Online Access Free FAR Practice Test

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:

• A.$240,000
• B.$230,000
• C.$190,000
• D.$200,000

Brock Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative.
The adjusted trial balance at December 31, 1989 included the following expense and loss accounts:

One-half of the rented premises is occupied by the sales department. Brock's total selling expenses for
1 989 are:

• A.$370,000
• B.$480,000
• C.$400,000
• D.$360,000

What is the purpose of information presented in notes to the financial statements?

• A.To correct improper presentation in the financial statements.
• B.To provide recognition of amounts not included in the totals of the financial statements.
• C.To provide disclosures required by generally accepted accounting principles.
• D.To present management's responses to auditor comments.

On December 31, 20X2, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to
discontinue the operations of its Alpha division. Maxy estimated that Alpha's 20X3 operating loss would
be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts.
Alpha's 20X2 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its
carrying amount in 20X3. Maxy's effective tax rate is 30%.
In its 20X2 income statement, what amount should Maxy report as loss from discontinued operations?

• A.$1,190,000
• B.$1,700,000
• C.$980,000
• D.$1,400,000

Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during 1994. The
cumulative effect of this change should be reported in Lore's 1994 financial statements as a:

• A.Component of income after extraordinary item.
• B.Component of income before extraordinary item.
• C.Prior period adjustment resulting from the correction of an error.
• D.Prior period adjustment resulting from the change in accounting principle.