ABA Financial Accounting & Reporting 3

Question 1

A company reports basic EPS of $3.00 and has outstanding stock options. If the options are dilutive, how will diluted EPS compare to basic EPS?

Accepted Answer

Diluted EPS will be lower than $3.00

Answer

Dilutive securities increase the denominator (shares) more than the numerator (income), which reduces EPS below the basic figure.

Question 2

Which financial statement reconciles net income to cash provided by operating activities under the indirect method?

Accepted Answer

Cash Flow Statement

Answer

The indirect method in the Cash Flow Statement starts with net income and adjusts for non-cash items and working capital changes to arrive at operating cash flows.

Question 3

Under the percentage-of-completion method for long-term contracts, revenue is recognized based on:

Accepted Answer

Costs incurred to date relative to estimated total costs

Answer

The percentage-of-completion method measures progress by dividing costs incurred to date by total estimated contract costs to determine the revenue earned.

Question 4

A contingent liability should be accrued on the balance sheet when it is:

Accepted Answer

Probable and amount is reasonably estimable

Answer

Under ASC 450, a contingent liability is accrued only when the loss is both probable and the amount can be reasonably estimated.

Question 5

Goodwill arising from a business combination is tested for impairment:

Accepted Answer

Annually and when triggering events occur

Answer

ASC 350 requires goodwill to be tested for impairment at least annually and whenever a triggering event indicates potential impairment.

(ABA) Accredited Business Accountant Practice Test

(ABA) Accredited Business Accountant Practice Test

ABA Financial Accounting & Reporting 3