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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. Under ASC 360, a long-lived asset group held for use is tested for impairment when the carrying amount exceeds which of the following?

    Answer: The sum of undiscounted future cash flows expected from the asset

    An impairment loss is recognized only if the carrying amount exceeds the sum of the undiscounted expected future cash flows; the loss is then measured as the excess over fair value.

  2. Which method of accounting for investments results in the investor recognizing dividends received as income?

    Answer: Cost method (for non-marketable securities)

    Under the cost method, dividends received from the investee are recognized as investment income by the investor.

  3. A company issues 1,000 shares of $1 par value stock for $15 per share. The journal entry includes:

    Answer: Debit cash $15,000; Credit common stock $1,000 and additional paid-in capital $14,000

    Proceeds are split between par value ($1 × 1,000 = $1,000 to common stock) and the excess ($14 × 1,000 = $14,000 to additional paid-in capital).

  4. Under ASC 958, which type of net asset classification is used by not-for-profit entities?

    Answer: Net assets with donor restrictions and net assets without donor restrictions

    ASC 958 requires not-for-profit entities to classify net assets as either 'with donor restrictions' or 'without donor restrictions.'

  5. Which of the following best describes a 'qualifying asset' under ASC 835-04 for capitalization of interest?

    Answer: An asset that requires a substantial period of time to get ready for its intended use

    A qualifying asset is one that requires a substantial period of time to bring to its intended use or sale, such as self-constructed property or certain discrete projects.

  6. Under U.S. GAAP, research and development (R&D) costs are generally:

    Answer: Expensed as incurred

    ASC 730 requires that R&D costs be expensed as incurred because the future benefits are too uncertain to justify capitalization.

  7. When preparing consolidated financial statements, intercompany sales of inventory between a parent and its subsidiary require which elimination?

    Answer: Elimination of the intercompany sales, cost of sales, and any unrealized profit in ending inventory

    Intercompany eliminations remove the entire intercompany sales transaction and cost of sales, plus any unrealized profit remaining in ending inventory, to avoid double-counting.