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4Wiley
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C PA e x c e l
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E X A M R E V I E W
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S T U DY G U I D E
J U LY 2 014
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Wiley
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1C PA e x c e l
EXAM REVIEW
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ST U DY G U I D E
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J U LY 2 014
FINANCIAL ACCOUNTING
AND REPORTING
O. Ray Whittington,
CPA, PhD
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Cover Design: John Wiley & Sons, Inc.
Cover image: © iStockphoto/turtleteeth
The following items, copyright © by the American Institute of Certified Public Accountants, Inc., are reprinted (or adapted) with
permission.
1. Material from Uniform CPA Examination Questions and Answers, 1978 through 2014.
2. Information for Uniform CPA Examination Candidates, Board of Examiners, 2013.
3. Example financial statements from Industry Audit Guides: Audits of Colleges and Universities, Audits of Voluntary Health and
Welfare Organizations, and Audits of Providers of Health Care Services.
4. Example of Statement of Activity from SOP 78-10.
Material from the Certified Internal Auditor Examination, Copyright © 1994 through 1997 by the Institute of Internal Auditors, Inc., are
reprinted and/or adapted by permission.
Material from the Certified Management Accountant Examinations, Copyright © 1993 through 1997 by the Institute of Certified
Management Accountants are reprinted and/or adapted by permission.
Reproduction and adaptation of pronouncements, copyright © Financial Accounting Standards Board, Norwalk, Connecticut
06856-5116, with permission.
Reproduction of “Combined Statement of Revenues, Expenditures, and Changes in Fund Balances–All Governmental Fund Types and
Expendable Trust Funds,” copyright © Governmental Accounting Standards Board, Norwalk, Connecticut 06856-5116, with permission.
Statement of changes in fund balances for an educational institution from College and University Business Administration with
permission of the National Association of College and University Business Officers.
Copyright © 2014 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic,
mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States
Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate
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permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they
make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically
disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by
sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You
should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other
commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department
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Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic
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ISBN 978-1-118-91787-9 (paperback); 978-1-118-94789-0 (ebk); 978-1-118-94790-6 (ebk)
Printed in the United States of America
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CONTENTS
Preface vii
About the Author ix
About the Contributor ix
INTRODUCTION 1
Chapter 1: Beginning Your CPA Review Program 3
Chapter 2: Examination Grading 17
Chapter 3: The Solutions Approach 19
Chapter 4: Taking The Examination 27
Chapter 5: Exam Content Overview 31
FINANCIAL ACCOUNTING AND REPORTING 39
Module 9: Basic Theory and Financial Reporting 41
Module 10: Inventory 217
Module 11: Fixed Assets 267
Module 12: Monetary Current Assets and Current Liabilities 329
Module 13: Present Value 395
Module 14: Deferred Taxes 537
Module 15: Stockholders’ Equity 577
Module 16: Investments 639
Module 17: Statement of Cash Flows 687
Module 18: Business Combinations and Consolidations 725
Module 19: Derivative Instruments and Hedging Activities 785
Module 20: Miscellaneous 825
Module 21: Governmental (State and Local) Accounting 897
Module 22: Not-for-Profit Accounting 983
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APPENDICES 1017
Appendix A: Outlines of Accounting Pronouncements 1019
Appendix B: Financial Accounting and Reporting
Sample Examination 1137
Appendix C: Sample Financial Accounting and Reporting
Testlet Released by AICPA 1171
Appendix D: 2014 Released AICPA Questions for
Financial Accounting and Reporting 1179
INDEX 1201
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PREFACE
Passing the CPA exam upon your first attempt is possible! The
Wiley CPAexcel Exam Review 2014 Study Guide July: Financial
Accounting and Reporting preparation materials provide you with
the necessary materials (visit our website at www.wiley.com/cpa for
more information). It’s up to you to add the hard work and commitment.
Together we can beat the pass rate on each section of about 50%. All
Wiley CPAexcel products are continuously updated to provide you
with the most comprehensive and complete knowledge base. Choose
your products from the Wiley prepara tion materials and you can
proceed confidently. You can select support materials that are
exam-based and user-friendly. You can select products that will
help you pass!
Remaining current is one of the keys to examination success.
Here is a list of what’s new in this edition of the Wiley CPAexcel
Exam Review 2014 Study Guide July: Financial Accounting and
Reporting text.
• The new AICPA Content Specification Outlines on Financial
Accounting and Reporting for the computerized CPA
Exami nation beginning in 2014
• AICPA questions released in 2014
• The new task-based simulations
D ’
on t forget to • Complete coverage of standards, especially
visit our website • The newest FASB accounting standards
• International accounting standards
at
• SEC reporting requirements
. . /
www wiley com cpa
The objective of this work is to provide you with the
for supplements
knowledge to pass the Financial Accounting and Reporting portion
.
anD upDates
of the Uniform Certified Public Accounting (CPA) Exam. The text
is divided up into 14 areas of study called mod ules. Each module
contains written text with discussion, examples, and demonstrations
of the key exam concepts. Fol lowing each text area, actual American
In stitute of Certified Public Accountants (AICPA) unofficial
questions and an swers are presented to test your knowledge. We are
indebted to the AICPA for permission to reproduce and adapt
exami nation materials from past examina tions. Author-constructed
questions and simulations are provided for new areas or areas that
require updat ing. All author-con structed questions and simulations
are modeled after AICPA ques tion formats. The multiple-choice
questions are grouped into topi cal areas, giving candidates a chance
to assess their areas of strength and weakness. Selection and
inclusion of topical content is based upon current AICPA Content
Specification Out lines. Only testable topics are presented. If the CPA
exam does not test it, this text does not present it.
The CPA exam is one of the toughest exams you will ever take. It
will not be easy. But if you follow our guidelines and focus on your
goal, you will be thrilled with what you can accomplish.
Ray Whittington
July 2014
vii
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