Certified Management Accountant Financial Reporting 5

Question 1

A company issues 1,000 shares of $10 par value stock at $25 per share. What is the credit to additional paid-in capital?

Accepted Answer

$15,000

Answer

Additional paid-in capital equals the excess over par: ($25 − $10) × 1,000 shares = $15,000.

Question 2

Which of the following is an example of a temporary difference that creates a deferred tax LIABILITY?

Accepted Answer

Accelerated depreciation taken for tax exceeding straight-line book depreciation

Answer

Accelerated tax depreciation reduces taxable income now but book income will be lower in the future, creating a deferred tax liability for taxes owed later.

Question 3

Under GAAP, which of the following costs related to internally developed software must be EXPENSED as incurred?

Accepted Answer

Costs during the preliminary project stage

Answer

Under ASC 350-40, costs in the preliminary project stage (feasibility assessment, conceptual evaluation) must be expensed as incurred.

Question 4

A company has 10,000 stock options outstanding with an exercise price of $20 when the average market price is $25. Under the treasury stock method, how many incremental shares are added to diluted EPS?

Accepted Answer

2,000

Answer

Treasury stock method: 10,000 options exercised − (10,000 × $20 / $25) = 10,000 − 8,000 = 2,000 incremental shares.

Question 5

Which of the following items is reported as Other Comprehensive Income (OCI) rather than in net income?

Accepted Answer

Foreign currency translation adjustments

Answer

Foreign currency translation adjustments are reported in OCI and accumulate in accumulated other comprehensive income (AOCI) on the balance sheet.

Certified Management Accountant Practice Test

Certified Management Accountant Practice Test

Certified Management Accountant Financial Reporting 5