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Are you ready to pass the FAR section of the CPA Exam? Find out by testing yourself with free CPA Exam questions from Wiley CPAexcel. This download includes actual, AICPA-released CPA Exam questions, as well as sample questions written by our team of experts. It also includes detailed answer explanations to help you understand your areas of weakness. These CPA Exam practice questions mimic the actual CPA Exam and feature the latest topics you’ll see on exam day.

The Financial Accounting & Reporting (FAR) section of the CPA Exam is mainly focused on financial accounting and reporting of for-profit entities. Expect a few questions over accounting for not-for-profit entities and governmental entities. Its five testlets are broken into two with 33 MCQs apiece (66 total) and three with a total of 8 TBSs. In general, 50% of your score comes from MCQs and 50% from TBSs.

Here’s a sneak peak of what you’ll get from your free download of CPA Questions:

Question 1

The following information pertains to Jet Corp. outstanding stock for Year 1:

Common stock, $5 par value 
Shares outstanding, 1/1/0120,000
2-for-1 stock split, 4/1/Year 120,000
Shares issued, 7/1/Year 110,000
Preferred stock, $10 par value, 5% cumulative
 
Shares outstanding, 1/1/Year 14,000

What are the number of shares Jet should use to calculate Year 1 earnings per share?

A. 40,000
B. 45,000
C. 50,000
D. 54,000

B is Correct

The effect of the stock split is applied retroactively to all changes in the number of shares of common stock outstanding before the split.

The weighted average shares outstanding for this firm for Year 1 is: 45,000 = [20,000(2) + 10,000(1/2)]. The split affects only the shares issued before date of the split. The July 1 issuance is weighted only by 1/2 a year because the shares were outstanding only 1/2 a year. EPS is computed only on common stock outstanding. The preferred shares have no effect on the computation.


Question 2

Nala Inc. reported deferred tax assets and deferred tax liabilities at the end of 20X4 and at the end of 20X5.

According to FASB 109, for the year ended 20X5, Nala should report deferred income tax expense or benefit equal to the

A. Sum of the net changes in deferred tax assets and deferred tax liabilities.
B. $68,000 capital loss
C. $18,000 ordinary loss and $50,000 capital loss
D. $50,000 ordinary loss and $18,000 capital loss

A is Correct

Total income tax expense is the sum of the current and deferred portions.

The current portion is the income tax liability for the year.

The deferred portion is the net sum of the changes in the deferred tax accounts.

Consider the tax-accrual entry for a year, assuming no estimated tax payments have been made:

 income tax expense20
 Deferred tax asset3
 Deferred tax liability5
income tax payable18
Total income tax expense = 20=current tax expense+deferred tax expense
=$18+$2

The $2 deferred tax expense equals the increase in the deferred tax liability of $5, less the increase in the deferred tax asset of $3.


Question 3

Which one of the following would constitute a highly inflationary economy when determining the functional currency of a foreign entity?

A. 20% inflation for each of the past 5 years.
B. 30% inflation for each of the past 3 years.
C. 35% inflation for each of the past 3 years.
D. 20%, 35%, and 40% inflation, respectively, for each of the past 3 years.

C is Correct

For determining a functional currency, a highly inflationary (hyperinflationary) economy is one that has experienced a cumulative inflation of 100% or more over the past 3 years. Inflation of 35% per year over the past three years is a cumulative 105% and constitutes a highly inflationary economy.


Question 4

The General Fund pays an invoice for telecommunications that includes charges owed by the Water Utility Enterprise Fund. The Enterprise Fund subsequently remits its share of the telecommunications charges to the General Fund. The General Fund records the amount received from the Enterprise Fund as:

A. An increase to revenue.
B. An increase to Operating Transfers In.
C. A decrease in expenses.
D. A decrease in Expenditures.

D is Correct

Interfund Reimbursements are Nonreciprocal Transactions in which a government determines that an expenditure or expense was initially recorded in one fund and should be accounted for and reported as an expenditure or expense in another fund. In this example, the General Fund paid and recorded as an expenditure all of an invoice that included a portion that pertained to another fund. The reimbursement from the Enterprise Fund should be recorded as a decrease in expenditures in the General Fund, to offset that portion previously recognized as an expenditure in the General Fund that was attributable to the Enterprise Fund. The Enterprise Fund should record an increase in expense at the time the reimbursement is made.


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