Mixed Deck — All ABA Topics Flashcards

A business owner uses their personal vehicle 60% for business. The vehicle cost $40,000. Using the actual expense method, what is the maximum depreciable basis for business use?

Answer: $24,000

The depreciable business-use basis is $40,000 × 60% = $24,000, since only the business-use percentage of the cost qualifies.

What is the difference between accrual accounting and cash accounting?

Answer: Accrual accounting records transactions when earned or incurred.

Accrual accounting recognizes revenues when they are earned and expenses when they are incurred, regardless of when cash is exchanged. In contrast, cash accounting only records transactions when cash is actually received or paid, which can misrepresent a company's financial performance over a period.

When a business converts from a sole proprietorship to a single-member LLC, the default federal tax classification is:

Answer: Disregarded entity (taxed as a sole proprietorship)

A single-member LLC is treated as a disregarded entity for federal tax purposes unless it elects to be taxed as a corporation.

When an accountant knowingly misrepresents financial information to a third party who relies on it and suffers harm, the accountant may face liability under which tort?

Answer: Intentional misrepresentation (fraud)

Intentional misrepresentation (fraud) occurs when a party knowingly makes a false statement of material fact intending to induce reliance, causing damages to the relying party.

A retail company uses the gross method to record purchases. A $10,000 purchase is made with terms 2/10, net 30. If payment is made within the discount period, the journal entry includes a credit to:

Answer: Purchase Discounts for $200

Under the gross method, the $200 discount taken is credited to Purchase Discounts, reducing cost of goods purchased.

In Tax Preparation & Compliance, what is the FIRST step a ABA professional should take when encountering a new case or situation?

Answer: Conduct a comprehensive assessment and gather all relevant information

In Tax Preparation & Compliance, a thorough initial assessment ensures all relevant factors are identified before deciding on an appropriate course of action. This systematic approach is fundamental to Accredited Business Accountant practice.

When a company anticipates a loss from a lawsuit, it should record the loss:

Answer: When it is probable and can be reasonably estimated

Under conservatism and GAAP, contingent losses are recorded when they are probable and the amount can be reasonably estimated.

The Sherman Antitrust Act primarily prohibits which of the following business practices?

Answer: Price-fixing agreements among competitors

The Sherman Act Section 1 prohibits contracts, combinations, or conspiracies in restraint of trade, with horizontal price-fixing among competitors being a per se violation.

When a conflict arises between standard procedures and a unique situation in Managerial & Cost Accounting, what should a ABA professional prioritize?

Answer: Safety and ethical obligations while seeking expert consultation

Safety and ethics always take priority in Managerial & Cost Accounting. When standard procedures don't adequately address a unique situation, consulting with experienced colleagues or supervisors ensures both safety and professional standards are maintained.

What is the PRIMARY purpose of continuing education requirements in Managerial & Cost Accounting for ABA professionals?

Answer: Maintaining current knowledge and competency as the field evolves

Continuing education in Managerial & Cost Accounting ensures professionals maintain current knowledge and skills as standards, technologies, and best practices evolve in the Accredited Business Accountant field.

What does the earnings per share (EPS) ratio measure?

Answer: The profit generated per share of common stock.

Earnings Per Share (EPS) is a crucial profitability metric that indicates the portion of a company's profit allocated to each outstanding share of common stock. It is calculated by dividing net income (minus preferred dividends) by the number of outstanding common shares. EPS is widely used by investors to gauge a company's financial performance and value per share.

Joint costs are best allocated using which method when the goal is to avoid showing a loss at the split-off point for any product?

Answer: Constant gross margin percentage NRV method

The constant gross margin percentage NRV method allocates joint costs so that every joint product earns the same gross margin percentage, preventing any product from showing a loss at the split-off point.

What is the role of depreciation in accounting?

Answer: Depreciation reduces the value of an asset over time.

Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. It systematically reduces the asset's book value on the balance sheet and recognizes a portion of its cost as an expense each period, reflecting the asset's wear and tear or obsolescence.

A company's earnings per share (EPS) would be diluted by the existence of:

Answer: Convertible bonds outstanding

Convertible bonds, if converted, would increase the share count, thereby reducing (diluting) EPS, so they are included in diluted EPS calculations.

Which standard of practice is MOST important for ensuring quality in Managerial & Cost Accounting?

Answer: Following evidence-based protocols while adapting to specific circumstances

Evidence-based protocols provide a foundation of proven practices, but effective Accredited Business Accountant professionals must also adapt their approach based on specific circumstances and individual case needs within Managerial & Cost Accounting.

A taxpayer has a $12,000 net capital loss in 2024. How much can be deducted against ordinary income, and what happens to the remainder?

Answer: $3,000 deducted; $9,000 carries forward indefinitely

Individuals may deduct up to $3,000 of net capital losses against ordinary income per year; the remaining $9,000 carries forward to future years.

A bookkeeper notices that a $500 credit was posted to Accounts Payable but should have gone to Notes Payable. This error is called a:

Answer: Error of commission

An error of commission occurs when an entry is made to the correct side but the wrong account of the same category.

When supplies purchased for $800 are recorded as an asset and $300 remain unused at period-end, the adjusting entry records:

Answer: Debit Supplies Expense $500, Credit Supplies $500

Supplies used = $800 − $300 = $500; the adjusting entry debits Supplies Expense $500 and credits Supplies $500 to reflect the consumption.

Net realizable value of accounts receivable is calculated as:

Answer: Gross AR minus Allowance for Doubtful Accounts

Net realizable value equals gross accounts receivable less the allowance for doubtful accounts, representing the amount the company expects to collect.

Which financial metric is most directly used to evaluate a company's short-term liquidity?

Answer: Working capital

Working capital (current assets minus current liabilities) directly measures the buffer of liquid resources available to meet near-term obligations.