CPA Financial Accounting and Reporting (FAR) : Current Assets
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Example Questions
Example Question #3 : Bank Reconciliations
ABC Company is reconciling its cash balance at December 31, Year 1. Which of the following items would require an adjusting entry to the cash account by ABC Company?
ABC transferred funds to its payroll impress account on December 29 via a same-day wire. ABC recorded the transfer in the general ledger on the day it was made. The funds were used to issue checks from the payroll account and the majority of these checks were still outstanding at December 31.
ABC received multiple checks and direct deposits from customers during the year, and several of these cash receipts were applied to the wrong customer's account
ABC paid for merchandise from one of its suppliers via check before the supplier notified ABC that the goods were out of stock. ABC cancelled its order and contacted its bank to void the check.
At December 31, several thousand dollars in checks were still sitting on the controller's desk, signed and waiting to be mailed
ABC paid for merchandise from one of its suppliers via check before the supplier notified ABC that the goods were out of stock. ABC cancelled its order and contacted its bank to void the check.
ABC has cancelled its check with the bank, but this adjustment is not yet reflected in its ledger. Therefore, ABC would need to make an adjustment to its ledger to increase its cash balance.
Example Question #2 : Bank Reconciliations
Of the following, which would not be included in the cash and cash equivalent account?
Bank draft
Stock investments
Petty cash
Savings account
Stock investments
Stock investments classify as their own asset class and are not a cash account.
Example Question #1 : Prepaid Expenses
Barkley Inc prepaid for an insurance policy on July 31, Year 2, in the amount of $6,000. The entry to adjust the prepaid expense account on December 31, Year 2, would include which of the following?
A debit of $2,500
A debit of $3,500
A credit of $2,500
A credit of $3,500
A credit of $2,500
Barkley needs to recognize insurance expense for 5 months (August-December). Insurance expense should be recorded at $500 per month ($6K/12 months). $500 x 5 months = $2,500, and this should be a credit to prepaid insurance to reduce that asset account.
Example Question #51 : Cpa Financial Accounting And Reporting (Far)
Beaumont Inc is finalizing its prepaid insurance account at December 31, Year 3. The account includes $15,000 for a general insurance policy beginning and paid for on December 1, Year 3; $4,000 for an auto policy beginning January 1, Year 4; and $12,000 paid key man life insurance policy running from July 1, Year 2, through June 30, Year 3. What amount should be reported as an expense in Beaumont's Year 3 income statement?
$17,750
$15,000
$17,250
$13,250
$13,250
The company should expense what has been incurred as of the end of Year 3. This includes $1,250 for the general insurance policy ($15K/12 months x 1 month) and all $12K of the key man policy.
Example Question #2 : Prepaid Expenses
Which of the following transactions would be initially recorded in the prepaid expense account?
A company pre-pays a year-long subscription to a local newspaper, the cost of which it considers small
A retail company makes significant sales of gift certificates shortly before the holiday season, the majority of which it doesn't expect will be spent until after the new year
A company orders office supplies which it expects to use within the current month
A company pre-pays annual real estate taxes at the beginning of the fiscal year
A company pre-pays annual real estate taxes at the beginning of the fiscal year
Annual real estate taxes paid at the beginning of the year would be entered into prepaid taxes and then amortized to expenses throughout the year. Unearned revenue, immaterial prepaid subscriptions, and office supplies for the current period would not go to prepaid expenses.
Example Question #4 : Prepaid Expenses
Of the following, which would be an intangible asset?
Investments in stock
Goodwill
Leasehold improvements
Research and development
Goodwill
Of the following, goodwill is an intangible asset, R&D is an expense, investments are their own asset class, and leasehold improvements are capitalized.
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