Certified Management Accountant Financial Reporting 2

Question 1

Under ASC 842, how must a lessee classify a lease that transfers ownership of the underlying asset to the lessee by the end of the lease term?

Accepted Answer

Finance lease

Answer

ASC 842 classifies a lease as a finance lease when any one of five criteria is met, including transfer of ownership at lease end.

Question 2

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

Accepted Answer

FIFO

Answer

FIFO assigns the oldest (lowest) costs to COGS during rising prices, leaving higher-cost inventory on the balance sheet and producing the highest net income.

Question 3

A company issues bonds with a face value of $500,000 at a discount of $20,000. Under the effective interest method, how is the discount amortized each period?

Accepted Answer

Interest expense minus cash interest paid

Answer

Under the effective interest method, discount amortization equals interest expense (carrying value × market rate) minus cash interest paid (face value × coupon rate).

Question 4

In a defined benefit pension plan, which component of net periodic pension cost represents the increase in the projected benefit obligation due to passage of time?

Accepted Answer

Interest cost

Answer

Interest cost is the increase in the PBO during a period due to the passage of time, calculated as the beginning PBO multiplied by the discount rate.

Question 5

When a company changes from LIFO to FIFO inventory valuation, it must report the change as a:

Accepted Answer

Prior period adjustment with retrospective restatement

Answer

Changes in accounting principle, such as switching from LIFO to FIFO, generally require retrospective restatement of all prior period financial statements.

Certified Management Accountant Practice Test

Certified Management Accountant Practice Test

Certified Management Accountant Financial Reporting 2