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:
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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:
*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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