California Certified Public Accountant
(CPA) Exam With Actual Questions &
Verified Answers,Plus
Rationales/Expert Verified For
Guaranteed Pass Graded A+/2026
/Latest Update/Instant Download Pdf
1. Which financial statement presents a company's financial position at a
specific point in time?
A. Statement of cash flows
B. Statement of comprehensive income
C. Statement of changes in equity
D. Balance sheet
Rationale: The balance sheet (statement of financial position) reports
assets, liabilities, and equity at a specific date.
2. Under GAAP, which inventory costing method generally results in the
highest income during a period of rising prices?
A. FIFO
B. LIFO
C. Weighted-average
D. Specific identification
Rationale: In periods of rising prices, LIFO matches recent higher costs
against revenue, typically lowering inventory and net income; FIFO
usually produces higher income — correction: FIFO results in highest
income, so the correct answer is A.
(Note: The original selection was mistaken — correct answer is A. FIFO.)
,3. Which engagement requires independence in both fact and appearance?
A. Compilation
B. Audit
C. Preparation without independence requirement
D. Review engagement only in some cases
Rationale: Audits require auditor independence in fact and appearance
to provide an opinion on financial statements.
4. For tax reporting, which of the following is considered a capital asset?
A. Inventory held for sale
B. Accounts receivable from sale of goods
C. A personal residence (subject to certain exclusions)
D. Depreciable business equipment
Rationale: Capital assets generally include personal property like
residences; however, there are special rules (e.g., exclusion of gain on
sale of principal residence).
5. Under the accrual basis of accounting, when is revenue recognized?
A. When cash is received
B. When it is earned and realizable
C. When the invoice is sent
D. When the customer expresses intent to pay
Rationale: Accrual accounting recognizes revenue when earned and
realizable (matching revenue to the period in which performance
obligations are satisfied).
6. Management is primarily responsible for which of the following in an
audit?
A. Expressing the auditor’s opinion
B. Designing audit procedures
C. Preparing the financial statements and internal controls
D. Selecting the auditor
Rationale: Management prepares financial statements and is
responsible for establishing internal control; the auditor expresses the
opinion.
, 7. Which ratio measures a company’s ability to meet short-term obligations
with short-term assets?
A. Debt-to-equity ratio
B. Return on assets
C. Asset turnover
D. Current ratio
Rationale: The current ratio (current assets/current liabilities) assesses
short-term liquidity.
8. Under ASC 718, stock-based compensation expense for employees is
generally measured at:
A. Book value of the company
B. Fair value of the equity award at grant date
C. Intrinsic value at exercise date
D. Market value at vesting date only
Rationale: Stock-based compensation for employee awards is
measured at grant-date fair value and expensed over the vesting
period.
9. Which of the following items is a permanent difference for tax purposes?
A. Interest on municipal bonds
B. Depreciation difference due to accelerated methods
C. Fines and penalties
D. Net operating loss carryforward
Rationale: Permanent differences are items that do not reverse (e.g.,
tax-exempt interest). Fines are nondeductible, another example of
permanent difference.
10.The most persuasive evidence in an audit of accounts receivable typically
is:
A. Customer purchase orders
B. Accounts receivable aging report prepared by client
C. External confirmations from customers
D. Sales invoices retained by client
Rationale: External confirmations provide third-party evidence and are
highly persuasive for verifying receivables.
(CPA) Exam With Actual Questions &
Verified Answers,Plus
Rationales/Expert Verified For
Guaranteed Pass Graded A+/2026
/Latest Update/Instant Download Pdf
1. Which financial statement presents a company's financial position at a
specific point in time?
A. Statement of cash flows
B. Statement of comprehensive income
C. Statement of changes in equity
D. Balance sheet
Rationale: The balance sheet (statement of financial position) reports
assets, liabilities, and equity at a specific date.
2. Under GAAP, which inventory costing method generally results in the
highest income during a period of rising prices?
A. FIFO
B. LIFO
C. Weighted-average
D. Specific identification
Rationale: In periods of rising prices, LIFO matches recent higher costs
against revenue, typically lowering inventory and net income; FIFO
usually produces higher income — correction: FIFO results in highest
income, so the correct answer is A.
(Note: The original selection was mistaken — correct answer is A. FIFO.)
,3. Which engagement requires independence in both fact and appearance?
A. Compilation
B. Audit
C. Preparation without independence requirement
D. Review engagement only in some cases
Rationale: Audits require auditor independence in fact and appearance
to provide an opinion on financial statements.
4. For tax reporting, which of the following is considered a capital asset?
A. Inventory held for sale
B. Accounts receivable from sale of goods
C. A personal residence (subject to certain exclusions)
D. Depreciable business equipment
Rationale: Capital assets generally include personal property like
residences; however, there are special rules (e.g., exclusion of gain on
sale of principal residence).
5. Under the accrual basis of accounting, when is revenue recognized?
A. When cash is received
B. When it is earned and realizable
C. When the invoice is sent
D. When the customer expresses intent to pay
Rationale: Accrual accounting recognizes revenue when earned and
realizable (matching revenue to the period in which performance
obligations are satisfied).
6. Management is primarily responsible for which of the following in an
audit?
A. Expressing the auditor’s opinion
B. Designing audit procedures
C. Preparing the financial statements and internal controls
D. Selecting the auditor
Rationale: Management prepares financial statements and is
responsible for establishing internal control; the auditor expresses the
opinion.
, 7. Which ratio measures a company’s ability to meet short-term obligations
with short-term assets?
A. Debt-to-equity ratio
B. Return on assets
C. Asset turnover
D. Current ratio
Rationale: The current ratio (current assets/current liabilities) assesses
short-term liquidity.
8. Under ASC 718, stock-based compensation expense for employees is
generally measured at:
A. Book value of the company
B. Fair value of the equity award at grant date
C. Intrinsic value at exercise date
D. Market value at vesting date only
Rationale: Stock-based compensation for employee awards is
measured at grant-date fair value and expensed over the vesting
period.
9. Which of the following items is a permanent difference for tax purposes?
A. Interest on municipal bonds
B. Depreciation difference due to accelerated methods
C. Fines and penalties
D. Net operating loss carryforward
Rationale: Permanent differences are items that do not reverse (e.g.,
tax-exempt interest). Fines are nondeductible, another example of
permanent difference.
10.The most persuasive evidence in an audit of accounts receivable typically
is:
A. Customer purchase orders
B. Accounts receivable aging report prepared by client
C. External confirmations from customers
D. Sales invoices retained by client
Rationale: External confirmations provide third-party evidence and are
highly persuasive for verifying receivables.
