Certified Management Accountant Financial Reporting 4

Question 1

A company writes down inventory to net realizable value. Under US GAAP, if market prices later recover, how is this handled?

Accepted Answer

No reversal is permitted; the written-down value becomes the new cost basis

Answer

Under US GAAP, inventory write-downs establish a new cost basis and cannot be reversed, unlike IFRS which allows partial reversals.

Question 2

Which of the following best describes the concept of a 'variable interest entity' (VIE) under ASC 810?

Accepted Answer

An entity where the equity at risk is insufficient to finance its activities without additional support

Answer

A VIE is an entity that lacks sufficient equity investment at risk to finance its activities, or where equity investors lack typical ownership characteristics.

Question 3

Under ASC 350, goodwill impairment testing requires comparing the fair value of a reporting unit to its carrying amount. If the reporting unit's fair value is less than its carrying amount, the impairment loss is:

Accepted Answer

Equal to the excess of carrying amount over fair value, limited to the goodwill balance

Answer

Under ASU 2017-04, goodwill impairment equals the excess of carrying amount over fair value but cannot exceed the total goodwill assigned to the reporting unit.

Question 4

A company sells a product with a one-year warranty. Under ASC 606, how should warranty obligations be accounted for?

Accepted Answer

As a provision (liability) under ASC 460 if it provides assurance-type coverage only

Answer

Assurance-type warranties (guaranteeing the product meets agreed specifications) are accounted for as a liability under ASC 460, not as a separate performance obligation.

Question 5

Which of the following transactions would be classified as a financing activity on the statement of cash flows?

Accepted Answer

Payment of dividends to shareholders

Answer

Payment of dividends to shareholders is a financing activity because it represents a return of capital to equity providers.

Certified Management Accountant Practice Test

Certified Management Accountant Practice Test

Certified Management Accountant Financial Reporting 4