Certified Public Accountant (CPA)
Practice Exam Questions And Correct
Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant
Download Pdf
1. (AUD)
Which of the following provides the most reliable audit evidence?
A. Inquiries of management
B. Inspection of client-prepared schedules
C. Inspection of documents obtained directly from an external source
D. Analytical procedures
Rationale: External evidence obtained directly by the auditor provides the
highest reliability because it is independent of the client’s internal controls.
,2. (FAR)
Which financial statement element is increased by revenues?
A. Assets
B. Liabilities
C. Equity
D. Expenses
Rationale: Revenues increase net income, which increases retained
earnings and therefore equity.
3. (REG)
Which of the following entities is subject to double taxation?
A. Partnership
B. S corporation
C. Sole proprietorship
D. C corporation
Rationale: C corporations are taxed at the corporate level, and dividends
are taxed again at the shareholder level.
4. (BEC)
Which ratio best measures a company's ability to pay short-term
obligations?
A. Debt-to-equity ratio
B. Current ratio
,C. Return on equity
D. Gross margin ratio
Rationale: The current ratio (current assets ÷ current liabilities) assesses
liquidity and the ability to meet short-term debts.
5. (AUD)
An auditor's primary objective when performing tests of controls is to
determine:
A. Whether controls exist
B. Whether controls are properly designed
C. Whether controls are operating effectively
D. Whether controls are documented
Rationale: Tests of controls evaluate the effectiveness of internal controls
in preventing or detecting misstatements.
6. (FAR)
Which inventory cost flow assumption results in the lowest net income
during inflationary periods?
A. FIFO
B. LIFO
C. Weighted average
D. Specific identification
, Rationale: Under inflation, LIFO uses higher recent costs for cost of goods
sold, reducing net income.
7. (REG)
A valid contract requires all of the following except:
A. Consideration
B. Mutual assent
C. Written documentation
D. Legal capacity
Rationale: Most contracts do not require a written form to be enforceable
unless covered by the Statute of Frauds.
8. (BEC)
Which of the following is a leading indicator of future economic activity?
A. Stock market performance
B. Unemployment rate
C. Consumer price index
D. Corporate profits
Rationale: The stock market tends to predict future economic trends,
making it a leading indicator.
Practice Exam Questions And Correct
Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant
Download Pdf
1. (AUD)
Which of the following provides the most reliable audit evidence?
A. Inquiries of management
B. Inspection of client-prepared schedules
C. Inspection of documents obtained directly from an external source
D. Analytical procedures
Rationale: External evidence obtained directly by the auditor provides the
highest reliability because it is independent of the client’s internal controls.
,2. (FAR)
Which financial statement element is increased by revenues?
A. Assets
B. Liabilities
C. Equity
D. Expenses
Rationale: Revenues increase net income, which increases retained
earnings and therefore equity.
3. (REG)
Which of the following entities is subject to double taxation?
A. Partnership
B. S corporation
C. Sole proprietorship
D. C corporation
Rationale: C corporations are taxed at the corporate level, and dividends
are taxed again at the shareholder level.
4. (BEC)
Which ratio best measures a company's ability to pay short-term
obligations?
A. Debt-to-equity ratio
B. Current ratio
,C. Return on equity
D. Gross margin ratio
Rationale: The current ratio (current assets ÷ current liabilities) assesses
liquidity and the ability to meet short-term debts.
5. (AUD)
An auditor's primary objective when performing tests of controls is to
determine:
A. Whether controls exist
B. Whether controls are properly designed
C. Whether controls are operating effectively
D. Whether controls are documented
Rationale: Tests of controls evaluate the effectiveness of internal controls
in preventing or detecting misstatements.
6. (FAR)
Which inventory cost flow assumption results in the lowest net income
during inflationary periods?
A. FIFO
B. LIFO
C. Weighted average
D. Specific identification
, Rationale: Under inflation, LIFO uses higher recent costs for cost of goods
sold, reducing net income.
7. (REG)
A valid contract requires all of the following except:
A. Consideration
B. Mutual assent
C. Written documentation
D. Legal capacity
Rationale: Most contracts do not require a written form to be enforceable
unless covered by the Statute of Frauds.
8. (BEC)
Which of the following is a leading indicator of future economic activity?
A. Stock market performance
B. Unemployment rate
C. Consumer price index
D. Corporate profits
Rationale: The stock market tends to predict future economic trends,
making it a leading indicator.
