Appendix I): 2015 Released AICPA Questions for Financial Accounting and Reporting

Appendix I): 2015 Released AICPA Questions for Financial Accounting and Reporting 1. FASB's due process for setting accounting standards includes which of the following procedures? a. The FASB can seek information about accounting and reporting issues by holding public forums, usually based on an exposure draft. b. The FASB delegates topics to the Financial Accounting Foundation for research and reporting. c. The FASB's Emerging Issues Task Force ratifies amendments to the Accounting Standards Codification. d. The FASB obtains approval from the International Accounting Standards Board in setting its agenda. 2. Which of the following items should be shown as a component of comprehensive income? a. Dividend paid to a shareholder. b. Foreign-currency translation adjustment. c. Additional capital contribution. d. Deferred revenue. 3. Dunbam Co. had the following activities during the year: Purchase of inventory $120,000 Purchase of equipment 80,000 Purchase of available-far-sale securities 60,000 Purchase of treasury stock 70,000 Issuance of common stock 150,000 What amount should Dunbam report as cash provided (used) by investing activities in its statement of cash flows for the year? a. $ (120,000) b. $ (140,000) c. $ (210,000) d. $150,000 4. Savor Co. had $100,000 in accrual basis pretax income for the year. At year end, accounts receivable had increased by $10,000 and accounts payable had decreased by $6,000 from their prior year-end balances. Under the cash basis of accounting, what amount of pretax income should Savor report for the year? i. $ 84,000 b. $ 96,000 c. $104,000 ct. $116,000 S. A firm's ending inventory balance was overstated by $1,000. Which of the following statements is correct according to a periodic inventory system? a. The retained earnings were overstated by $1,000. h. The cost of goods sold was overstated by $1,000. c. The cost of goods available for.sale was overstated by $1,000. d. The gross margin was understated by $1,000. 1. The requirement is to identify a FASB due process procedure. Answer (a) is correct because the FASB seeks information by holding public forums/roundtable discussions. Usually the feedback s obtained to determine if a second exposure draft is necessary. 2. The requirement is to identify the item that would be shown as a component of comprehensive income. Answer (b) is correct because foreign-currency translation adjustments appear as a component of comprehensive income. Answers (a), (c), and (d) are incorrect because they are not income or comprehensive income items. 3. The requirement is to determine the amount of cash provided (used) by investing activities. Answer (b) is correct because cash flow investing activities involve non-current assets and the only two items impacting non-current assets is the purchase of equipment and purchase of available-for-sale securities (80,000) + (60,000) = (140,000)] 4. The requirement is to convert from the accrual basis to the cash basis for reporting income. Answer (a) is correct because accrual basis income would be ~justed by a change in receivables and a change in payables ($100.000-10,000 6,000 == $84,000). 5. The requirement is to determine the impact of an inventory error. Answer (a) is correct because if ending inventory is overstated, cost of goods sold is understated. If cost of goods sold is understated, retained earnings is overstated. 1185

1186 Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 6. Quick Co. acquired the following assets from a liquidating competitor for a $200,000 lump-sum purchase price: Competitor's carrying amount Fair value Inventory $ 70,000 $ 50,000 Land 40,000 50,000 Building 110,000 150,000 $220,000 $250,000 What amount should Quick report as the cost of the building? a. $100,000 b. $120,000 c. $150,000 d. $200,000 7. At the beginning of year 2, a company invested $40,000 in a marketable equity security. At that time the security was appropriately classified as an available-for-sale security. At the end of year 2, the security had a fair value of $28,500. The change in fair value is deemed temporary. How should this change in fair value be reported in the financial statements? a. As a realized loss of $11,500 as part of net income. b. As a realized loss of $11,500 as part of other comprehensive income. c. As an unrealized loss of $11,500 as part of net income. d. As an unrealized loss of $11,500 as part of other comprehensive income. 8. Anchor Co. is experiencing financial difficulties. Anchor negotiated a settlement of $100,000 in debt owed to Bowden, Inc. in exchange for Anchor's gross receivables of $100,000. The receivables have an allowance for uncollectible accounts of $25,000. The impact of this transaction on Anchor's net income is a $25,000 a. Increase in bad debt expense. b. Gain on restructuring of payables. c. Loss on restructuring of payables. d. Decrease in bad debt expense. 9. Aldrich Co. distributes cash dividends to its shareholders during the current year. The dividends are declared on March 9 and are payable to shareholders as of the date of record which is April 15. The dividends are actually paid on Ma~ 19. At which of the following dates would the dividends become a liability to Aldrich? a. March 9 b. April 15 c. May 19 d. December 31 6. The requirement is to value the cost of a building that was part of a lump-sum (basket) purchase. Answer (b)is correct because each item ina lump-sum (basket) purchase is assigned its proportional share of the total fair value times the price paid [($150,0001$250,000) x $200,000 =$120,000]. 7. The requirement is to determine how to account for an available-for-sale security temporary change in fair value. Answer (d) is correct because temporary fair value changes for available-for-sale securities are considered unrealized and reported in other comprehensive income. In this case, the difference between $40,000 and $28,500 is a $11,500 decrease which is reported as an unrealized loss as part of other comprehensive income. 8. The requirement is to determine how to account for a $25,000 net income change due to settling a payable with receivables. Answer (b) is correct because the restructuring resulted in a gain after all accounts are removed from the books. A journal entry helps to understand the transaction. Bowden Payable 100,000 Allowance 25,000 Receivables 100,000 Gain 25,000 9. The requirement is to determine when dividends become a liability. Answer (a) is correct because dividends become a liability when declared and dividends were declared on March 9.

Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 1187 10. In February, Colt Corp. sold merchandise to Sink Co. for $lo,ooo. Colt is using the cost recovery method to account for this sale, which had cost of goods sold of $2,500. Colt received the following payments from Sink during the year: Date Amount June $1,000 August 1,500 October 200 December 700 $3,400 10. The requirement is to determine the amount of gross profit to recognize when using the cost recovery method. Answer (b) is correct because, under the cost recovery method, gross profit is not recognized until costs are recovered. Costs are recovered in June and August (zero gross profit in June). Thus, all remaining receipts may be recognized as gross profit when received and $900 ($200 in October and $700 in December) gross profit is recognized in December. What amounts of gross profit should Colt recognize in its June 30 and December 31 income statements? June 30 December 31 a. $0 $0 b. $0 $900 c. $1,000 $2,400 d. $1,000 $3,400 11. Harmony Co. has a single-employer defined benefit pension plan. Harmony should report a liability related to the plan equal to which of the following amounts? a; The unfunded projected benefit obligation. b. The accumulated benefit obligation. c. The projected benefit obligation. d. The unfunded vested benefit obligation. 12. Which of the following circumstances would result in a deferred tax asset for the current year? a. Expenses that are recognized in financial income this year and deductible next year. b. Expenses that are deductible this year and recognized in financial income next year. c. Revenues that are recognized in financial income this year and taxable next year. d. Revenues that are recognized in financial income this year but are not subject to taxation. 13. Which of the following examples would require restatement of prior years' financial statements? a. A calculation change of warranty obligations based on updated claim information for the prior year. b. A change from the income tax basis of accounting to the accrual basis. c. An insurance premium that was due in the prior year but that lapsed because the policy was not paid. d. An intangible asset with a remaining estimated amortization period of two years, which is determined to be obsolete. 14. The per-share amount must be reported on the face of a public company's income statement for which of the following items? a. Income from continuing operations. b. Preferred stock dividend. c. U.S. Treasury stock. d. Compensation effect of fair value on stock options. 11. The requirement is to determine when to report a defined benefit pension liability. Answer (a) is correct because a liability is reported for the amount that the projected benefit obligation exceeds the fair value of plan assets, otherwise known as the unfunded projected benefit obligation. 12. The requirement is to determine which circumstance results in a deferred tax asset. Answer (a) is correct because, with the exception of permanent differences, when financial income is less than taxable income, a deferred tax asset is created. Answers (b) and (c) are incorrect because the circumstance results in financial income being greater than taxable income. Answer (d) is incorrect because permanent differences do not result in deferred taxes. 13. The requirement is to determine which example would result in a prior-period restatement. Answer (b) is correct because errors result in prior period restatements. Changes from a non-gaap method to a GAAP method are considered an error. Answers (a, c, and d) are incorrect because they are considered changes in estimates due to new information and changes in estimates do not require restatements. 14. The requirement is to determine which item results in per-share reporting. The correct answer is (a) because pershare amounts are required to be reported for income from continuing operations and net income. A company may choose to report per-share amounts for discontinued operations. Per-share amounts are not required for preferred stock dividends, US Treasury stock, or stock option impacts (Answers b, c, and d).

1188 Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 15. A foreign subsidiary of a U.S. parent company should measure its assets, liabilities and operations using a. The subsidiary's local currency. b. The subsidiary's functional currency. c. The U.S. dollar. d. The best available spot rate. 16. Which of the following is a criterion for classifying a lease as a capital lease by a lessee'? a. The lease term is equal to 75% or more of the estimated economic life of the leased property. b. The present value of the minimum lease payments is 75% or more of the fair value of the leased property. c. The lease agreement contains an option to purchase the leased prol?6rty at its fair value at the end of the lease term. d. The Jease agreement requires that title of the leased property remains with the lessor at the end of the lease term. 17. Jensen performed legal services to assist Balm Co. in accomplishing its initial organization. Jensen accepted 1,000 shares of $5 par common stock in Balm as payment for his services. The Balm shares were not yet publicly traded, but they had a book value of $4 per share. Jensen provided 48 hours of service, which is normally billed at $125 per hour. By what amount should the common stock account increase'? 15. The requirement is to determine how a foreign subsidiary of a US parent company should measure its assets, liabilities, and operations. Answer (b) is correct because foreign subsidiaries should report in its functional currency, which could be the foreign currency or the US dollar depending upon facts and circumstances. 16. The requirement is to identify the correct capital lease criteria. Answer (a) is.correct because it meets one of the four lessee capital lease criteria (transfer of title from lessor to lessee, bargain purchase option, lease term greater than or equal to 75% of the economic life of the lased property, present value of the minimum lease payments is greater than or equal to 90% of the fair value of the leased item). Answer (b) is incorrect because the percentage should be 90% not 75%. Answer (c) is incorrect because it does not contain a bargain if the lessee can purchase the item at fair value. Answer (d) is incorrect because it does not transfer title. 17. The requirement is to determine the amount to record in common stock resulting from a transaction where services are exchanged for the stock. Answer (c) is correct because common stock is' always recorded at par value (1000 shares x $5/share = $5,000) regardless of the value of the transaction (48 x $135 = $6,000). a. $1,000 b. $4,000 c. $5,000 d. $6,000 18. The following information relates to two projects performed by Miley Co. during the year for laboratory research aimed at discovering new knowledge: Project Costs Likelihood that effort will result in future benefits 1. $100,000 Probable II. $ 50,000 Reasonably possible What should Miley report as research and development expenses in its income statement for the year? a. $0 b. $50,000 c. $100,000 d. $150,000 18. The requirement is to determine the amount to be recorded as research and development expenses. Answer (d) is correct because under US GAAP, all internal non-software project costs regardless of future benefits, are expensed as incurred ($100,000 + $50,000 = $150,000).

Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 1189 19. A company began developing computer software to be sold as a separate product on January 1, year 1. During the planning, coding, and testing phases, the company incurred $1,300,000 of costs. On June 30, year 1, the product was determined to be technologically feasible. The company began producing product masters of the software and incurred an additional $750,000 of costs from July 1, year 1, through September 30, year 1. After the software was available for release on October 1, year 1, the company incurred an additional $275,000 of costs relating to maintenance and customer support. What amount of software-related costs should be capitalized? 19. The requirement is to determine the amount of software costs to capitalize. Answer (b) is correct because only those costs between technological feasibility and market feasibility are to be capitalized and those costs, as stated in the problem, are $750,000. a. $275,000 b. $750,000 c. $1,300,000 d. $2,050,000 20. Which basis of accounting is required for a city's government-wide financial statements? a. Cash. b. Modified cash. c. Modified accrual. d. Accrual. 21. A city government would report each ofthe following categories in its government-wide statement of net position except a. Governmental activities. b. Business-type activities. c. Fiduciary activities. d. Component units. 22. Which of the following funds of a local government would report transfers to other funds as an other financing use? a. Enterprise. b. Internal service. c. Pension trust. d. General. 23. A storm damaged the roof of a nongovernmental, notfor-profit organization's building. A professional roofer repaired the roof at no charge. How should the roof repairs be recognized in the statement of activities? a. As an increase in expenses and an increase in contributions from donated services. b. As an increase in the building account and an increase in unrestricted net assets. c. As an increase in fixed assets and an increase in contributions from donated services. d. No recognition is required in the financial statements, but a note disclosure is required. 20. The requirement is to identify the basis of accounting required for a city's government-wide financial statements. Answer (d) is correct because the required basis is the accrual basis. Answers (a), (b), and (c) are incorrect because the accrual basis is required. 21. The requirement is to identify the category that is not required to be reported in the government-wide statement of net position. Answer (c) is correct because fiduciary activities is not a required category of a government-wide statement of net position. Answers (a), (b), and (d) are incorrect because governmental activities, business-type activities, and component units are all required categories of a governmentwide statement of net position. 22. The requirement is to identify the fund that would report transfers to other funds as an other financing use. Answer (d) is correct because transfers to other funds as an other financing use would be reported in the general fund. Answers ( a), (b), and (c) are incorrect because transfers to other funds as an other financing use would be reported in the general fund. 23. The requirement is to identify how the roof repairs should be recognized in the statement of activities. Answer (a) is correct because the repairs would be reported at fair value presented as an increase in expenses and increase in contributions from donated services. Answer (b) is incorrect because the repairs are reported as an expense and as contributions from donated services. Answer (c) is incorrect because the repairs are an expense. Answer (d) is incorrect because the repairs should be reported in the statement at fair value.

1190 Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 24. A donor gives $10,000 to a nongovernmental, not-forprofit organization with instructions that it must be used to fund the organization's general operating expenses during the following fiscal year. The donation will increase the organization's a. Unrestricted net assets. b. Temporarily restricted net assets. c. Restricted net assets. d. Restricted retained earnings. 25. A nongovernmental, not-far-profit organization provided the following data in regard to $500,000 of donations received during the year: Purchase of investments to be held in $100,000 perpetuity at the donor's request Future repairs to the organization's building 250,000 and equipment at the donor's request General operations at the discretion of the 100,000 board of directors Specific program services as indicated by 50,000 the donor In order to properly reflect receipt of the donations, net assets should increase in the amount of a. $400,000 unrestricted and $100,000 permanently restricted. b. $150,000 unrestricted, $250,000 temporarily restricted, and $100,000 permanently restricted. c. $100,000 unrestricted, $300,000 temporarily restricted, and $100,000 permanently restricted. d. $100,000 unrestricted and $400,000 permanently restricted. 26. Clear Co.'s trial balance has the following selected accounts: Cash (includes $10,000 in bond-sinking fund $50,000 for long-term bond payable) Accounts receivable 20,000 Allowance for doubtful accounts 5,000 Deposits received from customers 3,000 Merchandise inventory 7,000 Unearned rent 1,000 Investment in trading securities 2,000 What amount should Clear report as total current assets in its balance sheet? a. $$64,000 b. $67,000 c. $72,000 d. $74,000 24. The requirement is to identify where the donation would be reported by the organization. Answer (b) is correct because contributions that are time restricted are reported as temporarily restricted net assets. Answer (a) is incorrect because the contribution is time restricted. Answer (c) is incorrect because the contribution is time restricted but not permanently restricted. Answer (d) is incorrect because notfor-profit organizations do not have retained earnings. 25. The requirement is to identify the proper reporting of the donations. Answer (c) is correct because the donation of $100,000 for general operations is unrestricted, the $300,000 in donations for repairs and specific programs are temporarily restricted until spent, and the donation restricted to purchase investments to be held in perpetuity is permanently restricted. Answer (a) is incorrect because the donations for repairs and specific program services are temporarily restricted. Answer (b) is incorrect because the donation for specific program services is temporarily restricted. Answer (d) is incorrect because only the donation for investments to be held in perpetuity is permanently restricted. 26. The requirement is to determine the value of total cunail assets from the selected items. Answer (a) is correct. Bond sinking funds should be considered non-current; thus cash is $50,000 - $10,000 == $40,000. Accounts receivable is neued by the allowance account ($20,000 - $5,000 =$15,000). Deposits received from customers are considered unearned add unearned items are liabilities. Inventory and trading securities are also considered current assets for a total of $64,000= $50,000-10,000 + 20,000-5,000 +7,000 +2,000.

Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 1191 27. Martin Co. had net income of $70,000 during the year. Depreciation expense was $10,000. The following information is available: Accounts receivable increase $20,000 Equipment gain on sale increase 10,000 Nontrade notes payable increase 50,000 Prepaid insurance increase 40,000 Accounts payable increase 30,000 27. The requirement is to determine the net cash provided by operating activities. Answer (b) is correct because $70,000 + 10,000-20,000-10,000-40,000 + 30,000 = $40,000. The nontrade payable may be ignored. What amount should Martin report as net cash provided by operating activities in its statement of cash flows for the year? a. $0 b. $40,000 c. $50,000 d. $100,000 28. Which of the following should be disclosed in a summary of significant accounting policies? a. Basis of consolidation. b. Concentration of credit risk of financial instruments. c. Composition of plant assets. d. Adequacy of pension plan assets in relation to vested benefits. 29. Each of the following events is required to be reported to the United States Securities and Exchange Commission on Form 8-K, except 28. The requirement is to identify the item to be disclosed in a summary of significant accounting policies. Answer (a) is correct and is the only item which is general in nature. Answers (b, c, and d) are detailed and would each be disclosed in specific footnotes. 29. The requirement is to determine which item would not result in an 8-k. Answer (d) is correct because results of operations, not quarterly operations are reported in the form 8-k. a. The creation of an obligation under an off-balance sheet arrangement of a registrant. b. The unregistered sale of equity securities. c. A change in a registrant's certifying accountant. d. The quarterly results of operations and financial condition of a registrant. 30. Garcel, Inc. held unfinished inventory at a cost of $85,000 with a sales value of $125,000. The inventory will cost $10,500 to complete. The normal profit margin is 30% of sales. The replacement cost of the inventory was $75,000. What amount should Gareel report as inventory on balance sheet? a. $114,500 b. $ 85,000 c. $ 77,000 d. $ 75,000 31. Sea Manufacturing Corp. is constructing a new factory building. During the current calendar year, Sea made the following payments to the construction company: January 2 $1,000,000 December 31 1,000,000 Sea has an 8%, three-year construction loan of $3,000,000. What is the amount of interest costs that Sea may capitalize during the current year? a. $0 b. $80,000 c. $160,000 d. $240,000 30. The requirement is to determine the value of the inventory to be reported on the balance sheet. Answer (c) is correct because $77,000 is the lower of cost or market. Cost = $85,000 Replacement cost = $75,000< Ceiling = selling price less cost to dispose = $125,000-10,500 = $114,500 Floor =ceiling less normal profit margin =$114,500-37,500 (125,000 x 30%) = $77,000. Market =$77,000 (the middle of the ceiling, replacement cost, or floor); Lower of cost or market::::: $77,000 31. The requirement is to determine the amount of interest that can be capitalized. Answer (b) is correct because the amount to capitalize is the lower of the actual interest or avoidable interest. Avoidable interest::::: $1,000,000 x 8% = $80,000 and actual interest is $3,000,000 x 8% == $240,000. Thus, $80,000 is to be capitalized.

1192 Appendix D: 2015 ReleasedAICPA Questions for Financial Accounting and Reporting 32. Under IFRS, which of the following statements about intangible assets is correct? a. Internally generated goodwill cannot be recognized as an asset. b. Intangible assets within a class may be measured differently using either the cost model or the revaluation model. c. Research and development costs are capitalized as incurred. d. Intangible assets with indefinite lives must be amortized annually. 33. A note payable was issued in payment for services received. The services had afair value less than the face amount of the note payable. The note payable has no stated interest rate. How should the note payable be presented in the statement of financial position? a. At the face amount. b. At the face amount with a separate deferred asset for the discount calculated at the imputed interest rate. c. At the face amount with a separate deferred credit for the discount calculated at the imputed interest rate. d. At the face amount minus a discount calculated at the imputed interest rate. 34. Which of the following statements is correct regarding valuation allowances in accounting for income taxes? a. The effect of a change in the opening balance of a valuation allowance that results from a change of circumstances ordinarily is included in income from operations. b. Both deferred tax assets and deferred tax liabilities can be reduced by a valuation allowance. c. Only negative evidence, not positive evidence, should be considered when determining whether a valuation allowance is needed. d. A valuation allowance is necessary when the realistic probability standard of evidence is satisfied. 35. A company issues $1,500,000 of par bonds at 98 on January 1, year 1, with a maturity date of December 31, year 30. Bond issue costs are $90,000, and the stated interest rate of the bonds is 6%. Interest is paid semiannually on January 1 and July 1. Ten years after the issue date, the entire issue was called at 102 and canceled. The company uses the straight-line method of amortization for bond discounts and issue costs, and the result of this method is not materially different from the effective interest method. The company should classify what amount as the loss on extinguishment of debt at the time the bonds are called? a. $ 30,000 b. $ 50,000 c. $ 90,000 d. $110,000 32. The requirement is to identify the correct IFRS intangible asset statement. Answer (a) is correct because internally generated goodwill cannot be recognized as an asset since it cannot be measured reliably. 33. The requirement is to determine how to record a note when it has been exchanged for services with a fair value less than the face amount of the note. Answer (d) is correct because the imputed rate of interest must be recognized for notes without stated interest rates. The note would be recorded net of the discount calculated at the imputed interest rate. 34. The requirement is to determine which statement, as it relates to valuation allowances, is correct. Answer (a) is correct because changes in valuation allowances impact income. 35. The requirement is to determine the amount of loss on extinguishment of debt at the time the bonds are called. Answer (d) is correct because the loss is $110,000. At issuance: Cash «1,500,000 x.98) - 90,000) $1,380,000 Bond Issue Costs 90,000 Discount 30,000 Bonds Payable $1,500,000 Discount amortization ($30,000/30) x 10 years = $10,000 Bond Issue Cost amortization ($90,000/30) x 10 = $30,000 Bond Call: Bond Payable $1,500,000 Loss on extinguishment (plug) 110,000 Discount (30,000-10,000) 20,000 Bond Issue Cost (90,000-30,000) 60,000 Cash (1,500,000 x 1.02) 1,530,000

Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 1193 36. On day 1, Clothes Co., sells clothing to Link Corp. for $40,000. Clothes ships the clothing on day 1 and Link is obligated to pay Clothes within six months. Link is given 12 months to return any of the clothing for a refund if they experience low demand. Link is also given 18 months to exchange any clothing due to low demand. At the time of sale, Clothes cannot reasonably estimate returns, but estimates $5,000 in exchanged goods. Clothes should recognize revenue for the aforementioned transaction 36. The requirement is to determine when revenue should recognize when there is uncertainty related to the revenue amount. Answer (c) is correct because 12 months after the sale date, the company is aware of the return amount. After 12 months, the purchaser may only exchange items, not return them. a. On the day of the sale. b. Six months after the date of sale. c. 12 months after the date of sale. d. 18 months after the date of sale. 37. At the beginning of year 1, a company amends its defined benefit pension plan for an additional $500,000 in prior service cost. The amendment covers employees with a lo-year average remaining service life. At the end of year 1, what is the net entry to accumulated other comprehensive income, ignoring income tax effects? a. A $450,000 debit. b. A $500,000 debit. c. A $550,000 credit. d. A $450,000 credit. 38. A company recorded a decommissioning liability and recognized the amount recorded as part of the cost of the related property. After the property was fully depreciated, the decommissioning liability was reviewed and adjusted. How should this change in the decommissioning liability be recognized under IFRS? a. The change in the liability is recognized in other comprehensive income. b. The change in the liability is recognized in profit or loss. c. The change in the liability is recognized as a change in the carrying amount of the property if the liability increases but is otherwise recognized in profit or loss. d. The change in the decommissioning liability is not recognized until it is settled. 39. A company incurred the following costs to complete a business combination in the current year: Issuing debt securities $30,000 Registering debt securities 25,000 Legal fees 10,000 Due diligence costs 1,000 What amount should be reported as current-year expenses, not subject to amortization? a. $ 1,000 b. $11,000 c. $36,000 d. $66,000 37. The requirement is to determine the net accumulative other comprehensive income amount when prior service cost is granted to employees. Answer (a) is correct because the accumulated other comprehensive income account is first increased with a debit of $500,000 for prior service cost (the projected benefit obligation is credited). The impact is assumed to impact the beginning of the year. That amount is to be amortized over 10 years or $50,000 per year. Pension expense is debited for $50,000 and accumulated other comprehensive is credited for $50,000. The net effect is $450,000 debit ($500,000 - $50;0(0). 38. The requirement is to determine how a change in decommissioning liability is recognized given that asset is fully depreciated. Answer (b) is correct because regardless of the use of the cost model or revaluation model, a change in liability would exceed the carrying amount due to the asset being fully depreciated. Thus, the change is recognized in profit or loss. 39. The requirement is to determine which acquisition costs should be expensed immediately. Answer (b) is correct because acquisition related costs are norinally expensed with the exception of issuance costs and registration costs which are recognized in accordance with other US GAAP. Thus, $11,000 should be expensed ($10,000 + $1,000).

1194 Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 40. Based on the stock transactions below, what is the weighted average number of shares outstanding as of December 3 I, year 1, that should be used in the calculation of basic earnings per share in financial statements issued on March 1, year 2? Date January 1, year I April 1, year 1 June 1, year 1 February 15, year 2 March 15, year 2 a. 147,500 b. 183,750 c. 295,000 d. 367,50041. Transactions Beginning balance 100,000 Issued 30,000 shares for cash 50% stock dividend 2 for 1 stock split Issued 40,000 shares for cash 41 Which of the following phrases best describes a Levell input for measuring the fair value of an asset or liability? a. Inputs for the asset or liability based on the reporting entity's internal data. b. Quoted prices for similar assets or liabilities in active markets. c. Inputs that are principally derived from or corroborated by observable market data. d. Unadjusted quoted prices for identical assets or liabilities in active markets. 42. On June 1, year 1, ABC Co. issued a 200,000 euro purchase order for equipment to be supplied by a German company. ABC's functional currency is the U.S. dollar. The equipment was delivered to ABC on November 1, year 1, and ABC recorded a payable due to the German company. ABC paid for the equipment on January 31, year 2. The following are the exchange rates in effect: June I, year 1 November I, year 1 December 31, year 1 January 31, year 2 1 euro = 1.40 U.S. dollars 1 euro::::; 1.50 U.S. dollars 1euro ::::; 1.35 U.S. dollars 1 euro::::; 1.30 U.S. dollars Under IFRS, what is the foreign currency gain or loss that ABC should record for the year ended December 31, year I? a. A loss of $30,000. b. A loss of $20,000. c. A gain of $10,000. d. A gain of $30,000. 40. The requirement is to determine year I weighted average shares outstanding (WASO) after year 2 information is provided. Answer (d) is correct because the only item in year 2, impacting year 1, is the 2 for stock split resulting in 367,500 shares outstanding. 111 100,000 x 3/12 x 1.5 ::::; 37,500 411 130,000 x 2112 x 1.5 = 32,500 6/1 195,000 x 7112::::; 113,750 WASO year 1, reported year 1 183,750 Adjusted for year 2 stock split 183,750 x 2 ::::; 367,500 41. The requirement is to determine which item is a levell input for measuring fair value. Answer (d) is correct because unadjusted quoted prices for identical assets or liabilities in active markets are considered level I inputs. Answers (a, b, and c) are considered level 2 and level 3 inputs.. 42. The requirement is to determine the transaction gainl loss under IFRS. Answer (d) is correct. Transaction gains and losses result from a difference between the functional currency and the currency the transaction is denominated in. Since the US Dollar is the functional currency and the transaction is denominated in Euro's, the transaction must be adjusted for a gain or loss each reporting date. Thus, the gain is $30,000. Delivery resulting in a recording of event 200,000 x 1.5 ::::; $300,000 December 31 value of event 200,000 x 1.35 = $270,000 Difference ($300,000 - $270,000 = $30,000)

Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 1195 43. A company leases a machine from Leasing, Inc. on January I, year 1. The lease terms include a $100,000 annual payment beginning January I, year 1. The machine's fair value is $500,000 and the residual value is estimated at $20,000. The company guarantees the residual value. The useful life of the machine is six years, and the lease term is five years. The implicit rate of interest is 6% and is known by the company. The following present value factors are provided: Five years Six years Present value of $1 at 6% 0.7473 0.7050 Present value of an annuity due at 6% 4.4651 5.2124 Present value of an ordinary annuity at 6% 4.2124 4.9173 What is the value of the machine in the company's balance sheet at lease inception? a. $446,510 b. $$$461,456 c.. $520,000 d. $535,340 44. Isle Co. owned a copy machine that cost $5,000 and had accumulated depreciation of $2,000. Isle exchanged the copy machine for a computer that cost $4,000. Isle's future cash flows are not expected to change significantly as a result of the exchange. What amount of gain or loss should Isle report and at what amount should it record the asset? a. No gain or loss in the income statement; $3,000 asset in the balance sheet. b. No gain or loss in the income statement; $4,000 asset in the balance sheet. c. $1,000 gain in the income statement; $3,000 asset in the balance sheet. d. $1,000 gain in the income statement; $4,000 asset in the balance sheet. 45. On January 1, year I, a company capitalized $100,000 of costs for software that is to be sold. The company amortizes the software costs on a straight-line basis over five years. The carrying value of the software costs 011 January 1, year 3, was $60,000. As of December 31, year 3, the estimated future gross revenue to be generated from the sale of the software is $23,000, and the estimated future cost of disposing of the software is $8,000. What amount should the company expense related to the software costs for the year ended December 31, year 3? a. $18,400 b. $20,000 c. $37,000 d. $45,000 46. Which of the following is a required part of a local government's management's discussion and analysis (MD&A) as part of its financial statements? a. The MD&A should be presented with other required supplementary information. b. The MD&A should compare current-year results to the prior year with emphasis on the current year. c. The MD&A should include an analysis for each fund. d. The MD&A should present condensed financial information from the fund financial statements. 43. The requirement is to calculate the value of the leasel machinery at lease inception. Answer (b) is correct because the value of the leaselmachine is equivalent to the present value of the minimum lease payment plus the present value of the guaranteed residual value. $461,456 = $446,510 + $14,960. PV annuity due 4.4651 x $100,000 = $446,510. PV of 1 $20,000 x 0.7473 = $14,960. 44. The requirement is to determine the amount of gain or loss for a non-monetary exchange of assets. Answer (a) is correct because when exchanging assets, usually the event is recorded at the fair value of the item given up with thee exceptions. In this situation, the event lacks commercial substance and no cash is exchanged. Therefore, a gain would be deferred and the new asset is recorded at the book value of the asset given up. 45. The requirement is to determine the software related expense. Answer (d) is correct because the carrying amount is capped at the net realizable value of the asset ($23,000 - $8,000 = $15,000). The carrying amount is currently at $60,000 and the net realizable value is $15,000. Thus $45,000 needs to be expensed to meet the net realizable value requirement of $15,000. 46. The requirement is to identify the required part of a local government's management's discussion and analysis. Answer (b) is correct because management's discussion and analysis includes a comparison of current-year results to the prior year. Answers (a), (c), and (d) are incorrect because they are not required parts of a local government's management's discussion and analysis.

1196 Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 47. A city government reported a $9,000 increase in net position in the motor pool internal service fund, a $12,000 increase in net position in the water enterprise fund, and a $7,000 increase in the employee pension fund. The motor pool internal service fund provides service primarily to the police department. What amount should the city report as the change in net position for business-type activities in its statement of activities? a. $ 9,000 b. $12,000 c. $21,000 d. $28,000 48. Land and other real estate held as investments by endowments in a government's permanent fund should be reported at a. Historical cost. b. The lower of cost and net realizable value. c. Fair value. d. Fair value less costs of disposal. 49. A statement of financial position for a nongovernmental not-for-profit organization reports amounts for which of the following classes of net assets? a. Current. b.,long-term. c. Permanently restricted. d. Temporarily unrestricted. 50. A nongovernmental not-for-profit college has a portfolio of bond investments that had an original cost of $2,000,000. The college's board of trustees voted to hold the principal of this fund intact in perpetuity and designated the earnings to reimburse faculty for travel to academic conferences. During the year, interest of $50,000 was earned in cash. The fair value of the bonds was $1,980,000. What amount should the college report as permanently restricted net assets at year end? a. $0 b. $1,980,000 c. $2,000,000 d. $2,030,000 47. The requirement is to determine the amount that the city should report as the change in net position for businesstype activities. Answer (b) is correct because only the water enterprise is a business-type activity which provides services to the general public for a fee. Answers (a), (c), and (d) are incorrect because only the water enterprise is a business-type activity which provides services to the general public for a fee. 48. The requirement is to identify how the land and other real estate held as investments should be reported. Answer (c) is correct because land and other real estate held as investments are reported at fair value. Answers (a) and (b) are incorrect because investments are reported at fair value. Answer (d) is incorrect because there is no requirement to deduct the costs of disposal. 49. The requirement is to identify the class of net assets that is reported in the statement of financial position. Answer (c) is correct because the statement reports unrestricted, temporarily restricted, and permanently restricted net assets. Answers (a), (b), and (d) are incorrect because the statement reports unrestricted, temporarily restricted, and permanently restricted net assets. 50. The requirement is to determine the amount of permanently restricted net assets at year end. Answer (a) is correct because an action by the board of trustees does not cause unrestricted assets to become restricted assets. Only donor restrictions cause assets to be reported as restricted. Answers (b), (c), and (d) are incorrect because an action by the board of trustees does not cause unrestricted assets to become restricted assets. Only donor restrictions cause assets to be reported as restricted.

Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 1197 Task-Based Simulation 1 Scroll down to complete all parts of this task. Drake, Inc. has two loans recorded on its books. Loan 1 was obtained on January 1, year 1, and Loan 2 was entered into on January 1, year 2. Drake's year end is December 31. For the situations related to the loans below, prepare the appropriate journal entries. Each loan should be accounted for independent of the other loan. To prepare each entry: Using the options provided from the list in Column A below fill in the shaded cells with the appropriate account name. An account may be used once or not at all for an entry. Enter the corresponding debit or credit amount in the appropriate column. Round all amounts to the nearest dollar. All rows may not be required to complete each entry. Ifno Journal entry at all is needed, select "No entry required" for one of the rows. Loan 1 is a 4%, five-year balloon loan for $3,000,000 with interest due and paid annually on December 31. Drake records interest annually on December 31. Drake incorrectly recorded the journal entry for the year 1 interest expense and payment as a debit to accrued interest payable and a credit to cash. Prepare the net journal entry to correct year 1 and properly record the interest attributable to the Joan as of and for the year ended December 31. year 2. Al J(."fx 2 3 4 5 6

1198 Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting Loan 2 is an 8%, $1,000,000 loan with interest due at).nually on December 31. Drake did not record or pay the required year 2 interest payment until January 1, year 3. Prepare thejoumal entry Drake should record at December 31, year 2. Al ~./Ix 1 2 3 4 5 6 Solution to Task-Based Simulation 1 4% loan calculations Interest calculation: 3,000,000 x.04 = 120,000 Wrong entry recorded in year 1: Accrued interest payable 120,000 Cash 120,000 No expense was recorded. To fix year 1 entry in year 2 (year 1 books are closed): Retained earnings 120,000 Accrued interest payable 120,000 To record year 2 interest expense: Interest expense 120,000 Cash 120,000 Al ~./Ix I 2 3 4 5 6 8% loan calculations: Interest calculations: 1,000,000 x 8% = 80,000

Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 1199 Firm did not pay loan on December 31' but owed the money at that time: Interest expense 80,000 Accrued interest payable 80,000 Al x./fx 1 2 3 4 5 6 Task-Based Simulation 2 Scroll down to complete all parts of this task. FB Corp. prepares its financial statements in accordance with!frs. FB acquired 100% of the outstanding common stock of Skarlet, Inc. for $5,500,000. The purchase price included $300,000 to reimburse the former shareholders of Skarlet for legal fees incurred to complete the acquisition. The company also agreed to pay the seller an additional $1,500,000 if Skarlet generated $5,000,000 in net earnings during the first two years after acquisition. At the acquisition date, the fair value of the contingent consideration was $750,000. For each of the acquisition items, enter the amount that should be reflected in the line item on FB's consolidated financial statements as of the acquisition date. Enter debit balances as positive values and credit balances as negative values. If an item is not included in any line item, enter zeros in each cell of the associated row. E9.rjx Carrying amount Fair value at at acquisition acquisition date date 2 Property, plant and $4,000,000 $4,200,000 3 In-process 0 research costs 4 Legal fees 300,000 5 Noncompete 0 agreement with former owners 6 Bonds payable 475,000 7 Estimated post 0 acquisition costs 8 Contingent 0 consideration 9 Total

1200 Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting In the shaded cell below, enter the amount of goodwill recorded as of the acquisition date. Enter the amount as a positive value. Blle./fx Solution to Task-Based Simulation 2 E9J(./fx 2 3 4 5 6 7 8 9 In-process research costs Carrying amount at date Legal fees 300,000 Fair value at acquisition date $4,000,000 $4,200,000 Noncompete 0 agreement with former owners Bonds payable 475,000 Estimated postacquisition costs Contingent 0 consideration Total Bl.IC./fx 1 IFRS and US GAAP are almost identical in the area of business acquisitions. Similar to US GAAp, under IFRS, FB Corp would: (1) record the acquired assets and liabilities at fair value, (2) expense any acquisition related costs such as legal fees, (3) ignore post acquisition costs when determining the values at acquisition, (4) calculate goodwill as the difference between the net assets and the acquisition price less legal fees. Fair value of assets $6,070,000 Fair value of liabilities $1,200,000 Net assets $4,870,000 Price paid for acquisition: $5,500,000-300,000 = $5,200,000 Goodwill: $5,200,000 - $4,870,000 = $330,000

Appendix D: 2015 Released AICPA Questions for Financial Accounting and Reporting 1201 Task-Based Simulation 3 'Researcb Authoritati.ve Literature Help " To prepare for the construction of its new headquarters, Baker Co. purchased a 500-acre plot of land on August 5, year 1. Baker purchased the land using 25% cash and financed the balance using a 9% loan from First Bank. The company began preparation of the land for the construction of the building on January 30, year 2. Which section of the authoritative guidance explicitly states whether the year 1 interest on the bank loan qualifies for capitalization? Enter your response in the answer fields below. Unless specifically requested, your response should not cite implementation guidance. Guidance on correctly structuring your response appears above and below the answer fields. Type the paragraph here. Correctly formatted FASS ASC paragraphs are 1,2, or 3 digits followed in some cases by an upper case letter. Note: Correct paragraph responses appear in bold font in FASS ASC and do not include subparagraphs denoted by a lower case letter. FASB ASC 1'--_-' - 1...-1----II - <- I _--I Solution to Task-Based Simulation 3 Research Authoritati.ve Literature Help ". FASB ASC 835, I - 1 20 1-15 "I - I " 8 Correctly formatted response 835-20-15-8 is the best citation since it specifically discusses the land.