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Free Questions › CPA › Business Analysis and Reporting
Free CPA Business Analysis and Reporting Practice Questions & Answers
500 exam-style Business Analysis and Reporting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 271
The output method of measuring progress is preferable to the input method when:
Select an option first.
Correct answer: B — The OUTPUT directly measures the value transferred (units delivered, milestones) — better depicting the transfer of control
Explanation: OUTPUT methods (units delivered, milestones, surveys of performance) directly measure the VALUE TRANSFERRED to the customer. INPUT methods (cost-to-cost, labour hours) measure the entity's EFFORTS, and can distort progress when there are uninstalled materials, inefficiencies or wastage. Output is conceptually superior where a reliable output measure exists.
Question 272
A performance obligation satisfied over time where progress CANNOT be reasonably measured requires:
Select an option first.
Correct answer: A — Revenue recognised only to the extent of COSTS INCURRED that are expected to be recovered (a ZERO-margin approach)
Explanation: If the entity cannot reasonably measure progress but EXPECTS to recover its costs, it recognises revenue equal to COSTS INCURRED — a ZERO-margin approach — until it can measure progress reliably. Recognising nothing would understate performance that has genuinely occurred.
Question 273
The transaction price EXCLUDES:
Select an option first.
Correct answer: B — Amounts collected on behalf of THIRD PARTIES (e.g. sales taxes)
Explanation: The transaction price EXCLUDES amounts collected on behalf of third parties — sales taxes, VAT, GST. Those are not consideration for the entity's own performance; the entity is merely a collection agent. Including them would inflate revenue.
Question 274
Under ASC 606, collectibility is assessed as part of:
Select an option first.
Correct answer: B — STEP 1 — whether a CONTRACT exists at all; it must be PROBABLE that the entity will collect the consideration to which it is entitled
Explanation: COLLECTIBILITY being PROBABLE is one of the five STEP 1 criteria for a CONTRACT to exist. If it is NOT probable, there is NO contract under ASC 606, and any cash received is recorded as a LIABILITY. Critically, the assessment concerns the amount the entity EXPECTS to be entitled to — which may be less than the stated price.
Question 275
Costs to FULFIL a contract are capitalised if they:
Select an option first.
Correct answer: A — Relate DIRECTLY to a contract, GENERATE OR ENHANCE resources used in satisfying it, and are EXPECTED TO BE RECOVERED
Explanation: ALL THREE criteria must be met. General and administrative costs, wasted materials, and costs relating to already-satisfied obligations are EXPENSED. If another standard applies (inventory, PP&E, intangibles), that standard governs instead.
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Question 276
A change in an accounting ESTIMATE is applied:
Select an option first.
Correct answer: C — PROSPECTIVELY — no restatement of prior periods
Explanation: A change in ESTIMATE is PROSPECTIVE. A change in PRINCIPLE is RETROSPECTIVE (with two exceptions: a change TO LIFO and a change in DEPRECIATION METHOD, both prospective). An ERROR requires RESTATEMENT. Three changes, three treatments — and identifying the bucket IS the question.
Question 277
A change in DEPRECIATION METHOD is treated as:
Select an option first.
Correct answer: D — A change in ESTIMATE effected by a change in principle — applied PROSPECTIVELY
Explanation: A change in DEPRECIATION METHOD is treated as a change in ESTIMATE effected by a change in principle, and is therefore PROSPECTIVE — no restatement. This surprises candidates, who expect retrospective treatment because it looks like a principle change.
Question 278
A company changes FROM a non-GAAP method TO GAAP. This is:
Select an option first.
Correct answer: D — A CORRECTION OF AN ERROR — requiring RESTATEMENT
Explanation: Moving FROM a non-GAAP method TO a GAAP method is an ERROR CORRECTION, not a change in principle — you cannot 'change' from something that was never permitted. It requires RESTATEMENT of prior periods and adjustment of opening retained earnings.
Question 279
Under ASU 2020-06, convertible debt is generally recorded:
Select an option first.
Correct answer: A — ENTIRELY as DEBT, with interest at the stated rate
Explanation: ASU 2020-06 ELIMINATED the beneficial conversion feature and cash conversion separation models. The proceeds are recorded ENTIRELY as DEBT, with interest at the STATED rate — which markedly reduces reported interest expense compared with the old models. Study material predating 2020 gets this wrong.
Question 280
A parent's consolidated statements include a subsidiary acquired mid-year for:
Select an option first.
Correct answer: C — Only the POST-ACQUISITION period — from the acquisition date forward
Explanation: Only POST-ACQUISITION results are consolidated. Pre-acquisition results belong to the previous owners. Supplemental PRO FORMA disclosure (revenue and earnings as if the acquisition had occurred at the start of the period) IS required for public entities.
Question 281
Under ASC 606, a right of return requires the seller to recognise:
Select an option first.
Correct answer: A — Revenue only for what it EXPECTS to be entitled to, plus a REFUND LIABILITY and an ASSET for the right to recover goods
Explanation: With a right of return: revenue = the amount the entity EXPECTS to be entitled to (constrained variable consideration); a REFUND LIABILITY for expected returns; and an ASSET for the right to RECOVER the goods (at former carrying amount less expected recovery costs), with a corresponding COGS adjustment.
Question 282
A material right (e.g. a significant discount on future purchases) is:
Select an option first.
Correct answer: A — A SEPARATE PERFORMANCE OBLIGATION, to which part of the transaction price must be allocated
Explanation: A discount option INCREMENTAL to what the entity ordinarily offers gives the customer a MATERIAL RIGHT — a separate performance obligation. Part of the transaction price is allocated to it (based on its standalone selling price, considering the discount AND the likelihood of exercise) and deferred until exercised or expired.
Question 283
The practical expedient for a significant financing component permits ignoring it when:
Select an option first.
Correct answer: C — The period between transfer and payment is ONE YEAR OR LESS
Explanation: A PRACTICAL EXPEDIENT permits an entity to IGNORE a significant financing component if, at contract inception, the period between transferring the goods and the customer paying is expected to be ONE YEAR OR LESS. It avoids discounting ordinary trade terms.
Question 284
Non-cash consideration received in a contract is measured at:
Select an option first.
Correct answer: B — FAIR VALUE — or, if that cannot be reasonably estimated, by reference to the standalone selling price of the goods promised
Explanation: NON-CASH consideration is measured at FAIR VALUE at contract inception. If fair value cannot be reasonably estimated, the entity measures it INDIRECTLY, by reference to the STANDALONE SELLING PRICE of the goods or services promised to the customer.
Question 285
Under ASC 842, the discount rate used by a lessee is:
Select an option first.
Correct answer: D — The rate IMPLICIT in the lease if readily determinable; otherwise the INCREMENTAL BORROWING RATE
Explanation: The rate IMPLICIT in the lease is used if readily determinable — but a lessee rarely knows the lessor's expected residual value, so the INCREMENTAL BORROWING RATE is used in practice. PRIVATE companies may ELECT a risk-free rate as a practical expedient (an election, not the default).
Question 286
A short-term lease exemption applies to leases of:
Select an option first.
Correct answer: D — 12 MONTHS OR LESS with no purchase option reasonably certain of exercise — by policy election, per class of asset
Explanation: A lessee may ELECT (as an accounting policy, by CLASS of underlying asset) to exclude SHORT-TERM leases — 12 months or less, with no purchase option reasonably certain of exercise — from balance sheet recognition, expensing the payments on a straight-line basis.
Question 287
A cash flow hedge of a forecasted INVENTORY purchase releases the AOCI amount to earnings when:
Select an option first.
Correct answer: D — The INVENTORY IS SOLD and hits COGS — when the hedged item affects earnings
Explanation: The deferred amount is reclassified from AOCI to EARNINGS when the HEDGED ITEM affects earnings. For hedged INVENTORY, that is when the inventory is SOLD and enters COGS — NOT when it is purchased. This achieves the matching the hedge was designed to produce.
Question 288
A company's segment disclosures must reconcile segment totals to:
Select an option first.
Correct answer: A — The CONSOLIDATED financial statement amounts
Explanation: Segment disclosures must RECONCILE the total of the reportable segments' revenues, profit or loss, and assets to the corresponding CONSOLIDATED amounts. Because the management approach permits non-GAAP segment measures, the reconciliation is essential for users to bridge the two.
Question 289
Entity-wide segment disclosures require information about:
Select an option first.
Correct answer: D — Products and services, GEOGRAPHIC AREAS, and MAJOR CUSTOMERS (10% or more of revenue) — even for single-segment entities
Explanation: ENTITY-WIDE disclosures are required EVEN FOR SINGLE-SEGMENT entities: revenues by product/service; revenues and long-lived assets by GEOGRAPHIC AREA (domestic and foreign); and the existence of MAJOR CUSTOMERS (any providing 10% or more of revenue) — though the customer need not be named.
Question 290
IFRS requires PP&E components with different useful lives to be:
Select an option first.
Correct answer: A — DEPRECIATED SEPARATELY (component depreciation) — this is REQUIRED under IFRS, but only permitted under US GAAP
Explanation: IFRS REQUIRES COMPONENT DEPRECIATION: significant parts of an asset with different useful lives (an aircraft's engines versus its airframe) must be depreciated SEPARATELY. US GAAP PERMITS but does not REQUIRE it, so most US companies do not do it. A meaningful divergence.
Question 291
Under IFRS, an investment property may be measured at:
Select an option first.
Correct answer: A — The COST MODEL or the FAIR VALUE MODEL (with changes in PROFIT OR LOSS)
Explanation: IAS 40 permits investment property (held to earn rentals or for capital appreciation) to be measured at COST or at FAIR VALUE, with fair value changes in PROFIT OR LOSS. US GAAP has NO investment property category — such assets are ordinary PP&E at historical cost.
Question 292
Consideration $12m; FV of NCI $3m; FV of identifiable net assets $13m. Goodwill is:
Select an option first.
Correct answer: C — $2m
Explanation: Goodwill = Consideration ($12m) + FV of NCI ($3m) − FV of identifiable net assets ($13m) = $2m.
Question 293
Consideration $9m; FV of NCI $2m; FV of identifiable net assets $12m. The result is:
Select an option first.
Correct answer: C — A BARGAIN PURCHASE GAIN of $1m, recognised in earnings
Explanation: $9m + $2m − $12m = $(1m) — a NEGATIVE residual, giving a BARGAIN PURCHASE GAIN of $1m recognised IMMEDIATELY in earnings (after reassessing the identification and valuation of the net assets).
Question 294
A parent owns 75%. The subsidiary's net income is $800,000, including $60,000 of unrealised UPSTREAM profit. NCI income is:
Select an option first.
Correct answer: D — $185,000 — 25% of ($800,000 − $60,000)
Explanation: UPSTREAM (subsidiary is the seller): the unrealised profit belongs to the SUBSIDIARY and is SHARED with the NCI. Adjusted sub income = $800,000 − $60,000 = $740,000. NCI = 25% × $740,000 = $185,000. If DOWNSTREAM, NCI would be 25% × $800,000 = $200,000.
Question 295
A contract has two obligations with standalone prices of $80,000 and $40,000. The contract price is $108,000. Revenue allocated to the FIRST is:
Select an option first.
Correct answer: D — $72,000 — ($80,000/$120,000) × $108,000
Explanation: Total SSP = $80,000 + $40,000 = $120,000. First obligation's share = $80,000/$120,000 = 66.67%. Allocation = 66.67% × $108,000 = $72,000 (the second gets $36,000). The $12,000 discount is spread PROPORTIONATELY.
Question 296
A construction contract: price $12m; costs to date $3m; total estimated costs $9m. Revenue recognised to date is:
Select an option first.
Correct answer: A — $4m — (3/9) × $12m
Explanation: Progress = $3m / $9m = 33.33%. Revenue to date = 33.33% × $12m = $4m. Gross profit to date = $4m − $3m = $1m.
Question 297
Continuing: in Year 2, costs to date reach $6m (total estimate unchanged at $9m). Revenue recognised IN YEAR 2 is:
Select an option first.
Correct answer: C — $4m — cumulative revenue of $8m less the $4m recognised in Year 1
Explanation: Progress = $6m / $9m = 66.67%. Cumulative revenue = 66.67% × $12m = $8m. Revenue IN Year 2 = $8m − $4m (Year 1) = $4m. Always compute CUMULATIVELY, then back out the prior periods.
Question 298
A contract price is $10m; total estimated costs rise to $11m. Costs to date are $5.5m. The LOSS recognised is:
Select an option first.
Correct answer: C — $1,000,000 — the ENTIRE expected loss is recognised IMMEDIATELY
Explanation: Expected total loss = $10m − $11m = $(1m). The ENTIRE expected loss is recognised IMMEDIATELY — never prorated by the 50% completion. Multiplying by the percentage complete gives $500,000 (option A) — the intended trap.
Question 299
10,000 options with a grant-date fair value of $8 each vest over 4 years. Annual compensation expense (straight-line) is:
Select an option first.
Correct answer: A — $20,000
Explanation: Total compensation = 10,000 × $8 = $80,000, recognised over the 4-year VESTING period: $80,000 / 4 = $20,000 per year. The grant-date fair value is NOT remeasured for later share-price changes.
Question 300
Same award, but the company expects 15% forfeitures. Annual expense is:
Select an option first.
Correct answer: D — $17,000 — $80,000 × 85% ÷ 4 years
Explanation: Expected compensation = 10,000 × $8 × 85% = $68,000. Annual expense = $68,000 / 4 = $17,000. Forfeiture estimates reduce the TOTAL cost; the straight-line pattern over the vesting period is unchanged.
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