CIA Financial Accounting 2

Question 1

Under the accrual basis of accounting, when should revenue generally be recognized?

Accepted Answer

When the performance obligation is satisfied

Answer

ASC 606 recognizes revenue when (or as) control of goods or services transfers, satisfying the performance obligation.

Question 2

A company prepays a 12-month insurance policy for $12,000 on October 1. What is the prepaid insurance balance at December 31?

Accepted Answer

$9,000

Answer

Three months ($3,000) have expired, leaving $9,000 of prepaid insurance.

Question 3

Which inventory method, during a period of rising prices, generally results in the highest reported net income?

Accepted Answer

FIFO

Answer

FIFO charges older, cheaper costs to cost of goods sold, so gross profit is highest when prices rise.

Question 4

Which financial statement reports a company's assets, liabilities, and equity at a specific point in time?

Accepted Answer

Balance sheet

Answer

The balance sheet (statement of financial position) is a snapshot as of a single date.

Question 5

Equipment costing $50,000 with a $5,000 salvage value and a 5-year life is depreciated straight-line. What is annual depreciation expense?

Accepted Answer

$9,000

Answer

($50,000 − $5,000) ÷ 5 = $9,000 per year.

CIA - Certified Internal Accountant Practice Test