CPA Professional Education Program Preparatory Course
Mock Exam
Course Introduction
The CPA Professional Education Program Preparatory Course is designed to equip students with the foundational knowledge and skills required for success in the CPA Professional Education Program (PEP). Covering core subject areas such as financial accounting, management accounting, taxation, audit and assurance, finance, and strategy and governance, this course prepares candidates to meet the entry requirements for the PEP. Emphasizing practical application, critical thinking, and ethical considerations, students will engage in a variety of learning activities, case studies, and assessments to build their competency and confidence in accounting principles and professional standards essential for a career as a Chartered Professional Accountant.
Recommended Textbook
Modern Advanced Accounting in Canada9th Edition by Darrell Herauf
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12 Chapters
713 Verified Questions
713 Flashcards
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Page 2
Chapter 1: Conceptual and Case Analysis Frameworks for Financial Reporting
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18 Verified Questions
18 Flashcards
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Sample Questions
Q1) Provide the procedures used to analyze a company's financial statements to determine its future prospects.
Answer: Procedures to analyze a company's financial statements: Perform common-size analysis and interpret the results.
Review the accounting policies and estimates used by the company to ensure that they are appropriate.
Adjust the financial statements, as necessary, to use appropriate accounting policies and estimates.
Calculate the ratios for one or more periods.
Compare the ratios to relevant benchmarks.
Interpret the results of the analysis to determine whether they are better, worse, or the same as the benchmark.
Decide whether to increase, decrease, or maintain the level of participation with the reporting entity.
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3
Chapter 2: Investments in Equity Securities
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Sample Questions
Q1) Which of the following statements is TRUE regarding the equity method?
A) The equity method is used for reporting gains or losses for non-strategic investments.
B) The investor's share of the associate's dividends declared is reported as revenue.
C) The investor's investment in the associate changes in direct relation to the changes taking place in the associate's equity accounts.
D) The equity method reports unrealized gains and losses on revaluations to fair value in net income.
Answer: C
Q2) What is the dominant factor used to distinguish non-strategic investments from significant influence investments?
A) Use of the cost method to account for and report the investment.
B) Use of the equity method to account for and report the investment.
C) The investor's intention to establish or maintain a long-term operating relationship with the investee.
D) The percentage of equity held by the investor.
Answer: C
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Chapter 3: Business Combinations
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61 Verified Questions
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Sample Questions
Q1) IOU Inc. purchased all of the outstanding common shares of UNI Inc. for cash of $800,000. On the date of acquisition, UNI's assets included $2,000,000 of inventory, and land with a book value of $120,000. UNI also had $1,400,000 in liabilities on that date. UNI's book values were equal to their fair market values, with the exception of the company's land, which was estimated to have a fair market value which was $50,000 higher than its book value. How much goodwill would be created by IOU's acquisition of UNI?
A) $30,000
B) $50,000
C) $80,000
D) Nil
Answer: A
Q2) Which of the following is considered to be part of the acquisition cost of a subsidiary?
A) Due diligence fees paid to lawyers.
B) The fair value of assets transferred by the acquirer.
C) The costs of issuing debt or shares.
D) Amounts paid to accountants for advice.
Answer: B
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Page 5
Chapter 4: Consolidation of Non-Wholly Owned
Subsidiaries
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) Which of the following is a TRUE statement pertaining to a bargain purchase?
A) A bargain purchase occurs when the total consideration is less than the net book value of the subsidiary's identifiable net assets.
B) A bargain purchase occurs when the total consideration is less than the fair market value of the subsidiary's identifiable net assets.
C) A bargain purchase occurs when the total consideration is greater than the fair market value of the subsidiary's identifiable net assets.
D) A bargain purchase occurs when the total consideration is greater than the net book value of the subsidiary's identifiable net assets.
Q2) Company A Inc. owns a controlling interest in Company B. which is located overseas. Company A and B are in entirely different lines of business. Company A wishes to file a request allowing it to not consolidate its financial statements with those of Company B. Assuming that Company A is based in Canada, is this allowed? Explain.
Q3) Various methods have been proposed as solutions to preparing consolidated financial statements for non-wholly owned subsidiaries. Provide the methods and include your reasoning to support the method(s) that is/are being adopted under IFRS.
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Chapter 5: Consolidation Subsequent to Acquisition Date
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Sample Questions
Q1) Intangible assets with definite useful lives should be amortized:
A) over their useful lives.
B) over the time periods provided under IAS 36 Impairment of Assets which prescribes amortization periods for different classes of assets.
C) under the applicable capital cost allowance rates provided by the Canada Revenue Agency.
D) over two years.
Q2) If the parent company uses the equity method to record its investment in a subsidiary in its internal accounting records, which of the following statements is FALSE?
A) The parent's net income equals consolidated net income.
B) The parent's retained earnings will be equal to consolidated retained earnings.
C) Only the parent's share of the subsidiary's income, dividends and amortization of acquisition differential are recorded in the investor's records.
D) The parent's net income equals consolidated net income attributable to the shareholders of the parent.
Q3) Prepare a consolidated balance sheet for Par Inc. as at June 30, 2021.
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Chapter 6: Intercompany Inventory and Land Profits
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Sample Questions
Q1) If a parent company borrows money at an interest rate of six percent from its subsidiary, what effect (if any) will this have on the non-controlling interest?
A) This would have no effect on the non-controlling interest.
B) The subsidiary would book its pro-rata share of any interest revenue.
C) The non-controlling interest balance would be reduced by the amount of the loan.
D) The subsidiary would record any interest revenue as an extraordinary gain.
Q2) When are profits from intercompany land sales realized?
A) They are realized only when sold to outsiders.
B) They are realized once legal ownership of the land has been transferred.
C) They are realized when consideration has been received for the land.
D) They are realized when an agreement is signed with respect to ownership of the land.
Q3) Intercompany profits on sales of inventory are only realized:
A) once the seller receives payment for the sale.
B) once the inventory has been sold to outsiders.
C) when the inventory has been received by the purchaser.
D) when the inventory has been shipped to the purchaser.
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Page 8
Chapter 7: A Intercompany Profits in Depreciable Assets B
Intercompany
Bondholdings
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Sample Questions
Q1) Duff Inc. owns 75% of Paddy Corp. and uses the Equity Method to account for its investment. Paddy purchased $120,000 face value of Duff's 12% par value bonds on January 1, 2020 for $100,000, when Duff's bond liability consisted of $240,000 par of 12% bonds maturing on January 1, 2030.
There was an unamortized bond discount of $20,000 attached to the bonds on that date. Interest payment dates are June 30 and December 31 each year. Straight line amortization is used.
Both companies have a December 31 year end. Intercompany bond gains and losses are to be allocated to each company. During 2020, Paddy earned a net income of $80,000 and paid dividends of $20,000. What was the pre-tax gain or loss to Paddy Inc. on the intercompany purchase of the bonds?
A) $20,000 loss
B) Nil
C) $20,000 gain
D) $40,000 loss
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Page 9
Chapter 8: Consolidated Cash Flows and Changes in Ownership
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Sample Questions
Q1) Which of the following statements pertaining to preferred shares is correct?
A) If the preferred shares are non-cumulative, the current year's net income would be allocated to the preferred shares whether or not preferred dividends are declared.
B) If the preferred shares are non-cumulative, only the current year's net income would be allocated to preferred shares if preferred dividends are declared, since dividends are never in arrears with non-cumulative preferred shares.
C) If the preferred shares are cumulative, the current year's net income would be allocated to the shares, only if dividends are declared in the year.
D) There can never be any dividends in arrears when preferred shares are cumulative.
Q2) What is the correct method of treating an acquisition differential arising from a Preferred Share Issue?
A) It should be treated as an adjustment to goodwill.
B) It should be pro-rated across the subsidiary's identifiable assets and liabilities.
C) It should be expensed in the current year.
D) It should be adjusted to a contributed surplus or retained earnings account.
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Page 10
Chapter 9: Other Consolidation Reporting Issues
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Sample Questions
Q1) Which of the following concerning the distinction between joint operations and joint ventures is correct?
A) In a joint operation, the investor has rights to the net assets of the arrangement; in a joint venture, the investor has rights and obligations related to the specific assets and liabilities of the arrangement.
B) In a joint venture, the investor has rights to the net assets of the arrangement; in a joint operation, the investor has rights and obligations related to the specific assets and liabilities of the arrangement.
C) A joint operation is always an unincorporated business; a joint venture is always an incorporated business.
D) In a joint operation, all investors must share control; in a joint venture, investors holding a majority of voting rights may share control.
Q2) How are intercompany transactions handled in a joint venture?
A) They are ignored.
B) They are completely eliminated.
C) Only the venturer's share of any after tax profit is eliminated.
D) Intercompany profits are treated as an adjustment to the acquisition differential.
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Page 11
Chapter 10: Foreign Currency Transactions
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Sample Questions
Q1) On January 1, 2020, Canadian Music International (CMI), a manufacturer of high-end recording equipment based in Toronto, shipped US$120,000 worth of inventory to its main U.S. distributor in Chicago, with full payment of these goods due by February 28, 2020. CMI has a January 31 year end. A list of significant dates and exchange rates is shown below. \[\begin{array} { | l | l | }
\hline \text { Transaction Date: Jaruaary } 1,2020 & \text { US } \$ 1 = \text { CDN } \$ 1.141 \\
\hline \text { Year-End Date: Jaruary } 31,2020 & \text { US } \$ 1 = \text { CDN } \$ 1.142 \\
\hline \text { Setternent Date: February 28, 2020 } & \text { US } \$ 1 = \text { CDN } \$ 1.145 \\
\hline
\end{array}\] The invoice price billed by CMI was US$120,000.
What is the total amount of CMI's foreign exchange gain or loss on this transaction?
A) CDN$360 loss
B) CDN$120 gain
C) CDN$360 gain
D) CDN$480 gain
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Page 12
Chapter 11: Translation and Consolidation of Foreign Operations
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Sample Questions
Q1) Which of the following statements is correct?
A) If the functional currency of the foreign operation is different than the parent's functional currency, the non-monetary items recorded at closing values must be translated using closing rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, the non-monetary items recorded at closing values must be translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, the non-monetary items recorded at closing values must be translated using historical rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, the non-monetary items recorded at closing values must be translated using average rates.
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Chapter 12: Accounting for Not-For-Profit and Public Sector Organizations
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the deferral method of reporting?
A) $6,000
B) $14,000
C) $20,000
D) $34,000
Q2) A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. What should be the balance in the deferred contribution account at the end of the year, if the organization uses the deferred contribution method of reporting?
A) $20,000
B) $6,000
C) $14,000
D) Nil
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