CFO CFO Financial Reporting & Accounting

Question 1

Under U.S. GAAP, which revenue recognition standard replaced the previous industry-specific guidance and is now the primary framework for recognizing revenue?

Accepted Answer

ASC 606

Answer

ASC 605

Answer

ASC 840

Answer

ASC 815

Question 2

What is the key difference between the cash basis and accrual basis of accounting?

Accepted Answer

Cash basis records transactions when cash changes hands; accrual basis records when earned or incurred regardless of cash flow

Answer

Accrual basis is only used by nonprofits; cash basis by for-profit entities

Answer

Cash basis requires GAAP compliance; accrual does not

Answer

Accrual basis only applies to revenues, not expenses

Question 3

What is 'goodwill' on a balance sheet, and how is it currently tested under U.S. GAAP?

Accepted Answer

The premium paid over fair value in an acquisition, tested annually for impairment

Answer

Brand equity estimated by marketing, amortized over 40 years

Answer

Customer loyalty reserves, tested quarterly

Answer

Intangible assets from patents, tested when disposed of

Question 4

Under ASC 842 (the new U.S. GAAP lease standard), how are operating leases now recorded on the balance sheet by lessees?

Accepted Answer

As a right-of-use (ROU) asset and a corresponding lease liability

Answer

Only disclosed in footnotes, no balance sheet impact

Answer

As a capital lease asset depreciated over the lease term

Answer

As prepaid rent under current assets only

Question 5

What is the difference between 'basic' and 'diluted' earnings per share (EPS)?

Accepted Answer

Basic EPS uses weighted average shares outstanding; diluted EPS also includes the effect of all potentially dilutive securities

Answer

Basic EPS uses net income; diluted EPS uses operating income

Answer

Diluted EPS excludes discontinued operations; basic EPS does not

Answer

Basic EPS is reported quarterly; diluted EPS is annual

Question 6

What is the purpose of the statement of cash flows, and what are its three sections?

Accepted Answer

Shows sources and uses of cash; sections are operating, investing, and financing activities

Answer

Shows asset values; sections are current, long-term, and intangible

Answer

Reconciles net income to retained earnings; sections are revenue, expenses, and dividends

Answer

Reports liquidity ratios; sections are quick, current, and cash ratios