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Financial Accounting & Reporting Flashcards

7 cards from real CPA 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

  1. Under ASC 842, how does a lessee classify a lease that transfers ownership of the underlying asset by the end of the lease term?

    Answer: Finance lease

    ASC 842 classifies a lessee lease as a finance lease if ownership transfers to the lessee by the end of the lease term.

  2. A company has a deferred tax liability of $40,000 and a deferred tax asset of $15,000 with a valuation allowance of $5,000. What is the net deferred tax position reported on the balance sheet?

    Answer: Net liability of $30,000

    The net deferred tax liability is $40,000 minus the net deferred tax asset of ($15,000 − $5,000) = $10,000, yielding $30,000.

  3. Which inventory cost flow assumption generally results in the highest net income during a period of rising prices?

    Answer: FIFO

    FIFO assigns the oldest (lower) costs to COGS, leaving higher-cost inventory on hand and producing higher net income when prices rise.

  4. Under ASC 350, which intangible assets are NOT amortized but instead tested for impairment at least annually?

    Answer: Indefinite-lived intangible assets

    ASC 350 requires indefinite-lived intangible assets to be tested for impairment at least annually rather than amortized.

  5. A bond is issued at a premium. How does amortization of the bond premium affect interest expense over the life of the bond?

    Answer: Decreases interest expense each period

    Amortizing a bond premium reduces the carrying value of the bond toward par, which decreases interest expense recognized each period.

  6. Under the equity method of accounting, how does an investor record dividends received from an investee?

    Answer: As a reduction in the investment account

    Under the equity method, dividends received reduce the carrying amount of the investment rather than being recognized as income.

  7. Which of the following is included in other comprehensive income (OCI) but NOT in net income?

    Answer: Unrealized gain on available-for-sale debt securities

    Unrealized gains and losses on available-for-sale debt securities are reported in OCI and excluded from net income until realized.