(Financial Accounting & Reporting) Flashcards
7 cards from real Certified Public Accountant practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 (Financial Accounting & Reporting) flashcards as text
Under ASC 842, how does a lessee classify a lease that transfers ownership of the underlying asset to the lessee by the end of the lease term?
Answer: Finance lease
ASC 842 requires lessees to classify a lease as a finance lease when ownership transfers to the lessee by the end of the lease term.
A company issues bonds with a face value of $500,000 at 102. What amount should be recorded as the bond premium?
Answer: $10,000
Bonds issued at 102 means 102% of face value, so proceeds = $510,000; the premium is $510,000 − $500,000 = $10,000.
Which inventory costing method typically results in the lowest ending inventory balance during a period of rising prices?
Answer: LIFO
LIFO assigns the most recent (highest) costs to cost of goods sold, leaving the oldest (lowest) costs in ending inventory.
Under the equity method of accounting, how does an investor record dividends received from an investee?
Answer: As a reduction of the investment account
Under the equity method, dividends received reduce the carrying amount of the investment because they represent a return of the investment.
What is the effect on the accounting equation when a company collects cash on accounts receivable?
Answer: One asset increases; another asset decreases
Collecting cash on accounts receivable increases cash and decreases accounts receivable by equal amounts, leaving total assets unchanged.
A contingent liability should be accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. Which accounting standard governs this treatment?
Answer: ASC 450
ASC 450 (Contingencies) requires accrual of a loss contingency when it is probable and the amount is reasonably estimable.
When using the percentage-of-completion method for long-term contracts, revenue is recognized based on:
Answer: Costs incurred to date divided by total expected costs
The most common measure of completion is costs incurred to date divided by total estimated costs, which drives the proportion of revenue recognized.