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Admission Test Certified Public Accountant (Financial Accounting & Reporting) Sample Questions:

1. On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List B represents the general accounting treatment required for these transactions. These treatments are:
* Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the accounting change or error correction in the 1993 financial statements, and do not restate the 1992 financial statements.
* Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust 1992 beginning retained earnings if the error or change affects a period prior to 1992.
* Prospective approach - Report 1993 and future financial statements on the new basis but do not restate 1992 financial statements.
Item to Be Answered
During 1993, Quo determined that an insurance premium paid and entirely expensed in 1992 was for the period January 1, 1992, through January 1, 1994.
List B (Select one)

A) Retroactive or retrospective restatement approach.
B) Cumulative effect approach.
C) Prospective approach.

2. The following costs were incurred by Griff Co., a manufacturer, during 1992:

What amount of these costs should be reported as general and administrative expenses for 1992?

A) $810,000
B) $260,000
C) $635,000
D) $550,000

3. On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.
Item to Be Answered
Quo manufactures heavy equipment to customer specifications on a contract basis. On the basis that it is preferable, accounting for these long-term contracts was switched from the completed-contract method to the percentage-of-completion method.
List A (Select one)

A) Change in accounting principal.
B) Correction of an error in previously presented financial statements.
C) Neither an accounting change nor an accounting error.
D) Change in accounting estimate.

4. Which of the following should be reported as a prior period adjustment?

A) Option D
B) Option A
C) Option C
D) Option B

5. In which of the following situations should a company report a prior-period adjustment?

A) A change in the estimated useful lives of fixed assets purchased in prior years.
B) The scrapping of an asset prior to the end of its expected useful life.
C) The correction of a mathematical error in the calculation of prior years' depreciation.
D) A switch from the straight-line to double-declining balance method of depreciation.

Solutions: