CPA Exam Practice MCQs

Pinnacle Software sells a bundled contract for $120,000 that includes a software license (SSP $80,000), one year of support (SSP $30,000), and implementation training (SSP $10,000). The license and training are both delivered on Day 1. Support is provided ratably over 12 months. How much revenue does Pinnacle recognize on Day 1?

Northgate Construction has a contract for $5,000,000. It includes a $500,000 performance bonus if the project is completed before a specified date. Based on historical experience, Northgate estimates a 30% probability of earning the bonus. Under ASC 606, using the expected value method, how much variable consideration should be included in the transaction price?

StyleHub operates an online marketplace where vendors list products. StyleHub collects the full purchase price from customers and remits to vendors keeping a 15% commission. StyleHub never takes title to inventory and bears no inventory risk. How should StyleHub recognize revenue?

Beacon Builders has a 2-year construction contract for $800,000. By year-end, Beacon has satisfied performance obligations worth $320,000 (40% complete) but has only billed the customer $280,000. What does Beacon report on its balance sheet at year-end?

On December 28, Year 1, Vantage Corp. receives a purchase order for $200,000 of equipment. At the customer's request, Vantage holds the equipment in its warehouse until January 15, Year 2. The equipment is identified and segregated. The customer has paid in full and accepted all risks of ownership. Should Vantage recognize revenue in Year 1?

Alderman Corp. has a contract to deliver 100 units at $50 each. After delivering 60 units, the customer requests 50 additional units at $45 each — below the original $50 price but reflecting current market conditions. How should Alderman account for this modification?

On January 1, Year 1, Landers Co. enters a 4-year lease for office equipment. Annual payments of $25,000 are due at year-end. The lease has no ownership transfer, no purchase option, and the equipment has a 10-year useful life. IBR is 8%. PV annuity factor (4 yrs, 8%) = 3.3121. How should Landers classify this lease and what is the initial ROU asset?

On January 1, Year 1, Redwood Co. enters a 3-year operating lease with annual payments of $30,000 at year-end. IBR is 5%. PV annuity factor (3 yrs, 5%) = 2.7232. What is Redwood's total lease expense in Year 1?

On January 1, Year 1, Meridian Co. enters a 5-year finance lease. Annual payments are $60,000 at year-end. IBR is 6%. PV annuity factor (5 yrs, 6%) = 4.2124, giving an initial lease liability of $252,742. What is the lease liability carrying value at December 31, Year 1?

Harmon Co. elects the short-term lease exemption under ASC 842. On March 1, Year 1, it enters a 10-month equipment lease with monthly payments of $2,000. There are no renewal options. How should Harmon account for this lease?

Cannon Corp. sells a building (carrying value $800,000) to an investor for $1,000,000 and simultaneously leases it back as an operating lease. The transaction qualifies as a sale under ASC 606. How does Cannon record the transaction?

Greenfield Leasing (a manufacturer) leases equipment to a customer for 5 years. The equipment has a 5-year useful life and fair value of $100,000. PV of lease payments = $95,000. No ownership transfer, no purchase option. How should Greenfield classify this lease?

On January 1, Year 1, Cortland Corp. issues $1,000,000 of 8% bonds at $946,000 (effective rate 9%). Interest is paid semi-annually June 30 and December 31. What is interest expense for the first semi-annual period ended June 30, Year 1?

Westmore Corp. issues $500,000 of 6% bonds on March 1, Year 1. The bonds are dated January 1, Year 1, and pay interest semi-annually on June 30 and December 31. The bonds are issued at par. How much cash does Westmore collect at issuance on March 1?

On January 1, Year 3, Halcyon Corp. retires bonds with a face value of $500,000 and unamortized discount of $20,000 by paying $495,000 cash. What is the gain or loss on extinguishment?

On January 1, Year 1, Fairfield Corp. issues $500,000 of 6% bonds at 94, with interest paid semi-annually. The bonds mature in 5 years. Fairfield uses straight-line amortization. What is the carrying value of the bonds at December 31, Year 1 (after the second interest payment)?

Dunmore Corp. owes $300,000 on a note. The creditor agrees to accept land (carrying value $200,000, fair value $260,000) in full settlement. What does Dunmore recognize?

Larkin Co. incurs these costs on its manufacturing equipment: • Routine maintenance: $8,000 • Part replacement extending useful life 3 years: $25,000 • Painting the equipment: $4,000 • Overhaul increasing productive capacity 20%: $40,000 What total amount should Larkin capitalize?

Kelton Corp. acquires equipment for $120,000 with a $20,000 salvage value and 5-year useful life on January 1, Year 1. What is depreciation expense in Year 2 using the double-declining balance (DDB) method?

Danbury Corp. has equipment with a carrying value of $500,000. Undiscounted expected future cash flows are $480,000. Fair value is $420,000. What impairment loss, if any, should Danbury recognize?

Thornwood Co. is constructing a new headquarters. Weighted-average accumulated expenditures are $2,000,000. There is a $1,500,000 specific construction loan at 7% and $3,000,000 of other debt at 9%. What is total interest to capitalize?

Sunrise Charity (a private NFP) receives donated land with a fair value of $300,000. The donor's original cost was $180,000. At what amount should Sunrise record the land?

Hargrove Inc. has inventory at year-end (item-by-item basis): • Item A: Cost $40,000 | NRV $35,000 • Item B: Cost $25,000 | NRV $28,000 • Item C: Cost $15,000 | NRV $12,000 What is total inventory on the balance sheet?

Garrison Co. has these January transactions: • Jan 1: 100 units @ $10 • Jan 8: Purchase 200 units @ $12 • Jan 15: Purchase 150 units @ $14 • Jan 20: Sale of 280 units What is cost of goods sold under FIFO?

Dalton Co. estimates inventory destroyed in a fire: • Beginning inventory: $80,000 • Net purchases: $320,000 • Net sales: $500,000 • Historical gross profit rate: 40% What is estimated ending inventory?

Manning Stores uses the conventional (LCM) retail method: • Beginning inventory: Cost $60,000 | Retail $90,000 • Purchases: Cost $240,000 | Retail $360,000 • Net markups: $20,000 • Net markdowns: $30,000 • Net sales: $310,000 What is estimated ending inventory at cost?

Seller Co. ships goods (cost $50,000) to Consignee Inc. on consignment. By year-end, Consignee sells 60% of the goods for $45,000 cash and keeps a 20% commission. Consignee remits net proceeds to Seller. What revenue does Seller recognize?

A city collects special assessments to fund sidewalk construction and is obligated for the debt. Construction is accounted for in a Capital Projects Fund. Which fund accounts for debt service on the special assessment bonds?

Riverton City levies property taxes of $5,000,000 for Year 1. Collections: $4,600,000 in Year 1; $250,000 within 60 days of year-end; $150,000 collected later in Year 2 (beyond 60 days). Under modified accrual, how much property tax revenue is recognized in Year 1?

A city purchases a police vehicle for $45,000 using General Fund resources. The vehicle has a 5-year life. How is the purchase recorded in the General Fund?

On November 1, Year 1, Hillcrest City issues a purchase order for $80,000. The goods arrive January 15, Year 2 with an invoice for $82,000. The fiscal year ends December 31. What entry is made on December 31, Year 1 related to the encumbrance?

Grantwood City's General Fund reports revenues of $10,000,000 and expenditures of $9,200,000. Conversion to government-wide statements requires: add depreciation $400,000; reclassify capital outlay expenditure $200,000 as an asset. What is the net change in net position on the government-wide Statement of Activities?

At the beginning of the year, Lakewood City adopts an annual budget with estimated revenues of $8,000,000 and appropriations of $7,500,000. What journal entry does Lakewood record when it adopts the budget?

Horizon Foundation (private NFP) receives in Year 1: • $100,000 unrestricted cash donation • $50,000 restricted to scholarships • $30,000 unconditional pledge receivable in 3 years • Donated equipment FMV $20,000 (no donor restrictions stated) What is the total increase in net assets WITHOUT donor restrictions?

A foundation receives a $500,000 grant with these terms: "Funds will be released when the organization completes construction of its new community center." Construction has not begun. How should the $500,000 be classified when received?

Community Arts NFP has total expenses of $300,000 (salaries $200,000, rent $60,000, supplies $40,000). Activities: 60% program, 25% management & general, 15% fundraising. What is total program expense?

Oakdale Foundation receives a $1,000,000 permanent endowment: principal must be maintained in perpetuity; investment income may be used for programs. In Year 1, investment income is $50,000 and portfolio appreciation is $30,000. Under ASC 958 and UPMIFA, how are the appreciation and income classified before board appropriation?

On January 1, Year 1, Paragon Corp. purchases 30% of Simco Inc. for $600,000. Simco's net assets book value is $1,800,000. During Year 1, Simco reports net income of $200,000 and pays dividends of $80,000. What is Paragon's investment in Simco at December 31, Year 1?

On January 1, Year 1, Inland Corp. pays $800,000 for 40% of Shoreline Inc. Shoreline's net asset book value is $1,500,000. The excess purchase price is attributed to a patent with a 10-year remaining life. Shoreline earns $100,000 net income in Year 1. What is Inland's equity in earnings of Shoreline for Year 1?

Parent Corp. owns 100% of Sub Inc. Sub sells inventory to Parent for $150,000; Sub's cost was $90,000. At year-end, Parent holds 40% of the purchased inventory. What elimination entry is required for consolidation?

Monarch Corp. acquires 80% of Regent Inc. for $640,000. Regent's net assets have a fair value of $750,000. Monarch uses the full goodwill (fair value) method under ASC 805. What is goodwill and the non-controlling interest?

Bridger Corp. acquires 100% of Cascade Inc. for $2,000,000. Cascade's assets have a fair value of $2,500,000 and liabilities fair value of $800,000. What is recognized?

Which of the following is classified as an INVESTING activity?

Perkins Corp. reports net income of $150,000. Additional data: • Depreciation: $30,000 • Increase in accounts receivable: $20,000 • Decrease in inventory: $15,000 • Increase in accounts payable: $10,000 • Gain on sale of equipment: $8,000 Using the indirect method, what is cash from operating activities?

During the year, Halton Corp. acquires land valued at $200,000 by issuing common stock. Also, it exchanges equipment (carrying value $50,000) for a delivery truck (FMV $65,000). How are these reported on the cash flow statement?

Saxton Corp. uses the direct method: • Sales: $800,000; Beginning AR $60,000; Ending AR $80,000 • COGS: $480,000; Beginning inventory $90,000; Ending inventory $70,000 • Beginning AP $50,000; Ending AP $65,000 What are cash collected from customers and cash paid to suppliers?

Stonegate Corp. defined benefit pension data for Year 1: • Service cost: $80,000 • Interest cost: $45,000 • Expected return on plan assets: $30,000 • Amortization of prior service cost: $10,000 • Amortization of net actuarial loss: $5,000 What is net periodic pension cost?

At December 31, Year 1, Farrell Co.'s pension plan has a PBO of $900,000 and plan assets with fair value of $750,000. How does Farrell present this on the balance sheet?

Cranston Corp. uses straight-line depreciation for GAAP and MACRS for taxes. Year 1 book depreciation: $50,000; tax depreciation: $80,000. Tax rate: 25%. What is the deferred tax consequence?

Merrill Corp. has a deferred tax asset (DTA) of $200,000 related to net operating loss carryforwards. Merrill's management assesses that it is more likely than not that only $120,000 of the DTA will be realized. What is the proper accounting treatment?