CPA - Sample Questions

1 Securities held primarily for sale in the near term to generate income on short-term price differences are known as
A. Available-for-sale securities.
B. Equity securities.
C. Held-to-maturity securities.
D. Trading securities.
2 Earnings per share disclosures are required for
A. Entities with complex capital structures only.
B. Entities that change their capital structures during the reporting period.
C. Public entities only.
D. Public and private entities.
3 A building contractor has a fixed-price contract to construct a large building. It is estimated that the building will take 2 years to complete. Progress billings will be sent to the customer at quarterly intervals. Which of the following describes the preferable point for revenue recognition for this contract if the outcome of the contract can be estimated reliably?
A. After the contract is signed.
B. As progress is made toward completion of the contract.
C. As cash is received.
D. When the contract is completed.
4 Which accounting change should be applied prospectively?
A. Cash basis of accounting for vacation pay to the accrual basis.
B. Straight-line method of depreciation for previously recorded assets to the double-declining-balance method.
C. Presentation of statements of individual entities to their inclusion in consolidated statements.
D. Completed-contract method of accounting for long-term construction-type contracts to the percentage-of-completion method.
5 Which of the following information is not required to be disclosed when a substantial doubt exists about an entity’s ability to continue as a going concern?
A. A statement in the notes that substantial doubt exists.
B. The reason why the substantial doubt exists.
C. Management’s evaluation of the significance of the events that raise the substantial doubt.
D. How competitors dealt with a similar situation.
1 Joe is the trustee of a trust set up for his father. Under the Internal Revenue Code, when Joe prepares the annual trust tax return, Form 1041, he
A. Is not considered a tax return preparer.
B. May not sign the return unless he receives additional compensation for the tax return.
C. Must obtain the written permission of the beneficiary prior to signing as a tax return preparer.
D. Is considered a tax return preparer because his father is the grantor of the trust.
2 With regard to the alimony deduction in connection with a 2016 divorce, which one of the following statements is true?
A. Alimony payments must terminate on the death of the payee spouse.
B. Alimony is deductible by the payor spouse, and includible by the payee spouse, to the extent that payment is contingent on the status of the divorced couple’s children.
C. Alimony may be paid either in cash or in property.
D. The divorced couple may be members of the same household at the time alimony is paid, provided that the persons do not live as husband and wife.
3 Earl Cook, who worked as a machinist for Precision Corp., lent Precision $1,000 in Year 1. Cook did not own any of Precision’s stock, and the loan was not a condition of employment. In Year 5, Precision declared bankruptcy, and Cook’s note receivable from Precision became worthless. What loss can Cook claim on his Year 5 income tax return?
A. $0
B. $500 long-term capital loss.
C. $1,000 short-term capital loss.
D. $1,000 business bad debt.
4 Wonder, Inc., had 2016 taxable income of $200,000 exclusive of the following:
Gain on sale of land used in business
$25,000
Loss on sale of machinery used in business
-13,000
Loss on sale of securities held 3 years
-4,000
Loss on sale of securities held 3 months
(3,000
On what amount of taxable income should Wonder compute tax?
A. $2,00,000
C. $2,05,000
B. $2,02,500
D. $2,12,000
5 Foreign income taxes paid by a corporation
A. May be claimed either as a deduction or as a credit, at the option of the corporation.
B. May be claimed only as a deduction.
C. May be claimed only as a credit.
D. Do not qualify either as a deduction or as a credit.
1 Under which of the following conditions is the supplier most able to influence or control buyers?
A. When the industry is controlled by a large number of companies.
B. When the purchasing industry is an important customer to the supplying industry.
C. When the supplier does not face the threat of substitute products.
D. When the supplier’s products are not differentiated.
2 An example of an internal failure cost is
A. Maintenance.
B. Rework.
C. Inspection.
D. Product recalls.
3 Which of the following procedures would an entity most likely include in its computer disaster recovery plan?
A. Translate data for storage purposes with a cryptographic secret code.
B. Develop an auxiliary power supply to provide uninterrupted electricity.
C. Maintain a listing of all entity passwords with the network manager.
D. Store duplicate copies of critical files in a location away from the processing facility.
4 Which of the following statements is true for a firm that uses variable costing?
A. The cost of a unit of product changes because of changes in number of units manufactured.
B. Profits fluctuate with sales.
C. Product costs include variable administrative costs.
D. An idle facility variation is calculated.
5 The relationship of the total debt to the total equity of a corporation is a measure of
A. Break even.
B. Profitability.
C. Liquidity.
D. Creditor risk.
1 A CPA who is not in public practice is obligated to follow which of the following rules of conduct?
A. Independence.
B. Integrity and objectivity.
C. Contingent fees.
D. Commissions.
2 An auditor should design the audit plan to
A. Select all material transactions for substantive testing.
B. Minimize substantive testing prior to the balance sheet date.
C. Implement the audit strategy.
D. Test each account balance will be tested under either tests of controls or tests of transactions.
3 The objective of performing analytical procedures in planning an audit is to identify the existence of
A. Unusual transactions and events.
B. Noncompliance with laws and regulations that went undetected because of internal control deficiency.
C. Related party transactions.
D. Recorded transactions that were not properly authorized.
4 In a retail cash sales environment, which of the following controls is often absent?
A. Competent personnel.
B. Separation of functions.
C. Supervision.
D. Asset access limited to authorized personnel.
5 In which of the following circumstances would an auditor usually choose between expressing a qualified opinion or disclaiming an opinion?
A. Material misstatement.
B. Inadequate disclosure of accounting policies.
C. Inability to obtain sufficient appropriate audit evidence.
D. Unreasonable justification for a change in accounting principle.