Sample Questions
Question 1
Easy
Under U.S. GAAP, a deferred tax liability arises when:
Solution
D is correct.
Under ASC 740-10-25, a deferred tax liability (DTL) arises from taxable temporary differences, which occur when an asset's book carrying amount exceeds its tax basis. When the asset is recovered (through depreciation, sale, or use), the excess book amount over tax basis will result in additional taxable income in future periods.
Under ASC 740-10-25, a deferred tax liability (DTL) arises from taxable temporary differences, which occur when an asset's book carrying amount exceeds its tax basis. When the asset is recovered (through depreciation, sale, or use), the excess book amount over tax basis will result in additional taxable income in future periods.
Question 2
Medium
Under U.S. GAAP, an indicator that promised goods should be combined into one performance obligation is:
Solution
B is correct.
Significant integration indicates that the promised goods are inputs to one contracted output. They are therefore combined into one performance obligation.
A distinct good must both provide benefit on its own or with readily available resources and be separately identifiable within the contract. Separate sales support the first requirement but do not establish the second. An observable standalone selling price concerns allocation and does not resolve the integration assessment.
Authority: ASC 606-10-25-19 and 25-21, distinct goods and services.
Significant integration indicates that the promised goods are inputs to one contracted output. They are therefore combined into one performance obligation.
A distinct good must both provide benefit on its own or with readily available resources and be separately identifiable within the contract. Separate sales support the first requirement but do not establish the second. An observable standalone selling price concerns allocation and does not resolve the integration assessment.
Authority: ASC 606-10-25-19 and 25-21, distinct goods and services.
Question 3
Hard
A lessee is reviewing U.S. GAAP requirements for classification after commencement. Each of these changes requires reassessing lease classification, *except*:
Solution
C is correct. Revising the probable payment under an existing residual value guarantee requires liability remeasurement but does not, by itself, reopen lease classification. Changes in the lease term, the purchase-option assessment, and modifications accounted for within the existing lease do require classification reassessment.
