CPB / BookKeeping Financial Statement Preparation 4

Question 1

Which of the following is NOT disclosed in the notes to financial statements?

Accepted Answer

The external auditor's personal salary

Answer

Notes to financial statements disclose accounting policies, contingencies, and debt details, but not personal compensation of auditors.

Question 2

A company collects $12,000 in advance for a 12-month service contract. After 3 months, how much should be reported as unearned revenue?

Accepted Answer

$9,000

Answer

After 3 months, $3,000 has been earned ($1,000/month × 3), leaving $9,000 still unearned and reported as a liability.

Question 3

Which depreciation method allocates an equal amount of depreciation expense each year?

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 charges.

Question 4

When preparing a bank reconciliation, which item would be added to the book (company) balance?

Accepted Answer

Interest earned credited by bank

Answer

Interest credited by the bank but not yet recorded in the company's books increases the book balance and must be added.

Question 5

How is a contingent liability recorded if it is both probable and reasonably estimable?

Accepted Answer

Recorded as a liability and an expense on the financial statements

Answer

Under US GAAP, a contingent liability that is both probable and reasonably estimable must be accrued as a liability and recognized as an expense.

CPB / BookKeeping Practice Test