B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: FAR 2 — Questions and Answers
Question 1: Under ASC 842, how does a lessee classify a lease where the lease term is 80% of the asset's remaining economic life?
- Operating lease
- Finance lease (Correct answer)
- Short-term lease
- Sales-type lease
Correct answer: Finance lease
Under ASC 842, a lease is classified as a finance lease if the lease term is for the major part (generally 75% or more) of the remaining economic life of the underlying asset.
Question 2: A company uses the weighted-average cost method. Beginning inventory is 100 units at $10, purchases are 200 units at $13. If 150 units are sold, what is the cost of goods sold?
- $1,500
- $1,700
- $1,800 (Correct answer)
- $1,950
Correct answer: $1,800
Weighted-average cost = (100×$10 + 200×$13) / 300 = $3,600/300 = $12 per unit; COGS = 150 × $12 = $1,800.
Question 3: Which statement best describes the modified accrual basis of accounting used in governmental fund accounting?
- Revenues are recognized when earned regardless of collection
- Revenues are recognized when measurable and available within 60 days
- Expenditures are recorded when the obligation is incurred
- Both B and C (Correct answer)
Correct answer: Both B and C
Modified accrual recognizes revenues when measurable and available (typically within 60 days), and records expenditures when the liability is incurred.
Question 4: A bond with a face value of $1,000,000 is issued at 98. Using the straight-line method, annual amortization of the bond discount over 10 years is:
- $1,000
- $2,000 (Correct answer)
- $10,000
- $20,000
Correct answer: $2,000
Bond discount = $1,000,000 × 2% = $20,000; annual amortization = $20,000 / 10 years = $2,000.
Question 5: Under the equity method of accounting, which event requires the investor to reduce the carrying value of its investment?
- Investee declares a cash dividend (Correct answer)
- Investee reports net income
- Investor purchases additional shares
- Investee issues additional shares to third parties
Correct answer: Investee declares a cash dividend
Under the equity method, cash dividends received reduce the investment's carrying value because they represent a return of capital, not income.
Question 6: In a defined benefit pension plan, what is the effect of an actuarial loss on other comprehensive income (OCI)?
- OCI increases
- OCI decreases (Correct answer)
- No effect on OCI
- Net income decreases directly
Correct answer: OCI decreases
Actuarial losses increase the pension obligation and are initially recorded in OCI as a decrease, then amortized into net periodic pension cost over future periods.
Question 7: Which of the following is NOT included in the government-wide financial statements prepared under GASB standards?
- Governmental activities
- Business-type activities
- Fiduciary funds (Correct answer)
- Component units
Correct answer: Fiduciary funds
Fiduciary funds are excluded from government-wide financial statements because the government is acting as an agent for resources that belong to others.
B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: FAR 2
Under ASC 842, how does a lessee classify a lease where the lease term is 80% of the asset's remaining economic life?