Free CPA Practice Questions

According to the FASB Conceptual Framework, which of the following statements correctly describes the trade-off between the fundamental qualitative characteristics of relevance and faithful representation?

On October 1, Year 1, Host Co. committed to a plan to dispose of a major component of its business that qualifies as a discontinued operation. The sale is expected to occur on March 1, Year 2. For the year ended December 31, Year 1, the component had an operating loss of $300,000. The estimated fair value of the component is $1,500,000, and its carrying amount is $1,800,000. Estimated costs to sell are $50,000. The corporate tax rate is 25%. What amount should Host report as the loss from discontinued operations in its Year 1 income statement?

A company has a debt covenant requiring a current ratio of at least 2.0. On December 31, Year 1, the company has current assets of $800,000 and current liabilities of $500,000. On January 15, Year 2, before the financial statements are issued, the company refinances $200,000 of its short-term debt into a long-term note due in 5 years. The refinancing agreement is non-cancelable. How should the $200,000 debt be classified on the December 31, Year 1 balance sheet, and is the covenant violated?

Orion Corp. reports under US GAAP. In preparing its statement of cash flows for the year ended December 31, Year 1, the following data is available:<br/>- Net Income: $500,000<br/>- Gain on sale of equipment: $20,000<br/>- Purchase of treasury stock: $50,000<br/>- Amortization of bond discount: $5,000<br/>- Increase in net accounts receivable: $30,000<br/>- Decrease in prepaid expenses: $10,000<br/>- Payment of cash dividends: $40,000<br/><br/>What is the net cash provided by operating activities?

Parent Co. owns 80% of Sub Co. During Year 1, Parent sold inventory to Sub for $500,000. The cost of the inventory to Parent was $350,000. At December 31, Year 1, Sub had sold 60% of this inventory to outside parties. The tax rate is 25%. In the consolidated balance sheet at December 31, Year 1, by what amount should the inventory be reduced to eliminate the intercompany profit?