AICPA Financial Accounting and Reporting 3

Question 1

Under the allowance method, when a specific account receivable is written off as uncollectible, the entry:

Accepted Answer

Has no effect on net accounts receivable

Answer

Reduces net accounts receivable

Answer

Reduces total assets

Answer

Reduces net income

Question 2

A company using the equity method records its share of an investee's net income by:

Accepted Answer

Debiting the investment account and crediting investment income

Answer

Debiting investment income and crediting the investment account

Answer

Debiting cash and crediting the investment account

Answer

Debiting the investment account and crediting other comprehensive income

Question 3

Which depreciation method allocates cost based on actual usage or output rather than time?

Accepted Answer

Units-of-production

Answer

Straight-line

Answer

Double-declining balance

Answer

Sum-of-the-years'-digits

Question 4

A contingent liability should be accrued when it is:

Accepted Answer

Probable and can be reasonably estimated

Answer

Reasonably possible and can be reasonably estimated

Answer

Probable regardless of estimation ability

Answer

Remote but the amount is known

Question 5

When computing earnings per share (EPS), preferred dividends on cumulative preferred stock are:

Accepted Answer

Deducted from net income whether declared or not

Answer

Deducted only when declared

Answer

Added back to net income

Answer

Ignored entirely

Question 6

Under ASC 330, inventories are reported at the lower of cost or net realizable value (NRV). NRV is defined as:

Accepted Answer

Estimated selling price less costs to complete and sell

Answer

Replacement cost less selling costs

Answer

Historical cost less accumulated depreciation

Answer

Fair value less disposal costs

Question 7

Which statement about goodwill impairment testing under U.S. GAAP is correct?

Accepted Answer

Goodwill is not amortized but is tested for impairment at the reporting unit level at least annually

Answer

Goodwill is amortized over 40 years and tested for impairment annually

Answer

Goodwill is tested for impairment only when triggering events occur

Answer

Goodwill impairment is recognized in other comprehensive income