AICPA Financial Reporting & Analysis 3

Question 1

Under ASC 350, when must an entity test indefinite-lived intangible assets for impairment?

Accepted Answer

Annually, and when triggering events occur

Answer

Indefinite-lived intangible assets must be tested for impairment at least annually and more frequently when triggering events suggest possible impairment.

Question 2

A company issues a $1,000 bond at a discount. Over the life of the bond, what happens to interest expense relative to the coupon payment?

Accepted Answer

Interest expense is greater than the coupon payment

Answer

When a bond is issued at a discount, interest expense (effective interest) exceeds the coupon payment because the discount is amortized to interest expense over the bond's life.

Question 3

Which of the following best describes the concept of 'substance over form' in financial reporting?

Accepted Answer

Transactions should reflect their economic reality regardless of legal structure

Answer

Substance over form requires that transactions be accounted for in accordance with their economic substance and financial reality, not merely their legal form.

Question 4

Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. This is known as:

Accepted Answer

Exit price

Answer

ASC 820 defines fair value as an exit price — the price received to sell an asset or paid to transfer a liability in the principal (or most advantageous) market.

Question 5

When the effective interest rate method is used for amortizing bond premium, how does the amortization amount change over time?

Accepted Answer

It decreases each period

Answer

Under the effective interest method for a premium bond, amortization decreases each period because the carrying value (and thus effective interest) decreases as premium is amortized.

(AICPA) Association of International Certified Professional Accountants Practice Test

(AICPA) Association of International Certified Professional Accountants Practice Test

AICPA Financial Reporting & Analysis 3