Financial Accounting & Reporting Flashcards
7 cards from real ABA 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 the equity method of accounting for investments, the investor company records its share of the investee's net income as:
Answer: A debit to Investment in Investee and credit to Investment Income
Under the equity method, the investor increases the investment account and recognizes income for its proportionate share of the investee's net income.
Which of the following transactions increases total stockholders' equity?
Answer: Net income for the period
Net income increases retained earnings, which is a component of stockholders' equity, thereby increasing total equity.
A company acquires equipment for $80,000 with a residual value of $5,000 and a 5-year useful life. Using straight-line depreciation, what is the annual depreciation expense?
Answer: $15,000
Straight-line depreciation = ($80,000 − $5,000) ÷ 5 = $75,000 ÷ 5 = $15,000 per year.
Which note disclosure is required under GAAP if a company has significant concentrations of credit risk?
Answer: Disclosure of the nature of the risk and maximum loss exposure
ASC 825-10 requires disclosure of the nature of concentrations of credit risk and the company's maximum loss exposure even if no loss has occurred.
The current portion of long-term debt is reclassified to current liabilities on the balance sheet because:
Answer: It is due within one year or the operating cycle, whichever is longer
Portions of long-term debt maturing within one year (or the operating cycle, if longer) are reclassified to current liabilities to reflect near-term obligations.
A company records a deferred tax liability when:
Answer: Taxable income exceeds pretax book income, creating future tax obligations
A deferred tax liability arises when taxable income is less than book income today, meaning taxes will be higher in future periods when those temporary differences reverse.
Which of the following is an example of a non-cash investing and financing activity that must be disclosed separately on the cash flow statement?
Answer: Conversion of long-term debt into common stock
Conversion of debt to equity is a significant non-cash transaction that must be disclosed in a supplemental schedule to the cash flow statement under ASC 230.