Financial Accounting & Reporting Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Accounting & Reporting flashcards as text
Under ASC 606, revenue is recognized when or as a company satisfies a performance obligation by transferring control of a good or service to the customer. Which factor does NOT indicate transfer of control?
Answer: The entity has physical possession of the asset
Physical possession by the seller indicates control has NOT transferred; control transfers when the customer gains possession, legal title, or rights to the asset.
A contingent liability should be accrued when it is:
Answer: Probable and the amount can be reasonably estimated
Under ASC 450, a loss contingency is accrued only when it is both probable that a liability has been incurred and the amount can be reasonably estimated.
Which statement correctly describes the difference between a change in accounting principle and a change in accounting estimate?
Answer: A change in principle is retrospective; a change in estimate is prospective
Changes in accounting principle require retrospective restatement of prior periods, while changes in accounting estimate are applied prospectively to current and future periods.
What does a deferred tax liability represent?
Answer: Future tax payments resulting from taxable temporary differences
A deferred tax liability arises when taxable income will be higher in future periods than book income due to taxable temporary differences, creating a future tax obligation.
Under the allowance method for bad debts, which entry is made when a previously written-off account is unexpectedly collected?
Answer: Debit Accounts Receivable, Credit Allowance; then Debit Cash, Credit Accounts Receivable
The recovery requires two entries: first reinstate the receivable by reversing the write-off, then record the cash collection against the receivable.
How is goodwill tested for impairment under US GAAP (ASC 350)?
Answer: Annually (or more often if events indicate) at the reporting unit level
ASC 350 requires goodwill to be tested for impairment at least annually at the reporting unit level, and more frequently when triggering events occur.
Which of the following transactions would appear in the investing activities section of the cash flow statement?
Answer: Purchase of a patent from another company
Purchases of long-term assets such as patents are capital expenditures classified as investing activities under ASC 230.