CGA Financial Accounting & Reporting 2

Question 1

Under ASC 842, how should a lessee classify a lease where the present value of lease payments equals 92% of the asset's fair value?

Accepted Answer

Finance lease

Answer

Under ASC 842, a lease is classified as a finance lease if the PV of lease payments equals or exceeds substantially all of the asset's fair value (typically 90% threshold).

Question 2

Which method of inventory cost flow typically results in the highest net income during a period of rising prices?

Accepted Answer

FIFO

Answer

FIFO assigns the oldest (lowest) costs to COGS during rising prices, leaving higher-cost items in ending inventory and resulting in higher net income.

Question 3

A company issues bonds with a face value of $500,000 at 98. What is the initial carrying value of the bonds payable?

Accepted Answer

$490,000

Answer

Bonds issued at 98 means 98% of face value, so $500,000 × 0.98 = $490,000 initial carrying value.

Question 4

Under the percentage-of-completion method, if a project is 40% complete and total estimated costs are $1,000,000 with a contract price of $1,500,000, what revenue is recognized?

Accepted Answer

$600,000

Answer

Revenue recognized = 40% × $1,500,000 contract price = $600,000.

Question 5

Which of the following is NOT a component of Other Comprehensive Income (OCI)?

Accepted Answer

Gains on sale of equipment

Answer

Gains on sale of equipment are recognized in net income, not OCI; OCI captures items bypassing the income statement.

(CGA) Certified General Accountant Practice Test

(CGA) Certified General Accountant Practice Test

CGA Financial Accounting & Reporting 2