AICPA Financial Accounting and Reporting 2

Question 1

Under ASC 842, how should a lessee classify a lease where the lease term is for the major part of the remaining economic life of the underlying asset?

Accepted Answer

Finance lease

Answer

Under ASC 842, a lease is classified as a finance lease when the lease term covers the major part of the remaining economic life of the underlying asset.

Question 2

A company issues bonds at a premium. How is the premium amortized under the effective interest method?

Accepted Answer

Debited to premium on bonds payable and credited to interest expense

Answer

Under the effective interest method, bond premium amortization reduces the carrying value of the bonds by debiting premium on bonds payable and crediting interest expense.

Question 3

Which inventory cost flow assumption generally results in the lowest net income during a period of rising prices?

Accepted Answer

LIFO

Answer

LIFO results in the highest cost of goods sold (most recent, higher-cost items expensed first) and therefore the lowest net income during periods of rising prices.

Question 4

Under ASC 606, when should revenue from a contract be recognized if performance obligations are satisfied over time?

Accepted Answer

As progress toward completion is measured

Answer

When a performance obligation is satisfied over time, revenue is recognized by measuring progress toward complete satisfaction of that obligation.

Question 5

A deferred tax liability arises when:

Accepted Answer

Book income exceeds taxable income creating a future taxable amount

Answer

A deferred tax liability arises when book income exceeds taxable income due to temporary differences that will result in taxable amounts in future periods.

(AICPA) American Institute of Certified Public Accountants Practice Test

(AICPA) American Institute of Certified Public Accountants Practice Test

AICPA Financial Accounting and Reporting 2