Free CPA-Financial Practice Test Questions and Answers (2026) | Cert Empire Practice Questions

Choice "c" is correct, No - No. This is a change in "accounting estimate," which affects only the

current and subsequent periods (not prior periods and not retained earnings). "Cumulative effect of

a change in accounting principle" is only used for changes in "accounting principle."

Choice "d" is correct. Yes - No. Predictive value is an ingredient of relevance but not of reliability.

Memorize:

Bud's relevance to "PFT."

Bud's reliability to "VRN."

Choice "b" is correct. Sales to other segments would be used in determining a segment's operating

income.

Rule: Equity in net income of another company, general corporate expenses, interest, income tax

expense, and gains or losses on discontinued operations are all not included in segment profit unless

they are included in the determination of segment profit reported to the "Chief Operating Decision

Maker."

Choice "b" is correct. Since the fair value of Alpha's facilities was $300,000 less than its carrying

value, there has been an impairment loss, and that loss should be recognized in 20X2. That $300,000

impairment loss plus the $1,400,000 20X2 operating loss would be recognized in 20X2 net of tax. The

total loss would be $1,700,000 × 70% (100% - 30%) or $1,190,000.

Choice "a" is incorrect. It includes the 20X2 operating loss of $1,400,000 but not the $300,000

impairment loss but does report the 20X2 operating loss net of tax.

Choice "c" is incorrect. It includes the 20X2 operating loss of $1,400,000, but not the $300,000

impairment loss, and reports the 20X2 operating loss gross of tax and not net of tax.

Choice "d" is incorrect. It reports the 20X2 loss from discontinued operations gross of tax and not net

of tax.

Choice "d" is correct. The summary of significant accounting policies should include "policies." The

only policy in the choices listed is the revenue recognition policies.

Choice "a" is incorrect. A description of current year equity transactions is not a policy. It should be

disclosed somewhere in the footnotes but not in the summary of significant accounting policies.

Choice "b" is incorrect. A summary of long-term debt outstanding is not a policy. It should be

disclosed somewhere in the footnotes but not in the summary of significant accounting policies.

Choice "c" is incorrect. A schedule of fixed assets is not a policy. It should be disclosed somewhere in

the footnotes but not in the summary of significant accounting policies.

Choice "a" is correct. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities. The candidate does have to remember the 10% and also the 10% of "what." Choice "b" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities. Choice "c" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities, so the correct answer cannot be "Both." Choice "d" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The correct answer cannot be "Neither."

Choice "a" is correct. The earliest period that a component of an entity can be reported in

discontinued operations is when the component meets the following "held for sale" criteria:

1. Management commits to a plan to sell the component.

2. The component is available for immediate sale in its present condition.

3. An active program to locate a buyer has been initiated.

4. The sale of the component is probable and the sale is expected to be completed within one year.

5. The sale of the component is being actively marketed.

6. It is unlikely that significant change to the plan to sell will be made or that the plan will be

withdrawn.

Choices "b", "c", and "d" are incorrect, per the Explanation: above.

Choice "b" is correct. $260,000 represents a reportable segment (10% of total sales):

https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/AICPA_CPA-FINANCIAL/page_77_img_1.jpg

Rule: To be significant enough to report on, a segment must be at least 10% of:

1. Combined revenues (whether intersegment or unaffiliated customers), or

2. Operating income, or

3. Identifiable assets.

Choice "c" is correct. Yes - No.

Yes - "Depreciation methods" should be disclosed in the "summary of significant accounting

policies."

No - Composition of fixed assets (or any other account) should not be disclosed in the "summary of

significant accounting policies."

Choice "d" is correct. A transaction that is unusual, but not "infrequent" should be reported

separately as a component of continuing operations, (gross) but not net of applicable income taxes.

Choices "a" and "b" are incorrect. An extraordinary item has to be both "unusual" and "infrequent."

Choice "c" is incorrect, per "d" above.

Choice "a" is correct. Recognition.

According to the FASB's conceptual framework, the process of reporting an item in the financial

statements of an entity is recognition.

Choice "b" is correct. Comprehensive income is the change in equity of a business during a period

from transactions and other events and circumstances from non-owner sources. It includes all

changes in equity except those resulting from investments by owners and distributions to owners.

SFAC 6 para 70.

Choice "c" is correct. 1990 ($25,000) $125,000

1991 -- 180,000

Because these are comparative financial statements, prior period adjustments require retroactive

treatment for the years presented. Because 1989 is not presented, the 1989 correction is shown as a

prior period adjustment of $25,000 to retained earnings statement of 1990.

Net income before adjustments

https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/AICPA_CPA-FINANCIAL/page_58_img_3.jpg

Rule: Unrealized losses (or gains) resulting from changes in market value of available-for-sale

investments should be reported as a component of other comprehensive income in shareholders'

equity.

Unrealized gains and losses on investments held for trading would be included in net income.

Correction of errors of prior periods should be reported as an adjustment to beginning retained

earnings, not as an item of net income.

Choice "d" is correct. $87,000.

Choice "a" is correct. Unrealized loss on investments in marketable equity securities available for sale

would cause earnings to differ from comprehensive income for an enterprise in an industry not

having specialized accounting principles.

Rule: FAC 5 defines "earnings" for a period to exclude certain cumulative accounting adjustments and

other non-owner changes in equity (such as changes in market value of marketable securities

available for sale) that are included in comprehensive income for a period.

Choice "b" is correct. One-fifth of the cabinet costs (depreciation expense) should be included in

selling, general, and administrative expenses for 1991.

Choice "a" is incorrect. Merchandise display cabinets in stores relate to selling activities, not to the

purchase cost of goods sold.

Choices "c" and "d" are incorrect. Merchandise display cabinets are fixed assets whose cost should be

allocated systematically over their five-year useful life.

Choice "a" is correct. $260,000.

General and administrative

https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/AICPA_CPA-FINANCIAL/page_54_img_2.jpg

"Freight-in" is part of "cost of goods sold."

"Freight-out" is a "selling" expense.

Sales representative salaries is a selling expense.

Choice "a" is correct, as of January 1, 1992, the beginning of the year.

Rule: The cumulative effect of a change in accounting principle equals the difference between

retained earnings at the beginning of period of the change and what retained earnings would have

been if the change was applied to all affected prior periods, assuming comparative financial

statements are not presented. If comparative statements are presented, then beginning retained

earnings of the earliest year presented is adjusted for the cumulative effect of the change. We are

assuming, based on the answer options given, that Harvey is not presenting comparative financial

statements.

Choice "b" is incorrect. The cumulative effect of the change is not determined as of the date the

decision is made.

Choices "c" and "d" are incorrect. The cumulative effect of the change is not determined by a

weighted average.

Choice "c" is correct. Interim financial reporting should be viewed as reporting for an integral part of

an annual period.

Choices "a", "b", and "d" are incorrect, per the above rule.

Choice "a" is correct. $5,000 operating profit for Segment C.

Rule: Operating profit by segments is based on the measure of profit reported to the "Chief

Operating Decision Maker."

Interest expense, income taxes, and general corporate expenses are not allocated to the divisions

solely for the purposes of segment disclosures; they may be allocated if that is how the segments

report to the "Chief Operating Decision Maker."

https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/AICPA_CPA-FINANCIAL/page_38_img_1.jpg