CPA Financial Accounting & Reporting 3

Question 1

Under ASC 606, revenue is recognized when (or as) performance obligations are satisfied. Which of the following represents recognition OVER TIME rather than at a point in time?

Accepted Answer

Construction of a specialized asset with no alternative use and an enforceable right to payment

Answer

Revenue is recognized over time when the asset has no alternative use to the seller and the seller has an enforceable right to payment for performance completed to date.

Question 2

What is the effect on the accounting equation when a company collects cash on a previously recorded accounts receivable?

Accepted Answer

One asset increases; another asset decreases

Answer

Cash (asset) increases while accounts receivable (asset) decreases by the same amount, keeping total assets unchanged.

Question 3

Under ASC 805, how is a bargain purchase in a business combination recognized?

Accepted Answer

As a gain in the income statement

Answer

A bargain purchase occurs when fair value of net assets acquired exceeds the purchase price, and the resulting gain is recognized immediately in the income statement.

Question 4

Which of the following events after the balance sheet date requires an ADJUSTMENT to the financial statements (adjusting subsequent event)?

Accepted Answer

Settlement of litigation for an amount different from what was accrued at year-end, where the cause of action existed before year-end

Answer

A lawsuit settlement that provides evidence of conditions existing at the balance sheet date requires adjustment to the financial statements.

Question 5

Which depreciation method allocates the same dollar amount of depreciation expense to each period of the asset's useful life?

Accepted Answer

Straight-line

Answer

The straight-line method spreads the depreciable cost evenly over the asset's useful life, resulting in equal annual depreciation expense.

(CPA) Certified Practicing Accountant Practice Test

(CPA) Certified Practicing Accountant Practice Test

CPA Financial Accounting & Reporting 3