QUESTION: 37

On November 1, 20X2, Smith Co. contracted to dispose of an industry segment. Throughout 20X2 the segment had operating losses. These losses were expected to continue until the segment's disposition.
If a loss is projected on final disposition, how much of the operating losses should be included in the loss from discontinued operations reported in Smith's 20X2 income statement?

Operating losses for the period January 1 to October 31, 20X2.
II. Operating losses for the period November 1 to December 31, 20X2.
III. Estimated operating losses for the period January 1 to February 28, 20X3.
II only.
II and III only.
I and III only.
I and II only.

Answer(s): D

Explanation:

Choice "d" is correct. The operating losses to be included in Smith's 20X2 income statement would be the total 20X2 operating losses, regardless of whether those losses occurred before or after the date the decision to dispose of the component was made, and not any 20X3 operating losses. Projected operating losses are not anticipated and accrued.
Choice "a" is incorrect. The operating losses to be included in Smith's 20X2 income statement would be the total 20X2 operating losses, regardless of whether those losses occurred before or after the date the decision to dispose of the component was made, and not any 20X3 operating losses. Choice "b" is incorrect. The operating losses to be included in Smith's 20X2 income statement would be the total 20X2 operating losses, regardless of whether those losses occurred before or after the date the decision to dispose of the component was made, and not any 20X3 operating losses. Choice "c" is incorrect. The operating losses to be included in Smith's 20X2 income statement would
be the total 20X2 operating losses, regardless of whether those losses occurred before or after the date the decision to dispose of the component was made, and not any 20X3 operating losses.

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QUESTION: 38

If a company is not presenting comparative financial statements, the correction of an error in the financial statements of a prior period should be reported, net of applicable income taxes, in the current:

Retained earnings statement after net income but before dividends.
Retained earnings statement as an adjustment of the opening balance.
Income statement after income from continuing operations and before extraordinary items.
Income statement after income from continuing operations and after extraordinary items.

Answer(s): B

Explanation:

Choice "b" is correct. The correction of an error in the financial statements of a prior period should be reported, net of tax, in the current statement of retained earnings as an adjustment of the opening balance.
Choice "a" is incorrect. The adjustment is before net income, not after net income. Choices "c" and "d" are incorrect. Corrections of errors of prior periods go to retained earnings and do not affect the income statement.

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QUESTION: 39

The cumulative effect of a change in accounting estimate should be shown separately:

On the income statement above income from continuing operations.
On the income statement after income from continuing operations and before extraordinary items.
On the retained earnings statement as an adjustment to the beginning balance.
It should not be recorded separately on any financial statement.

Answer(s): D

Explanation:

Choice "d" is correct. A change in estimate is handled prospectively. No cumulative effect adjustment is made and no separate line item presentation is made on any financial statement. If a material change is being made, appropriate footnote disclosure is necessary. Choices "a", "b", and "c" are incorrect, per the above .

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QUESTION: 40

The following costs were incurred by Griff Co., a manufacturer, during 1992:

What amount of these costs should be reported as general and administrative expenses for 1992?

$260,000
$550,000
$635,000
$810,000

Answer(s): A

Explanation:

Choice "a" is correct. General and administrative expenses include:

Freight-in is part of cost of sales; freight-out is a selling expense; and sales salaries are selling expenses.
Choice "b" is incorrect. Freight-in is part of cost of inventory; freight-out is a selling expense; and sales salaries are selling expenses.
Choice "c" is incorrect. Freight-in is part of cost of inventory; freight-out is a selling expense; and sales salaries are selling expenses.
Choice "d" is incorrect. Freight-in is part of cost of inventory; freight-out is a selling expense; and sales salaries are selling expenses.

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CPA Financial Accounting and Reporting CPA-Financial Exam

QUESTION: 37

Explanation:

QUESTION: 38

Explanation:

QUESTION: 39

Explanation:

QUESTION: 40

Explanation:

CPA Financial Accounting and Reporting
CPA-Financial Exam