CFO CFO Financial Reporting & Accounting 1

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 606 (Revenue from Contracts with Customers) established a five-step model for revenue recognition, replacing dozens of prior industry-specific standards.

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 accounting matches revenues to the period earned and expenses to the period incurred, while cash basis only records transactions when cash is received or paid.

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

Goodwill represents the excess purchase price over the fair value of identifiable net assets acquired and must be tested for impairment at least annually under ASC 350.

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

ASC 842 requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for virtually all leases with terms over 12 months.

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

Diluted EPS includes the potential impact of options, warrants, convertible debt, and other dilutive instruments on the share count, providing a more conservative measure.

CFO - Certified Chief Financial Officer Practice Test

CFO - Certified Chief Financial Officer Practice Test

CFO CFO Financial Reporting & Accounting 1