CPA Exam : Financial Statement Accounts: Recognition, Measurement, Valuation, Calculation, Presentation, and Disclosures
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Example Questions
Example Question #1 : Financial Statement Accounts: Recognition, Measurement, Valuation, Calculation, Presentation, And Disclosures
Zeta Automotive ordered transmissions from the Alpha Transmission Company on May 7, 1990. The terms of sale were FOB destination. The Alpha Company shipped the transmissions on May 22, 1990, and Zeta Automotive received them on June 1, 1990. When should Zeta Automotive record the account payable?
Cannot be determined
May 7, 1990
June 8, 1990
June 1, 1990
May 22, 1990
June 1, 1990
FOB stands for free onboard destination. This means that goods in transit should be considered as the seller's inventory because they have not yet reached the buyer. In other words, if issues were to incur during sipping, then responsibility would fall on the shipper rather than the buyer; therefore, the buyer would record the account payable upon arrival.
Example Question #2 : Financial Statement Accounts: Recognition, Measurement, Valuation, Calculation, Presentation, And Disclosures
Which of the following are considered to be cash equivalents?
Treasury bills
Money market funds
Commercial paper
All of these
None of these
All of these
In order for an asset to be considered as cash equivalent, it needs to be readily convertible into cash; furthermore, they must be near maturity so that they carry little to no risk of value alteration due to changes in interest rates. Generally, cash equivalents include investments with maturities of three months or less from the date of purchase. All of these—Treasury bills, commercial paper, and money market funds—are cash equivalents.
Example Question #4 : Financial Accounting And Reporting
All of the following conditions except which of the following must be met in order for an employer to accrue liability for employee compensation for future absences?
The employer's obligation is related to employee's rights to receive compensation for previous absences is attributable to the employee's services already rendered
The employer's obligation is related to employee's rights to receive compensation for future absences is attributable to the employee's services already rendered
Payment of the compensation is probable
The amount can be reasonably estimated
The obligation relates to rights that vest or accumulate
The employer's obligation is related to employee's rights to receive compensation for previous absences is attributable to the employee's services already rendered
In relation to compensated absences, the knowledge of the conditions that must be met in order to accrue loss contingency is helpful in accounting for compensated absences such as vacation, sick pay, and leave. In order for an employer to accrue liability for employee's compensation for future absences, several conditions must be met. These conditions include the following: the employer's obligation is related to employee's rights to receive compensation for future absences is attributable to the employee's services already rendered; the obligation relates to rights that vest or accumulate; payment of the compensation is probable; and the amount can be reasonably estimated.
Example Question #3 : Financial Statement Accounts: Recognition, Measurement, Valuation, Calculation, Presentation, And Disclosures
The Beta Company—consignee—paid the freight costs for goods shipped from the Foxtrot Incorporated—consigner. The freight costs are to be deducted from the Beta Company's payment to the Foxtrot Incorporated when the goods are sold. Until the Beta Company sells the goods, the freight costs should be included in which of the following?
Accounts receivable
Freight-out costs
Selling expense
Freight expense
Cost of goods sold
Accounts receivable
In a consignment, the manufacturer—Foxtrot Incorporated—is known as the consignor and the retailer is the consignee—Beta Company. In this type of arrangement, title to the goods remains with the manufacturer until they are sold to a third or unrelated party; thus, the Beta Company's payment of reimbursable freight costs results in an account receivable from Foxtrot Incorporated.
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