CPA Financial Accounting & Reporting 2

Question 1

Under ASC 842, how does a lessee classify a lease that transfers ownership of the underlying asset by the end of the lease term?

Accepted Answer

Finance lease

Answer

ASC 842 classifies a lessee lease as a finance lease if ownership transfers to the lessee by the end of the lease term.

Question 2

A company has a deferred tax liability of $40,000 and a deferred tax asset of $15,000 with a valuation allowance of $5,000. What is the net deferred tax position reported on the balance sheet?

Accepted Answer

Net liability of $30,000

Answer

The net deferred tax liability is $40,000 minus the net deferred tax asset of ($15,000 − $5,000) = $10,000, yielding $30,000.

Question 3

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

Accepted Answer

FIFO

Answer

FIFO assigns the oldest (lower) costs to COGS, leaving higher-cost inventory on hand and producing higher net income when prices rise.

Question 4

Under ASC 350, which intangible assets are NOT amortized but instead tested for impairment at least annually?

Accepted Answer

Indefinite-lived intangible assets

Answer

ASC 350 requires indefinite-lived intangible assets to be tested for impairment at least annually rather than amortized.

Question 5

A bond is issued at a premium. How does amortization of the bond premium affect interest expense over the life of the bond?

Accepted Answer

Decreases interest expense each period

Answer

Amortizing a bond premium reduces the carrying value of the bond toward par, which decreases interest expense recognized each period.

(CPA) Certified Practicing Accountant Practice Test

(CPA) Certified Practicing Accountant Practice Test

CPA Financial Accounting & Reporting 2