MCQ questions with answers on the topic of cash flow statement as per US GAAP

MCQ questions  on the topic of cash flow statement as per US GAAP:

Section A..... Difficult level.. simple 

*1. What is the primary purpose of the cash flow statement?*

A) To report revenues and expenses

B) To report cash inflows and outflows

C) To report assets and liabilities

D) To report equity changes

Answer:

*2. Which of the following is a classification of cash flows under US GAAP?*

A) Operating, investing, and financing

B) Operating, investing, and non-operating

C) Investing, financing, and extraordinary

D) Operating, financing, and extraordinary

Answer: 

*3. What is the method of preparing the cash flow statement that starts with net income and adjusts for non-cash items?*

A) Direct method

B) Indirect method

C) Accrual method

D) Cash method

Answer: 

*4. Which of the following is an example of an operating cash flow?*

A) Purchase of equipment

B) Sale of investments

C) Payment of dividends

D) Collection of accounts receivable

Answer:

*5. Which of the following is an example of an investing cash flow?*

A) Purchase of equipment

B) Sale of investments

C) Payment of dividends

D) Collection of accounts receivable

Answer:

*6. Which of the following is an example of a financing cash flow?*

A) Payment of dividends

B) Sale of investments

C) Purchase of equipment

D) Collection of accounts receivable

Answer: 

*7. What is the effect of an increase in accounts receivable on cash flows from operations?*

A) Increase

B) Decrease

C) No effect

D) Cannot be determined

Answer: 

*8. What is the effect of an increase in accounts payable on cash flows from operations?*

A) Increase

B) Decrease

C) No effect

D) Cannot be determined

Answer: 

Section B....

Here are 20 MCQ questions on Cash Flow Statement as per US GAAP (ASC 230) — moderately challenging level:

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MCQs on Cash Flow Statement (US GAAP)

1. Under US GAAP, interest paid is classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or financing

Answer: 

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2. Under US GAAP, dividends received are classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or investing

Answer: 

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3. Under US GAAP, dividends paid are classified as:

A. Operating
B. Investing
C. Financing
D. Either operating or financing

Answer: 

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4. What is the required reconciliation when presenting indirect method?

A. Net income to Net cash from operating activities
B. Net income to Net assets
C. Net income to EBITDA
D. Cash to retained earnings

Answer: 

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5. Gain on sale of equipment in indirect method is:

A. Added to net income
B. Deducted from net income
C. Not adjusted
D. Treated as financing cash inflow

Answer: 

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6. Which of the following is considered an investing activity?

A. Purchase of PPE
B. Issuing common stock
C. Payment of salaries
D. Income tax paid

Answer: 

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7. A company issues bonds at par for cash. Classification?

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash activity

Answer: 

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8. Non-cash transactions must be:

A. Excluded from cash flow statement and disclosed separately
B. Included in financing section
C. Included in investing section
D. Ignored completely

Answer: 

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9. Purchase of equipment by issuing shares is reported as:

A. Operating
B. Financing
C. Investing
D. Non-cash supplemental disclosure

Answer: 

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10. Under US GAAP, taxes paid are classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or investing

Answer: 

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11. Under indirect method, an increase in accounts receivable is:

A. Added to net income
B. Deducted from net income
C. Financing activity
D. Investing activity

Answer: 

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12. Decrease in inventory in indirect method is:

A. Added to net income
B. Deducted from net income
C. Financing
D. Investing

Answer: 

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13. Proceeds from sale of land:

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash inflow

Answer: 

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14. Amortization expense in indirect method is:

A. Added to net income
B. Deducted from net income
C. Investing activity
D. Financing activity

Answer: 

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15. Loss on early retirement of debt is treated as:

A. Added in operating
B. Deducted in operating
C. Financing cash flow
D. Investing cash flow

Answer: 

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16. Cash collected from customers is classified as:

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash

Answer: 

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17. Under US GAAP, cash flows from trading securities purchases are reported under:

A. Operating
B. Investing
C. Financing
D. Supplemental schedule

Answer: 

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18. Cash paid to acquire another company is:

A. Operating
B. Investing
C. Financing
D. Non-cash

Answer: 

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19. Depreciation in operating section of indirect method appears as:

A. Cash outflow
B. Adjusted non-cash item added to net income
C. Financing activity reduction
D. Investing activity inflow

Answer: 

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20. What is the primary purpose of a Cash Flow Statement?

A. To show profitability
B. To show financial position
C. To report inflows and outflows classified into operating, investing, and financing
D. To show working capital changes

Answer: 

Section C...Scenerio based questions, difficult level.. Difficult, exam based .Here are 5 challenging, scenario-based MCQs on the Cash Flow Statement under US GAAP, designed to test advanced classification, adjustments, and indirect/direct method knowledge. Each question presents a scenario requiring interpretation or calculation, as typical in professional exams:

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## US GAAP Cash Flow Statement: Advanced MCQs

### Scenario 1: Indirect Method Adjustments

ABC Corp reports net income of $400,000 for the year. During this period, depreciation expense is $60,000, accounts receivable increase by $30,000, and accounts payable decrease by $18,000. What is ABC Corp’s cash flow from operating activities under the indirect method?

- a) $412,000

- b) $448,000

- c) $412,000

- d) $412,000

***

### Scenario 2: Classification of Dividends and Interest

XYZ Inc pays $25,000 in interest and receives $12,000 in dividends. According to US GAAP, how are these items classified in the cash flow statement?

- a) Both as investing activities

- b) Interest as operating, dividends as investing

- c) Interest as financing, dividends as investing

- d) Both as operating activities

***

### Scenario 3: Acquisition of Equipment

LMN Co purchases machinery for $150,000, paying $50,000 in cash and issuing a long-term note for $100,000. How should this transaction appear in the cash flow statement under US GAAP?

- a) $150,000 outflow from investing activities

- b) $50,000 outflow from investing activities and $100,000 outflow from financing activities

- c) $50,000 outflow from investing activities; $100,000 disclosed as non-cash transaction

- d) $150,000 disclosed in financing activities

***

### Scenario 4: Operating Activities (Direct Method)

During the year, PQR Corp received customer payments totaling $500,000, paid $180,000 to suppliers, and $70,000 for staff wages. What is the net cash flow from operating activities using the direct method?

- a) $250,000

- b) $430,000

- c) $320,000

- d) $500,000

***

### Scenario 5: Reporting Non-Cash Activities

STU Inc converts $200,000 of bonds payable into equity shares. How is this reported in the cash flow statement under US GAAP?

- a) Cash inflow from financing activities

- b) Cash outflow from operating activities

- c) Not reported in main statement; disclosed as non-cash transaction

- d) Included as investing activity outflow

***

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Answers........

MCQ questions with answers on the topic of cash flow statement as per US GAAP:

Section A..... Difficult level.. simple 

*1. What is the primary purpose of the cash flow statement?*

A) To report revenues and expenses

B) To report cash inflows and outflows

C) To report assets and liabilities

D) To report equity changes

Answer: B) To report cash inflows and outflows

*2. Which of the following is a classification of cash flows under US GAAP?*

A) Operating, investing, and financing

B) Operating, investing, and non-operating

C) Investing, financing, and extraordinary

D) Operating, financing, and extraordinary

Answer: A) Operating, investing, and financing

*3. What is the method of preparing the cash flow statement that starts with net income and adjusts for non-cash items?*

A) Direct method

B) Indirect method

C) Accrual method

D) Cash method

Answer: B) Indirect method

*4. Which of the following is an example of an operating cash flow?*

A) Purchase of equipment

B) Sale of investments

C) Payment of dividends

D) Collection of accounts receivable

Answer: D) Collection of accounts receivable

*5. Which of the following is an example of an investing cash flow?*

A) Purchase of equipment

B) Sale of investments

C) Payment of dividends

D) Collection of accounts receivable

Answer: A) Purchase of equipment

*6. Which of the following is an example of a financing cash flow?*

A) Payment of dividends

B) Sale of investments

C) Purchase of equipment

D) Collection of accounts receivable

Answer: A) Payment of dividends

*7. What is the effect of an increase in accounts receivable on cash flows from operations?*

A) Increase

B) Decrease

C) No effect

D) Cannot be determined

Answer: B) Decrease

*8. What is the effect of an increase in accounts payable on cash flows from operations?*

A) Increase

B) Decrease

C) No effect

D) Cannot be determined

Answer: A) Increase

Section B....

Here are 20 MCQ questions with answers on Cash Flow Statement as per US GAAP (ASC 230) — moderately challenging level:

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MCQs on Cash Flow Statement (US GAAP)

1. Under US GAAP, interest paid is classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or financing

Answer: A — Operating

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2. Under US GAAP, dividends received are classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or investing

Answer: A — Operating

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3. Under US GAAP, dividends paid are classified as:

A. Operating
B. Investing
C. Financing
D. Either operating or financing

Answer: C — Financing

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4. What is the required reconciliation when presenting indirect method?

A. Net income to Net cash from operating activities
B. Net income to Net assets
C. Net income to EBITDA
D. Cash to retained earnings

Answer: A

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5. Gain on sale of equipment in indirect method is:

A. Added to net income
B. Deducted from net income
C. Not adjusted
D. Treated as financing cash inflow

Answer: B — Deducted

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6. Which of the following is considered an investing activity?

A. Purchase of PPE
B. Issuing common stock
C. Payment of salaries
D. Income tax paid

Answer: A

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7. A company issues bonds at par for cash. Classification?

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash activity

Answer: C

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8. Non-cash transactions must be:

A. Excluded from cash flow statement and disclosed separately
B. Included in financing section
C. Included in investing section
D. Ignored completely

Answer: A

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9. Purchase of equipment by issuing shares is reported as:

A. Operating
B. Financing
C. Investing
D. Non-cash supplemental disclosure

Answer: D

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10. Under US GAAP, taxes paid are classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or investing

Answer: A

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11. Under indirect method, an increase in accounts receivable is:

A. Added to net income
B. Deducted from net income
C. Financing activity
D. Investing activity

Answer: B

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12. Decrease in inventory in indirect method is:

A. Added to net income
B. Deducted from net income
C. Financing
D. Investing

Answer: A

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13. Proceeds from sale of land:

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash inflow

Answer: B

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14. Amortization expense in indirect method is:

A. Added to net income
B. Deducted from net income
C. Investing activity
D. Financing activity

Answer: A

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15. Loss on early retirement of debt is treated as:

A. Added in operating
B. Deducted in operating
C. Financing cash flow
D. Investing cash flow

Answer: A

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16. Cash collected from customers is classified as:

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash

Answer: A

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17. Under US GAAP, cash flows from trading securities purchases are reported under:

A. Operating
B. Investing
C. Financing
D. Supplemental schedule

Answer: A

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18. Cash paid to acquire another company is:

A. Operating
B. Investing
C. Financing
D. Non-cash

Answer: B

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19. Depreciation in operating section of indirect method appears as:

A. Cash outflow
B. Adjusted non-cash item added to net income
C. Financing activity reduction
D. Investing activity inflow

Answer: B

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20. What is the primary purpose of a Cash Flow Statement?

A. To show profitability
B. To show financial position
C. To report inflows and outflows classified into operating, investing, and financing
D. To show working capital changes

Answer: C

Section C....

please give answers of above 5 questions

Here are the answers and brief explanations for the five advanced scenario-based cash flow statement MCQs:

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## Answers and Explanations

**1. Indirect Method Adjustments**  

*Answer:* a) $412,000  

*Explanation:* Start with net income ($400,000)  

+ Add depreciation ($60,000, non-cash)  

– Subtract increase in accounts receivable ($30,000)  

– Subtract decrease in accounts payable ($18,000)  

Cash flow from operating = $400,000 + $60,000 – $30,000 – $18,000 = $412,000.

***

**2. Classification of Dividends and Interest**  

*Answer:* b) Interest as operating, dividends as investing  

*Explanation:* US GAAP classifies interest paid and received as operating cash flows, but dividends received can be investing. Dividends paid are financing.

***

**3. Acquisition of Equipment**  

*Answer:* c) $50,000 outflow from investing activities; $100,000 disclosed as non-cash transaction  

*Explanation:* Only cash outflow is reported under investing activities; non-cash financing arrangement is disclosed but not in main cash flow statement

***

**4. Operating Activities (Direct Method)**  

*Answer:* a) $250,000  

*Explanation:* Cash receipts ($500,000) – cash paid to suppliers ($180,000) – wages ($70,000) = $250,000 

***

**5. Reporting Non-Cash Activities**  

*Answer:* c) Not reported in main statement; disclosed as non-cash transaction  

*Explanation:* US GAAP requires disclosure of significant non-cash investing/financing activities in a separate note/equivalent section 

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MCQ questions ‼️ Impairement loss as per US GAAP

MCQ questions on impairment loss based on US GAAP:

Section A...

1. Under US GAAP, an impairment loss is recognized when the carrying amount of an asset exceeds its:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer:

2. Which of the following is a step in the impairment test for a long-lived asset under US GAAP?

A) Compare the carrying amount to the fair value
B) Compare the carrying amount to the undiscounted future cash flows
C) Recognize an impairment loss if the carrying amount exceeds the fair value
D) Recognize an impairment loss if the carrying amount exceeds the book value

Answer:

3. Under US GAAP, an impairment loss is calculated as the difference between the carrying amount and:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer:

4. Which of the following is true regarding the recognition of impairment losses under US GAAP?

A) Impairment losses are recognized in other comprehensive income
B) Impairment losses are recognized in the income statement
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer:

5. Under US GAAP, a company is required to test goodwill for impairment:

A) Annually
B) Quarterly
C) Monthly
D) Only when there is an indication of impairment

Answer:

6. Which of the following is a factor that indicates an impairment loss may have occurred?

A) Decrease in market value
B) Increase in market value
C) Increase in useful life
D) Decrease in residual value

Answer:

7. Under US GAAP, an impairment loss is reported in the income statement as:

A) A separate line item
B) A component of operating income
C) A component of non-operating income
D) A footnote disclosure only

Answer:

Section B...
illustration  on impairment loss as per US GAAP:

*Illustration:*

Company A has a manufacturing equipment with a carrying amount of $100,000. The equipment was purchased 5 years ago and has a remaining useful life of 5 years. Due to technological advancements, the equipment's fair value has declined to $70,000. The company's management estimates that the equipment's undiscounted future cash flows are $80,000.

*Required:*

Determine if an impairment loss should be recognized and calculate the impairment loss, if any.

*Answer:*

*Step 1: Test for impairment*

*Step 2: Calculate the impairment loss*

*Journal Entry*

Section C....20 questions impairment loss as per US GAAP:

1. What is the primary objective of the impairment test under US GAAP?

A) To determine the fair value of an asset
B) To determine the recoverable amount of an asset
C) To determine if an asset's carrying amount exceeds its undiscounted future cash flows
D) To determine the asset's remaining useful life

Answer:

2. Which of the following is a step in the impairment test for a long-lived asset under US GAAP?

A) Compare the carrying amount to the fair value
B) Compare the carrying amount to the undiscounted future cash flows
C) Recognize an impairment loss if the carrying amount exceeds the fair value
D) Recognize an impairment loss if the carrying amount exceeds the book value

Answer:

3. Under US GAAP, an impairment loss is calculated as the difference between the carrying amount and:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer:

4. Which of the following is true regarding the recognition of impairment losses under US GAAP?

A) Impairment losses are recognized in other comprehensive income
B) Impairment losses are recognized in the income statement
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer:

5. Under US GAAP, a company is required to test goodwill for impairment:

A) Annually
B) Quarterly
C) Monthly
D) Only when there is an indication of impairment

Answer:

6. Which of the following is a factor that indicates an impairment loss may have occurred?

A) Decrease in market value
B) Increase in market value
C) Increase in useful life
D) Decrease in residual value

Answer:

7. Under US GAAP, an impairment loss is reported in the income statement as:

A) A separate line item
B) A component of operating income
C) A component of non-operating income
D) A footnote disclosure only

Answer:

8. Which of the following is a characteristic of an impaired asset under US GAAP?

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer:

9. Under US GAAP, an impairment loss is recognized when:

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer:

10. Which of the following is a method used to estimate the fair value of an asset under US GAAP?

A) Market approach
B) Income approach
C) Cost approach
D) All of the above

Answer:

11. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer:

12. Which of the following is true regarding the reversal of impairment losses under US GAAP?

A) Impairment losses can be reversed
B) Impairment losses cannot be reversed
C) Impairment losses can be reversed only if the asset's fair value increases
D) Impairment losses can be reversed only if the asset's carrying amount decreases

Answer:

13. Under US GAAP, an impairment loss is recognized:

A) Immediately
B) Over the asset's remaining useful life
C) When the asset is sold
D) When the asset is abandoned

Answer:

14. Which of the following is a disclosure requirement for impairment losses under US GAAP?

A) The amount of the impairment loss
B) The reason for the impairment loss
C) The asset's carrying amount before and after the impairment loss
D) All of the above

Answer:

15. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer:

16. Which of the following is true regarding the recognition of impairment losses for assets held for sale under US GAAP?

A) Impairment losses are recognized in the income statement
B) Impairment losses are recognized in other comprehensive income
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer:

17. Under US GAAP, an impairment loss is recognized when:

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer:

18. Which of the following is a method used to estimate the fair value of an asset under US GAAP?

A) Market approach
B) Income approach
C) Cost approach
D) All of the above

19. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer

20. Which of the following is true regarding the reversal of impairment losses under US GAAP?

A) Impairment losses can be reversed
B) Impairment losses cannot be reversed
C) Impairment losses can be reversed only if the asset's fair value increases
D) Impairment losses can be reversed only if the asset's carrying amount decreases

Answer:

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Answers:

Section A....

Here are some MCQ questions with answers on impairment loss based on US GAAP:

1. Under US GAAP, an impairment loss is recognized when the carrying amount of an asset exceeds its:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer: D) Undiscounted future cash flows

2. Which of the following is a step in the impairment test for a long-lived asset under US GAAP?

A) Compare the carrying amount to the fair value
B) Compare the carrying amount to the undiscounted future cash flows
C) Recognize an impairment loss if the carrying amount exceeds the fair value
D) Recognize an impairment loss if the carrying amount exceeds the book value

Answer: B) Compare the carrying amount to the undiscounted future cash flows

3. Under US GAAP, an impairment loss is calculated as the difference between the carrying amount and:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer: A) Fair value

4. Which of the following is true regarding the recognition of impairment losses under US GAAP?

A) Impairment losses are recognized in other comprehensive income
B) Impairment losses are recognized in the income statement
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer: B) Impairment losses are recognized in the income statement

5. Under US GAAP, a company is required to test goodwill for impairment:

A) Annually
B) Quarterly
C) Monthly
D) Only when there is an indication of impairment

Answer: A) Annually

6. Which of the following is a factor that indicates an impairment loss may have occurred?

A) Decrease in market value
B) Increase in market value
C) Increase in useful life
D) Decrease in residual value

Answer: A) Decrease in market value

7. Under US GAAP, an impairment loss is reported in the income statement as:

A) A separate line item
B) A component of operating income
C) A component of non-operating income
D) A footnote disclosure only

Answer: A) A separate line

Section B... Here is an illustration with answer on impairment loss as per US GAAP:

*Illustration:*

Company A has a manufacturing equipment with a carrying amount of $100,000. The equipment was purchased 5 years ago and has a remaining useful life of 5 years. Due to technological advancements, the equipment's fair value has declined to $70,000. The company's management estimates that the equipment's undiscounted future cash flows are $80,000.

*Required:*

Determine if an impairment loss should be recognized and calculate the impairment loss, if any.

*Answer:*

*Step 1: Test for impairment*

Compare the carrying amount ($100,000) to the undiscounted future cash flows ($80,000). Since the carrying amount exceeds the undiscounted future cash flows, an impairment loss is indicated.

*Step 2: Calculate the impairment loss*

Impairment loss = Carrying amount - Fair value
= $100,000 - $70,000
= $30,000

*Journal Entry:*

Loss on impairment (Income Statement)  $30,000
Accumulated depreciation (Balance Sheet)  $30,000

*Note:*

- The impairment loss is recognized in the income statement as a separate line item.

- The carrying amount of the equipment is reduced to its fair value of $70,000.

*US GAAP Reference:*

- ASC 360-10-35-17: Impairment or Disposal of Long-Lived Assets

Section C....

Here are 20 questions with answers on impairment loss as per US GAAP:

1. What is the primary objective of the impairment test under US GAAP?

A) To determine the fair value of an asset
B) To determine the recoverable amount of an asset
C) To determine if an asset's carrying amount exceeds its undiscounted future cash flows
D) To determine the asset's remaining useful life

Answer: C) To determine if an asset's carrying amount exceeds its undiscounted future cash flows

2. Which of the following is a step in the impairment test for a long-lived asset under US GAAP?

A) Compare the carrying amount to the fair value
B) Compare the carrying amount to the undiscounted future cash flows
C) Recognize an impairment loss if the carrying amount exceeds the fair value
D) Recognize an impairment loss if the carrying amount exceeds the book value

Answer: B) Compare the carrying amount to the undiscounted future cash flows

3. Under US GAAP, an impairment loss is calculated as the difference between the carrying amount and:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer: A) Fair value

4. Which of the following is true regarding the recognition of impairment losses under US GAAP?

A) Impairment losses are recognized in other comprehensive income
B) Impairment losses are recognized in the income statement
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer: B) Impairment losses are recognized in the income statement

5. Under US GAAP, a company is required to test goodwill for impairment:

A) Annually
B) Quarterly
C) Monthly
D) Only when there is an indication of impairment

Answer: A) Annually

6. Which of the following is a factor that indicates an impairment loss may have occurred?

A) Decrease in market value
B) Increase in market value
C) Increase in useful life
D) Decrease in residual value

Answer: A) Decrease in market value

7. Under US GAAP, an impairment loss is reported in the income statement as:

A) A separate line item
B) A component of operating income
C) A component of non-operating income
D) A footnote disclosure only

Answer: A) A separate line item

8. Which of the following is a characteristic of an impaired asset under US GAAP?

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer: B) The asset's carrying amount exceeds its undiscounted future cash flows

9. Under US GAAP, an impairment loss is recognized when:

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer: B) The asset's carrying amount exceeds its undiscounted future cash flows

10. Which of the following is a method used to estimate the fair value of an asset under US GAAP?

A) Market approach
B) Income approach
C) Cost approach
D) All of the above

Answer: D) All of the above

11. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer: A) The asset's carrying amount and fair value

12. Which of the following is true regarding the reversal of impairment losses under US GAAP?

A) Impairment losses can be reversed
B) Impairment losses cannot be reversed
C) Impairment losses can be reversed only if the asset's fair value increases
D) Impairment losses can be reversed only if the asset's carrying amount decreases

Answer: B) Impairment losses cannot be reversed

13. Under US GAAP, an impairment loss is recognized:

A) Immediately
B) Over the asset's remaining useful life
C) When the asset is sold
D) When the asset is abandoned

Answer: A) Immediately

14. Which of the following is a disclosure requirement for impairment losses under US GAAP?

A) The amount of the impairment loss
B) The reason for the impairment loss
C) The asset's carrying amount before and after the impairment loss
D) All of the above

Answer: D) All of the above

15. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer: A) The asset's carrying amount and fair value

16. Which of the following is true regarding the recognition of impairment losses for assets held for sale under US GAAP?

A) Impairment losses are recognized in the income statement
B) Impairment losses are recognized in other comprehensive income
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer: A) Impairment losses are recognized in the income statement

17. Under US GAAP, an impairment loss is recognized when:

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer: B) The asset's carrying amount exceeds its undiscounted future cash flows

18. Which of the following is a method used to estimate the fair value of an asset under US GAAP?

A) Market approach
B) Income approach
C) Cost approach
D) All of the above

Answer: D) All of the above

19. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer: A) The asset's carrying amount and fair value

20. Which of the following is true regarding the reversal of impairment losses under US GAAP?

A) Impairment losses can be reversed
B) Impairment losses cannot be reversed
C) Impairment losses can be reversed only if the asset's fair value increases
D) Impairment losses can be reversed only if the asset's carrying amount decreases

Answer: B) Impairment losses cannot be reversed

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Attention US CMA students aspirant for this month exam..tips for your success..

 *Attention Gmsisuccess students..You are now going to appear for US CMA exam..Read this carefully..My best wishes 🍀 blessings always with you for your Success in exam..Your efforts,prompt interpretation of MCQ, logical reasoning skills, Risk taking ability, aggressive approach, Cool & balance state of mind,patience..during 4 hours exam..this leads you towards success Remember, MCQ Questions session is real challenge..Question are tricky absurd,confusing nature..but they are easily solvable if you have some smart work..Essay session question are easy to tackle but there time is really limited,write ✍️ your answer in max 2 lines, Dont waste time in writing unnecessary or lengthy answer...*

Here are some tips to solve MCQ (Multiple Choice Questions) smartly:

Before Starting

1. *Read instructions carefully*: Understand the marking scheme, time limit, and any specific rules.

2. *Manage time effectively*: Allocate time for each question, and plan your approach.

During the Test

1. *Read questions carefully*: Understand what is being asked, and identify key terms.

2. *Eliminate obvious incorrect options*: Remove options that are clearly incorrect, increasing your chances of choosing the correct answer.

3. *Look for keywords and phrases*: Identify keywords and phrases in the question that can help you eliminate options or choose the correct answer.

4. *Use the process of elimination*: Eliminate options that are unlikely or contradictory, making it easier to choose the correct answer.

5. *Make educated guesses*: If you're unsure, make an educated guess from the remaining options.

Additional Tips

1. *Stay calm and focused*: Manage your stress levels, and maintain a clear mind.

2. *Avoid overthinking*: Don't spend too much time on a single question; move on and come back to it later if needed.

3. *Review your answers*: If time permits, review your answers to ensure you've chosen the correct options.

By following these tips, you can increase your chances of solving MCQ questions smartly and effectively.

Here are some technical tips to identify the correct option while reading MCQ questions:

Technical Tips

1. *Look for absolute words*: Options with absolute words like "always," "never," "all," or "none" are often incorrect.

2. *Watch for negative words*: Pay attention to negative words like "not," "except," or "unless," as they can change the meaning of the option.

3. *Identify superlatives*: Options with superlatives like "best," "worst," "most," or "least" can be suspicious, as they often exaggerate.

4. *Check for grammatical consistency*: Ensure the option is grammatically consistent with the question.

5. *Look for similar options*: If two options are similar, one of them might be correct. If two options are exact opposites, one of them might be correct.

6. *Be cautious of vague options*: Options that are too vague or general might be incorrect.

7. *Check for specific details*: Options that provide specific details or examples might be more likely to be correct.

Logical Reasoning

1. *Use deductive reasoning*: Eliminate options that contradict known facts or principles.

2. *Apply inductive reasoning*: Identify patterns or relationships between options and choose the most plausible one.

By applying these technical tips and logical reasoning, you can increase your chances of identifying the correct option in MCQ questions.

Financial Reporting..Very Important points for US CMA Part 1 Part 2 Exam

 Financial Reporting...very important points for US CMA Part 1 &Part 2 exam...

 In a small stock dividend, retained earnings is debited for the fair value of the shares issued, the common stock account is credited for the par value of the newly issued shares, and additional paid-in capital is credited for the difference. The effect of this is to transfer an equal amount of money from retained earnings to  contributed capital.

In a small stock dividend, the amount of retained earnings that is converted to contributed capital is the fair value of the shares, not the par value of the shares. If the stock dividend is a large stock dividend (more than 25% of the outstanding shares issued as the stock dividend), then the journal entry is based on the par value of the shares.

example  The following information is available for Paragon as of November 30.

The market price of Paragon's common stock was $4 per share on November 30.

Common stock - $1 par value; 20,000,000 shares issued and outstanding - $20,000,000

Paid-in capital in excess of par value - $12,200,000

Retained earnings - $16,000,000

If Paragon had declared a 10% stock dividend on November 30, retained earnings would have been:

answer .  Reduced by $8,000,000.

A 10% stock dividend is a small stock dividend (a small stock dividend is less than or equal to 25% of the shares outstanding). In a small stock dividend, retained earnings is reduced by the fair value of the shares

that will be issued, using the value on the date of declaration to value the shares. In a 10% dividend, Paragon would have issued 2,000,000 shares. At the date of declaration the shares had a market value of $4, so the

retained earnings of Paragon would have decreased by $8,000,000 as a result of this stock dividend

 In a stock split the par value of the shares is reduced. The total capital from the shares remains the same, but that capital needs to be split among more shares because of the stock split.

Under a stock dividend there is no effect on the par value of the shares. A stock dividend should not affect the value of the company. The distribution of a stock dividend does not increase or decrease equity and will not generate a profit or cause a loss.

The balance sheet (or statement of financial position) helps users to assess the liquidity, financial flexibil ity, solvency and risk of a company. A company with financial flexibility has the ability to  respond to unexpected needs and opportunities

Financial flexibility refers to the ability of a company to take actions that will alter the amounts and timing of its cash flows so that it is able to respond to unexpected needs and opportunities. For example, a company with a lot of debt is not financially flexible, because its available cash is committed to servicing its debt and it may have loan covenants that it must comply with. It will not have much spare cash to finance an expansion or to meet an unexpected need, nor will it have the ability to borrow much more. A firm with a high degree of financial flexibility can better survive an economic downturn or other difficult setback, and it is in a better position to take advantage of profitable and unexpected investment opportunities. Moreover, a company with greater financial flexibility has a lower risk of failure

Investing activities are those activities that the company undertakes to generate a future profit, or return, such as purchasing and selling fixed assets, purchasing and selling stock of other companies, purchasing and

selling debt instruments, and purchasing and selling available-for-sale or held-to-maturity securities. 

Therefore, the sale of available-for-sale securities should be classified on the statement of cash flows as an investing activity. According to the FASB Codification, Paragraph 230-10-45-11, "Cash flows from purchases,

sales, and maturities of available-for-sale securities shall be classified as cash flows from investing activities and reported gross in the statement of cash flows.

The sale of available-for-sale securities is not classified on the statement of cash flows as an operating activity.

The sale of trading securities is usually classified as an operating activity on the statement of cash flows. However, some securities are classified as trading securities even though they are not being held for sale in the near term. Cash

receipts and cash payments related to trading securities reported at fair value should be classified based on the nature and purpose of the securities. Therefore, the facts and circumstances of the situation need to be evaluated to

determine whether cash flows from trading securities are to be classified as operating activities or as investing activities

While the profit on inventory that is sold between companies that will be consolidated needs to be eliminated, the profit that is made on inventory sold to unaffiliated companies should not be eliminated in the

consolidation process.

A decline in the value of an available-for-sale security below cost that is deemed to be other than temporary should be treated as a realized loss and included in the determination of net income for the period.

When the decline in the market value of an available-for-sale security is considered to be permanent, the loss should be recognized in full in the period in which it occurred.

Increases or decreases in the market value of the shares after they have been issued are not recorded on the books of the issuing company. Therefore, no accounting entries should be recorded.

A change in accounting estimate is accounted for prospectively.

When the estimated useful life of an asset is changed, the company uses the current book value of the asset as its cost for depreciation (or in this case depletion) calculations going forward

In a reverse stock split the company reduces the number of shares outstanding. For example, in a 1-for-2 reverse stock split, every two shares that are held by someone become one share. This one share, however,

has a value that is twice as high as an individual share before the reverse stock split. Therefore, a reverse stock split will increase the market value of a common share.

Solvency refers to a firm's ability to cover its liabilities with its assets. If a firm is not able to generate a positive cash flow from its operating activities, it is or soon will be insolvent. Therefore, cash flows from and used for operating activities is the most important factor to consider when using the statement of cash flows to to evaluate a company's continuing solvency

An aging schedule is used to identify how old receivables are and to then calculate what the amount is that is expected to be collected. This is the calculation of the net realizable value of the receivables.

Operating activities are generally part of the company's main business activities and central operations.These are essentially items that generate revenues and expenses. When accounts payable decreases, it

means cash has been disbursed for operating activities. Thus a decrease in accounts payable during the year should be classified as an operating activity on the statement of cash flows.

The payment of a cash dividend is classified on the statement of cash flows as a financing activity, regardless of where the money to pay the dividend came from. Financing activities are the activities that a company undertakes to raise capital to finance the business, and paying a cash dividend is a financing activity

Goodwill is the amount by which the price paid for a company is greater than the fair value of the company's net assets. "Net assets" means total assets minus total liabillities. The fair value of the total assets purchased is $850,000, and the fair value of the total liabilities purchased is $350,000. The difference, or $500,000, is the fair value of the company's net assets. The difference between the purchase price ($600,000) and the fair value of the net assets purchased ($500,000), is goodwill, and that is equal to $100,000.

 In a period of rising prices, the value of assets will be understated since the current value of the assets is more than was paid for them. Similarly, the selling prices of inventory items will go up but their inventory cost

will remain the same while they are in inventory. Thus, cost of goods sold is unadjusted and so profits will be overstated.

Feel free 🆓 to discuss with me if you have any questions on this topic subtopic 

Regards from Prof Mahaley Head Gmsisuccess Mumbai 

Tel 9773464206

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Segregation of Duties.. Essay based questions ‼️

 Read this para and attempt question ⁉️

Segregation of duties  entails distributing responsibilities among various personnel in order to prevent errors, fraud, or misuse of authority. Organizations strengthen accountability by isolating critical functions such as authorization, custody, and recordkeeping. Segregation of Duties (SoD) is a fundamental internal control principle designed to prevent errors and fraud by ensuring that no single individual has control over all aspects of any critical transaction or process. This control measure is essential in safeguarding assets, maintaining accurate records, and promoting operational integrity.

ATTEMPT FOLLOWING QUESTIONS :

Q1. ****(Assign/Divide) responsibilities among different individuals to reduce the risk of error or inappropriate actions.

Q 2 Typically focuses on separating duties related to 1.*****,2.**** , 3.****  and 4.***** (reconciliation /custody/authorization/record-keeping)

Q 3 The person who authorizes a transaction should not be the same person who****** (approve/executes) it.

Q 4 A manager approves a purchase order, but a different employee processes the payment.  TRUE OR FALSE

Q5 The person responsible for the physical custody of assets should not be the one who ******(records/receives) the transactions.

Q6 An employee who handles cash deposits should not record the cash transactions in the accounting system. TRUE OR FALSE 

Q7 Recording transactions and maintaining records should be handled by individuals who do not have ******(ownership/access) to the assets involved.

Q8 An accountant *****(manage/ records ) inventory transactions, while warehouse staff  *****(manage/records) the physical inventory.

Q9 Reconciliation of accounts and records should be performed by someone who is ******(responsilbility / independent ) of the transaction processing and record-keeping functions.

Q10 A ******* (cashier/finance)  team member reconciles bank statements, independent of those who handle cash transactions or record them.

Q11 Clearly outline and document roles and responsibilities for all employees.,Ensure that job *****(descriptions/timings) reflect the segregation of duties requirements.

Q12 Implement automated systems and controls that enforce SoD principles, such as *****(approval/access) controls and ****(approval/access) workflows.Utilize audit trails and system logs to monitor activities and detect any potential ******(violations/breaches) of duties.

Q13 Conduct periodic *****(reviews/investigations) of roles and access permissions to ensure compliance with SoD policies. Implement *****(continuous/periodic) monitoring processes to detect and address SoD violations promptly.

Q14 Educate employees about the importance of SoD and how it protects the organization.Provide *****(training/resources) on specific SoD procedures and the use of systems that support SoD.

Q15 In *****(smaller/larger) organizations where segregation of duties might be challenging, implement compensating controls such as increased supervisory reviews, independent audits, and dual controls (e.g., requiring two signatures for significant transactions).

Please submit your answers what's up 9773464206 Get answers with performance evaluation report.

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