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Financial Reporting & Analysis 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 Reporting & Analysis flashcards as text

  1. Under IFRS 15, the five-step revenue recognition model begins with which step?

    Answer: Identify the contract with a customer

    The first step in the IFRS 15 (and ASC 606) five-step model is to identify the contract(s) with a customer, which establishes the rights and obligations of each party.

  2. A company has total assets of $2,000,000, total liabilities of $1,200,000, and net income of $150,000. What is the return on assets (ROA)?

    Answer: 7.5%

    ROA = Net Income / Total Assets = $150,000 / $2,000,000 = 7.5%, measuring how efficiently assets generate profit.

  3. Under ASC 805, in a business combination, how should acquisition-related costs (e.g., legal and advisory fees) be treated?

    Answer: Expensed as incurred

    ASC 805 requires acquisition-related costs such as legal, accounting, and advisory fees to be expensed as incurred, not included in the cost of the acquisition.

  4. Which inventory valuation method is prohibited under IFRS but permitted under U.S. GAAP?

    Answer: LIFO (Last-In, First-Out)

    LIFO is permitted under U.S. GAAP (ASC 330) but explicitly prohibited under IAS 2/IFRS because it can distort inventory values and does not reflect actual physical flow of goods.

  5. What does a high accounts receivable turnover ratio indicate about a company?

    Answer: The company collects its receivables quickly and efficiently

    A high accounts receivable turnover ratio indicates the company is efficiently collecting amounts owed by customers in a short period.

  6. Under U.S. GAAP, which of the following most accurately describes the matching principle?

    Answer: Expenses should be recognized in the same period as the revenues they help generate

    The matching principle requires that expenses be recognized in the same accounting period as the revenues they helped to generate, aligning costs with related income.

  7. A company's price-to-earnings (P/E) ratio is 20 and its earnings per share (EPS) is $3.00. What is the company's stock price?

    Answer: $60.00

    Stock Price = P/E ratio × EPS = 20 × $3.00 = $60.00; the P/E ratio directly relates the market price to per-share earnings.