AICPA Financial Reporting & Analysis 2

Question 1

Under ASC 842, how should a lessee classify a lease where the present value of lease payments equals 95% of the fair value of the underlying asset?

Accepted Answer

Finance lease

Answer

A lease is classified as a finance lease when the present value of lease payments equals substantially all (generally 90% or more) of the fair value of the underlying asset.

Question 2

Which of the following is NOT a component of Other Comprehensive Income (OCI) under U.S. GAAP?

Accepted Answer

Gains on sale of trading securities

Answer

Gains on sale of trading securities are recognized in net income, not OCI, because trading securities are marked to market through the income statement.

Question 3

A company reports diluted EPS of $2.50 and basic EPS of $2.75. What does the difference indicate?

Accepted Answer

The company has dilutive potential common shares outstanding

Answer

When diluted EPS is lower than basic EPS, it indicates the company has dilutive securities such as stock options, convertible bonds, or warrants that would increase the share count.

Question 4

Under ASC 606, when should revenue be recognized for a performance obligation satisfied over time?

Accepted Answer

Progressively as the entity satisfies the performance obligation

Answer

Revenue for performance obligations satisfied over time is recognized progressively using an appropriate measure of progress such as the input or output method.

Question 5

What is the effect on the financial statements when a company changes from FIFO to LIFO inventory method during a period of rising prices?

Accepted Answer

Lower net income and lower ending inventory

Answer

Switching to LIFO in a period of rising prices results in higher COGS (newer, costlier units expensed first), reducing net income and leaving older lower-cost units in ending inventory.

(AICPA) Association of International Certified Professional Accountants Practice Test

(AICPA) Association of International Certified Professional Accountants Practice Test

AICPA Financial Reporting & Analysis 2