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AICPA CPA-Financial Exam Actual Questions
CPA Financial Accounting and Reporting (Page 5 )

Updated On: 26-Jun-2026
Page 5 of 34
PDF with 163 Questions

According to the FASB conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called:

  1. Feedback value.
  2. Predictive value.
  3. Representational faithfulness.
  4. Reliability.

Answer(s): B

Explanation:

Choice "b" is correct. The quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called predictive value. Forecasting is predicting. Choice "a" is incorrect. The quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called predictive value, not feedback value. Feedback value enables decision makers to confirm prior expectations or to adjust or correct the decisions made previously.
Choice "c" is incorrect. The quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called predictive value, not representational faithfulness. Representational faithfulness is the agreement between financial reporting and the
resources or events represented.
Choice "d" is incorrect. The quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called predictive value, not reliability. Reliability is the combination of neutrality, representational faithfulness, and verifiability.



Which of the following assumptions means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis?

  1. Going concern.
  2. Periodicity.
  3. Monetary unit.
  4. Economic entity.

Answer(s): C

Explanation:

Choice "c" is correct. The monetary unit assumption means that money is the common denominator for economic activity and provides an appropriate basis for accounting measurements and analysis. Choice "a" is incorrect. The going concern assumption has nothing to do with money per se. The going concern assumption presumes that an entity will continue to operate in the foreseeable future. Choice "b" is incorrect. The periodicity has nothing to do with money per se. The periodicity assumption is that economic activity can be divided into meaningful time periods. Choice "d" is incorrect. The economic entity assumption has nothing to do with money per se. The economic entity assumption is that economic activity can be accounted for when considering an identifiable set of activities.



Which of the following statements best describes an operating procedure for issuing a new Financial Accounting Standards Board (FASB) statement?

  1. The emerging issues task force must approve a discussion memorandum before it is disseminated to the public.
  2. The exposure draft is modified per public opinion before issuing the discussion memorandum.
  3. A new statement is issued only after a majority vote by the members of the FASB.
  4. A new FASB statement can be rescinded by a majority vote of the AICPA membership.

Answer(s): C

Explanation:

Choice "c" is correct. A new statement from the FASB is issued only after a majority vote of the members of the FASB.
Choice "a" is incorrect. There is no necessity for the EITF to approve a discussion memorandum (presumably the question means a discussion memorandum of the FASB statement itself and not an EITF statement) before it is disseminated to the public. Choice "b" is incorrect. There is no necessity for an exposure draft to be modified per public opinion
before issuing the discussion memorandum (a question can be raised here as to "what" discussion memorandum"). Exposure drafts are quite/most often modified before they are issued as FASB statements, but they do not have to be. Whether they are or are not modified is a function of whether the FASB thinks they should be modified, partly due to the public comments that have been received.
Choice "d" is incorrect. There is no way to rescind a new FASB statement, although, in reality, a FASB statement can be rescinded by the issuance of a new statement on the same subject. However, even if there was a way to rescind a new FASB statement, it would not be by a majority vote of the AICPA membership, but by a majority vote of the members of the FASB.
Reporting Net Income



Income tax-basis financial statements differ from those prepared under GAAP in that income tax- basis financial statements:

  1. Do not include nontaxable revenues and nondeductible expenses in determining income.
  2. Include detailed information about current and deferred income tax liabilities.
  3. Contain no disclosures about capital and operating lease transactions.
  4. Recognize certain revenues and expenses in different reporting periods.

Answer(s): D

Explanation:

Choice "d" is correct. Income tax-basis financial statements recognize events when taxable income or deductible expenses are recognized on the entity's tax return. Non-taxable income and non- deductible expenses are shown on the financial statement and included in the determination of income (and become M-1 adjustments to arrive at taxable income). Please Note: This question appeared in the releases for 1999 in FARE; however, it may also apply to OCBOA financial statements discussed in the Auditing textbook. The question did not apply well to any FARE CSO line item, so we included it here so that you could read the and learn from it.



An extraordinary gain should be reported as a direct increase to which of the following?

  1. Net income.
  2. Comprehensive income.
  3. Income from continuing operations, net of tax.
  4. Income from discontinued operations, net of tax.

Answer(s): A

Explanation:

Choice "a" is correct. Extraordinary items are reported as a component of net income, after income from continuing operations and discontinued operations. Choice "b" is incorrect. An extraordinary gain (or loss) only indirectly affects comprehensive income
as a component of net income.
Choice "c" is incorrect. Extraordinary items are reported net of tax after income from continuing operations and discontinued operations.
Choice "d" is incorrect. Extraordinary items are reported net of tax after income from continuing operations and discontinued operations.
Income Statement



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