Certified Public Accountant (Financial Accounting & Reporting) 4

Question 1

Under ASC 230, which of the following cash flows is classified as an investing activity?

Accepted Answer

Purchase of property, plant, and equipment

Answer

Purchases and sales of long-lived assets and investments are investing activities under ASC 230.

Question 2

A company uses the allowance method for bad debts. When a previously written-off account is unexpectedly collected, the entry first requires:

Accepted Answer

Debit accounts receivable; credit allowance for doubtful accounts

Answer

Recovery requires reversing the original write-off (debit A/R, credit allowance), then recording the cash receipt (debit cash, credit A/R).

Question 3

For a defined benefit pension plan, the service cost component of net periodic pension cost represents:

Accepted Answer

The actuarial present value of benefits earned by employees in the current period

Answer

Service cost is the actuarial present value of benefits attributed to employee service rendered during the current period.

Question 4

Which of the following best describes the concept of 'faithful representation' under the FASB conceptual framework?

Accepted Answer

Financial information agrees with the phenomena it purports to represent

Answer

Faithful representation means financial information completely, neutrally, and accurately depicts the real-world economic phenomena it represents.

Question 5

When computing diluted earnings per share, options and warrants are included using the treasury stock method. This method assumes proceeds from exercise are used to:

Accepted Answer

Repurchase common shares at the average market price

Answer

The treasury stock method assumes hypothetical exercise proceeds are used to repurchase shares at the average market price during the period.

Certified Public Accountant Practice Test

Certified Public Accountant Practice Test

Certified Public Accountant (Financial Accounting & Reporting) 4