CPA FAR Financial Statements & Consolidation Practice Questions
Financial Statements & Consolidation makes up 7 of every 50 questions on a Tigertest CPA FAR practice test. Here are 10 of the 28 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on the AICPA's 2026 FAR blueprint. Original multiple-choice questions; simulations not included. Not affiliated with the AICPA or NASBA.
1. Before its year-end statements are issued, a company replaces a note due in nine months with a five-year note from the same lender. On the year-end balance sheet the original note is classified as:
- A.A deferred credit
- B.A noncurrent liability
- C.A current liability
- D.Current, with note disclosure only
Answer: B. Under ASC 470-10, a short-term obligation is excluded from current liabilities when the entity refinances it on a long-term basis after the balance sheet date but before the statements are issued. Disclosure alone is not enough because the refinancing has actually happened.
2. Which item is reported in other comprehensive income by a for-profit company?
- A.Gain on early extinguishment of debt
- B.Foreign currency transaction loss
- C.Unrealized gain on equity securities
- D.Foreign currency translation adjustment
Answer: D. Translation adjustments from converting a foreign subsidiary's statements go to OCI. Changes in the fair value of equity securities with readily determinable fair values and foreign currency transaction gains and losses go through net income.
3. A company reports sales of $900,000, sales returns of $30,000, cost of goods sold of $520,000 and selling expenses of $110,000. Gross profit on a multi-step income statement is:
- A.$350,000
- B.$270,000
- C.$380,000
- D.$240,000
Answer: A. Net sales are $900,000 minus $30,000 = $870,000, and gross profit is $870,000 minus $520,000 = $350,000. Selling expenses come after gross profit, and $380,000 forgets the returns.
4. The results of a component that qualifies as a discontinued operation are reported in the income statement:
- A.Net of tax, in retained earnings
- B.Pretax, in other comprehensive income
- C.Net of tax, below continuing operations
- D.Pretax, within operating expenses
Answer: C. Discontinued operations are shown net of their tax effect in a separate section after income from continuing operations. They are part of net income, not OCI or a direct equity entry.
5. Net income is $210,000. Depreciation is $45,000, accounts receivable rose $18,000, inventory fell $12,000, accounts payable fell $9,000 and a $6,000 gain was recognized on selling equipment. Cash provided by operating activities is:
- A.$252,000
- B.$189,000
- C.$234,000
- D.$246,000
Answer: C. $210,000 + $45,000 - $18,000 + $12,000 - $9,000 - $6,000 = $234,000. The gain is subtracted because the cash proceeds belong in investing activities; adding it gives $246,000.
6. A for-profit company reporting under U.S. GAAP pays interest on its bank loan. The cash paid is classified in the statement of cash flows as:
- A.Operating activities
- B.Investing activities
- C.A noncash disclosure only
- D.Financing activities
Answer: A. U.S. GAAP classifies interest paid as an operating outflow because interest expense enters net income. Repaying the loan principal is a financing outflow.
7. Cash received from selling a used delivery truck is reported in the statement of cash flows as:
- A.A noncash adjustment
- B.An operating inflow
- C.A financing inflow
- D.An investing inflow
Answer: D. Proceeds from disposing of property, plant and equipment are investing inflows. Any gain on the sale is removed from net income in the operating section under the indirect method.
8. A company acquires a building by signing a $1,500,000 mortgage note with the seller, with no cash changing hands. In the statement of cash flows the transaction is:
- A.Not reported in any form
- B.Disclosed as a noncash activity
- C.An investing outflow and financing inflow
- D.An operating outflow
Answer: B. Significant investing and financing activities that involve no cash are excluded from the body of the statement and disclosed separately, in a schedule or the notes.
9. Beginning retained earnings were $400,000. A prior-period error correction increases them by $25,000 net of tax. Net income is $150,000 and cash dividends declared are $60,000. Ending retained earnings are:
- A.$465,000
- B.$515,000
- C.$490,000
- D.$575,000
Answer: B. $400,000 + $25,000 = $425,000 restated beginning balance, plus $150,000 net income minus $60,000 dividends gives $515,000. Ignoring the correction gives $490,000.
10. A parent acquired 80% of a subsidiary, and the noncontrolling interest was measured at $160,000, with no fair value adjustments left to amortize. This year the subsidiary earns $90,000 and pays $30,000 in dividends. The noncontrolling interest at year-end is:
- A.$160,000
- B.$220,000
- C.$178,000
- D.$172,000
Answer: D. The noncontrolling interest takes its 20% share of the subsidiary's income and dividends: $160,000 + $18,000 - $6,000 = $172,000. Leaving out its share of the dividends gives $178,000.
Practice all 28 financial statements & consolidation questions, and the rest of the 200-question bank, in the free CPA FAR training sets. Questions you miss come back until you have mastered them.
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