Advanced Certified Public Accountant (CPA)
Multiple Choice Questions (MCQs) with
Answers and Explanations for CPA Exam
Preparation and Professional Accounting
Certification
1. A company reports a machine with a carrying amount of $1,200,000. Due to
technological obsolescence, the asset's fair value less costs of disposal is estimated at
$850,000, while its value in use is $920,000. Under impairment testing, what impairment
loss should be recognized?
A. $280,000
B. $350,000
C. $280,000 if recoverable amount is based on the higher of fair value less costs of disposal
and value in use
D. No impairment loss because fair value exceeds carrying amount
Explanation: Under IFRS, the recoverable amount is the higher of fair value less costs of
disposal ($850,000) and value in use ($920,000). Since the carrying amount ($1,200,000)
exceeds the recoverable amount ($920,000), an impairment loss of $280,000 is recognized.
2. A company changes from the weighted-average inventory method to the FIFO method
because management believes it provides more reliable information. How should this
change generally be accounted for?
A. Prospectively as a change in estimate
B. Retrospectively as a change in accounting policy
C. As an extraordinary item
D. By adjusting only the current year's financial statements
Explanation: A voluntary change in accounting policy is generally applied retrospectively unless
impracticable, allowing comparative financial statements to be presented consistently.
3. Which ratio best evaluates a company's short-term ability to meet obligations without
relying on inventory sales?
, A. Current ratio
B. Quick (acid-test) ratio
C. Debt-to-equity ratio
D. Inventory turnover ratio
Explanation: The quick ratio excludes inventory and other less liquid current assets, providing a
more stringent measure of short-term liquidity.
4. A parent company owns 85% of a subsidiary. During consolidation, the subsidiary
reports net income of $800,000. What amount is attributable to the non-controlling
interest?
A. $40,000
B. $80,000
C. $120,000
D. $680,000
Explanation: The non-controlling interest owns 15% of the subsidiary. Therefore, 15% ×
$800,000 = $120,000 is allocated to the non-controlling interest.
5. Which characteristic most distinguishes principles-based accounting standards from
rules-based standards?
A. Greater reliance on numerical thresholds
B. More industry-specific exceptions
C. Greater emphasis on professional judgment and economic substance
D. Elimination of disclosure requirements
Explanation: Principles-based standards emphasize the economic substance of transactions and
require significant professional judgment in their application.
6. A company issues bonds at a premium. As interest expense is recognized using the
effective interest method, the carrying amount of the bonds will:
A. Increase until maturity.
B. Remain constant.
Multiple Choice Questions (MCQs) with
Answers and Explanations for CPA Exam
Preparation and Professional Accounting
Certification
1. A company reports a machine with a carrying amount of $1,200,000. Due to
technological obsolescence, the asset's fair value less costs of disposal is estimated at
$850,000, while its value in use is $920,000. Under impairment testing, what impairment
loss should be recognized?
A. $280,000
B. $350,000
C. $280,000 if recoverable amount is based on the higher of fair value less costs of disposal
and value in use
D. No impairment loss because fair value exceeds carrying amount
Explanation: Under IFRS, the recoverable amount is the higher of fair value less costs of
disposal ($850,000) and value in use ($920,000). Since the carrying amount ($1,200,000)
exceeds the recoverable amount ($920,000), an impairment loss of $280,000 is recognized.
2. A company changes from the weighted-average inventory method to the FIFO method
because management believes it provides more reliable information. How should this
change generally be accounted for?
A. Prospectively as a change in estimate
B. Retrospectively as a change in accounting policy
C. As an extraordinary item
D. By adjusting only the current year's financial statements
Explanation: A voluntary change in accounting policy is generally applied retrospectively unless
impracticable, allowing comparative financial statements to be presented consistently.
3. Which ratio best evaluates a company's short-term ability to meet obligations without
relying on inventory sales?
, A. Current ratio
B. Quick (acid-test) ratio
C. Debt-to-equity ratio
D. Inventory turnover ratio
Explanation: The quick ratio excludes inventory and other less liquid current assets, providing a
more stringent measure of short-term liquidity.
4. A parent company owns 85% of a subsidiary. During consolidation, the subsidiary
reports net income of $800,000. What amount is attributable to the non-controlling
interest?
A. $40,000
B. $80,000
C. $120,000
D. $680,000
Explanation: The non-controlling interest owns 15% of the subsidiary. Therefore, 15% ×
$800,000 = $120,000 is allocated to the non-controlling interest.
5. Which characteristic most distinguishes principles-based accounting standards from
rules-based standards?
A. Greater reliance on numerical thresholds
B. More industry-specific exceptions
C. Greater emphasis on professional judgment and economic substance
D. Elimination of disclosure requirements
Explanation: Principles-based standards emphasize the economic substance of transactions and
require significant professional judgment in their application.
6. A company issues bonds at a premium. As interest expense is recognized using the
effective interest method, the carrying amount of the bonds will:
A. Increase until maturity.
B. Remain constant.
