expense for interim statements.
Choice "d" is incorrect. The 1993 annual estimated tax rate, not the 1992 annual effective tax rate, is used
to calculate income tax expense for interim statements.

NEW QUESTION # 132
Chester Corp. was a development stage enterprise from its inception on September 1, 1987 to December
3 1, 1988. The following information was taken from Chester's accounting records for the above period:

For the period September 1, 1987 to December 31, 1988, what amount should Chester report as net
loss?

A. $350,000
B. $150,000
C. $450,000
D. $ 50,000

Answer: C

Explanation:
Choice "d" is correct. $450,000 net loss for the period Sept. 1, 1987 to DeC. 31, 1988.
Rule: "Development stage enterprises" present their FS in accordance with GAAP and make additional
disclosures such as: cumulative net losses, cumulative deficit, cumulative sales and expenses.

NEW QUESTION # 133
For interim financial reporting, the computation of a company's second quarter provision for income taxes
uses an effective tax rate expected to be applicable for the full fiscal year. The effective tax rate should
reflect anticipated:

A. Option B
B. Option A
C. Option C
D. Option D

Answer: D

Explanation:
Choice "d" is correct. Yes - Yes.
The effective income tax rates for operations for the full year should reflect anticipated foreign tax rates
and available tax planning alternatives. In addition, the effect of other anticipated tax credits, capital gains
rates, and foreign tax credits should be included.

NEW QUESTION # 134
......

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AICPA CPA Financial Accounting and Reporting Sample Questions (Q129-Q134):

AICPA FAR Practice Test Software Gives an Exact Impression of the Real Exam

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