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Financial Accounting and Reporting Flashcards

7 cards from real AICPA 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 and Reporting flashcards as text

  1. A sale-leaseback transaction in which the seller-lessee retains control of the asset is accounted for as:

    Answer: A completed sale with a new operating lease

    If the transfer qualifies as a sale under ASC 606, the seller-lessee derecognizes the asset and recognizes a right-of-use asset and lease liability for the leaseback.

  2. Under the direct method of presenting the statement of cash flows, which item appears in operating activities?

    Answer: Cash collected from customers

    Under the direct method, cash collected from customers is reported as an operating activity inflow, representing actual cash receipts from sales.

  3. When a company changes from FIFO to LIFO inventory costing, this is accounted for as a:

    Answer: Change in accounting principle requiring retrospective restatement

    A change from FIFO to LIFO is a change in accounting principle that generally requires retrospective application, restating prior periods as if LIFO had always been used.

  4. Which of the following would be included in a company's balance sheet as a component of stockholders' equity?

    Answer: Treasury stock at cost (debit balance)

    Treasury stock represents shares repurchased by the company and is presented as a deduction (debit balance) within stockholders' equity on the balance sheet.

  5. Under ASC 815, a derivative instrument designated as a fair value hedge is used to hedge against:

    Answer: Changes in the fair value of a recognized asset or liability

    A fair value hedge protects against changes in the fair value of a recognized asset, liability, or firm commitment attributable to a particular risk.

  6. A company receives a $120,000 payment for a 12-month service contract on October 1. Under accrual accounting, how much revenue is recognized in the current calendar year?

    Answer: $30,000

    Only 3 months (October–December) of the 12-month contract have been earned by year-end, so $120,000 × 3/12 = $30,000 is recognized.

  7. Which financial statement reconciles the beginning and ending balances of stockholders' equity?

    Answer: Statement of changes in stockholders' equity

    The statement of changes in stockholders' equity shows all transactions affecting equity accounts during the period, reconciling beginning and ending balances.