CIA Financial Reporting 3

Question 1

Under the indirect method of the cash flow statement, an increase in accounts payable is:

Accepted Answer

Added to net income

Answer

An increase in accounts payable means expenses were recognized but not yet paid in cash, so it is added back to net income.

Question 2

Which inventory cost flow assumption produces the lowest taxable income during periods of rising prices?

Accepted Answer

LIFO

Answer

LIFO assigns the most recently purchased (highest cost) inventory to COGS, reducing taxable income when prices are rising.

Question 3

A lease is classified as a finance lease under ASC 842 if it meets any one of five criteria. Which of the following is one of those criteria?

Accepted Answer

The present value of lease payments equals or exceeds 90% of the asset's fair value

Answer

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

Question 4

Goodwill arising from a business combination is:

Accepted Answer

Tested annually for impairment under US GAAP

Answer

Under ASC 350, goodwill is not amortized but must be tested for impairment at least annually.

Question 5

When a bond is issued at a premium, how does the carrying value change over time?

Accepted Answer

It decreases toward face value

Answer

Amortization of the bond premium reduces the carrying value each period until it equals the face value at maturity.

(CIA) Certified Industrial Accountant Practice Test

(CIA) Certified Industrial Accountant Practice Test

CIA Financial Reporting 3