Free CPA FAR (Financial Accounting & Reporting) Select Balance Sheet Accounts Practice Questions
Master select balance sheet accounts for the CPA FAR exam. Questions test cash, receivables, inventory, fixed assets, intangibles, leases, and accounting for investments and financial instruments.
Sample Questions
Question 1
Easy
Under ASC 350, how should goodwill be treated subsequent to acquisition?
Solution
Under ASC 350, goodwill is an indefinite-lived intangible asset that is not amortized. Instead, it is tested for impairment at least annually at the reporting unit level (and between annual tests if a triggering event occurs). Under the current one-step approach, an impairment loss is recognized when the carrying amount of the reporting unit exceeds its fair value, with the loss limited to the carrying amount of goodwill. Choice C describes the pre-2001 treatment under APB 17, which required amortization over up to 40 years; this was superseded by SFAS 142 (now codified in ASC 350). Choice B fabricates a 10-year amortization period and midpoint testing that do not exist under current standards. Choice D incorrectly states that goodwill is expensed immediately; GAAP requires capitalization as an asset.
Question 2
Medium
A company factors 200,000 of accounts receivable without recourse. The factor charges a 3% fee and withholds 5% as a holdback. What journal entry does the company record?
Solution
D is correct. Factoring without recourse is a sale. Cash received = 200,000 - 3% fee (6,000) - 5% holdback (10,000) = 184,000. The fee is a loss on sale. The holdback creates a Due from Factor receivable. Debit Cash 184,000, Debit Loss on Sale 6,000, Debit Due from Factor 10,000; Credit AR 200,000. Receiving full face value ignores the fee and holdback. Combining fee and holdback as one expense misclassifies the holdback. Factoring without recourse is a sale, not a borrowing.
Question 3
Hard
Trident Corp. issues 2,000,000 of 10-year, 4% bonds. PV of 1 at 6% for 10 periods = 0.5584; PVA at 6% for 10 periods = 7.3601. What is the issue price and the carrying value at the end of Year 1 under the effective interest method?
Solution
B is correct. Issue price = PV of principal + PV of coupons. PV of principal = 2,000,000 x 0.5584 = 1,116,800. PV of coupons = (2,000,000 x 4%) x 7.3601 = 80,000 x 7.3601 = 588,808. Issue price = 1,116,800 + 588,808 = 1,705,608. Year 1 under effective interest method: Interest expense = 1,705,608 x 6% = 102,337. Cash coupon = 80,000. Discount amortized = 102,337 - 80,000 = 22,337. Carrying value end Year 1 = 1,705,608 + 22,337 = 1,727,945. Choice D applies the stated coupon rate to compute amortization — the effective interest method uses the market rate. Choice C does not amortize the discount in Year 1. Choice B records at face value, ignoring the below-market coupon discount.
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