CPA Practice Exam 2026–2027
Comprehensive Certified Public Accountant Exam
Questions, Answers and Rationales
multiple-choice questions across FAR, AUD, REG, BAR and ISC. The
correct answer is highlighted in each question, followed by its rationale.
Section 1: Financial Accounting and Reporting (FAR)
1. Which inventory cost-flow methods are measured at the lower
of cost and net realizable value under current U.S. GAAP?
A. LIFO and the retail (LIFO) method
B. FIFO and weighted-average cost
C. LIFO and FIFO only
D. Specific identification only
Correct Answer: B
Rationale: Under ASU 2015-11, lower of cost and NRV applies to
FIFO and average cost. LIFO and the retail method (LIFO) still use
lower of cost or market.
,2. Equipment costs $100,000, has a $10,000 residual value and a
5-year life. Annual straight-line depreciation is:
A. $20,000
B. $9,000
C. $22,000
D. $18,000
Correct Answer: D
Rationale: Depreciable base = $100,000 - $10,000 = $90,000;
$90, = $18,000.
3. An asset costs $50,000, has a $5,000 salvage value and a 5-year
life. Year 1 double-declining-balance depreciation is:
A. $20,000
B. $18,000
C. $10,000
D. $9,000
Correct Answer: A
Rationale: DDB rate = 2 x (1/5) = 40%, applied to cost (salvage is
ignored in the base): $50,000 x 40% = $20,000.
,4. For bonds issued at a discount, effective-interest-method
interest expense is:
A. Equal to cash interest paid
B. Less than cash interest paid
C. Greater than cash interest paid, with the carrying amount
rising toward face value
D. Greater than cash paid, with the carrying amount falling each
period
Correct Answer: C
Rationale: Discount amortization is added to cash interest, so
expense exceeds cash paid and the carrying amount accretes up to
face value.
5. Under ASC 606, the first step in the revenue recognition model
is to:
A. Allocate the transaction price
B. Determine the transaction price
C. Recognize revenue when a performance obligation is satisfied
D. Identify the contract with a customer
Correct Answer: D
Rationale: The five steps are: identify the contract, identify
performance obligations, determine the price, allocate the price,
recognize revenue.
, 6. How does a lessee account for an operating lease under ASC
842?
A. Expense payments with no balance sheet recognition
B. Recognize a right-of-use asset and lease liability with a
single straight-line lease cost
C. Recognize separate interest and amortization expense
D. Recognize a right-of-use asset but no liability
Correct Answer: B
Rationale: Operating leases are on the balance sheet; the income
statement shows a single straight-line lease cost. Finance leases show
interest and amortization separately.
7. Under current GAAP, a goodwill impairment loss equals:
A. The excess of undiscounted cash flows over carrying amount
B. One-fortieth of goodwill each year
C. The excess of the reporting unit's carrying amount over its
fair value, limited to goodwill
D. The excess of goodwill's carrying amount over its implied fair
value
Correct Answer: C
Rationale: ASU 2017-04 eliminated Step 2; the loss is the shortfall of
fair value versus carrying amount, not exceeding goodwill allocated to
the unit.
Comprehensive Certified Public Accountant Exam
Questions, Answers and Rationales
multiple-choice questions across FAR, AUD, REG, BAR and ISC. The
correct answer is highlighted in each question, followed by its rationale.
Section 1: Financial Accounting and Reporting (FAR)
1. Which inventory cost-flow methods are measured at the lower
of cost and net realizable value under current U.S. GAAP?
A. LIFO and the retail (LIFO) method
B. FIFO and weighted-average cost
C. LIFO and FIFO only
D. Specific identification only
Correct Answer: B
Rationale: Under ASU 2015-11, lower of cost and NRV applies to
FIFO and average cost. LIFO and the retail method (LIFO) still use
lower of cost or market.
,2. Equipment costs $100,000, has a $10,000 residual value and a
5-year life. Annual straight-line depreciation is:
A. $20,000
B. $9,000
C. $22,000
D. $18,000
Correct Answer: D
Rationale: Depreciable base = $100,000 - $10,000 = $90,000;
$90, = $18,000.
3. An asset costs $50,000, has a $5,000 salvage value and a 5-year
life. Year 1 double-declining-balance depreciation is:
A. $20,000
B. $18,000
C. $10,000
D. $9,000
Correct Answer: A
Rationale: DDB rate = 2 x (1/5) = 40%, applied to cost (salvage is
ignored in the base): $50,000 x 40% = $20,000.
,4. For bonds issued at a discount, effective-interest-method
interest expense is:
A. Equal to cash interest paid
B. Less than cash interest paid
C. Greater than cash interest paid, with the carrying amount
rising toward face value
D. Greater than cash paid, with the carrying amount falling each
period
Correct Answer: C
Rationale: Discount amortization is added to cash interest, so
expense exceeds cash paid and the carrying amount accretes up to
face value.
5. Under ASC 606, the first step in the revenue recognition model
is to:
A. Allocate the transaction price
B. Determine the transaction price
C. Recognize revenue when a performance obligation is satisfied
D. Identify the contract with a customer
Correct Answer: D
Rationale: The five steps are: identify the contract, identify
performance obligations, determine the price, allocate the price,
recognize revenue.
, 6. How does a lessee account for an operating lease under ASC
842?
A. Expense payments with no balance sheet recognition
B. Recognize a right-of-use asset and lease liability with a
single straight-line lease cost
C. Recognize separate interest and amortization expense
D. Recognize a right-of-use asset but no liability
Correct Answer: B
Rationale: Operating leases are on the balance sheet; the income
statement shows a single straight-line lease cost. Finance leases show
interest and amortization separately.
7. Under current GAAP, a goodwill impairment loss equals:
A. The excess of undiscounted cash flows over carrying amount
B. One-fortieth of goodwill each year
C. The excess of the reporting unit's carrying amount over its
fair value, limited to goodwill
D. The excess of goodwill's carrying amount over its implied fair
value
Correct Answer: C
Rationale: ASU 2017-04 eliminated Step 2; the loss is the shortfall of
fair value versus carrying amount, not exceeding goodwill allocated to
the unit.
