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AICPA CPA-Financial Exam
CPA Financial Accounting and Reporting (Page 16 )

Updated On: 26-Jan-2026
Page 6 of 34
PDF with 163 Questions

Coffey Corp.'s trial balance of Income Statement Accounts for the year ended December 31, 1988 as follows:



Coffey's income tax rate is 30%. The gain on debt extinguishment is considered a usual and recurring part of Coffey's operations. Coffey prepares a multiple-step income statement for 1988.
Income from operations before income tax is:

  1. $190,000
  2. $200,000
  3. $230,000
  4. $240,000

Answer(s): D

Explanation:

Choice "d" is correct. $240,000
The gain on debt extinguishment does not meet the unusual and infrequent criteria of APB 30 to be treated as an extraordinary item (per SFAS No. 145, extinguishments of debt are no longer automatically extraordinary), so it is included as part of income from continuing operations.



According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is:

  1. Recognition.
  2. Realization.
  3. Allocation.
  4. Matching.

Answer(s): A

Explanation:

Choice "a" is correct. Recognition.
According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is recognition.



Under FASB Statement of Financial Accounting Concepts #5, which of the following items would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles?

  1. Unrealized loss on investments in noncurrent marketable equity securities available for sale.
  2. Unrealized loss on investments in current marketable equity securities held for trading.
  3. Loss on exchange of nonmonetary assets without commercial substance.
  4. Loss on exchange of nonmonetary assets with commercial substance.

Answer(s): A

Explanation:

Choice "a" is correct. Unrealized loss on investments in marketable equity securities available for sale would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles.
Rule: FAC 5 defines "earnings" for a period to exclude certain cumulative accounting adjustments and other non-owner changes in equity (such as changes in market value of marketable securities available for sale) that are included in comprehensive income for a period.



FASB's conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): C

Explanation:

Choice "c" is correct. Financial capital - Financial capital. Financial capital maintenance is considered to be an element of both "currently reported net income" and "comprehensive income." This was a rare instance in which this type of information was asked on the exam.



According to the FASB conceptual framework, which of the following is an essential characteristic of an asset?

  1. The claims to an asset's benefits are legally enforceable.
  2. An asset is tangible.
  3. An asset is obtained at a cost.
  4. An asset provides future benefits.

Answer(s): D

Explanation:

Choice "d" is correct. An asset provides future benefits. Rule: According to the FASB conceptual framework, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.



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