1. Let’s do some practice
Every question that you work makes you a better student and gets you ever closer to
those 75 points you need to pass the CPA Exam.
FAR
On January 1, Year One, the Hogan Company issues a four year $100,000 term bond
that pays an annual 6 percent cash interest. Interest is paid every 12/31 with the face
value to be paid four years from the issuance date. The bond is issued to earn an
actual annual rate of 10 percent. The present value of an ordinary annuity of $1 for
four time periods at a 10 percent rate is 3.16. The present value of a single amount of
$1 in four time periods at a 10 percent rate is .68. What interest expense should
Hogan report on its Year Two income statement?
a. $6,000
b. $6,800
c. $7,070
d. $10,000
Auditing
The CPA firm of Hay and Worth is auditing the financial statements of LaBrend
Corporation. LaBrend has used a special purpose financial reporting
framework. Which of the following statements is true?
a. The cash basis qualifies as a special purpose financial reporting framework but the
tax basis does not.
b. The report should have an emphasis-of-a-matter paragraph to indicate that the
basis being used was not consistent with US GAAP.
c. The tax basis qualifies as a special purpose financial reporting framework but the
cash basis does not.
d. A balance sheet and income statement must be included in the financial statements.
Regulation
The Hyldina Corporation has an account receivable for $10,000 from Prosgko
Corporation that is outstanding at the end of Year One. The debt was incurred as a
result of normal business tranactions. Prosgko is a relatively new customer from a
neighboring town. Hyldina believes that there is an 8 percent chance of collecting this
receivable. Hyldina is an accrual basis taxpayer. What can be deducted by Hyldina
on the company’s Year One income tax return?
a. Zero
b. $800
c. $4,000
d. $10,000

2. BEC
At the end of Year One, the Glacken Company has accounts receivable of
$435,000. During that year, the company made credit sales of $2.6 million. At the end
of the year, what is the average age of the reported accounts receivable
balance? (rounded)
a. 46 days
b. 53 days
c. 59 days
d. 61 days