Certified Public Accountant (Financial Accounting & Reporting) 2

Question 1

Under ASC 842, how does 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 requires lessees to classify a lease as a finance lease when ownership transfers to the lessee by the end of the lease term.

Question 2

A company issues bonds with a face value of $500,000 at 102. What amount should be recorded as the bond premium?

Accepted Answer

$10,000

Answer

Bonds issued at 102 means 102% of face value, so proceeds = $510,000; the premium is $510,000 − $500,000 = $10,000.

Question 3

Which inventory costing method typically results in the lowest ending inventory balance during a period of rising prices?

Accepted Answer

LIFO

Answer

LIFO assigns the most recent (highest) costs to cost of goods sold, leaving the oldest (lowest) costs in ending inventory.

Question 4

Under the equity method of accounting, how does an investor record dividends received from an investee?

Accepted Answer

As a reduction of the investment account

Answer

Under the equity method, dividends received reduce the carrying amount of the investment because they represent a return of the investment.

Question 5

What is the effect on the accounting equation when a company collects cash on accounts receivable?

Accepted Answer

One asset increases; another asset decreases

Answer

Collecting cash on accounts receivable increases cash and decreases accounts receivable by equal amounts, leaving total assets unchanged.

Certified Public Accountant Practice Test