US CMA Part 1 – Financial Accounting US GAAP..100 MCQs with Answers – 2024 Syllabus..Topics: Assets, Liabilities, Revenue, Leases, Consolidation, Taxes, OCI, Investments

 

US CMA Part 1 – Financial Accounting US GAAP..100 MCQs with Answers – 2024 Syllabus..Topics: Assets, Liabilities, Revenue, Leases, Consolidation, Taxes, OCI, Investments

*Section 1: Current vs Non-Current Assets & Liabilities – 15 Qs*

*Q1* Under US GAAP, which is classified as a current asset?  

A. Land held for future plant site  

B. Prepaid rent for next 18 months – 6 months used this year  

C. Investment in bonds maturing in 3 years  

D. Cash restricted for equipment purchase in 2 years  

*Answer: B* – Only 6 months prepaid = current. Rest is non-current.

*Q2* Refinancing of short-term debt completed after balance sheet date but before issuance. US GAAP treatment if intent + ability existed at BS date:  

A. Still current liability  

B. Reclassify to non-current  

C. Disclose only  

D. Split 50/50  

*Answer: B* – ASC 470-10-45. Intent + ability = non-current.

*Q3* Accounts payable due in 60 days, but company has unconditional right to defer for 15 months via existing line of credit. Classification:  

A. Current liability  

B. Non-current liability  

C. Contingent liability  

D. Disclose as current with note  

*Answer: B* – Unconditional right to defer >12 months = non-current.

*Q4* Deferred tax liability from depreciation timing difference, expected to reverse in 2 years:  

A. Current liability  

B. Non-current liability always under ASC 740  

C. Net with DTA  

D. Contingent liability  

*Answer: B* – ASU 2015-17: All DTAs/DTLs = non-current.

*Q5* Unearned revenue for 24-month magazine subscription, 12 months earned next year:  

A. All current  

B. All non-current  

C. $12 months current, $12 months non-current  

D. Revenue immediately  

*Answer: C* – Split based on when earned.

*Q6* Which is a non-current tangible asset?  

A. Copyright  

B. Inventory  

C. Factory building  

D. Trade receivables  

*Answer: C* – PP&E = tangible, non-current.

*Q7* Land held for speculation, not used in operations:  

A. Inventory  

B. PP&E  

C. Investment – non-current asset  

D. Current asset  

*Answer: C* – Not used in ops = investment.

*Q8* Goodwill is:  

A. Tangible, current  

B. Intangible, non-current, amortized 10 yrs  

C. Intangible, non-current, tested for impairment only  

D. Current asset  

*Answer: C* – ASC 350: Goodwill not amortized for public, impairment test.

*Q9* Patent with 5-year legal life, 8-year useful life. Amortize over:  

A. 5 years  

B. 8 years  

C. 20 years  

D. Shorter of legal or useful = 5 years  

*Answer: D* – ASC 350-30-35.

*Q10* Cash surrender value of life insurance, company is beneficiary:  

A. Current asset  

B. Non-current asset  

C. Expense  

D. Contra-liability  

*Answer: B* – CSV = non-current.

*Q11* Bank overdraft where right of offset does NOT exist:  

A. Net against cash  

B. Current liability  

C. Non-current liability  

D. Reduce AR  

*Answer: B* – No offset = liability.

*Q12* Warranty liability for 3-year warranty, 40% expected year 1:  

A. All current  

B. 40% current, 60% non-current  

C. All non-current  

D. Contingent only  

*Answer: B* – Split by timing.

*Q13* Bond sinking fund for bonds due in 8 years:  

A. Current asset  

B. Non-current asset – restricted  

C. Reduce bonds payable  

D. Cash equivalent  

*Answer: B* – Non-current, restricted.

*Q14* Which is NOT a current liability?  

A. Sales tax payable  

B. Current portion of LT debt  

C. Deferred tax liability  

D. Dividends payable  

*Answer: C* – DTL always non-current.

*Q15* Operating cycle = 15 months. Inventory sold in 14 months is:  

A. Non-current asset  

B. Current asset – use operating cycle if >1 year  

C. Long-term investment  

D. Intangible  

*Answer: B* – US GAAP: current if within cycle or 1 yr, whichever longer.

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*Section 2: Loans, Bonds, Receivables/Payables – 15 Qs*

*Q16* Secured loan means:  

A. No collateral  

B. Backed by specific asset, lower risk = lower rate  

C. Convertible to stock  

D. Callable by issuer  

*Answer: B*

*Q17* Debenture is:  

A. Secured bond  

B. Unsecured bond backed by general credit  

C. Short-term note  

D. Equity security  

*Answer: B*

*Q18* Bond issued at discount means:  

A. Market rate < coupon rate  

B. Market rate > coupon rate  

C. Debit to Premium  

D. Increases liability over time  

*Answer: B* – Discount = market > coupon. Liability increases via effective interest.

*Q19* Trade receivable vs Note receivable:  

A. Note = oral, Trade = written  

B. Note = written promise, usually interest-bearing, more formal  

C. Both current only  

D. Note = no legal claim  

*Answer: B*

*Q20* Note payable due in 90 days with 6% interest. At issuance, record:  

A. Debit Cash, Credit N/P at face  

B. Debit Cash, Credit N/P at PV  

C. Debit Interest Expense immediately  

D. Debit Discount on N/P  

*Answer: A* – Short-term, ignore PV if immaterial.

*Q21* Bonds callable at 102 means:  

A. Investor can call  

B. Issuer can redeem at 102% of face  

C. Must be called  

D. Conversion feature  

*Answer: B*

*Q22* Effective interest method for bond premium:  

A. Interest expense > cash paid  

B. Interest expense < cash paid, amortization reduces liability  

C. Straight-line only allowed  

D. Premium increases expense  

*Answer: B* – Premium: Cash > Expense.

*Q23* Factoring receivables with recourse. If not a true sale:  

A. Remove receivables, record loss  

B. Keep receivables + record liability  

C. Debit Revenue  

D. No entry  

*Answer: B* – ASC 860: Secured borrowing.

*Q24* Dishonored note receivable. Entry:  

A. Debit AR, Credit Note Receivable + Interest Revenue  

B. Debit Bad Debt  

C. No entry until paid  

D. Credit Sales  

*Answer: A* – Move to AR + recognize interest.

*Q25* Trade payables are:  

A. Written promises  

B. Oral/Invoice promises from purchases on account  

C. Long-term always  

D. Interest-bearing always  

*Answer: B*

*Q26* Zero-coupon bond issued $600,000, matures $1,000,000 in 10 yrs. Initial liability:  

A. $1,000,000  

B. $600,000  

C. $400,000 discount  

D. B and C – record at $600,000, discount $400,000  

*Answer: D*

*Q27* Covenant breach on LT loan at BS date, waiver obtained after BS date before issuance:  

A. Still non-current  

B. Must reclassify to current under US GAAP  

C. Disclose only  

D. Split  

*Answer: B* – ASC 470: Breach at BS date = current unless waiver obtained by BS date.

*Q28* Convertible bonds. If converted:  

A. Gain/loss on conversion  

B. Book value method: no gain/loss, debit Bonds, credit Common Stock + APIC  

C. Market value method only  

D. Liability remains  

*Answer: B* – US GAAP book value method typical.

*Q29* Note payable issued for equipment, no stated interest, face $100,000, PV $85,000. Record equipment:  

A. $100,000  

B. $85,000 + debit Discount $15,000  

C. $85,000 expense  

D. $100,000 liability only  

*Answer: B* – ASC 835: Impute interest.

*Q30* Accrued interest on bonds payable at year-end:  

A. Debit Interest Payable  

B. Debit Interest Expense, Credit Interest Payable  

C. Debit Cash  

D. No entry until paid  

*Answer: B*

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*Section 3: Depreciation, Leases, Revenue – 20 Qs*

*Q31* Straight-line depreciation: Cost $100k, Salvage $10k, Life 5 yrs. Year 2 expense:  

A. $20,000  

B. $18,000  

C. $36,000  

D. $10,000  

*Answer: B* – (100-10)/5=18k

*Q32* Double-declining balance. Cost $100k, Life 5 yrs, no salvage for DDB. Year 1:  

A. $20,000  

B. $40,000  

C. $18,000  

D. $10,000  

*Answer: B* – 2_(1/5)_100k=40k

*Q33* Units of production. Cost $50k, Salvage $5k, Total units 90k. Year units = 20k. Depr:  

A. $10,000  

B. $11,111  

C. $10,000 = (50-5)/90*20  

D. $5,000  

*Answer: C*

*Q34* Change from DDB to SL is:  

A. Change in principle, retrospective  

B. Change in estimate, prospective  

C. Change in entity  

D. Error correction  

*Answer: B* – ASC 250: Method change = change in estimate.

*Q35* ASC 842 Finance lease criteria. Which is NOT a criterion?  

A. Transfer of ownership  

B. Purchase option reasonably certain  

C. Lease term >= 75% of asset life  

D. PV of payments >= 90% of FV  

*Answer: C & D* – Old ASC 840 bright lines. ASC 842: “major part” and “substantially all”. But for test, 75%/90% still used as thresholds. If must pick, C is old rule. New: no bright line.

*Q36* Finance lease, lessee records:  

A. Rent expense  

B. ROU Asset + Lease Liability, then amort + interest  

C. Asset only  

D. Off-balance sheet  

*Answer: B*

*Q37* Operating lease, ASC 842. Lessee records:  

A. No balance sheet  

B. ROU Asset + Lease Liability, single lease expense SL  

C. Rent expense only  

D. Asset only  

*Answer: B*

*Q38* Sales-type lease, lessor with profit. At commencement, lessor recognizes:  

A. Interest revenue only  

B. Sales revenue + COGS + interest over term  

C. Deferred revenue  

D. Rent revenue  

*Answer: B* – Derecognize asset, record profit upfront.

*Q39* ASC 606 5-step model. Step 3 is:  

A. Identify contract  

B. Identify performance obligations  

C. Determine transaction price  

D. Allocate price  

*Answer: C* – 1 Contract, 2 PO, 3 Price, 4 Allocate, 5 Recognize.

*Q40* Performance obligation satisfied over time if:  

A. Customer consumes as performed, or asset no alt use + right to payment  

B. Payment received upfront  

C. Control transfers at point in time  

D. Inventory involved  

*Answer: A*

*Q41* Contract asset vs Receivable:  

A. Receivable = unconditional right. Contract asset = right conditional on something else  

B. Same thing  

C. Contract asset = liability  

D. Receivable = unearned  

*Answer: A*

*Q42* Variable consideration. Include if:  

A. Always include max  

B. Include if probable no significant reversal  

C. Exclude always  

D. Include 50%  

*Answer: B* – ASC 606 constraint.

*Q43* Sales with right of return. Revenue recognized:  

A. Gross, no adjustment  

B. Net of expected returns + refund liability + return asset  

C. When return period expires  

D. Cash basis  

*Answer: B*

*Q44* Principal vs Agent. Agent recognizes:  

A. Gross revenue  

B. Net amount = commission  

C. No revenue  

D. COGS  

*Answer: B* – Controls good before transfer = principal, else agent.

*Q45* Costs to obtain contract, incremental:  

A. Expense immediately  

B. Capitalize if recoverable, amortize  

C. Deferred revenue  

D. Inventory  

*Answer: B* – ASC 340-40.

*Q46* Depreciation for partial year. SL, bought Oct 1, Year = $12,000. Year 1 expense:  

A. $12,000  

B. $3,000 = 3/12  

C. $9,000  

D. $0  

*Answer: B* – Time-based.

*Q47* Lease term includes extension if:  

A. Always  

B. Reasonably certain to exercise  

C. Never  

D. Lessee wants  

*Answer: B*

*Q48* Short-term lease <12 months, lessee elects. Treatment:  

A. Still ROU + liability  

B. No ROU/liability, straight-line rent expense  

C. Capitalize anyway  

D. Disclose only  

*Answer: B* – ASC 842 election.

*Q49* Residual value guaranteed by lessee affects:  

A. Lessor only  

B. Lessee lease liability calc – include amount expected to owe  

C. No effect  

D. Revenue  

*Answer: B*

*Q50* Impairment of ROU asset finance lease:  

A. Not allowed  

B. Test under ASC 360 like PP&E  

C. Expense all immediately  

D. Reduce liability  

*Answer: B*

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*Section 4: Consolidation, Investments, Associates – 20 Qs*

*Q51* Control for consolidation under US GAAP:  

A. >20% ownership  

B. >50% voting interest or VIE primary beneficiary  

C. Significant influence  

D. Contract only  

*Answer: B*

*Q52* Investment in associate = 30%, no control. Method:  

A. Consolidation  

B. Equity method  

C. Fair value OCI  

D. Cost  

*Answer: B* – 20-50% = significant influence.

*Q53* Equity method. Investor share of investee net income:  

A. Debit Cash  

B. Debit Investment, Credit Equity Income  

C. OCI  

D. No entry  

*Answer: B*

*Q54* Equity method. Dividends received:  

A. Dividend Income  

B. Debit Cash, Credit Investment  

C. OCI  

D. Reduce expense  

*Answer: B* – Return of investment.

*Q55* Subsidiary sold inventory to parent, 30% unsold at year-end. Unrealized profit in inventory. Consolidation entry:  

A. Debit Sales, Credit COGS  

B. Debit Equity Income, Credit Inventory for unrealized profit  

C. No entry  

D. Debit COGS, Credit Sales  

*Answer: B* – Eliminate unrealized profit in ending inventory.

*Q56* Upstream sale = Sub to Parent. Unrealized profit adjustment affects:  

A. Parent’s net income only  

B. Sub’s net income, so NCI affected  

C. No one  

D. OCI  

*Answer: B* – Upstream affects sub NI → NCI.

*Q57* Downstream sale = Parent to Sub. Unrealized profit affects:  

A. NCI  

B. Parent only, NCI not affected  

C. Both equally  

D. OCI  

*Answer: B*

*Q58* Intercompany receivables/payables elimination:  

A. Debit AR, Credit AP  

B. Debit AP, Credit AR – eliminate  

C. Leave on books  

D. To OCI  

*Answer: B*

*Q59* Goodwill impairment test – 2 steps old, now 1 step. Current US GAAP public:  

A. 2-step: compare FV of unit to CV, then implied GW  

B. 1-step: CV of reporting unit > FV = impairment = excess  

C. No test  

D. Amortize 10 yrs  

*Answer: B* – ASU 2017-04 simplified.

*Q60* Step 1 goodwill impairment: FV unit $500k, CV $600k including GW $100k. Impairment:  

A. $0  

B. $100k max to GW  

C. $100k = 600-500, reduce GW by 100  

D. $600k  

*Answer: C*

*Q61* HTM securities = Held to Maturity. Measure:  

A. Fair value OCI  

B. Amortized cost  

C. Fair value NI  

D. Lower of cost or market  

*Answer: B*

*Q62* AFS securities = Available for Sale. Unrealized gain/loss:  

A. Net income  

B. OCI until sold  

C. Retained earnings  

D. Liability  

*Answer: B*

*Q63* Trading securities unrealized gain:  

A. OCI  

B. Net Income  

C. Deferred  

D. Equity  

*Answer: B*

*Q64* Reclassify HTM to AFS due to change in intent. Transfer at:  

A. Cost  

B. Fair value, unrealized G/L to OCI  

C. Amortized cost, no impact  

D. Lower of cost or market  

*Answer: B*

*Q65* Equity investment <20%, no significant influence, no FV. Measure:  

A. Cost  

B. FV NI, but can elect measurement alternative = cost – impairment + observable changes  

C. Equity method  

D. Consolidated  

*Answer: B* – ASC 321.

*Q66* Dividends from FV-NI equity investment:  

A. Reduce investment  

B. Dividend income on I/S  

C. OCI  

D. No entry  

*Answer: B*

*Q67* Investment in subsidiary, consolidation. Intercompany profit in fixed asset. Eliminate by:  

A. Debit Gain, Credit Asset  

B. Debit Asset, Credit COGS  

C. Debit Retained Earnings, Credit Asset + adjust depreciation  

D. No entry  

*Answer: C* – Excess depr must be adjusted each year.

*Q68* NCI = Non-controlling interest. On balance sheet:  

A. Liability  

B. Equity section, separate from parent equity  

C. Mezzanine  

D. Contra-asset  

*Answer: B*

*Q69* Consolidated net income = Parent NI + Sub NI – unrealized profit. NCI share shown:  

A. As expense  

B. Below net income, to get NI attributable to parent  

C. In OCI  

D. Not shown  

*Answer: B*

*Q70* When parent loses control but keeps investment:  

A. Continue consolidation  

B. Remeasure retained interest to FV, recognize gain/loss  

C. Cost method  

D. No change  

*Answer: B*

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*Section 5: Taxes, Contingencies, Theories, Income – 30 Qs*

*Q71* Current tax liability is:  

A. Tax based on taxable income for current year, payable <12 mo  

B. Deferred tax  

C. Tax on OCI  

D. Future tax  

*Answer: A*

*Q72* Deferred tax liability arises from:  

A. Taxable temporary difference – future taxable amounts  

B. Deductible temporary difference  

C. Permanent difference  

D. NOL  

*Answer: A* – Ex: Accel depr tax > book.

*Q73* DTA from NOL carryforward. Valuation allowance if:  

A. Always  

B. More likely than not some/all DTA won’t be realized  

C. Never  

D. If IRS audits  

*Answer: B* – >50% chance.

*Q74* Permanent difference = municipal bond interest. Effect:  

A. Creates DTA  

B. Creates DTL  

C. No deferred tax, only current tax difference  

D. OCI  

*Answer: C*

*Q75* Contingent liability. Probable + reasonably estimable:  

A. Disclose only  

B. Accrue + disclose  

C. No entry  

D. Debit asset  

*Answer: B* – ASC 450.

*Q76* Reasonably possible loss:  

A. Accrue  

B. Disclose only  

C. No action  

D. Debit expense  

*Answer: B*

*Q77* Remote loss:  

A. Accrue  

B. Disclose  

C. No accrual or disclosure needed  

D. Contingent asset  

*Answer: C*

*Q78* Contingent asset/gain:  

A. Accrue if probable  

B. Never accrue, disclose if probable  

C. Accrue always  

D. Liability  

*Answer: B* – Conservatism.

*Q79* Contingent liability vs Current liability:  

A. Contingent = uncertain, Current = known amount, due <1yr  

B. Same  

C. Contingent always non-current  

D. Current = disclosure only  

*Answer: A*

*Q80* Proprietary theory:  

A. Entity separate from owners. Assets – Liabilities = Equity  

B. Entity = owner extension. Focus on owner wealth  

C. No equity  

D. Fund accounting  

*Answer: B* – Proprietor view.

*Q81* Entity theory:  

A. Same as proprietary  

B. Entity separate. Assets = Equities. Focus on entity income  

C. No liabilities  

D. Cash basis  

*Answer: B* – Assets = Liabilities + Equity.

*Q82* Residual equity theory:  

A. Common stockholders = residual owners after preferred  

B. All equity equal  

C. No residuals  

D. Debt = equity  

*Answer: A*

*Q83* Capital maintenance – Financial:  

A. Capital = physical capacity  

B. Capital = net assets in $, profit if ending > beginning  

C. No income until capacity replaced  

D. Cash basis  

*Answer: B*

*Q84* Capital maintenance – Physical:  

A. Profit only after physical productive capacity maintained  

B. $ based  

C. Ignores inflation  

D. Same as financial  

*Answer: A*

*Q85* Gross profit margin =  

A. Net Income / Sales  

B. (Sales – COGS) / Sales  

C. COGS / Sales  

D. EBIT / Sales  

*Answer: B*

*Q86* COGS for retailer: Beginning Inv $20k, Purchases $80k, Ending Inv $25k. COGS:  

A. $75,000  

B. $85,000  

C. $25,000  

D. $80,000  

*Answer: A* – 20+80-25=75.

*Q87* Net income appears in:  

A. Balance sheet only  

B. Income statement, then closes to retained earnings  

C. OCI  

D. Cash flow only  

*Answer: B*

*Q88* Other Comprehensive Income includes:  

A. Sales revenue  

B. Unrealized gain on AFS, foreign currency translation, pension adjustments  

C. Depreciation  

D. Dividends  

*Answer: B* – ASC 220.

*Q89* Comprehensive Income =  

A. Net Income only  

B. Net Income + OCI  

C. Gross profit  

D. Retained earnings  

*Answer: B*

*Q90* Reclassification adjustment from OCI to NI occurs when:  

A. Never  

B. AFS security sold – realize gain from OCI to NI  

C. Every year-end  

D. Tax paid  

*Answer: B*

*Q91* Impairment of HTM debt security. If credit loss:  

A. To OCI only  

B. Credit loss to NI, non-credit to OCI  

C. No impairment for HTM  

D. Always to OCI  

*Answer: B* – ASC 326 CECL.

*Q92* Impairment 2-step for long-lived asset ASC 360:  

A. Step 1: Recoverability test – CV vs undiscounted CF. If CV>CF, Step 2: CV vs FV = loss  

B. 1-step only  

C. Compare to market only  

D. No test  

*Answer: A*

*Q93* After impairment, new cost basis:  

A. Can be written back up under US GAAP  

B. Cannot be reversed for held-and-used  

C. Write up to market  

D. Same as before  

*Answer: B* – No reversal under US GAAP.

*Q94* Investment in AFS, credit loss + non-credit loss. Presentation:  

A. All to NI  

B. Credit loss in NI, non-credit in OCI via allowance  

C. All to OCI  

D. No loss  

*Answer: B* – ASU 2016-13.

*Q95* Current tax expense vs Deferred tax expense:  

A. Current = tax payable on return. Deferred = change in DTA/DTL  

B. Same  

C. Deferred = cash paid  

D. Current = future  

*Answer: A* – Total tax expense = current + deferred.

*Q96* Effective tax rate reconciliation required for:  

A. All companies  

B. Public companies only, non-public can use rate  

C. Never  

D. Only if IRS asks  

*Answer: B* – Reg S-X.

*Q97* Uncertain tax position. Recognize benefit if:  

A. More likely than not to be sustained on audit  

B. Any chance  

C. Never  

D. IRS pre-approval  

*Answer: A* – ASC 740-10.

*Q98* Contingent liability, guarantee of debt of others. If probable:  

A. Disclose only  

B. Recognize liability at fair value at inception + accrue if probable  

C. No entry  

D. Asset  

*Answer: B* – ASC 460.

*Q99* Accrued liability vs Provision:  

A. Accrued = timing/amount certain, Provision = uncertain timing/amount  

B. Same  

C. Provision = asset  

D. Accrued = equity  

*Answer: A* – Provision = IAS term, but US GAAP similar for contingencies.

*Q100* Which is NOT part of OCI?  

A. Foreign currency translation gain  

B. Unrealized loss on trading securities  

C. Pension prior service cost  

D. Cash flow hedge effective portion  

*Answer: B* – Trading goes to NI, not OCI.

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*Answer Key Summary*

1B 2B 3B 4B 5C 6C 7C 8C 9D 10B 11B 12B 13B 14C 15B 16B 17B 18B 19B 20A 21B 22B 23B 24A 25B 26D 27B 28B 29B 30B 31B 32B 33C 34B 35C 36B 37B 38B 39C 40A 41A 42B 43B 44B 45B 46B 47B 48B 49B 50B 51B 52B 53B 54B 55B 56B 57B 58B 59B 60C 61B 62B 63B 64B 65B 66B 67C 68B 69B 70B 71A 72A 73B 74C 75B 76B 77C 78B 79A 80B 81B 82A 83B 84A 85B 86A 87B 88B 89B 90B 91B 92A 93B 94B 95A 96B 97A 98B 99A 100B

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Cost Accounting Core Concepts

Cost Accounting Core Concepts

*1. Cost Foundations*

- *Cost Object*: Anything you want to measure cost of. Product, service, dept, customer  

- *Direct Costs*: Traceable economically. DM + DL = *Prime Cost*  

- *Indirect Costs*: Cannot trace economically. OH = Indirect material + Indirect labor + Other OH  

- *Prime Cost = DM + DL*. *Conversion Cost = DL + MOH*  

- *Product Costs*: Inventoriable. DM, DL, MOH. On BS until sold → COGS  

- *Period Costs*: Expensed immediately. Selling, Admin. Not in inventory  

- *Relevant Range*: Activity range where fixed/variable cost assumptions valid. Outside = behavior changes  

- *Fixed Cost*: Total constant, per-unit ↓ as volume ↑. Ex: Rent  

- *Variable Cost*: Total changes, per-unit constant. Ex: DM  

- *Mixed Cost*: Y = a + bX. Use *High-Low Method* to separate: b = (High$ - Low$)/(High Units - Low Units)  

- *Step Costs*: Fixed over small range, jumps. Ex: 1 supervisor per 10 workers  

- *Explicit Cost*: Out-of-pocket, accounting record. *Implicit Cost*: Opportunity cost, no cash. *Economic Cost = Explicit + Implicit*  

- *Opportunity Cost*: Benefit forgone from next best alternative. Not recorded, but relevant for decisions  

- *Sunk Cost*: Past, irrelevant for decisions  

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*2. Overhead: Allocation & Disposition*

- *Cost Pool*: Group of costs with same driver. Homogeneous = similar cause  

- *Cost Driver*: Activity that causes cost. Allocation base. Ex: Machine hrs, DL hrs, # setups  

- *Blanket/Plantwide Rate*: 1 OH rate for entire plant. Total OH / Total base. Simple, but inaccurate if products diverse  

- *Departmental Rates*: Separate rate per dept. Better if depts use resources differently  

- *Predetermined OH Rate = Estimated OH / Estimated Base*. Used to apply OH during period  

- *Applied OH = Pred. Rate × Actual Base*. Actual OH = real incurred  

- *Overapplied OH*: Applied > Actual. COGS overstated. *Underapplied*: Applied < Actual. COGS understated  

- *Disposition*: 1. Immaterial → adjust COGS. 2. Material → Prorate to WIP, FG, COGS based on balances  

- *Apportionment*: Distribute service dept costs to production depts  

- *Reapportionment Methods*:  

    1. *Direct*: Service to production only. Simplest  

    2. *Step-Down*: One-way recognition of service-to-service. Start with dept serving most others  

    3. *Reciprocal*: Full recognition via simultaneous equations. Most accurate  

- *Supplementary Rate*: Adjust OH rate mid-year if estimates way off. Avoids large year-end variance

---

*3. Costing Systems: Absorption vs Variable vs Others*

- *Absorption/Full Costing*: US GAAP + IRS required. Product cost = DM + DL + Var MOH + Fixed MOH  

- *Variable/Direct Costing*: For internal only. Product cost = DM + DL + Var MOH. Fixed MOH = period expense  

- *Income Difference*: If Production > Sales, Absorption NI > Variable NI because Fixed OH deferred in inventory  

- *Super-variable/Throughput Costing*: Product cost = DM only. DL + OH = period. Extremely lean. TOC aligned  

- *Throughput = Sales – Totally Variable Costs DM*. Goal: Maximize throughput/unit of constraint  

- *Theory of Constraints TOC*: 5 steps: 1. Identify constraint/bottleneck, 2. Exploit it, 3. Subordinate, 4. Elevate, 5. Repeat  

- *Bottleneck*: Resource with capacity ≤ demand. Dictates system throughput  

- *Operation Excellence*: 3 E’s: Economy = cheap inputs. Efficiency = input/output ratio. Effectiveness = meet goal  

---

*4. Joint & By-Product Costing*

- *Joint Costs*: Costs up to splitoff point for multiple products from same process  

- *Splitoff Point*: Where products become identifiable  

- *Allocation Methods*:  

    1. *Sales Value at Splitoff*: Joint cost × (Product Sales / Total Sales). Best if sell at splitoff  

    2. *NRV*: Final Sales – Separable Costs. Use if process further  

    3. *Constant GP%*: Back into costs to get same GP% for all  

    4. *Physical Units*: Weight, volume. Weak if values differ  

- *By-Products*: Low value. Methods: 1. NRV reduces joint cost. 2. Misc income  

- *Decision*: Process further if Incremental Revenue > Incremental Cost

---

*5. Spoilage, Capacity, Variance*

- *Normal Spoilage*: Expected, inherent. Product cost. Spread over good units  

- *Abnormal Spoilage*: Unexpected. Period loss, separate line  

- *Job Costing*: Normal spoilage to specific job if due to job specs, else to MOH  

- *Process Costing*: Normal spoilage = EUP calculation  

- *Theoretical/Idle Capacity*: Max with no downtime. Not realistic  

- *Practical Capacity*: Theoretical – unavoidable downtime. Used for denominator in fixed OH rate  

- *Normal Capacity*: Average over long period  

- *Budgeted Capacity*: Expected next year. Causes most variance if actual ≠ budgeted  

- *Volume Variance*: Fixed OH only. = Budgeted Fixed OH – Fixed OH Applied. Due to capacity use  

---

*6. Inventory Valuation & Inflation Effects*

- *COGS Available for Sale = Beg FG + COGM*. COGS = Avail – End FG  

- *Inflation + FIFO*: Ending Inv higher, COGS lower, NI higher, Tax higher. LIFO opposite  

- *LIFO Liquidation*: Old low costs go to COGS → inflated NI in inflation  

- *LIFO Reserve = FIFO Inv – LIFO Inv*. Used to convert LIFO to FIFO  

- *LCM*: Lower of Cost or Market. Market = Replacement cost, ceiling NRV, floor NRV – Normal Profit  

- *US GAAP*: No LIFO to IFRS. Once write-down, no reversal for inventory  

---

*7. Cost Control vs Cost Reduction*

- *Cost Control*: Keeping costs to standards/budget. Variance analysis. Prevention  

- *Cost Reduction*: Permanent lowering of unit cost via process improvement. Value analysis, kaizen  

- *Standard Costing*: Benchmark. Variances = Actual – Standard. Mgt by exception  

- *Variance Disposition*: Same as over/underapplied OH  

---

*8. Cross-Subsidization & Costing Accuracy*

- *Overcosting*: Product charged too much OH. Price too high → lose sales  

- *Undercosting*: Product charged too little. Hidden loss, subsidized by others  

- *Cross-Subsidization*: Simple costing = one pool, volume base. High-volume simple products overcosted, low-volume complex undercosted  

- *Fix*: ABC = multiple pools + multiple drivers. Better tracing, reduces cross-subsidy  

- *ABC Hierarchy*: Unit, Batch, Product, Facility. Facility costs not traced to units  

---

*9. Factors of Production & Time Horizons*

- *4 Factors*: Land, Labor, Capital, Entrepreneurship  

- *Short Run*: At least 1 fixed factor. Ex: Plant size fixed. Law of diminishing returns applies  

- *Long Run*: All factors variable. Economies of scale possible  

- *Economies of Scale*: Avg cost ↓ as volume ↑ due to fixed spread  

- *Diseconomies*: Avg cost ↑ due to complexity  

---

*10. Key CMA Formulas to Memorize*

- *Prime Cost* = DM + DL  

- *Conversion Cost* = DL + MOH  

- *Applied OH* = Pred. Rate × Actual Activity  

- *COGM* = Beg WIP + DM + DL + MOH – End WIP  

- *COGS* = Beg FG + COGM – End FG  

- *Contribution Margin* = Sales – Var Costs  

- *Throughput* = Sales – DM  

- *High-Low Var Cost/Unit* = (High Cost – Low Cost) / (High Units – Low Units)  

- *EUP*: Units Completed + End WIP × %Complete – Beg WIP × %Complete if weighted avg  

- *NRV* = Final Sales Price – Separable Costs  

---

*Exam Traps – CMA Loves These*

1. *“Fixed OH is product cost”* → True for absorption, false for variable  

2. *“Underapplied OH means efficiency”* → No. Could be spending or volume variance  

3. *“ABC eliminates all distortions”* → Reduces, not eliminates. Facility costs still arbitrary  

4. *“Normal spoilage = period cost”* → No. Product cost under both job/process  

5. *“TOC says balance capacity”* → Wrong. TOC says balance flow, not capacity. Exploit bottleneck  

6. *“Opportunity cost is recorded”* → No. Relevant for decision, not in GL  

7. *“LIFO = lower NI in inflation”* → Yes, because COGS higher  

*Bottom Line*: CMA tests difference between GAAP absorption vs internal variable/throughput. Know why income differs. Know OH allocation impact on product costs → cross-subsidy → pricing decisions. Know TOC = throughput first.

www.gmsisuccess.in

US CMA Part 1 – Financial Accounting US GAAP Topics: Assets, Liabilities, Revenue, Leases, Consolidation, Taxes, OCI, Investments

US CMA Part 1 – Financial Accounting US GAAP Topics: Assets, Liabilities, Revenue, Leases, Consolidation, Taxes, OCI, Investments

*Section 1: Current vs Non-Current Assets & Liabilities – 15 Qs*

*Q1* Under US GAAP, which is classified as a current asset?  

A. Land held for future plant site  

B. Prepaid rent for next 18 months – 6 months used this year  

C. Investment in bonds maturing in 3 years  

D. Cash restricted for equipment purchase in 2 years  

*Answer: 

*Q2* Refinancing of short-term debt completed after balance sheet date but before issuance. US GAAP treatment if intent + ability existed at BS date:  

A. Still current liability  

B. Reclassify to non-current  

C. Disclose only  

D. Split 50/50  

*Answer: 

*Q3* Accounts payable due in 60 days, but company has unconditional right to defer for 15 months via existing line of credit. Classification:  

A. Current liability  

B. Non-current liability  

C. Contingent liability  

D. Disclose as current with note  

*Answer: 

*Q4* Deferred tax liability from depreciation timing difference, expected to reverse in 2 years:  

A. Current liability  

B. Non-current liability always under ASC 740  

C. Net with DTA  

D. Contingent liability  

*Answer:

*Q5* Unearned revenue for 24-month magazine subscription, 12 months earned next year:  

A. All current  

B. All non-current  

C. $12 months current, $12 months non-current  

D. Revenue immediately  

*Answer:.

*Q6* Which is a non-current tangible asset?  

A. Copyright  

B. Inventory  

C. Factory building  

D. Trade receivables  

*Answer: 

*Q7* Land held for speculation, not used in operations:  

A. Inventory  

B. PP&E  

C. Investment – non-current asset  

D. Current asset  

*Answer: 

*Q8* Goodwill is:  

A. Tangible, current  

B. Intangible, non-current, amortized 10 yrs  

C. Intangible, non-current, tested for impairment only  

D. Current asset  

*Answer:

*Q9* Patent with 5-year legal life, 8-year useful life. Amortize over:  

A. 5 years  

B. 8 years  

C. 20 years  

D. Shorter of legal or useful = 5 years  

*Answer: 

*Q10* Cash surrender value of life insurance, company is beneficiary:  

A. Current asset  

B. Non-current asset  

C. Expense  

D. Contra-liability  

*Answer:

*Q11* Bank overdraft where right of offset does NOT exist:  

A. Net against cash  

B. Current liability  

C. Non-current liability  

D. Reduce AR  

*Answer: 

*Q12* Warranty liability for 3-year warranty, 40% expected year 1:  

A. All current  

B. 40% current, 60% non-current  

C. All non-current  

D. Contingent only  

*Answer: 

*Q13* Bond sinking fund for bonds due in 8 years:  

A. Current asset  

B. Non-current asset – restricted  

C. Reduce bonds payable  

D. Cash equivalent  

*Answer:

*Q14* Which is NOT a current liability?  

A. Sales tax payable  

B. Current portion of LT debt  

C. Deferred tax liability  

D. Dividends payable  

*Answer: 

*Q15* Operating cycle = 15 months. Inventory sold in 14 months is:  

A. Non-current asset  

B. Current asset – use operating cycle if >1 year  

C. Long-term investment  

D. Intangible  

*Answer:

*Section 2: Loans, Bonds, Receivables/Payables – 15 Qs*

*Q16* Secured loan means:  

A. No collateral  

B. Backed by specific asset, lower risk = lower rate  

C. Convertible to stock  

D. Callable by issuer  

*Answer: 

*Q17* Debenture is:  

A. Secured bond  

B. Unsecured bond backed by general credit  

C. Short-term note  

D. Equity security  

*Answer: 

*Q18* Bond issued at discount means:  

A. Market rate < coupon rate  

B. Market rate > coupon rate  

C. Debit to Premium  

D. Increases liability over time  

*Answer: 

*Q19* Trade receivable vs Note receivable:  

A. Note = oral, Trade = written  

B. Note = written promise, usually interest-bearing, more formal  

C. Both current only  

D. Note = no legal claim  

*Answer:

*Q20* Note payable due in 90 days with 6% interest. At issuance, record:  

A. Debit Cash, Credit N/P at face  

B. Debit Cash, Credit N/P at PV  

C. Debit Interest Expense immediately  

D. Debit Discount on N/P  

*Answer: 

*Q21* Bonds callable at 102 means:  

A. Investor can call  

B. Issuer can redeem at 102% of face  

C. Must be called  

D. Conversion feature  

*Answer:

*Q22* Effective interest method for bond premium:  

A. Interest expense > cash paid  

B. Interest expense < cash paid, amortization reduces liability  

C. Straight-line only allowed  

D. Premium increases expense  

*Answer:

*Q23* Factoring receivables with recourse. If not a true sale:  

A. Remove receivables, record loss  

B. Keep receivables + record liability  

C. Debit Revenue  

D. No entry  

*Answer: .

*Q24* Dishonored note receivable. Entry:  

A. Debit AR, Credit Note Receivable + Interest Revenue  

B. Debit Bad Debt  

C. No entry until paid  

D. Credit Sales  

*Answer: 

*Q25* Trade payables are:  

A. Written promises  

B. Oral/Invoice promises from purchases on account  

C. Long-term always  

D. Interest-bearing always  

*Answer: 

*Q26* Zero-coupon bond issued $600,000, matures $1,000,000 in 10 yrs. Initial liability:  

A. $1,000,000  

B. $600,000  

C. $400,000 discount  

D. B and C – record at $600,000, discount $400,000  

*Answer: 

*Q27* Covenant breach on LT loan at BS date, waiver obtained after BS date before issuance:  

A. Still non-current  

B. Must reclassify to current under US GAAP  

C. Disclose only  

D. Split  

*Answer:.

*Q28* Convertible bonds. If converted:  

A. Gain/loss on conversion  

B. Book value method: no gain/loss, debit Bonds, credit Common Stock + APIC  

C. Market value method only  

D. Liability remains  

*Answer: 

*Q29* Note payable issued for equipment, no stated interest, face $100,000, PV $85,000. Record equipment:  

A. $100,000  

B. $85,000 + debit Discount $15,000  

C. $85,000 expense  

D. $100,000 liability only  

*Answer: 

*Q30* Accrued interest on bonds payable at year-end:  

A. Debit Interest Payable  

B. Debit Interest Expense, Credit Interest Payable  

C. Debit Cash  

D. No entry until paid  

*Answer: 

---

*Section 3: Depreciation, Leases, Revenue – 20 Qs*

*Q31* Straight-line depreciation: Cost $100k, Salvage $10k, Life 5 yrs. Year 2 expense:  

A. $20,000  

B. $18,000  

C. $36,000  

D. $10,000  

*Answer: 

*Q32* Double-declining balance. Cost $100k, Life 5 yrs, no salvage for DDB. Year 1:  

A. $20,000  

B. $40,000  

C. $18,000  

D. $10,000  

*Answer:

*Q33* Units of production. Cost $50k, Salvage $5k, Total units 90k. Year units = 20k. Depr:  

A. $10,000  

B. $11,111  

C. $10,000 = (50-5)/90*20  

D. $5,000  

*Answer: 

*Q34* Change from DDB to SL is:  

A. Change in principle, retrospective  

B. Change in estimate, prospective  

C. Change in entity  

D. Error correction  

*Answer: 

*Q35* ASC 842 Finance lease criteria. Which is NOT a criterion?  

A. Transfer of ownership  

B. Purchase option reasonably certain  

C. Lease term >= 75% of asset life  

D. PV of payments >= 90% of FV  

*Answer: 

*Q36* Finance lease, lessee records:  

A. Rent expense  

B. ROU Asset + Lease Liability, then amort + interest  

C. Asset only  

D. Off-balance sheet  

*Answer: 

*Q37* Operating lease, ASC 842. Lessee records:  

A. No balance sheet  

B. ROU Asset + Lease Liability, single lease expense SL  

C. Rent expense only  

D. Asset only  

*Answer:

*Q38* Sales-type lease, lessor with profit. At commencement, lessor recognizes:  

A. Interest revenue only  

B. Sales revenue + COGS + interest over term  

C. Deferred revenue  

D. Rent revenue  

*Answer

*Q39* ASC 606 5-step model. Step 3 is:  

A. Identify contract  

B. Identify performance obligations  

C. Determine transaction price  

D. Allocate price  

*Answer: 

*Q40* Performance obligation satisfied over time if:  

A. Customer consumes as performed, or asset no alt use + right to payment  

B. Payment received upfront  

C. Control transfers at point in time  

D. Inventory involved  

*Answer: 

*Q41* Contract asset vs Receivable:  

A. Receivable = unconditional right. Contract asset = right conditional on something else  

B. Same thing  

C. Contract asset = liability  

D. Receivable = unearned  

*Answer: 

*Q42* Variable consideration. Include if:  

A. Always include max  

B. Include if probable no significant reversal  

C. Exclude always  

D. Include 50%  

*Answer: 

*Q43* Sales with right of return. Revenue recognized:  

A. Gross, no adjustment  

B. Net of expected returns + refund liability + return asset  

C. When return period expires  

D. Cash basis  

*Answer: 

*Q44* Principal vs Agent. Agent recognizes:  

A. Gross revenue  

B. Net amount = commission  

C. No revenue  

D. COGS  

*Answer

*Q45* Costs to obtain contract, incremental:  

A. Expense immediately  

B. Capitalize if recoverable, amortize  

C. Deferred revenue  

D. Inventory  

*Answer: 

*Q46* Depreciation for partial year. SL, bought Oct 1, Year = $12,000. Year 1 expense:  

A. $12,000  

B. $3,000 = 3/12  

C. $9,000  

D. $0  

*Answer

*Q47* Lease term includes extension if:  

A. Always  

B. Reasonably certain to exercise  

C. Never  

D. Lessee wants  

*Answer:

*Q48* Short-term lease <12 months, lessee elects. Treatment:  

A. Still ROU + liability  

B. No ROU/liability, straight-line rent expense  

C. Capitalize anyway  

D. Disclose only  

*Answer: 

*Q49* Residual value guaranteed by lessee affects:  

A. Lessor only  

B. Lessee lease liability calc – include amount expected to owe  

C. No effect  

D. Revenue  

*Answer:

*Q50* Impairment of ROU asset finance lease:  

A. Not allowed  

B. Test under ASC 360 like PP&E  

C. Expense all immediately  

D. Reduce liability  

*Answer:

---

*Section 4: Consolidation, Investments, Associates – 20 Qs*

*Q51* Control for consolidation under US GAAP:  

A. >20% ownership  

B. >50% voting interest or VIE primary beneficiary  

C. Significant influence  

D. Contract only  

*Answer:

*Q52* Investment in associate = 30%, no control. Method:  

A. Consolidation  

B. Equity method  

C. Fair value OCI  

D. Cost  

*Ans.

*Q53* Equity method. Investor share of investee net income:  

A. Debit Cash  

B. Debit Investment, Credit Equity Income  

C. OCI  

D. No entry  

*Answer: 

*Q54* Equity method. Dividends received:  

A. Dividend Income  

B. Debit Cash, Credit Investment  

C. OCI  

D. Reduce expense  

*Answer: 

*Q55* Subsidiary sold inventory to parent, 30% unsold at year-end. Unrealized profit in inventory. Consolidation entry:  

A. Debit Sales, Credit COGS  

B. Debit Equity Income, Credit Inventory for unrealized profit  

C. No entry  

D. Debit COGS, Credit Sales  

*Answer: 

*Q56* Upstream sale = Sub to Parent. Unrealized profit adjustment affects:  

A. Parent’s net income only  

B. Sub’s net income, so NCI affected  

C. No one  

D. OCI  

*Answer:

*Q57* Downstream sale = Parent to Sub. Unrealized profit affects:  

A. NCI  

B. Parent only, NCI not affected  

C. Both equally  

D. OCI  

*Answer: 

*Q58* Intercompany receivables/payables elimination:  

A. Debit AR, Credit AP  

B. Debit AP, Credit AR – eliminate  

C. Leave on books  

D. To OCI  

*Answer: 

*Q59* Goodwill impairment test – 2 steps old, now 1 step. Current US GAAP public:  

A. 2-step: compare FV of unit to CV, then implied GW  

B. 1-step: CV of reporting unit > FV = impairment = excess  

C. No test  

D. Amortize 10 yrs  

*Answer

*Q60* Step 1 goodwill impairment: FV unit $500k, CV $600k including GW $100k. Impairment:  

A. $0  

B. $100k max to GW  

C. $100k = 600-500, reduce GW by 100  

D. $600k  

*Answer: 

*Q61* HTM securities = Held to Maturity. Measure:  

A. Fair value OCI  

B. Amortized cost  

C. Fair value NI  

D. Lower of cost or market  

*Answer:

*Q62* AFS securities = Available for Sale. Unrealized gain/loss:  

A. Net income  

B. OCI until sold  

C. Retained earnings  

D. Liability  

*Answer:

*Q63* Trading securities unrealized gain:  

A. OCI  

B. Net Income  

C. Deferred  

D. Equity  

*Answer: 

*Q64* Reclassify HTM to AFS due to change in intent. Transfer at:  

A. Cost  

B. Fair value, unrealized G/L to OCI  

C. Amortized cost, no impact  

D. Lower of cost or market  

*Answer:

*Q65* Equity investment <20%, no significant influence, no FV. Measure:  

A. Cost  

B. FV NI, but can elect measurement alternative = cost – impairment + observable changes  

C. Equity method  

D. Consolidated  

*Answer:

*Q66* Dividends from FV-NI equity investment:  

A. Reduce investment  

B. Dividend income on I/S  

C. OCI  

D. No entry  

*Answer:

*Q67* Investment in subsidiary, consolidation. Intercompany profit in fixed asset. Eliminate by:  

A. Debit Gain, Credit Asset  

B. Debit Asset, Credit COGS  

C. Debit Retained Earnings, Credit Asset + adjust depreciation  

D. No entry  

*Answer: 

*Q68* NCI = Non-controlling interest. On balance sheet:  

A. Liability  

B. Equity section, separate from parent equity  

C. Mezzanine  

D. Contra-asset  

*Answer: 

*Q69* Consolidated net income = Parent NI + Sub NI – unrealized profit. NCI share shown:  

A. As expense  

B. Below net income, to get NI attributable to parent  

C. In OCI  

D. Not shown  

*Answer: 

*Q70* When parent loses control but keeps investment:  

A. Continue consolidation  

B. Remeasure retained interest to FV, recognize gain/loss  

C. Cost method  

D. No change  

*Answer: 

---

*Section 5: Taxes, Contingencies, Theories, Income – 30 Qs*

*Q71* Current tax liability is:  

A. Tax based on taxable income for current year, payable <12 mo  

B. Deferred tax  

C. Tax on OCI  

D. Future tax  

*Answer: 

*Q72* Deferred tax liability arises from:  

A. Taxable temporary difference – future taxable amounts  

B. Deductible temporary difference  

C. Permanent difference  

D. NOL  

*Answer: 

*Q73* DTA from NOL carryforward. Valuation allowance if:  

A. Always  

B. More likely than not some/all DTA won’t be realized  

C. Never  

D. If IRS audits  

*Ans

*Q74* Permanent difference = municipal bond interest. Effect:  

A. Creates DTA  

B. Creates DTL  

C. No deferred tax, only current tax difference  

D. OCI  

*Answer:

*Q75* Contingent liability. Probable + reasonably estimable:  

A. Disclose only  

B. Accrue + disclose  

C. No entry  

D. Debit asset  

*Answer:

*Q76* Reasonably possible loss:  

A. Accrue  

B. Disclose only  

C. No action  

D. Debit expense  

*Answer: 

*Q77* Remote loss:  

A. Accrue  

B. Disclose  

C. No accrual or disclosure needed  

D. Contingent asset  

*Answer: 

*Q78* Contingent asset/gain:  

A. Accrue if probable  

B. Never accrue, disclose if probable  

C. Accrue always  

D. Liability  

*Answer:

*Q79* Contingent liability vs Current liability:  

A. Contingent = uncertain, Current = known amount, due <1yr  

B. Same  

C. Contingent always non-current  

D. Current = disclosure only  

*Answer: 

*Q80* Proprietary theory:  

A. Entity separate from owners. Assets – Liabilities = Equity  

B. Entity = owner extension. Focus on owner wealth  

C. No equity  

D. Fund accounting  

*Answer:

*Q81* Entity theory:  

A. Same as proprietary  

B. Entity separate. Assets = Equities. Focus on entity income  

C. No liabilities  

D. Cash basis  

*Answer: 

*Q82* Residual equity theory:  

A. Common stockholders = residual owners after preferred  

B. All equity equal  

C. No residuals  

D. Debt = equity  

*Answer: 

*Q83* Capital maintenance – Financial:  

A. Capital = physical capacity  

B. Capital = net assets in $, profit if ending > beginning  

C. No income until capacity replaced  

D. Cash basis  

*Answer: 

*Q84* Capital maintenance – Physical:  

A. Profit only after physical productive capacity maintained  

B. $ based  

C. Ignores inflation  

D. Same as financial  

*Answer: 

*Q85* Gross profit margin =  

A. Net Income / Sales  

B. (Sales – COGS) / Sales  

C. COGS / Sales  

D. EBIT / Sales  

*Answer:

*Q86* COGS for retailer: Beginning Inv $20k, Purchases $80k, Ending Inv $25k. COGS:  

A. $75,000  

B. $85,000  

C. $25,000  

D. $80,000  

*Answer: 

*Q87* Net income appears in:  

A. Balance sheet only  

B. Income statement, then closes to retained earnings  

C. OCI  

D. Cash flow only  

*Answer:

*Q88* Other Comprehensive Income includes:  

A. Sales revenue  

B. Unrealized gain on AFS, foreign currency translation, pension adjustments  

C. Depreciation  

D. Dividends  

*Answer:

*Q89* Comprehensive Income =  

A. Net Income only  

B. Net Income + OCI  

C. Gross profit  

D. Retained earnings  

*Answer: 

*Q90* Reclassification adjustment from OCI to NI occurs when:  

A. Never  

B. AFS security sold – realize gain from OCI to NI  

C. Every year-end  

D. Tax paid  

*Answer:

*Q91* Impairment of HTM debt security. If credit loss:  

A. To OCI only  

B. Credit loss to NI, non-credit to OCI  

C. No impairment for HTM  

D. Always to OCI  

*Answer

*Q92* Impairment 2-step for long-lived asset ASC 360:  

A. Step 1: Recoverability test – CV vs undiscounted CF. If CV>CF, Step 2: CV vs FV = loss  

B. 1-step only  

C. Compare to market only  

D. No test  

*Answer:

*Q93* After impairment, new cost basis:  

A. Can be written back up under US GAAP  

B. Cannot be reversed for held-and-used  

C. Write up to market  

D. Same as before  

*Answer:

*Q94* Investment in AFS, credit loss + non-credit loss. Presentation:  

A. All to NI  

B. Credit loss in NI, non-credit in OCI via allowance  

C. All to OCI  

D. No loss  

*Answer: 

*Q95* Current tax expense vs Deferred tax expense:  

A. Current = tax payable on return. Deferred = change in DTA/DTL  

B. Same  

C. Deferred = cash paid  

D. Current = future  

*Answer:

*Q96* Effective tax rate reconciliation required for:  

A. All companies  

B. Public companies only, non-public can use rate  

C. Never  

D. Only if IRS asks  

*Answer:

*Q97* Uncertain tax position. Recognize benefit if:  

A. More likely than not to be sustained on audit  

B. Any chance  

C. Never  

D. IRS pre-approval  

*Answer: 

*Q98* Contingent liability, guarantee of debt of others. If probable:  

A. Disclose only  

B. Recognize liability at fair value at inception + accrue if probable  

C. No entry  

D. Asset  

*Answer: 

*Q99* Accrued liability vs Provision:  

A. Accrued = timing/amount certain, Provision = uncertain timing/amount  

B. Same  

C. Provision = asset  

D. Accrued = equity  

*Answer:

*Q100* Which is NOT part of OCI?  

A. Foreign currency translation gain  

B. Unrealized loss on trading securities  

C. Pension prior service cost  

D. Cash flow hedge effective portion  

*Answer:

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