B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: FAR 3

Question 1

Under ASC 606, when should revenue from a contract with a customer be recognized?

Accepted Answer

When performance obligations are satisfied

Answer

ASC 606 requires revenue recognition when (or as) a performance obligation is satisfied by transferring a promised good or service to the customer.

Question 2

A company reports a temporary difference where book income exceeds taxable income by $50,000. If the tax rate is 25%, this creates a:

Accepted Answer

Deferred tax liability of $12,500

Answer

When book income exceeds taxable income, taxes paid now are lower than book expense; the future tax obligation creates a deferred tax liability of $50,000 × 25% = $12,500.

Question 3

Using the indirect method for the statement of cash flows, an increase in accounts receivable is:

Accepted Answer

Subtracted from net income

Answer

An increase in accounts receivable means revenue was recognized but cash was not collected, so it is subtracted from net income to arrive at operating cash flows.

Question 4

Which inventory costing method produces the highest net income during a period of rising prices?

Accepted Answer

FIFO

Answer

FIFO assigns older, lower-cost inventory to COGS during rising prices, leaving more recent higher-cost inventory on the balance sheet and producing the lowest COGS and highest net income.

Question 5

A not-for-profit organization receives a $500,000 donation restricted for building construction. How should this be classified?

Accepted Answer

Net assets with donor restrictions

Answer

Under ASC 958, contributions with donor-imposed restrictions are classified as net assets with donor restrictions until the restrictions are met.

B. Acy Bachelor of Accountancy Practice Test

B. Acy Bachelor of Accountancy Practice Test

B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: FAR 3