Free CPA BAR (Business Analysis & Reporting) Practice Questions
The CPA BAR discipline section covers business analysis, technical accounting, and governmental reporting. Practice 400 questions on financial analysis, advanced reporting topics, and state and local governments.
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Sample Questions
Question 1
Easy
Which of the following best describes prescriptive analytics?
Solution
D is correct. Prescriptive analytics goes beyond describing or predicting outcomes; it recommends specific actions to achieve desired results using optimization models, simulations, and decision analysis. It answers the question: what should we do? Choice A describes descriptive analytics, which summarizes past data. Choice B describes predictive analytics, which forecasts future outcomes from historical patterns. Choice C describes diagnostic analytics, which investigates causes behind past events. The four types form a hierarchy: descriptive, diagnostic, predictive, prescriptive.
Question 2
Medium
Under ASC 815, what distinguishes a cash flow hedge from a fair value hedge?
Solution
C is correct. Under ASC 815, a cash flow hedge designates a derivative to hedge exposure to variability in cash flows (e.g., floating rate debt, forecasted commodity purchases). Effective portions of gains/losses on the hedging instrument are deferred in OCI and reclassified to earnings when the hedged transaction affects earnings. A fair value hedge designates a derivative to hedge changes in fair value of a recognized asset or liability (e.g., fixed-rate debt). Both the derivative and the hedged item are marked to fair value through earnings. Choice B incorrectly restricts hedge types by risk category; both types can apply to interest rate, FX, or commodity risks. Choice A incorrectly claims the hedging instrument in a cash flow hedge is at historical cost; all derivatives are carried at fair value on the balance sheet regardless of hedge designation. Choice D incorrectly restricts the hedging instrument type for cash flow hedges.
Question 3
Hard
Clearwater Inc. projects FCFs of 2,000,000 dollars per year for 5 years. Terminal growth rate is 3%, WACC is 9%. PV annuity factor (5 yrs, 9%) = 3.8897. (1.09)^5 = 1.5386. What is total enterprise value?
Solution
B is correct. PV of 5-year FCFs = 2,000,000 x 3.8897 = 7,779,400. Terminal value at Year 5 = 2,000,000 x 1.03 / (0.09 - 0.03) = 2,060,000 / 0.06 = 34,333,333. PV of TV = 34,333,333 / 1.5386 = 22,315,000. Enterprise value = 7,779,400 + 22,315,000 = 30,094,400 dollars. Choice B omits the terminal value, massively understating value for a going concern. Choice C divides by WACC only (2,060,000 / 0.09 = 22,889,000), overstating TV by not subtracting the growth rate. Choice D computes a no-growth perpetuity (2,000,000 / 0.09 = 22,222,000) without the explicit period PVs.
Topics
Business Analysis
462 questions
Technical Accounting and Reporting
402 questions
State and Local Governments
169 questions
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