Section 2: 30–40%2I
Equity
Loss contingencies are a favorite MCQ topic because the accrual threshold is precise: probable AND reasonably estimable — both conditions must be met. The trap: 'reasonably possible' contingencies are only disclosed in notes, never accrued. AICPA will give you a lawsuit described as 'reasonably possible' and candidates who accrue a liability fail that question.
What AICPA Wants You to Know
- 1Identify the five components of stockholders' equity and their normal balances
- 2Distinguish cumulative from noncumulative preferred stock and compute dividends in arrears
- 3Apply the cost method for treasury stock purchases and reissuances
- 4Compute basic and diluted EPS using the weighted-average shares method
- 5Record stock dividends (large vs. small) and stock splits