NEWEST Certified Public Accountant
(CPA) Exam | ULTIMATE EXAM WITH
CORRECT ANSWERS AND RATIONALES
FOR CERTIFICATION SUCCESS
1. Under the accrual basis of accounting, revenue
should be recognized when:
A) Cash is received
B) The earnings process is complete and collection is
reasonably assured
C) The invoice is sent
D) The customer orders the product
E) The product is manufactured
Correct answer: B
Rationale: Revenue recognition requires both
realization and completion of earnings process.
2. A company purchases equipment for $50,000 with
an estimated salvage value of $5,000 and a useful life
of 5 years. Using straight-line depreciation, the
annual depreciation expense is:
A) $9,000
,B) $10,000
C) $8,000
D) $9,000? Actually (50,000-5,000)/5 = 45,000/5 =
9,000. Option A.
Correct answer: A
3. Under the Sarbanes-Oxley Act (SOX), the Public
Company Accounting Oversight Board (PCAOB) was
established to:
A) Set auditing standards for private companies
B) Oversee the audits of public companies
C) Prepare tax returns
D) Provide consulting services
E) Set accounting standards
Correct answer: B
Rationale: PCAOB oversees public company audits.
4. A company has current assets of $200,000, current
liabilities of $150,000, and inventory of $80,000. The
quick ratio is:
A) 0.8
B) 1.0
,C) 1.2
D) 1.33
E) 1.5
Correct answer: A
Rationale: Quick assets = 200,000 - 80,000 = 120,000.
Quick ratio = 120,,000 = 0.8.
5. In the audit risk model, detection risk is inversely
related to:
A) Inherent risk
B) Control risk
C) Both inherent and control risk
D) Audit risk
E) Sampling risk
Correct answer: C
Rationale: Detection risk = audit risk / (inherent risk ×
control risk).
6. A company issues $1,000,000 face value bonds at
a discount. The bond discount should be reported on
the balance sheet as:
A) A separate liability
, B) A reduction of the bonds payable
C) An asset
D) An expense
E) A gain
Correct answer: B
Rationale: Bond discount is a contra-liability.
7. Under the Internal Revenue Code (IRC), a taxpayer
may deduct mortgage interest on:
A) A primary residence only
B) A primary residence and one additional residence
C) Any number of residences
D) Investment property only
E) Rental property only
Correct answer: B
Rationale: Qualified residence interest includes two
homes.
8. A company has net sales of $500,000, cost of
goods sold of $300,000, and operating expenses of
$100,000. The gross profit margin is:
A) 20%
(CPA) Exam | ULTIMATE EXAM WITH
CORRECT ANSWERS AND RATIONALES
FOR CERTIFICATION SUCCESS
1. Under the accrual basis of accounting, revenue
should be recognized when:
A) Cash is received
B) The earnings process is complete and collection is
reasonably assured
C) The invoice is sent
D) The customer orders the product
E) The product is manufactured
Correct answer: B
Rationale: Revenue recognition requires both
realization and completion of earnings process.
2. A company purchases equipment for $50,000 with
an estimated salvage value of $5,000 and a useful life
of 5 years. Using straight-line depreciation, the
annual depreciation expense is:
A) $9,000
,B) $10,000
C) $8,000
D) $9,000? Actually (50,000-5,000)/5 = 45,000/5 =
9,000. Option A.
Correct answer: A
3. Under the Sarbanes-Oxley Act (SOX), the Public
Company Accounting Oversight Board (PCAOB) was
established to:
A) Set auditing standards for private companies
B) Oversee the audits of public companies
C) Prepare tax returns
D) Provide consulting services
E) Set accounting standards
Correct answer: B
Rationale: PCAOB oversees public company audits.
4. A company has current assets of $200,000, current
liabilities of $150,000, and inventory of $80,000. The
quick ratio is:
A) 0.8
B) 1.0
,C) 1.2
D) 1.33
E) 1.5
Correct answer: A
Rationale: Quick assets = 200,000 - 80,000 = 120,000.
Quick ratio = 120,,000 = 0.8.
5. In the audit risk model, detection risk is inversely
related to:
A) Inherent risk
B) Control risk
C) Both inherent and control risk
D) Audit risk
E) Sampling risk
Correct answer: C
Rationale: Detection risk = audit risk / (inherent risk ×
control risk).
6. A company issues $1,000,000 face value bonds at
a discount. The bond discount should be reported on
the balance sheet as:
A) A separate liability
, B) A reduction of the bonds payable
C) An asset
D) An expense
E) A gain
Correct answer: B
Rationale: Bond discount is a contra-liability.
7. Under the Internal Revenue Code (IRC), a taxpayer
may deduct mortgage interest on:
A) A primary residence only
B) A primary residence and one additional residence
C) Any number of residences
D) Investment property only
E) Rental property only
Correct answer: B
Rationale: Qualified residence interest includes two
homes.
8. A company has net sales of $500,000, cost of
goods sold of $300,000, and operating expenses of
$100,000. The gross profit margin is:
A) 20%
