CPA Financial Analysis & Reporting 2

Question 1

Under ASC 606, when is revenue recognized for a performance obligation satisfied over time?

Accepted Answer

As the entity satisfies the performance obligation over the contract period

Answer

ASC 606 requires revenue to be recognized over time when one of three criteria is met, such as the customer simultaneously receives and consumes the benefits.

Question 2

Which of the following is classified as an investing activity on the statement of cash flows?

Accepted Answer

Purchase of equipment for cash

Answer

Purchases of long-lived assets such as equipment are investing activities because they involve acquiring resources intended to generate future income.

Question 3

A company reports net income of $200,000. Depreciation was $30,000, accounts receivable increased $15,000, and accounts payable decreased $10,000. What is operating cash flow (indirect method)?

Accepted Answer

$205,000

Answer

$200,000 + $30,000 – $15,000 – $10,000 = $205,000; increases in receivables use cash and decreases in payables use cash.

Question 4

The current ratio is 2.5 and current liabilities are $80,000. What are current assets?

Accepted Answer

$200,000

Answer

Current assets = Current ratio × Current liabilities = 2.5 × $80,000 = $200,000.

Question 5

Which earnings per share figure must be disclosed on the face of the income statement for a public company with a complex capital structure?

Accepted Answer

Both basic and diluted EPS

Answer

ASC 260 requires public entities with complex capital structures to present both basic and diluted EPS on the face of the income statement.

(CPA) Certified Practicing Accountant Practice Test

(CPA) Certified Practicing Accountant Practice Test

CPA Financial Analysis & Reporting 2