Free CPA BAR (Business Analysis & Reporting) Technical Accounting and Reporting Practice Questions
Technical accounting and reporting on the CPA BAR exam covers complex topics including revenue recognition (ASC 606), lease accounting (ASC 842), pension accounting (ASC 715), stock-based compensation (ASC 718), and income tax accounting (ASC 740).
Sample Questions
Question 1
Easy
Under ASC 350, when must a company test goodwill for impairment?
Solution
C is correct.
Under ASC 350, goodwill is tested for impairment at least annually at the reporting unit level. In addition, interim impairment testing is required whenever events or changes in circumstances (triggering events) indicate that the fair value of a reporting unit may have fallen below its carrying amount. Examples of triggering events include significant adverse changes in business climate, loss of key personnel, or a sustained decline in stock price.
Under ASC 350, goodwill is tested for impairment at least annually at the reporting unit level. In addition, interim impairment testing is required whenever events or changes in circumstances (triggering events) indicate that the fair value of a reporting unit may have fallen below its carrying amount. Examples of triggering events include significant adverse changes in business climate, loss of key personnel, or a sustained decline in stock price.
Question 2
Medium
Under ASC 815, what distinguishes a cash flow hedge from a fair value hedge?
Solution
B 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.
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.
Question 3
Hard
Parent Corp. acquires 80% of Sub Inc. for $800,000 when Sub's identifiable net assets have a fair value of $900,000 and a book value of $700,000. Noncontrolling interest is measured at fair value of $200,000. What amount of goodwill should be recognized in the consolidated financial statements?
Solution
C is correct.
Under the full goodwill method, goodwill = (Consideration paid + Fair value of NCI) − Fair value of identifiable net assets = ($800,000 + $200,000) − $900,000 = $1,000,000 − $900,000 = $100,000.
Under the full goodwill method, goodwill = (Consideration paid + Fair value of NCI) − Fair value of identifiable net assets = ($800,000 + $200,000) − $900,000 = $1,000,000 − $900,000 = $100,000.