Certified Management Accountant Financial Reporting 3

Question 1

A company has a deferred tax asset of $80,000 and determines it is more likely than not that only $60,000 will be realized. What should the company record?

Accepted Answer

Record a valuation allowance of $20,000

Answer

A valuation allowance is required for the portion of a deferred tax asset that is more likely than not to be unrealizable, which is $80,000 − $60,000 = $20,000.

Question 2

Under ASC 606, revenue is recognized when or as a performance obligation is satisfied. Which of the following indicates a performance obligation satisfied OVER TIME?

Accepted Answer

Customer simultaneously receives and consumes the benefits

Answer

A performance obligation is satisfied over time if the customer simultaneously receives and consumes the benefits as the entity performs.

Question 3

Which financial statement reconciles net income to cash flows from operating activities under the indirect method?

Accepted Answer

Statement of cash flows

Answer

The statement of cash flows, operating section under the indirect method, starts with net income and adjusts for non-cash items and working capital changes.

Question 4

A construction company uses the percentage-of-completion method. If total estimated costs increase during the project, what is the most likely effect on revenue recognized in the current period?

Accepted Answer

Revenue decreases because the completion percentage falls

Answer

A higher total estimated cost reduces the percentage of completion (costs incurred ÷ total estimated costs), which decreases the cumulative revenue recognized and current period revenue.

Question 5

In computing earnings per share, which securities are included in the weighted-average shares for diluted EPS but NOT basic EPS?

Accepted Answer

Convertible bonds assumed converted to common shares

Answer

Diluted EPS includes the potential dilutive effect of convertible securities such as convertible bonds, while basic EPS uses only actual common shares outstanding.

Certified Management Accountant Practice Test

Certified Management Accountant Practice Test

Certified Management Accountant Financial Reporting 3