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

Writing off a specific account reduces both accounts receivable and the allowance for doubtful accounts by equal amounts, leaving net accounts receivable unchanged.

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

Under the equity method, the investor debits the investment account and credits investment income for its proportionate share of the investee's net income.

Question 3

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

Accepted Answer

Units-of-production

Answer

The units-of-production method allocates depreciation based on actual output or usage, making it activity-based rather than time-based.

Question 4

A contingent liability should be accrued when it is:

Accepted Answer

Probable and can be reasonably estimated

Answer

Under ASC 450, a contingent liability is accrued only when the loss is probable and the amount can be reasonably estimated.

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

For cumulative preferred stock, preferred dividends are deducted from net income in the EPS numerator whether or not they have been declared.

(AICPA) American Institute of Certified Public Accountants Practice Test

(AICPA) American Institute of Certified Public Accountants Practice Test

AICPA Financial Accounting and Reporting 3