CPA Uniform CPA
Examination
CPA Uniform CPA Examination Newest
2025- 2026 Updated Practice Exam |
150 Actual Most Tested Questions
Collections & Verified Detailed
Answers | Tutor Verified Success
Exam) Graded A+
1. A company purchases equipment for $120,000 with a 10-year useful life and no salvage
value. Using straight-line depreciation, what is the annual depreciation expense?
Answer: B. $12,000
Rationale: Straight-line depreciation = cost ÷ useful life. $120,000 ÷ 10 = $12,000. Key
concept: systematic allocation of asset cost over useful life.
2. Which financial statement is primarily used to assess a company’s liquidity position?
Answer: C. Balance Sheet
Rationale: The balance sheet presents assets and liabilities, showing liquidity and
financial position at a point in time.
3. Under GAAP, revenue is recognized when:
Answer: A. It is realized or realizable and earned
Rationale: Revenue recognition follows the revenue recognition principle, requiring
earnings process completion and realizability.
,4. A company uses FIFO during rising prices. Compared to LIFO, FIFO will result in:
Answer: A. Higher net income
Rationale: FIFO assigns older lower costs to expense, increasing gross profit and net
income in inflation.
5. What is the purpose of an audit?
Answer: B. To express an opinion on financial statements
Rationale: Auditors provide reasonable assurance on fairness of financial statements, not
absolute guarantees.
6. Which internal control most directly prevents unauthorized payments?
Answer: D. Segregation of duties
Rationale: Segregation ensures no single employee controls all stages of a transaction,
reducing fraud risk.
7. A bond is issued at a premium. This means:
Answer: B. Coupon rate exceeds market rate
Rationale: Investors pay more when bond interest is above market yield.
8. What is the primary purpose of the statement of cash flows?
Answer: C. To show cash inflows and outflows
Rationale: It classifies cash flows into operating, investing, and financing activities.
9. Which account is increased with a credit?
Answer: A. Revenue
Rationale: Revenues increase equity and are recorded with credits under double-entry
accounting.
10. A contingent liability is recorded when:
Answer: C. It is probable and estimable
Rationale: GAAP requires recognition when loss is probable and reasonably estimable.
, 11. Which of the following is a substantive audit procedure?
Answer: B. Confirming receivable balances
Rationale: Substantive tests detect material misstatements through direct evidence.
12. Working capital is calculated as:
Answer: A. Current assets minus current liabilities
Rationale: Working capital measures short-term liquidity.
13. Under accrual accounting, expenses are recognized when:
Answer: B. They are incurred, regardless of payment
Rationale: Matching principle requires expenses to align with revenues earned.
14. Which ratio measures profitability relative to sales?
Answer: C. Net profit margin
Rationale: Net margin = net income ÷ revenue, showing efficiency of operations.
15. An unqualified audit opinion means:
Answer: A. Financial statements are fairly presented
Rationale: Indicates conformity with GAAP without material misstatement.
16. Which of the following is NOT a component of internal control?
Answer: D. Market analysis
Rationale: Internal control includes control environment, risk assessment, control
activities, information, and monitoring.
17. The primary purpose of adjusting entries is to:
Answer: B. Ensure revenues and expenses are properly recorded
Rationale: Adjustments enforce accrual accounting accuracy.
Examination
CPA Uniform CPA Examination Newest
2025- 2026 Updated Practice Exam |
150 Actual Most Tested Questions
Collections & Verified Detailed
Answers | Tutor Verified Success
Exam) Graded A+
1. A company purchases equipment for $120,000 with a 10-year useful life and no salvage
value. Using straight-line depreciation, what is the annual depreciation expense?
Answer: B. $12,000
Rationale: Straight-line depreciation = cost ÷ useful life. $120,000 ÷ 10 = $12,000. Key
concept: systematic allocation of asset cost over useful life.
2. Which financial statement is primarily used to assess a company’s liquidity position?
Answer: C. Balance Sheet
Rationale: The balance sheet presents assets and liabilities, showing liquidity and
financial position at a point in time.
3. Under GAAP, revenue is recognized when:
Answer: A. It is realized or realizable and earned
Rationale: Revenue recognition follows the revenue recognition principle, requiring
earnings process completion and realizability.
,4. A company uses FIFO during rising prices. Compared to LIFO, FIFO will result in:
Answer: A. Higher net income
Rationale: FIFO assigns older lower costs to expense, increasing gross profit and net
income in inflation.
5. What is the purpose of an audit?
Answer: B. To express an opinion on financial statements
Rationale: Auditors provide reasonable assurance on fairness of financial statements, not
absolute guarantees.
6. Which internal control most directly prevents unauthorized payments?
Answer: D. Segregation of duties
Rationale: Segregation ensures no single employee controls all stages of a transaction,
reducing fraud risk.
7. A bond is issued at a premium. This means:
Answer: B. Coupon rate exceeds market rate
Rationale: Investors pay more when bond interest is above market yield.
8. What is the primary purpose of the statement of cash flows?
Answer: C. To show cash inflows and outflows
Rationale: It classifies cash flows into operating, investing, and financing activities.
9. Which account is increased with a credit?
Answer: A. Revenue
Rationale: Revenues increase equity and are recorded with credits under double-entry
accounting.
10. A contingent liability is recorded when:
Answer: C. It is probable and estimable
Rationale: GAAP requires recognition when loss is probable and reasonably estimable.
, 11. Which of the following is a substantive audit procedure?
Answer: B. Confirming receivable balances
Rationale: Substantive tests detect material misstatements through direct evidence.
12. Working capital is calculated as:
Answer: A. Current assets minus current liabilities
Rationale: Working capital measures short-term liquidity.
13. Under accrual accounting, expenses are recognized when:
Answer: B. They are incurred, regardless of payment
Rationale: Matching principle requires expenses to align with revenues earned.
14. Which ratio measures profitability relative to sales?
Answer: C. Net profit margin
Rationale: Net margin = net income ÷ revenue, showing efficiency of operations.
15. An unqualified audit opinion means:
Answer: A. Financial statements are fairly presented
Rationale: Indicates conformity with GAAP without material misstatement.
16. Which of the following is NOT a component of internal control?
Answer: D. Market analysis
Rationale: Internal control includes control environment, risk assessment, control
activities, information, and monitoring.
17. The primary purpose of adjusting entries is to:
Answer: B. Ensure revenues and expenses are properly recorded
Rationale: Adjustments enforce accrual accounting accuracy.
