NEW YORK CERTIFIED PUBLIC ACCOUNTANT
LICENSURE EXAM PRACTICE TEST QUESTIONS AND
CORRECT ANSWERS (VERIFIED ANSWERS) PLUS
RATIONALES | INSTANT DOWNLOAD PDF
1. Which of the following is an example of a temporary difference for tax purposes?
A. Depreciation expense using straight-line method for both financial and tax reporting
B. Warranty expense recognized for financial reporting but not yet deductible for tax
C. Purchase of land
D. Payment of cash dividends
Correct Answer: B — Warranty expense creates a temporary difference because it reduces
financial income now but is deductible for tax purposes later.
2. Under the accrual basis of accounting, revenue is recognized when:
A. Cash is received
B. The service is performed or goods are delivered
C. An invoice is sent
D. The customer expresses interest
Correct Answer: B — Accrual accounting recognizes revenue when earned, regardless of cash
receipt.
3. Which of the following is true regarding contingent liabilities?
A. They are recorded only if the event is probable and the amount can be reasonably estimated
B. They are never disclosed in financial statements
C. They are always recorded regardless of probability
D. They are treated as assets
Correct Answer: A — Contingent liabilities must be recorded if they are probable and estimable;
otherwise, they are disclosed if reasonably possible.
,4. The primary purpose of the Sarbanes-Oxley Act (SOX) is to:
A. Reduce corporate taxes
B. Enhance corporate governance and financial reporting
C. Increase investor dividends
D. Eliminate auditing standards
Correct Answer: B — SOX was enacted to improve corporate governance, strengthen internal
controls, and increase transparency in financial reporting.
5. Which of the following is NOT a characteristic of a partnership?
A. Unlimited liability for partners
B. Separate legal entity from partners
C. Shared profits among partners
D. Flexibility in management
Correct Answer: B — A partnership is not a separate legal entity like a corporation; partners are
personally liable.
6. In financial reporting, which of the following is considered a current asset?
A. Land held for investment
B. Inventory
C. Patents
D. Equipment
Correct Answer: B — Inventory is expected to be sold or used within the normal operating cycle
and is therefore a current asset.
7. Which accounting principle requires that expenses be matched with revenues in the period
they help generate?
A. Revenue recognition principle
B. Matching principle
C. Full disclosure principle
D. Historical cost principle
Correct Answer: B — The matching principle ensures that expenses are recognized in the same
period as the revenues they help generate.
, 8. For an asset to be classified as “held for sale,” it must:
A. Be in use for business operations
B. Be available for immediate sale and expected to be sold within one year
C. Be intangible
D. Have a useful life of more than 20 years
Correct Answer: B — Assets held for sale must be available for immediate sale in their present
condition and expected to be sold within a year.
9. Which of the following best defines a deferred tax liability?
A. Taxes payable next year on future taxable income
B. Taxes currently owed on income received
C. Taxes due but not yet accrued
D. Taxes that will reduce future taxable income
Correct Answer: A — Deferred tax liability arises when taxable income is less than accounting
income now, leading to taxes payable in the future.
10. What is the primary purpose of a bank reconciliation?
A. To prepare a balance sheet
B. To detect errors and reconcile differences between the bank statement and company records
C. To calculate income tax
D. To report cash flow
Correct Answer: B — A bank reconciliation ensures the cash records of the company match the
bank’s records and identifies errors or timing differences.
11. Which of the following is an example of an operating lease under US GAAP (pre-ASC 842)?
A. Lease that transfers ownership at the end of the term
B. Lease with a bargain purchase option
C. Lease where the lease term is 75% of asset’s useful life
D. Lease not meeting criteria for capital lease
Correct Answer: D — An operating lease does not transfer ownership or meet capital lease
criteria and is expensed as rental.
LICENSURE EXAM PRACTICE TEST QUESTIONS AND
CORRECT ANSWERS (VERIFIED ANSWERS) PLUS
RATIONALES | INSTANT DOWNLOAD PDF
1. Which of the following is an example of a temporary difference for tax purposes?
A. Depreciation expense using straight-line method for both financial and tax reporting
B. Warranty expense recognized for financial reporting but not yet deductible for tax
C. Purchase of land
D. Payment of cash dividends
Correct Answer: B — Warranty expense creates a temporary difference because it reduces
financial income now but is deductible for tax purposes later.
2. Under the accrual basis of accounting, revenue is recognized when:
A. Cash is received
B. The service is performed or goods are delivered
C. An invoice is sent
D. The customer expresses interest
Correct Answer: B — Accrual accounting recognizes revenue when earned, regardless of cash
receipt.
3. Which of the following is true regarding contingent liabilities?
A. They are recorded only if the event is probable and the amount can be reasonably estimated
B. They are never disclosed in financial statements
C. They are always recorded regardless of probability
D. They are treated as assets
Correct Answer: A — Contingent liabilities must be recorded if they are probable and estimable;
otherwise, they are disclosed if reasonably possible.
,4. The primary purpose of the Sarbanes-Oxley Act (SOX) is to:
A. Reduce corporate taxes
B. Enhance corporate governance and financial reporting
C. Increase investor dividends
D. Eliminate auditing standards
Correct Answer: B — SOX was enacted to improve corporate governance, strengthen internal
controls, and increase transparency in financial reporting.
5. Which of the following is NOT a characteristic of a partnership?
A. Unlimited liability for partners
B. Separate legal entity from partners
C. Shared profits among partners
D. Flexibility in management
Correct Answer: B — A partnership is not a separate legal entity like a corporation; partners are
personally liable.
6. In financial reporting, which of the following is considered a current asset?
A. Land held for investment
B. Inventory
C. Patents
D. Equipment
Correct Answer: B — Inventory is expected to be sold or used within the normal operating cycle
and is therefore a current asset.
7. Which accounting principle requires that expenses be matched with revenues in the period
they help generate?
A. Revenue recognition principle
B. Matching principle
C. Full disclosure principle
D. Historical cost principle
Correct Answer: B — The matching principle ensures that expenses are recognized in the same
period as the revenues they help generate.
, 8. For an asset to be classified as “held for sale,” it must:
A. Be in use for business operations
B. Be available for immediate sale and expected to be sold within one year
C. Be intangible
D. Have a useful life of more than 20 years
Correct Answer: B — Assets held for sale must be available for immediate sale in their present
condition and expected to be sold within a year.
9. Which of the following best defines a deferred tax liability?
A. Taxes payable next year on future taxable income
B. Taxes currently owed on income received
C. Taxes due but not yet accrued
D. Taxes that will reduce future taxable income
Correct Answer: A — Deferred tax liability arises when taxable income is less than accounting
income now, leading to taxes payable in the future.
10. What is the primary purpose of a bank reconciliation?
A. To prepare a balance sheet
B. To detect errors and reconcile differences between the bank statement and company records
C. To calculate income tax
D. To report cash flow
Correct Answer: B — A bank reconciliation ensures the cash records of the company match the
bank’s records and identifies errors or timing differences.
11. Which of the following is an example of an operating lease under US GAAP (pre-ASC 842)?
A. Lease that transfers ownership at the end of the term
B. Lease with a bargain purchase option
C. Lease where the lease term is 75% of asset’s useful life
D. Lease not meeting criteria for capital lease
Correct Answer: D — An operating lease does not transfer ownership or meet capital lease
criteria and is expensed as rental.
