Welcome to CPA BAR Practice Questions – Part 2 (Q51–100).
In this section, we dive deeper into financial accounting, auditing principles, tax differences, and reporting standards. These questions are carefully designed to reflect real exam-style MCQs, complete with correct answers and easy-to-understand explanations.
Our goal is to help CPA candidates build confidence, accuracy, and speed before exam day. Whether you’re revising IFRS vs GAAP rules, practicing audit standards, or reviewing tax concepts, this set will sharpen your exam readiness.
📘 CPA BAR Practice Questions – Part 2 (Q51–100)
Q51.
Which of the following is a primary purpose of segment reporting under GAAP?
A. To provide information about consolidation methods
B. To disclose detailed tax planning strategies
C. To help users evaluate different business activities of an enterprise
D. To eliminate the need for consolidated financial statements
Answer: C
Explanation: Segment reporting helps stakeholders understand the performance of different business units, allowing better evaluation of risks and returns.
Q52.
Under IFRS, goodwill is:
A. Amortized annually
B. Tested for impairment annually or when indicators exist
C. Capitalized and expensed immediately
D. Not recognized in consolidated statements
Answer: B
Explanation: Unlike GAAP (which also requires impairment testing), IFRS does not allow amortization of goodwill but requires annual impairment testing.
Q53.
The Sarbanes-Oxley Act (SOX) Section 404 primarily relates to:
A. External audit independence
B. Internal control over financial reporting
C. Tax accounting procedures
D. Corporate bankruptcy procedures
Answer: B
Explanation: SOX 404 requires management and auditors to report on the adequacy of a company’s internal control structure over financial reporting.
Q54.
Which of the following is NOT a characteristic of relevant financial information?
A. Predictive value
B. Confirmatory value
C. Materiality
D. Neutrality
Answer: D
Explanation: Neutrality relates to faithful representation, not relevance. Relevance is determined by predictive/confirmatory value and materiality.
Q55.
A company with significant foreign operations should present its financial statements in:
A. Local currency only
B. Parent’s reporting currency
C. Multiple currencies
D. Any currency chosen freely
Answer: B
Explanation: Consolidated financial statements must be presented in the parent company’s reporting currency.
Q56.
Which of the following ratios best measures a firm’s liquidity?
A. Current ratio
B. Debt-to-equity ratio
C. Gross profit margin
D. Asset turnover
Answer: A
Explanation: Liquidity is best assessed by the current ratio (current assets ÷ current liabilities).
Q57.
The equity method of accounting is applied when an investor owns:
A. Less than 10% of voting stock
B. Between 20%–50% of voting stock
C. More than 50% of voting stock
D. Any amount of preferred stock
Answer: B
Explanation: Significant influence is generally presumed at 20–50% ownership, which requires equity method accounting.
Q58.
Deferred tax liabilities typically arise when:
A. Tax expense < Tax payable
B. Temporary differences cause future taxable amounts
C. Permanent differences exist
D. A company has net operating losses
Answer: B
Explanation: Deferred tax liabilities occur when book income is greater than taxable income due to temporary differences (e.g., accelerated depreciation).
Q59.
Which of the following is a limitation of ratio analysis?
A. Ratios provide no insight into profitability
B. Ratios ignore industry benchmarks
C. Ratios must be interpreted in context
D. Ratios cannot be calculated without income statements
Answer: C
Explanation: Ratios are useful but must be interpreted with industry, company size, and economic conditions in mind.
Q60.
Which of the following is considered a Level 1 input in fair value measurement?
A. Quoted prices in active markets for identical assets
B. Observable inputs other than quoted prices
C. Unobservable inputs requiring assumptions
D. Market multiples based on similar companies
Answer: A
Explanation: Level 1 inputs are the most reliable, consisting of quoted prices in active markets for identical assets/liabilities.
Q61.
Which of the following transactions creates a temporary difference for deferred tax accounting?
A. Tax-exempt interest income
B. Installment sales revenue recognized earlier for GAAP than for tax
C. Penalties and fines
D. Life insurance proceeds
Answer: B
Explanation: Installment sales create timing differences between GAAP and tax reporting, leading to deferred tax recognition.
Q62.
Which of the following methods of inventory valuation is permitted under IFRS but prohibited under GAAP?
A. FIFO
B. Weighted average
C. LIFO
D. Specific identification
Answer: C
Explanation: IFRS prohibits LIFO (Last In, First Out), while GAAP allows it.
Q63.
Which of the following is an example of a permanent tax difference?
A. Depreciation differences
B. Tax-exempt municipal bond interest
C. Bad debt expense allowance
D. Installment sales
Answer: B
Explanation: Tax-exempt municipal bond interest is never taxable, so it is a permanent difference.
Q64.
The quick ratio differs from the current ratio in that it excludes:
A. Accounts receivable
B. Marketable securities
C. Inventory
D. Cash
Answer: C
Explanation: The quick ratio excludes inventory and prepaid expenses to measure immediate liquidity.
Q65.
Which financial statement element is defined as “probable future sacrifices of economic benefits”?
A. Assets
B. Liabilities
C. Revenues
D. Expenses
Answer: B
Explanation: Liabilities are obligations representing probable future sacrifices of economic benefits.
Q66.
Which organization is primarily responsible for establishing accounting standards in the United States?
A. PCAOB
B. FASB
C. SEC
D. IASB
Answer: B
Explanation: The Financial Accounting Standards Board (FASB) establishes U.S. GAAP.
Q67.
The matching principle requires:
A. Recording revenue when cash is received
B. Recording expenses when incurred to generate revenue
C. Recording only realized revenue
D. Matching assets and liabilities
Answer: B
Explanation: Expenses must be recorded in the same period as the revenues they help generate.
Q68.
Which of the following is an example of a change in accounting estimate?
A. Switch from FIFO to LIFO
B. Revision of useful life of an asset
C. Adoption of a new revenue recognition standard
D. Correction of prior-period error
Answer: B
Explanation: Changes in useful life are accounting estimates, handled prospectively.
Q69.
The conceptual framework identifies which as an enhancing qualitative characteristic?
A. Relevance
B. Faithful representation
C. Comparability
D. Materiality
Answer: C
Explanation: Enhancing characteristics include comparability, verifiability, timeliness, and understandability.
Q70.
Which of the following is a contra-asset account?
A. Accounts payable
B. Unearned revenue
C. Accumulated depreciation
D. Retained earnings
Answer: C
Explanation: Accumulated depreciation offsets fixed assets in the balance sheet.
Q71.
Under IFRS, which cost is expensed rather than capitalized?
A. Research costs
B. Development costs (meeting criteria)
C. Patent costs
D. Software development costs after feasibility
Answer: A
Explanation: Research costs are expensed under IFRS; development may be capitalized if criteria are met.
Q72.
Which type of audit opinion is issued when financial statements are materially misstated and pervasive?
A. Qualified opinion
B. Disclaimer of opinion
C. Adverse opinion
D. Unqualified opinion
Answer: C
Explanation: An adverse opinion means the statements are materially misstated and unreliable.
Q73.
Which of the following is an internal control activity?
A. Independent internal verification
B. Budget preparation
C. Employee training
D. All of the above
Answer: D
Explanation: Internal control activities include authorization, verification, documentation, training, and oversight.
Q74.
The effective interest method is used to:
A. Calculate bond interest expense
B. Calculate depreciation
C. Calculate working capital
D. Allocate overhead
Answer: A
Explanation: Effective interest amortizes bond premium/discount and calculates interest expense.
Q75.
Which ratio best measures profitability?
A. Gross margin ratio
B. Current ratio
C. Debt ratio
D. Quick ratio
Answer: A
Explanation: Profitability is measured by gross margin, net margin, and return on equity/ assets.
Q76.
Which of the following is NOT considered other comprehensive income (OCI)?
A. Unrealized gains/losses on AFS securities
B. Pension adjustments
C. Foreign currency translation
D. Retained earnings
Answer: D
Explanation: Retained earnings is net income accumulation, not OCI.
Q77.
Which of the following best describes the “prudence” concept in accounting?
A. Revenue should be recognized only when cash is received
B. Anticipate losses but not gains
C. Recognize gains early
D. Apply historical cost only
Answer: B
Explanation: Prudence requires recognizing potential losses but avoiding premature recognition of gains.
Q78.
Which of the following transactions requires disclosure but not recognition?
A. Contingent liability (reasonably possible)
B. Contingent liability (probable and estimable)
C. Accounts payable
D. Accrued expenses
Answer: A
Explanation: “Reasonably possible” contingencies are disclosed but not accrued.
Q79.
Which inventory costing method yields the lowest net income in periods of inflation?
A. FIFO
B. LIFO
C. Weighted average
D. Specific identification
Answer: B
Explanation: LIFO results in higher cost of goods sold and lower net income during inflation.
Q80.
Which of the following events requires adjustment to financial statements?
A. Settlement of lawsuit after year-end that confirms liability
B. Major business acquisition after year-end
C. Stock issuance after year-end
D. Natural disaster after year-end
Answer: A
Explanation: Events providing additional evidence of conditions existing at the balance sheet date require adjustment.
Q81.
Which of the following is an intangible asset with an indefinite life?
A. Patent
B. Copyright
C. Trademark
D. Franchise (limited term)
Answer: C
Explanation: Trademarks generally have indefinite useful lives unless legal/contractual limits apply.
Q82.
Which organization sets auditing standards for private companies in the U.S.?
A. PCAOB
B. FASB
C. AICPA (ASB)
D. SEC
Answer: C
Explanation: The AICPA’s Auditing Standards Board sets standards for non-public companies.
Q83.
Which of the following is NOT part of the COSO framework for internal control?
A. Control environment
B. Risk assessment
C. Internal audit independence
D. Information & communication
Answer: C
Explanation: COSO components: Control environment, risk assessment, control activities, info & communication, monitoring.
Q84.
Which assumption underlies GAAP?
A. Political stability assumption
B. Going concern assumption
C. Fair value assumption
D. Materiality assumption
Answer: B
Explanation: GAAP assumes the entity will continue operating into the foreseeable future.
Q85.
The purpose of consolidated financial statements is to:
A. Present financials of parent company only
B. Present combined results of parent and subsidiaries as a single entity
C. Avoid double taxation
D. Eliminate intercompany profits permanently
Answer: B
Explanation: Consolidation reports parent and subsidiaries as one economic unit.
Q86.
Which of the following lease classifications is allowed under IFRS but not under GAAP?
A. Sales-type lease
B. Direct financing lease
C. Operating lease for lessee
D. None (both require right-of-use model now)
Answer: D
Explanation: Both IFRS 16 and ASC 842 use right-of-use models; classification differences are minimal.
Q87.
Which of the following is a liquidity ratio?
A. Return on equity
B. Acid-test ratio
C. Earnings per share
D. Gross profit margin
Answer: B
Explanation: Acid-test (quick ratio) is a liquidity measure.
Q88.
Which of the following is NOT included in comprehensive income?
A. Net income
B. OCI items
C. Dividends paid
D. Pension adjustments
Answer: C
Explanation: Dividends reduce retained earnings, not part of comprehensive income.
Q89.
Which accounting concept supports recording assets at their acquisition cost?
A. Conservatism
B. Historical cost principle
C. Matching principle
D. Monetary unit assumption
Answer: B
Explanation: Assets are initially recorded at acquisition cost under GAAP.
Q90.
Which of the following is NOT required in management’s discussion and analysis (MD&A)?
A. Results of operations
B. Liquidity and capital resources
C. Critical accounting policies
D. Auditor’s independence statement
Answer: D
Explanation: Auditor independence is part of audit reporting, not MD&A.
Q91.
Which financial statement provides information about changes in owners’ equity?
A. Balance sheet
B. Income statement
C. Statement of changes in equity
D. Cash flow statement
Answer: C
Explanation: The statement of changes in equity tracks retained earnings and capital.
Q92.
Which of the following is considered a “subsequent event” under GAAP?
A. Bankruptcy of a major customer after year-end
B. Acquisition of new equipment after year-end
C. Dividend declaration after year-end
D. All of the above
Answer: A
Explanation: Bankruptcy provides evidence of conditions existing at year-end → adjusting event.
Q93.
Which method is most appropriate for valuing accounts receivable on the balance sheet?
A. Net realizable value
B. Historical cost
C. Market value
D. Fair value
Answer: A
Explanation: Accounts receivable are reported at net realizable value (after allowance for doubtful accounts).
Q94.
Which type of audit evidence is generally the most reliable?
A. Inquiry of management
B. Internal documents
C. Bank confirmation
D. Verbal representation
Answer: C
Explanation: Independent external confirmations are considered highly reliable audit evidence.
Q95.
Under IFRS, borrowing costs directly attributable to the acquisition of a qualifying asset are:
A. Expensed as incurred
B. Capitalized as part of the asset cost
C. Treated as OCI
D. Disclosed only in notes
Answer: B
Explanation: IFRS requires capitalization of borrowing costs when directly attributable to qualifying assets.
Q96.
Which principle requires expenses to be recorded when incurred regardless of cash flow?
A. Matching principle
B. Revenue recognition principle
C. Full disclosure principle
D. Accrual basis
Answer: D
Explanation: Accrual basis requires recording expenses when incurred, not when paid.
Q97.
Which of the following costs is expensed immediately?
A. Advertising costs
B. Equipment purchase
C. Building improvements
D. Patent acquisition
Answer: A
Explanation: Advertising is expensed as incurred; others are capitalized.
Q98.
Which of the following is a conservative accounting practice?
A. Accelerated depreciation
B. Recognizing revenue before delivery
C. Understating allowances for doubtful accounts
D. Overstating ending inventory
Answer: A
Explanation: Accelerated depreciation records higher expenses earlier, consistent with conservatism.
Q99.
Which body enforces accounting and securities laws in the U.S.?
A. SEC
B. PCAOB
C. AICPA
D. FASB
Answer: A
Explanation: The Securities and Exchange Commission (SEC) enforces laws and oversees financial reporting.
Q100.
Which is the primary qualitative characteristic of faithful representation?
A. Neutrality
B. Materiality
C. Predictive value
D. Relevance
Answer: A
Explanation: Faithful representation requires completeness, neutrality, and freedom from error.
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