FCA Mock Exam 2026 Full-Length Practice Questions and
Answers with Exam-Focused Explanations - 139 Questions
with Answers
Page 1
,Q1. A software company enters into a contract to deliver a perpetual license,
installation, and post-contract customer support (PCS) for two years. The license is
functional and delivered before installation. Installation is routine and does not
significantly customize the software. How should the transaction price be allocated to
the performance obligations under ASC 606?
A. Allocate based on standalone selling prices, with the license recognized at a point in
time and installation and PCS over time
B. Allocate based on residual approach to the license, recognize all revenue over the
two-year support period
C. Allocate equally among the three obligations and recognize ratably over two years
D. Recognize license and installation revenue at contract inception, and PCS revenue
over time, with no allocation
Correct Answer: A. Allocate based on standalone selling prices, with the license
recognized at a point in time and installation and PCS over time
Rationale: Under ASC 606, the transaction price is allocated to each distinct performance
obligation based on relative standalone selling prices. The license is distinct and
transferred at a point in time; installation (routine) is not a separate performance
obligation but if distinct, it is recognized over time if control transfers over time; PCS is a
separate obligation recognized over time.
Why Wrong:
B - Residual approach is only allowed when standalone selling price is highly variable
or uncertain, not the default
C - Equal allocation is not supported; allocation must be based on relative standalone
selling prices
D - Transaction price must be allocated to distinct obligations; ignoring allocation is
incorrect
Reference: ASC 606-10-32-28; Kieso, Intermediate Accounting, 18th Ed., Ch. 18
Q2. A lessee enters into a 5-year lease for equipment with no renewal option. The
lease is classified as a finance lease. The lease requires annual payments of $10,000 at
the beginning of each year. The lessee's incremental borrowing rate is 5%, and the
asset's useful life is 6 years. What is the initial measurement of the right-of-use asset?
A. $45,454
B. $43,295
C. $50,000
D. $41,235
Correct Answer: B. $43,295
Rationale: The lease liability is the present value of the 5 annual payments of $10,000
made at the beginning of each period. Using a 5% discount rate, PV = $10,000 × [1 + (1 -
Page 2
,1.05^-4)/0.05] = $10,000 × 4.3295 = $43,295. The right-of-use asset initially equals the
lease liability plus any initial direct costs, so $43,295.
Why Wrong:
A - This is the PV of an ordinary annuity (payments at end of period) not annuity due
C - This ignores discounting, simply summing undiscounted payments
D - This is the PV at 6% or incorrect factor
Reference: ASC 842-30-30-1; Spiceland, Intermediate Accounting, 11th Ed., Ch. 15
Q3. A company recognizes $1,000,000 of book revenue that is not taxable until cash is
collected (deferred for tax purposes). The tax rate is 30%. Which of the following is
the correct deferred tax treatment?
A. Deferred tax asset of $300,000
B. Deferred tax liability of $300,000
C. No deferred tax because the revenue is recognized under both GAAP and tax
D. Deferred tax liability of $700,000
Correct Answer: A. Deferred tax asset of $300,000
Rationale: This temporary difference creates a future deductible amount when the revenue
becomes taxable, resulting in a deferred tax asset. The amount is $1,000,000 × 30% =
$300,000.
Why Wrong:
B - A deferred tax liability arises from future taxable amounts, not future deductible
amounts
C - The timing difference is temporary because the revenue will be taxable later
D - The amount is 30% of the temporary difference, not 70%
Reference: ASC 740-10-25-2; Kieso, Intermediate Accounting, 18th Ed., Ch. 19
Q4. Company P acquires 80% of Company S for $800,000. The fair value of S's net
assets is $700,000. The noncontrolling interest (NCI) is measured at fair value, which
is $180,000. What is the amount of goodwill recognized in the consolidated financial
statements?
A. $280,000
B. $180,000
C. $100,000
D. $80,000
Correct Answer: A. $280,000
Rationale: Goodwill is the excess of consideration transferred plus the fair value of NCI
over the fair value of identifiable net assets acquired. Here, $800,000 + $180,000 -
$700,000 = $280,000.
Page 3
, Why Wrong:
B - This is the NCI fair value, not goodwill
C - This is the excess of consideration over net assets without adding NCI
D - This is the excess of consideration over book value if book value were $720,000
Reference: ASC 805-30-30-1; Hoyle, Advanced Accounting, 14th Ed., Ch. 1
Q5. A company purchases a debt security that it plans to hold until maturity. The
security is classified as held-to-maturity. How should the unrealized holding gain or
loss be reported?
A. In net income
B. In other comprehensive income
C. Not recognized in financial statements
D. As a direct adjustment to retained earnings
Correct Answer: C. Not recognized in financial statements
Rationale: Held-to-maturity securities are measured at amortized cost; unrealized gains
and losses are not recognized because the securities are not marked to market.
Why Wrong:
A - This applies to trading securities
B - This applies to available-for-sale securities
D - Retained earnings adjustments are not used for unrealized gains/losses on
securities
Reference: ASC 320-10-35-1; Kieso, Intermediate Accounting, 18th Ed., Ch. 17
Q6. A company receives an insurance settlement of $500,000 for damage to its
equipment. The equipment had a book value of $400,000. In the statement of cash
flows, how should this receipt be classified under US GAAP?
A. Operating activity
B. Investing activity
C. Financing activity
D. Noncash investing and financing activity
Correct Answer: B. Investing activity
Rationale: Proceeds from insurance settlements related to property, plant, and equipment
are classified as investing activities, as they are derived from the disposal of an asset. The
gain or loss is not separately classified; the entire cash inflow is investing.
Why Wrong:
A - Proceeds from insurance settlements are not part of normal operations
C - Financing activities involve owners and creditors, not asset disposals
D - This is a cash receipt, not a noncash transaction
Page 4
Answers with Exam-Focused Explanations - 139 Questions
with Answers
Page 1
,Q1. A software company enters into a contract to deliver a perpetual license,
installation, and post-contract customer support (PCS) for two years. The license is
functional and delivered before installation. Installation is routine and does not
significantly customize the software. How should the transaction price be allocated to
the performance obligations under ASC 606?
A. Allocate based on standalone selling prices, with the license recognized at a point in
time and installation and PCS over time
B. Allocate based on residual approach to the license, recognize all revenue over the
two-year support period
C. Allocate equally among the three obligations and recognize ratably over two years
D. Recognize license and installation revenue at contract inception, and PCS revenue
over time, with no allocation
Correct Answer: A. Allocate based on standalone selling prices, with the license
recognized at a point in time and installation and PCS over time
Rationale: Under ASC 606, the transaction price is allocated to each distinct performance
obligation based on relative standalone selling prices. The license is distinct and
transferred at a point in time; installation (routine) is not a separate performance
obligation but if distinct, it is recognized over time if control transfers over time; PCS is a
separate obligation recognized over time.
Why Wrong:
B - Residual approach is only allowed when standalone selling price is highly variable
or uncertain, not the default
C - Equal allocation is not supported; allocation must be based on relative standalone
selling prices
D - Transaction price must be allocated to distinct obligations; ignoring allocation is
incorrect
Reference: ASC 606-10-32-28; Kieso, Intermediate Accounting, 18th Ed., Ch. 18
Q2. A lessee enters into a 5-year lease for equipment with no renewal option. The
lease is classified as a finance lease. The lease requires annual payments of $10,000 at
the beginning of each year. The lessee's incremental borrowing rate is 5%, and the
asset's useful life is 6 years. What is the initial measurement of the right-of-use asset?
A. $45,454
B. $43,295
C. $50,000
D. $41,235
Correct Answer: B. $43,295
Rationale: The lease liability is the present value of the 5 annual payments of $10,000
made at the beginning of each period. Using a 5% discount rate, PV = $10,000 × [1 + (1 -
Page 2
,1.05^-4)/0.05] = $10,000 × 4.3295 = $43,295. The right-of-use asset initially equals the
lease liability plus any initial direct costs, so $43,295.
Why Wrong:
A - This is the PV of an ordinary annuity (payments at end of period) not annuity due
C - This ignores discounting, simply summing undiscounted payments
D - This is the PV at 6% or incorrect factor
Reference: ASC 842-30-30-1; Spiceland, Intermediate Accounting, 11th Ed., Ch. 15
Q3. A company recognizes $1,000,000 of book revenue that is not taxable until cash is
collected (deferred for tax purposes). The tax rate is 30%. Which of the following is
the correct deferred tax treatment?
A. Deferred tax asset of $300,000
B. Deferred tax liability of $300,000
C. No deferred tax because the revenue is recognized under both GAAP and tax
D. Deferred tax liability of $700,000
Correct Answer: A. Deferred tax asset of $300,000
Rationale: This temporary difference creates a future deductible amount when the revenue
becomes taxable, resulting in a deferred tax asset. The amount is $1,000,000 × 30% =
$300,000.
Why Wrong:
B - A deferred tax liability arises from future taxable amounts, not future deductible
amounts
C - The timing difference is temporary because the revenue will be taxable later
D - The amount is 30% of the temporary difference, not 70%
Reference: ASC 740-10-25-2; Kieso, Intermediate Accounting, 18th Ed., Ch. 19
Q4. Company P acquires 80% of Company S for $800,000. The fair value of S's net
assets is $700,000. The noncontrolling interest (NCI) is measured at fair value, which
is $180,000. What is the amount of goodwill recognized in the consolidated financial
statements?
A. $280,000
B. $180,000
C. $100,000
D. $80,000
Correct Answer: A. $280,000
Rationale: Goodwill is the excess of consideration transferred plus the fair value of NCI
over the fair value of identifiable net assets acquired. Here, $800,000 + $180,000 -
$700,000 = $280,000.
Page 3
, Why Wrong:
B - This is the NCI fair value, not goodwill
C - This is the excess of consideration over net assets without adding NCI
D - This is the excess of consideration over book value if book value were $720,000
Reference: ASC 805-30-30-1; Hoyle, Advanced Accounting, 14th Ed., Ch. 1
Q5. A company purchases a debt security that it plans to hold until maturity. The
security is classified as held-to-maturity. How should the unrealized holding gain or
loss be reported?
A. In net income
B. In other comprehensive income
C. Not recognized in financial statements
D. As a direct adjustment to retained earnings
Correct Answer: C. Not recognized in financial statements
Rationale: Held-to-maturity securities are measured at amortized cost; unrealized gains
and losses are not recognized because the securities are not marked to market.
Why Wrong:
A - This applies to trading securities
B - This applies to available-for-sale securities
D - Retained earnings adjustments are not used for unrealized gains/losses on
securities
Reference: ASC 320-10-35-1; Kieso, Intermediate Accounting, 18th Ed., Ch. 17
Q6. A company receives an insurance settlement of $500,000 for damage to its
equipment. The equipment had a book value of $400,000. In the statement of cash
flows, how should this receipt be classified under US GAAP?
A. Operating activity
B. Investing activity
C. Financing activity
D. Noncash investing and financing activity
Correct Answer: B. Investing activity
Rationale: Proceeds from insurance settlements related to property, plant, and equipment
are classified as investing activities, as they are derived from the disposal of an asset. The
gain or loss is not separately classified; the entire cash inflow is investing.
Why Wrong:
A - Proceeds from insurance settlements are not part of normal operations
C - Financing activities involve owners and creditors, not asset disposals
D - This is a cash receipt, not a noncash transaction
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