10 exam-style questions with answers and explanations, straight from our 1,030-question bank. Tap an answer to check yourself. When you're ready, take the scored version in the free practice test.
The CPA exam has 57 questions and runs 4 hours.
These 10 free CPA questions are organized by exam domain, so you can see how each part of the Uniform CPA Examination blueprint is tested. Reveal the answer and explanation under each question.
Sable Corp. declines to record a goodwill impairment that the auditor has concluded is clearly required under GAAP. The goodwill represents 45% of Sable's total assets, and recording the write-down would eliminate reported net income for the year. Which opinion should the auditor express?
Correct answer: A - Adverse
Regardless of the auditor's assessment of the risk of management override of controls, which procedure must be performed in every financial statement audit?
Correct answer: D - Testing journal entries and other adjustments recorded in the general ledger
A CPA firm proposes to perform routine bookkeeping services for a nonissuer audit client. Under the AICPA Code of Professional Conduct, independence is NOT impaired if:
Correct answer: B - management designates a competent individual to oversee the services and accepts responsibility for them
Larkspur Manufacturing holds equipment with a carrying amount of $500,000. Management estimates the undiscounted future cash flows from the equipment's continued use and eventual disposal at $520,000, and estimates its fair value at $430,000. Under U.S. GAAP, what impairment loss should Larkspur recognize?
Correct answer: A - $0
Verity Systems signs a single contract to deliver equipment and provide two years of maintenance for a total price of $100,000. The equipment and the maintenance are separate performance obligations. Verity's standalone selling prices are $90,000 for the equipment and $30,000 for the maintenance. The equipment is delivered at contract inception. How much revenue should Verity recognize upon delivery of the equipment?
Correct answer: B - $75,000
On January 1, Corbin Co. enters into a five-year equipment lease and correctly measures the lease liability at $223,255. At commencement, Corbin pays initial direct costs of $8,000 and receives a $5,000 lease incentive from the lessor. What is the initial measurement of the right-of-use asset?
Correct answer: C - $226,255
Nora receives 500 shares of stock as a gift. The donor's adjusted basis in the shares was $10,000, and the fair market value on the date of the gift was $7,000. Nora later sells all 500 shares for $8,500. What gain or loss does Nora recognize?
Correct answer: C - $0
Four individuals transfer appreciated property to a newly formed corporation and receive 78% of its stock. A fifth individual receives the remaining 22% of the stock solely in exchange for services rendered. What is the federal income tax result to the four property transferors?
Correct answer: D - Gain is recognized, because the property transferors do not own at least 80% of the stock
Halden Products manufactured 10,000 units and sold 8,000 units during its first year of operations. Fixed manufacturing overhead totaled $60,000 and is allocated to units on a per-unit basis. Compared with variable costing, what is the effect on operating income under absorption costing?
Correct answer: A - $12,000 higher
The auditor of a nonissuer needs evidence about whether a payroll service organization's controls relevant to the client's internal control over financial reporting operated effectively throughout the client's fiscal year. Which report best meets this need?
Correct answer: D - A SOC 1 Type 2 report
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