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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 606, revenue is recognized when (or as) performance obligations are satisfied. Which of the following represents recognition OVER TIME rather than at a point in time?

    Answer: Construction of a specialized asset with no alternative use and an enforceable right to payment

    Revenue is recognized over time when the asset has no alternative use to the seller and the seller has an enforceable right to payment for performance completed to date.

  2. What is the effect on the accounting equation when a company collects cash on a previously recorded accounts receivable?

    Answer: One asset increases; another asset decreases

    Cash (asset) increases while accounts receivable (asset) decreases by the same amount, keeping total assets unchanged.

  3. Under ASC 805, how is a bargain purchase in a business combination recognized?

    Answer: As a gain in the income statement

    A bargain purchase occurs when fair value of net assets acquired exceeds the purchase price, and the resulting gain is recognized immediately in the income statement.

  4. Which of the following events after the balance sheet date requires an ADJUSTMENT to the financial statements (adjusting subsequent event)?

    Answer: Settlement of litigation for an amount different from what was accrued at year-end, where the cause of action existed before year-end

    A lawsuit settlement that provides evidence of conditions existing at the balance sheet date requires adjustment to the financial statements.

  5. Which depreciation method allocates the same dollar amount of depreciation expense to each period of the asset's useful life?

    Answer: Straight-line

    The straight-line method spreads the depreciable cost evenly over the asset's useful life, resulting in equal annual depreciation expense.

  6. A company receives $120,000 cash for a 12-month service contract on October 1, Year 1. Using accrual accounting, how much revenue is recognized in Year 1?

    Answer: $30,000

    Only 3 months (October–December) of service have been performed by December 31, so $120,000 × 3/12 = $30,000 is recognized in Year 1.

  7. Under the lower of cost or net realizable value (LCNRV) rule for inventories, net realizable value is defined as:

    Answer: Estimated selling price less costs of completion and disposal

    ASC 330 defines NRV as the estimated selling price in the ordinary course of business minus reasonably predictable costs of completion and disposal.