FAR Exam Practice Multiple Choice Questions
I. Conceptual Framework, Standards, Standard Setting, and Presentation of Financial
Statements
1. The Securities and Exchange Commission (SEC) requires all of the below except?
a) Requires public company’s internal control over financial statements to be audited.
b) Requires audit and non-audit fees to be disclosed by companies.
c) Requires that all bookkeeping services performed will impair the CPA’s independence.
d) Requires private companies to be audited.
2. The components of the framework for financial accounting and reporting does not include?
a) Objectives
b) Elements
c) Cost flows
d) Earnings
3. Which of the below is not an element of a financial statement.
a) Assets
b) Costs
c) Liabilities
d) Equity
4. The attributes of measurement of liabilities and assets does not include?
a) Historical cost
b) Future Cost
c) Current market value
d) Present value of future cash flows
5. The actual recording of an event or item in the financial statements is?
a) Recognition
b) Realization
c) Risk averse
d) Risk Premium
6. Financial statements provide the following information except?
a) Income statement
b) Balance Sheet
c) Statement of cash flows
d) Statement of financial condition
7. Cash flows from normal operations of an entity that effect net income.
a) Operating activities
b) Investing activities
c) Financing activities
d) Debt activities
8. Financing activities are?
a) Cash flow from operating activities are converted from the accrual basis to the cash basis.
b) Cash flows from normal operations of an entity that effect net income.
c) Cash flows involved in investments and disposals.
d) Cash flows involving the financing of the entity.
9. Any assets that are cash or cash equivalents or will be consumed within one year.
a) Fixed assets
b) Current assets
c) Tangible property
d) Intangible property
10. The normal time period that a business converts materials or inventory into a final product and it is sold any
payment is received.
a) Loss carrybacks
b) Loss carryforwards
c) Operating cycle
d) Loan origination fees
11. IASB framework's five elements does not include?
a) Asset
b) Liability
c) Costs
d) Equity
12. Real estate sales are recorded using one of the following except?
a) Installment
b) Deposit
c) Partial accrual
d) Cost recovery
13. Real estate transactions have four criteria that must be met before profit can be recognized in full and they are
all of the following except?
a) Sale is consummated.
b) Buyer does not demonstrates willingness to fulfill payment obligations.
c) Property being received by buyer is not subject to subordination.
d) All risks/benefits have been transferred to buyer.
14. A faithful representation should not be?
a) Completeness
b) Neutral
c) Free from error
d) Timeliness
15. The enhancing qualitative characteristics of accounting information are not?
a) Understandability
b) Timeliness
c) Completeness
d) Comparability
16. Used when at least 40% of an asset is acquired in the last quarter of the year.
a) Mid-quarter convention
b) Half-Year convention
c) Modified Accelerated Cost Recovery System (MARCS)
d) Depreciation
17. Modified Accelerated Cost Recovery System (MARCS) is?
a) The deduction of capital expenses of the life of an asset.
b) Used almost entirely for property placed in service after the year 1986.
c) Used when at least 40% of an asset is acquired in the last quarter of the year.
d) When assets are exchanged in the middle of the year and only half of a year’s depreciation is taken in year of
acquisition and in year of sale.
18. Depreciable Personal Property is Section 1245 and has useful life for equipment of?
a) 7 years
b) 27.5 years
c) 3 years
d) 5 years
19. Financial information is not relevant if it has
a) Predictive value
b) Confirmatory value
c) Contains neither one
d) Contains both
20. Depreciable real property is section 1250 property and must have a useful life of __________ years for
residential property.
a) 11 years
b) 39 years
c) 7 years
d) 27 years
II. Financial Statement Accounts: Recognition, Measurement, Valuation, Calculation,
Presentation, and Disclosures
21. Which of the below is not one of the benefits of bank reconciliations?
a) Helps identify record errors.
b) Helps to allow correcting adjusting entries.
c) Helps to eliminate thefts of cash.
d) Helps to eliminate the need to compare of bank account and cash balances.
22. Cash and Cash Equivalents characteristics do not include?
a) Cash on hand or deposits easily converted to cash.
b) Any cash that is restricted should be accounted for as a short term asset in the balance sheet account.
c) Cash equivalents (can be easily converted into cash with a maturity date of usually less than 3 months.
d) Cash used for special purposes or restricted as to its use is disclosed separately in a special cash fund.
23. Inventory is tangible property that is not?
a) Being held by a business for sale to customers.
b) Being currently produced itself.
c) Being held by a customer who will use it when needed.
d) Being used in the production of an item that will be made available for resale.
24. To be a plant asset, it must not?
a) Be in current use.
b) Useful life of more than one year beyond balance sheet date.
c) Useful life of more than one year beyond income statement date.
d) Must have physical material.
25. Types of plant assets include all of the following except?
a) Land Improvements
b) Land
c) Natural Resources
d) Inventory
26. Held to maturity is?
a) Where a security is giving a creditor a right to collect for providing the service of loaning money.
b) Where a debt is held until maturity but can be sold as well. Initial costs are recorded same as held to maturity.
c) Where a debt is held until it matures.
d) Where a debt is bought with intention of selling it in the future. Initial costs are recorded the same as held to
maturity.
27. Available for sale debts is?
a) Where a security is giving a creditor a right to collect for providing the service of loaning money.
b) Where a debt is held until it matures.
c) Where a debt is held until maturity but can be sold as well. Initial costs are recorded same as held to maturity.
d) Where a debt is bought with intention of selling it in the future. Initial costs are recorded the same as held to
maturity.
28. Are not included in current period’s income by adjusting per share cost (carrying cost) of investment.
a) Investor received stock dividends
b) Stock dividends
c) Investor received stock splits
d) Investor received stock rights
29. Are recorded same as stock dividends and that is not at all.
a) Stock dividends
b) Investor received stock dividends
c) Investor received stock splits
d) Investor received stock rights
30. Intangible assets do not include
a) Patent
b) Copyrights
c) Trademarks
d) Goodwill
31. Specific definite current liabilities does not include
a) Sales taxes to be collected from customers.
b) Property taxes to be collected from customers.
c) Bonus compensation liabilities in excess of base salaries.
d) Payroll liabilities including salaries as well as withholdings such as FICA and FUTA taxes.
32. Notes payable can appear in the below listed forms except?
a) Non-interest bearing notes payable
b) Installment notes
c) Note in exchange for rights/privileges
d) Installment sales
33. Are rules that must be followed by debtor for debt agreement to be in good standing and provide protection to
the creditor.
a) Debt covenants
b) Settlement
c) Impairment
d) Debt restructure
34. Bonds that are sold at less than their face value.
a) Premium
b) Discount
c) Term
d) Serial
35. Bond that has rights attached allowing it to be converted into stock.
a) Premium
b) Term
c) Convertible
d) Serial
36. Characteristics of common stock does not include?
a) Less costly in the long run than borrowing.
b) Issuing common stock results in sharing more control and ownership.
c) Interest payments resulting from borrowing from a lender can be deducted.
d) Initial issuance costs are less costly as well.
37. Characteristics of preferred stock does not include?
a) Generally lower costs than a common stock issue.
b) Dividends typically expected as they usually receive a certain pre-stated dividend amount.
c) There is only one class of stock.
d) Have no voting rights but given first priority over common stockholders if entity files for bankruptcy.
38. Stock issued and then bought back by the corporation but can be resold.
a) Par value
b) Authorized
c) Treasury
d) Preferred
39. All claims against a corporation’s net assets are prioritized but does not include?
a) Fully secured creditors
b) Preferred claims
c) Unsecured creditors
d) Customers
40. Revenue from the sale of goods is recognized if all of the following are met except?
a) All risks and benefits are transferred to buyer.
b) Revenue can be measured accurately.
c) Reasonable assurance of collection of receivables.
d) Entity selling will receive economic benefits.
41. Compensation and benefits expenses are not accrued if which of the below occurs?
a) Can be traced to services rendered
b) Obligation is likely to be met.
c) The rights accumulate.
d) Obligation amount can not be estimated.
III. Specific Transactions, Events, and Disclosures: Recognition, Measurement, Valuation,
Calculation, Presentation, and Disclosures
42. Which is not an accounting changes?
a) Accounting principle changes.
b) Accounting estimate changes.
c) Corrections of estimates.
d) Change in reporting entity.
43. Errors made and discovered in same year are not corrected if this occurs?
a) Enter the correct and wrong amounts.
b) Determine where the error was made.
c) Determine what will correct the error.
d) Check for increases and decreases in affected accounts.
44. To be able to consolidate financial statements certain information is needed like all of the following except?
a) Financial statement information for the two or more entities is needed.
b) They are accounted for using the acquisition method of accounting.
c) Book values of assets acquired and liabilities assumed at acquisition date.
d) Fair values of assets and liabilities, non-controlling interest, and equity interest at acquisition date.
45. Contingencies can not be classified in this category?
a) Probable
b) Reasonably unlikely
c) Reasonably possible
d) Remote
46. A guarantor is not required to disclose what?
a) Maximum present amount.
b) Terms and conditions of guarantee.
c) Carrying amounts.
d) Any recourse provisions.
47. Extraordinary and Unusual Items are not classified into this type of environment?
a) Self constructed environments
b) General business.
c) Specific industry.
d) Geographic location.
48. Which is not an approach of the fair value method?
a) Market approach
b) Income approach
c) Cost approach
d) Debt approach
49. Fair value election date options do not include?
a) Date contract ended.
b) Date item is recognized.
c) Date contract entered.
d) Date of change of accounting treatment.
50. Which of the following must be disclosed for all financial instruments even if they are not reported in the
balance sheet?
a) Fair value.
b) Whether it is an asset or liability.
c) Accounting treatments.
d) Any carrying amount.
51. Derivative instruments does not have to include which of the following?
a) Underlying
b) Notional amount
c) Primary
d) Total amount is got by underlying multiplied by notional amount.
52. Types of hedges does not include?
a) Fair value
b) Foreign currency
c) Cash flow
d) National currency
53. Which of the following does not have to be met in order for risks and rewards to be transferred from lessor to
lessee.
a) PV of minimum lease payments is 70% or more of fair value of asset.
b) Title is transferred.
c) Bargain purchase price is offered.
d) Length of lease is over 75% of useful life of leased asset.
54. Capital leases are those that meet any one of the four conditions below except?
a) Title is transferred.
b) Lease term itself is equal to 95% or more of the estimated life of the leased item.
c) Bargain purchase price is offered.
d) Present value of minimum payments equals 90% or more of fair value of leased item at lease initiation.
55. Footnotes to the financial statements are required to include disclosures of material related party transactions.
These include all of the following except?
a) Nature of relationship between parties.
b) Descriptions and amounts of transactions if possible.
c) All terms to settle transactions between the two parties.
d) All research and development costs should be charged to expense account when incurred.
56. Which is not one of the four areas of risks and uncertainties that must be disclosed?
a) Operations.
b) Using estimates in financial statements.
c) All estimates.
d) Concentration of assets or liabilities.
57. Each segment of an entity is not considered significant if which of the below is met?
a) Segment revenue is 10% or less of combined segment revenue.
b) Operating profit or loss is 10% or more of combined segment revenue.
c) Segment assets are 10% or more of total combined segment assets.
d) Segment revenue is 10% or more of combined segment revenue.
58. Which is not an example of transfers and servicing of financial assets?
a) Securitizations
b) Purchase agreements
c) Loan participations
d) Bankers acceptance
59. Servicing of financial assets includes all of the following except?
a) Collecting payments
b) Accounting
c) Paying taxes and insurance
d) Paying debts
60. Basic concepts to transfers and servicing of financial assets does not include?
a) Control determination
b) Significant disclosures
c) Financial component
d) Participating interest
IV. Governmental Accounting and Reporting
61. Users of financial reports produced by the state and local governments does not include?
a) CPA
b) Citizens of the government entity
c) Legislative/governing bodies
d) Investors/creditors
62. State and local government financial reports should contain the all of the characteristics listed below except?
a) Understandability
b) Reliability
c) Relevance
d) Correctness
63. State and local government financial reports are not used to?
a) Compare financial estimates with budgets
b) Assess financial condition and results of operations
c) Assist in determining compliance with finance-related laws and regulations
d) Assist in evaluating effectiveness and efficiency.
64. Fund Financial Statements includes all of the following except?
a) Governmental Funds
b) Special revenue
c) Debt service
d) Statement of Activities
65. Fiduciary Funds includes all of the below except?
a) Pension and benefit trusts
b) Investment trusts
c) Agency
d) Enterprise
66. There are five fund balances classifications possible but which one below is not one of them?
a) Non-spendable
b) Unrestricted
c) Committed
d) Unassigned
67. Program revenues do not include?
a) Fees charged for services.
b) Responsibilities for services
c) Operating grants and contributions
d) Capital grants and contributions
68. Grants come in the following forms except?
a) Involuntary
b) Imposed
c) Derived
d) Government mandated
V. Not-For-Profit (Nongovernmental) Accounting and Reporting
69. Who creates all standards for any nongovernmental not-for-profit organization?
a) FASB
b) GAAS
c) GAAP
d) IASB
70. Statement of activities does not include which one of the following categories?
a) Object
b) Function
c) Character
d) Position
71. Reclassifications within the statement of activities does not include?
a) Expiration of program restrictions.
b) Satisfaction of equipment acquisition restrictions.
c) Satisfaction of time restrictions.
d) Expiration of term endowment.
72. Which is not a category of net assets for nongovernmental entities?
a) Unrestricted assets
b) Permanently unrestricted assets
c) Temporarily restricted net assets
d) Permanently restricted net assets
73. Private and governmental health care organization’s financial statements must include all of the below listed
except?
a) Balance sheet
b) Income statement
c) Statement of operations
d) Cash flow statement
74. Contributed services should be recognized only when the services do each of the following except?
a) Create or enhance non-financial assets.
b) Require specialized skills or are provided by individuals possessing those skills.
c) Would typically be purchased if not provided by donation.
d) Reflected in the Statement of Activities along with realized gains and losses.
75. Set aside by governing board of a college or university and are controlled by them as well, not some external
donor, and are unrestricted.
a) Quasi endowment funds
b) Term endowment funds
c) Board designated funds
d) Contributed services funds
76. Gifts and bequests from third parties set aside until terms are met (temporarily restricted assets) and then they
become unrestricted.
a) Quasi endowment funds
b) Term endowment funds
c) Board designated funds
d) Contributed services funds
FAR Exam Answer Key
I. Conceptual Framework, Standards, Standard Setting, and Presentation of Financial
Statements
1. (d)
2. (c)
3. (b)
4. (b)
5. (a)
6. (d)
7. (a)
8. (d)
9. (b)
10. (c)
11. (c)
12. (c)
13. (b)
14. (d)
15. (c)
16. (a)
17. (b)
18. (a)
19. (c)
20. (d)
II. Financial Statement Accounts: Recognition, Measurement, Valuation, Calculation,
Presentation, and Disclosures
21. (d)
22. (b)
23. (c)
24. (c)
25. (d)
26. (c)
27. (c)
28. (a)
29. (c)
30. (d)
31. (b)
32. (d)
33. (a)
34. (b)
35. (c)
36. (d)
37. (c)
38. (c)
39. (d)
40. (c)
41. (d)
III. Specific Transactions, Events, and Disclosures: Recognition, Measurement, Valuation,
Calculation, Presentation, and Disclosures
42. (c)
43. (a)
44. (b)
45. (b)
46. (a)
47. (a)
48. (d)
49. (a)
50. (c)
51. (c)
52. (d)
53. (a)
54. (b)
55. (d)
56. (c)
57. (a)
58. (b)
59. (d)
60. (b)
IV. Governmental Accounting and Reporting
61. (a)
62. (d)
63. (a)
64. (d)
65. (d)
66. (b)
67. (b)
68. (a)
V. Not-For-Profit (Nongovernmental) Accounting and Reporting
69. (a)
70. (d)
71. (a)
72. (b)
73. (b)
74. (d)
75. (a)
76. (b)
Conclusion
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