CGA Financial Accounting & Reporting 5

Question 1

Under ASC 230, which of the following is classified as a financing activity?

Accepted Answer

Repurchase of common stock (treasury stock)

Answer

Repurchasing treasury stock involves transactions with owners, making it a financing activity; interest paid may be operating under US GAAP.

Question 2

When computing diluted EPS, stock options with an exercise price BELOW the average market price are:

Accepted Answer

Included using the treasury stock method

Answer

In-the-money options (exercise price < market price) are dilutive and included in diluted EPS using the treasury stock method to compute incremental shares.

Question 3

A company sells a product for $1,000 with a 2/10, n/30 payment term. If the customer pays within 10 days, what is the cash received?

Accepted Answer

$980

Answer

2/10 means a 2% discount if paid within 10 days: $1,000 × (1 - 0.02) = $980.

Question 4

Under the full disclosure principle, which of the following requires footnote disclosure even if not recorded on the balance sheet?

Accepted Answer

Possible contingent liabilities not meeting accrual criteria

Answer

Possible (not probable) contingent losses that cannot be accrued still require footnote disclosure so users can assess potential future obligations.

Question 5

Which characteristic of useful financial information ensures that different knowledgeable users would reach similar conclusions?

Accepted Answer

Verifiability

Answer

Verifiability means that independent observers using the same methods would reach consensus on whether information faithfully represents economic phenomena.

(CGA) Certified General Accountant Practice Test

(CGA) Certified General Accountant Practice Test

CGA Financial Accounting & Reporting 5