Texas CERTIFIED PUBLIC ACCOUNTANT LICENSURE
EXAM PRACTICE TEST QUESTIONS AND CORRECT
ANSWERS (VERIFIED ANSWERS) PLUS RATIONALES
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1. Which of the following is a primary financial statement required under GAAP?
A. Statement of Financial Ratios
B. Statement of Cash Flows
C. Budget Report
D. Management Discussion Report
Answer: B. Statement of Cash Flows – The statement of cash flows is a primary financial
statement under GAAP that shows cash inflows and outflows from operating, investing, and
financing activities.
2. Under accrual accounting, when should revenue be recognized?
A. When cash is received
B. When the service is performed or goods delivered
C. When the invoice is sent
D. At the end of the fiscal year
Answer: B. When the service is performed or goods delivered – Accrual accounting recognizes
revenue when earned, not when cash is received.
3. Which organization establishes auditing standards for private companies in the U.S.?
A. PCAOB
B. FASB
C. AICPA
D. SEC
Answer: C. AICPA – The American Institute of Certified Public Accountants sets auditing
standards for private companies through the Auditing Standards Board (ASB).
,4. What is the primary purpose of a trial balance?
A. To record transactions
B. To ensure debits equal credits
C. To detect fraud
D. To prepare tax returns
Answer: B. To ensure debits equal credits – A trial balance checks the arithmetic accuracy of
ledger postings.
5. Which of the following best describes deferred tax assets?
A. Taxes payable in the current period
B. Future tax benefits from deductible temporary differences
C. Taxes that have been overpaid
D. Penalties from underpayment of taxes
Answer: B. Future tax benefits from deductible temporary differences – Deferred tax assets arise
when taxable income is greater than accounting income temporarily.
6. Which inventory method results in the highest net income during periods of rising prices?
A. LIFO
B. FIFO
C. Weighted Average
D. Specific Identification
Answer: B. FIFO – First-In, First-Out results in lower cost of goods sold and higher net income
when prices are rising.
7. What is the primary purpose of internal controls?
A. To maximize profits
B. To prevent errors and fraud
C. To comply with tax laws
D. To reduce audit fees
Answer: B. To prevent errors and fraud – Internal controls are procedures designed to safeguard
assets and ensure accurate financial reporting.
, 8. Which of the following is considered an intangible asset?
A. Land
B. Equipment
C. Goodwill
D. Inventory
Answer: C. Goodwill – Goodwill is an intangible asset arising from business acquisitions.
9. Under which method are revenues and expenses recorded when cash is exchanged?
A. Accrual
B. Cash
C. Hybrid
D. Matching
Answer: B. Cash – Cash accounting records transactions only when cash changes hands.
10. Which statement is true regarding contingent liabilities?
A. They are always recorded as liabilities
B. They are recorded only if probable and estimable
C. They are recorded only when settled
D. They are never disclosed
Answer: B. They are recorded only if probable and estimable – GAAP requires recognition when
both criteria are met.
11. Which type of audit opinion is issued when financial statements are free from material
misstatement?
A. Qualified opinion
B. Adverse opinion
C. Disclaimer of opinion
D. Unqualified opinion
Answer: D. Unqualified opinion – An unqualified opinion indicates the financial statements are
presented fairly in accordance with GAAP.
EXAM PRACTICE TEST QUESTIONS AND CORRECT
ANSWERS (VERIFIED ANSWERS) PLUS RATIONALES
| INSTANT DOWNLOAD PDF
1. Which of the following is a primary financial statement required under GAAP?
A. Statement of Financial Ratios
B. Statement of Cash Flows
C. Budget Report
D. Management Discussion Report
Answer: B. Statement of Cash Flows – The statement of cash flows is a primary financial
statement under GAAP that shows cash inflows and outflows from operating, investing, and
financing activities.
2. Under accrual accounting, when should revenue be recognized?
A. When cash is received
B. When the service is performed or goods delivered
C. When the invoice is sent
D. At the end of the fiscal year
Answer: B. When the service is performed or goods delivered – Accrual accounting recognizes
revenue when earned, not when cash is received.
3. Which organization establishes auditing standards for private companies in the U.S.?
A. PCAOB
B. FASB
C. AICPA
D. SEC
Answer: C. AICPA – The American Institute of Certified Public Accountants sets auditing
standards for private companies through the Auditing Standards Board (ASB).
,4. What is the primary purpose of a trial balance?
A. To record transactions
B. To ensure debits equal credits
C. To detect fraud
D. To prepare tax returns
Answer: B. To ensure debits equal credits – A trial balance checks the arithmetic accuracy of
ledger postings.
5. Which of the following best describes deferred tax assets?
A. Taxes payable in the current period
B. Future tax benefits from deductible temporary differences
C. Taxes that have been overpaid
D. Penalties from underpayment of taxes
Answer: B. Future tax benefits from deductible temporary differences – Deferred tax assets arise
when taxable income is greater than accounting income temporarily.
6. Which inventory method results in the highest net income during periods of rising prices?
A. LIFO
B. FIFO
C. Weighted Average
D. Specific Identification
Answer: B. FIFO – First-In, First-Out results in lower cost of goods sold and higher net income
when prices are rising.
7. What is the primary purpose of internal controls?
A. To maximize profits
B. To prevent errors and fraud
C. To comply with tax laws
D. To reduce audit fees
Answer: B. To prevent errors and fraud – Internal controls are procedures designed to safeguard
assets and ensure accurate financial reporting.
, 8. Which of the following is considered an intangible asset?
A. Land
B. Equipment
C. Goodwill
D. Inventory
Answer: C. Goodwill – Goodwill is an intangible asset arising from business acquisitions.
9. Under which method are revenues and expenses recorded when cash is exchanged?
A. Accrual
B. Cash
C. Hybrid
D. Matching
Answer: B. Cash – Cash accounting records transactions only when cash changes hands.
10. Which statement is true regarding contingent liabilities?
A. They are always recorded as liabilities
B. They are recorded only if probable and estimable
C. They are recorded only when settled
D. They are never disclosed
Answer: B. They are recorded only if probable and estimable – GAAP requires recognition when
both criteria are met.
11. Which type of audit opinion is issued when financial statements are free from material
misstatement?
A. Qualified opinion
B. Adverse opinion
C. Disclaimer of opinion
D. Unqualified opinion
Answer: D. Unqualified opinion – An unqualified opinion indicates the financial statements are
presented fairly in accordance with GAAP.
