FAR PRACTICE QUESTIONS EXAM PREP |
COMPREHENSIVE MULTIPLE-CHOICE QUESTIONS
WITH DETAILED RATIONALES (CPA, ACCOUNTING
& FINANCIAL REPORTING REVIEW)
1. Which financial statement reports a company's financial position at a
specific point in time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Changes in Equity
Rationale: The balance sheet presents assets, liabilities, and equity as of a specific
date.
2. Under accrual accounting, revenue is recognized when:
A. Cash is received.
B. It is earned regardless of when cash is collected.
C. Expenses are paid.
D. Inventory is purchased.
Rationale: Revenue recognition follows the earning process rather than cash
collection.
3. Which accounting assumption allows a business to be treated separately
from its owner?
A. Going Concern
B. Monetary Unit
C. Economic Entity
D. Periodicity
,Rationale: The economic entity assumption separates business activities from
personal activities.
4. Which of the following is classified as a current asset?
A. Patent
B. Land
C. Accounts Receivable
D. Building
Rationale: Accounts receivable are expected to be collected within one operating
cycle or one year.
5. Which inventory costing method typically results in the highest ending
inventory during periods of rising prices?
A. LIFO
B. FIFO
C. Weighted Average
D. Specific Identification
Rationale: FIFO leaves the newest, higher-cost inventory in ending inventory.
6. Which depreciation method generally produces the highest depreciation
expense in the first year?
A. Straight-Line
B. Units-of-Production
C. Double-Declining Balance
D. Composite
Rationale: Double-declining balance is an accelerated depreciation method.
7. What is the primary purpose of adjusting entries?
A. Record owner investments.
B. Close temporary accounts.
C. Ensure revenues and expenses are recognized in the proper period.
D. Record dividends.
, Rationale: Adjusting entries implement the matching and revenue recognition
principles.
8. Which account normally carries a debit balance?
A. Accounts Payable
B. Equipment
C. Unearned Revenue
D. Common Stock
Rationale: Assets normally carry debit balances.
9. Which of the following is considered an intangible asset?
A. Machinery
B. Inventory
C. Cash
D. Trademark
Rationale: A trademark lacks physical substance but provides future economic
benefit.
10.Gross profit equals:
A. Revenue − Operating Expenses
B. Net Sales − Cost of Goods Sold
C. Assets − Liabilities
D. Revenue − Taxes
Rationale: Gross profit measures profitability after deducting cost of goods sold.
11.Which financial statement is prepared first?
A. Income Statement
B. Balance Sheet
C. Statement of Cash Flows
D. Statement of Retained Earnings
Rationale: Net income from the income statement is needed for subsequent
statements.
COMPREHENSIVE MULTIPLE-CHOICE QUESTIONS
WITH DETAILED RATIONALES (CPA, ACCOUNTING
& FINANCIAL REPORTING REVIEW)
1. Which financial statement reports a company's financial position at a
specific point in time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Changes in Equity
Rationale: The balance sheet presents assets, liabilities, and equity as of a specific
date.
2. Under accrual accounting, revenue is recognized when:
A. Cash is received.
B. It is earned regardless of when cash is collected.
C. Expenses are paid.
D. Inventory is purchased.
Rationale: Revenue recognition follows the earning process rather than cash
collection.
3. Which accounting assumption allows a business to be treated separately
from its owner?
A. Going Concern
B. Monetary Unit
C. Economic Entity
D. Periodicity
,Rationale: The economic entity assumption separates business activities from
personal activities.
4. Which of the following is classified as a current asset?
A. Patent
B. Land
C. Accounts Receivable
D. Building
Rationale: Accounts receivable are expected to be collected within one operating
cycle or one year.
5. Which inventory costing method typically results in the highest ending
inventory during periods of rising prices?
A. LIFO
B. FIFO
C. Weighted Average
D. Specific Identification
Rationale: FIFO leaves the newest, higher-cost inventory in ending inventory.
6. Which depreciation method generally produces the highest depreciation
expense in the first year?
A. Straight-Line
B. Units-of-Production
C. Double-Declining Balance
D. Composite
Rationale: Double-declining balance is an accelerated depreciation method.
7. What is the primary purpose of adjusting entries?
A. Record owner investments.
B. Close temporary accounts.
C. Ensure revenues and expenses are recognized in the proper period.
D. Record dividends.
, Rationale: Adjusting entries implement the matching and revenue recognition
principles.
8. Which account normally carries a debit balance?
A. Accounts Payable
B. Equipment
C. Unearned Revenue
D. Common Stock
Rationale: Assets normally carry debit balances.
9. Which of the following is considered an intangible asset?
A. Machinery
B. Inventory
C. Cash
D. Trademark
Rationale: A trademark lacks physical substance but provides future economic
benefit.
10.Gross profit equals:
A. Revenue − Operating Expenses
B. Net Sales − Cost of Goods Sold
C. Assets − Liabilities
D. Revenue − Taxes
Rationale: Gross profit measures profitability after deducting cost of goods sold.
11.Which financial statement is prepared first?
A. Income Statement
B. Balance Sheet
C. Statement of Cash Flows
D. Statement of Retained Earnings
Rationale: Net income from the income statement is needed for subsequent
statements.
