Sample CPA Exam Questions
1. On January 1, 2006, Frank Company purchased equipment for $200,000. The equipment has an 8 year expected useful life and a $10,000 expected residual value. Initially, Frank Company used double declining balance depreciation. On January 1, 2008, Frank Company changed to straight line depreciation. The expected useful life and residual value are unchanged. Compute depreciation expense for 2008.
(a) $28,125
(b) $17,083
(c) $12,813
(d) $23,750
2. Jean Company decided to change from LIFO to FIFO as of January 1, 2008. The change is being made for both book and tax purposes. LIFO and FIFO data for 2008 and preceding years are given below.
|
|
Net Income |
Excess of LIFO Cost of |
|
|
|
Computed |
Goods Sold over |
Income Effect |
|
Year |
Using LIFO |
FIFO Cost of Goods Sold |
(Net of Tax) |
|
Prior to 2006 |
|
$12,500 |
$ 7,500 |
|
2006 |
$62,500 |
6,250 |
3,750 |
|
2007 |
54,500 |
7,500 |
4,500 |
|
2008 |
78,000 |
11,250 |
6,750 |
|
|
|
$37,500 |
$22,500 |
Using the provisions of FASB Statement No. 154, compute Jean Company’s net income for 2008. Remember that Jean Company switched to FIFO on January 1, 2008.
(a) $84,750
(b) $100,500
(c) $85,500
(d) $93,750
3. Goods sold FOB destination were shipped by Brook Company (the seller) on December 31, 2008. The sale was recorded in 2008, and the goods were not included in 2008 ending inventory. The shipment arrived on January 4, 2009. The goods cost $3,000, and the sales price was $4,400. As a result of this transaction, was net income overstated or understated, and by how much? Ignore income taxes.
(a) Reported net income was correct.
(b) Net income in 2008 was overstated by $4,400.
(c) Net income in 2008 was understated by $3,000.
(d) Net income in 2008 was overstated by $1,400.