ABA Financial Accounting & Reporting 2

Question 1

Under the allowance method, when a previously written-off account is subsequently collected, the correct journal entry first requires:

Accepted Answer

Debit Accounts Receivable, Credit Allowance for Doubtful Accounts

Answer

Reinstating the written-off account requires debiting Accounts Receivable and crediting Allowance for Doubtful Accounts before recording the cash receipt.

Question 2

A company issues a 3-year, $100,000 bond at a premium. Which statement correctly describes the carrying value over the bond's life?

Accepted Answer

Carrying value decreases each period toward face value

Answer

When a bond is issued at a premium, the premium is amortized, reducing carrying value toward face value over the bond's life.

Question 3

Which inventory costing method results in the highest net income during a period of rising prices?

Accepted Answer

FIFO

Answer

FIFO assigns older (lower) costs to COGS during rising prices, leaving higher-cost inventory on the balance sheet and producing higher gross profit.

Question 4

Under GAAP, which of the following is reported as a component of Other Comprehensive Income (OCI)?

Accepted Answer

Foreign currency translation adjustments

Answer

Foreign currency translation adjustments bypass net income and are recorded directly in OCI under ASC 830.

Question 5

A lessee signs a 5-year lease for equipment. The lease transfers ownership at the end of the term. How should the lessee classify this lease under ASC 842?

Accepted Answer

Finance lease

Answer

Transfer of ownership is one of the criteria that requires classification as a finance lease under ASC 842.

(ABA) Accredited Business Accountant Practice Test

(ABA) Accredited Business Accountant Practice Test

ABA Financial Accounting & Reporting 2