Preparing for the CPA FAR (Financial Accounting and Reporting) exam can feel overwhelming, especially with the extensive coverage of GAAP, IFRS, and complex reporting standards. To help you practice effectively, we’ve compiled CPA FAR Practice Questions (MCQs 51–100) with detailed answers and explanations.
This set is part of our CPA FAR 200+ MCQs series, designed to mirror the real exam and improve your understanding of financial accounting concepts. These questions cover inventory methods, leases, stockholders’ equity, disclosures, accrual accounting, solvency measures, and IFRS standards.
📘 CPA FAR Practice Questions – Part 2 (MCQs 51–100)
51. Which of the following is NOT considered an intangible asset?
a) Goodwill
b) Patent
c) Trademark
d) Inventory
Answer: d) Inventory
Explanation: Intangibles are non-physical assets with future economic benefits. Inventory is tangible.
52. Under GAAP, how should research and development costs be treated?
a) Expensed as incurred
b) Capitalized as assets
c) Deferred until commercialization
d) Added to goodwill
Answer: a) Expensed as incurred
Explanation: R&D costs are generally expensed immediately under U.S. GAAP.
53. Which financial statement reports assets, liabilities, and equity at a specific date?
a) Balance Sheet
b) Income Statement
c) Statement of Cash Flows
d) Statement of Changes in Equity
Answer: a) Balance Sheet
Explanation: The balance sheet is a snapshot at a point in time.
54. Which method of inventory valuation is NOT allowed under IFRS?
a) FIFO
b) LIFO
c) Weighted Average
d) Specific Identification
Answer: b) LIFO
Explanation: IFRS prohibits LIFO, though GAAP permits it.
55. Which principle requires companies to report expenses in the same period as the related revenues?
a) Matching Principle
b) Full Disclosure
c) Consistency
d) Revenue Recognition
Answer: a) Matching Principle
Explanation: Expenses are matched with revenues they help generate.
56. A company issues bonds at a discount. On issuance, the carrying value of the bond is:
a) Equal to face value
b) Greater than face value
c) Less than face value
d) Equal to maturity value
Answer: c) Less than face value
Explanation: Bonds sold at a discount are recorded below par value.
57. Which of the following is included in Other Comprehensive Income (OCI)?
a) Foreign currency translation adjustments
b) Net income
c) Dividend payments
d) Depreciation
Answer: a) Foreign currency translation adjustments
Explanation: OCI includes unrealized gains/losses such as currency adjustments and pension items.
58. Which of the following ratios measures a company’s liquidity?
a) Debt-to-equity ratio
b) Current ratio
c) Return on assets
d) Profit margin
Answer: b) Current ratio
Explanation: Liquidity = Current Assets ÷ Current Liabilities.
59. Which of the following would be classified as a financing activity?
a) Purchase of land
b) Payment of interest
c) Issuance of bonds payable
d) Sale of inventory
Answer: c) Issuance of bonds payable
Explanation: Borrowing cash through bonds is financing.
60. What is the effect of declaring a stock dividend?
a) Increases total equity
b) Decreases total equity
c) No change in total equity
d) Increases liabilities
Answer: c) No change in total equity
Explanation: Stock dividends reallocate within equity (retained earnings → common stock).
61. Which concept assumes money maintains a stable value over time?
a) Going concern
b) Historical cost
c) Monetary unit
d) Economic entity
Answer: c) Monetary unit
Explanation: The monetary unit assumption ignores inflation effects.
62. A contingent liability must be accrued if:
a) It is remote and estimable
b) It is probable and estimable
c) It is reasonably possible but not estimable
d) It is probable but not estimable
Answer: b) It is probable and estimable
Explanation: GAAP requires accrual if the loss is probable and can be measured.
63. Treasury stock is reported on the balance sheet as:
a) An asset
b) A liability
c) A reduction in equity
d) An expense
Answer: c) A reduction in equity
Explanation: Treasury stock reduces stockholders’ equity.
64. The lower of cost or market rule applies to which asset?
a) Accounts receivable
b) Inventory
c) Buildings
d) Intangible assets
Answer: b) Inventory
Explanation: Inventory must be valued at lower of cost or market/net realizable value.
65. Which method recognizes revenue when performance obligations are satisfied?
a) Percentage-of-completion
b) Completed contract
c) Revenue recognition principle (ASC 606)
d) Matching principle
Answer: c) Revenue recognition principle (ASC 606)
Explanation: Under ASC 606, revenue is recognized when control transfers to customer.
66. Which depreciation method produces the same expense each year?
a) Straight-line
b) Double-declining balance
c) Units of production
d) Sum-of-years-digits
Answer: a) Straight-line
Explanation: Straight-line allocates cost equally across years.
67. Which type of account is prepaid insurance?
a) Asset
b) Liability
c) Revenue
d) Expense
Answer: a) Asset
Explanation: Prepaid insurance is a current asset until used.
68. What is the effect of writing off an uncollectible account under the allowance method?
a) Increases assets
b) Decreases equity
c) No effect on net assets
d) Increases liabilities
Answer: c) No effect on net assets
Explanation: Both A/R and Allowance for Doubtful Accounts decrease equally.
69. Which of the following statements is correct about goodwill?
a) Goodwill is amortized over 20 years
b) Goodwill is tested annually for impairment
c) Goodwill is recorded when internally generated
d) Goodwill increases through advertising
Answer: b) Goodwill is tested annually for impairment
Explanation: Goodwill is not amortized, only tested for impairment.
70. What is the primary purpose of an audit?
a) To prepare financial statements
b) To detect fraud
c) To provide reasonable assurance about fairness of financial statements
d) To ensure tax compliance
Answer: c) To provide reasonable assurance about fairness of financial statements
Explanation: The goal is to issue an opinion on whether financials are fairly stated.
71. Under the equity method, how is investment income recognized?
a) Dividends received
b) Proportionate share of investee’s net income
c) Fair value adjustments
d) Cash received only
Answer: b) Proportionate share of investee’s net income
Explanation: Equity method recognizes investor’s share of income, not just dividends.
72. Which of the following is considered a capital expenditure?
a) Repairs
b) Routine maintenance
c) Adding a new wing to a building
d) Office supplies
Answer: c) Adding a new wing to a building
Explanation: Capital expenditures provide benefits beyond the current period.
73. Which financial statement element is affected by declaring cash dividends?
a) Assets decrease
b) Liabilities increase
c) Equity decreases
d) All of the above
Answer: d) All of the above
Explanation: Cash dividends reduce assets & equity, while increasing liabilities.
74. Which organization sets accounting standards for U.S. governmental entities?
a) GASB
b) FASB
c) PCAOB
d) SEC
Answer: a) GASB
Explanation: Governmental Accounting Standards Board issues standards for governments.
75. Which ratio best measures profitability?
a) Current ratio
b) Debt ratio
c) Return on equity (ROE)
d) Quick ratio
Answer: c) Return on equity (ROE)
Explanation: ROE = Net Income ÷ Equity, a key measure of profitability.
76. Which inventory costing method results in the lowest taxable income during inflation?
a) FIFO
b) LIFO
c) Weighted Average
d) Specific Identification
Answer: b) LIFO
Explanation: LIFO matches recent higher costs against revenues, lowering income in inflationary periods.
77. Under IFRS, development costs are:
a) Expensed as incurred
b) Capitalized if certain criteria are met
c) Included in goodwill
d) Reported in OCI
Answer: b) Capitalized if certain criteria are met
Explanation: IFRS allows capitalization if future benefits are probable and measurable.
78. Which type of lease transfers substantially all risks and rewards of ownership?
a) Operating lease
b) Finance lease (IFRS) / Capital lease (GAAP)
c) Short-term lease
d) Service contract
Answer: b) Finance lease
Explanation: Finance/capital leases record assets & liabilities on the balance sheet.
79. A company records a 3-for-1 stock split. What is the effect?
a) Increases total equity
b) Decreases par value per share
c) Increases retained earnings
d) Increases cash
Answer: b) Decreases par value per share
Explanation: Stock splits reduce par value but leave total equity unchanged.
80. Which type of opinion is issued when financial statements are fairly stated?
a) Adverse
b) Qualified
c) Unmodified/clean
d) Disclaimer
Answer: c) Unmodified/clean
Explanation: The standard audit opinion is unmodified.
81. Which assumption assumes the entity will continue operating in the foreseeable future?
a) Monetary unit
b) Economic entity
c) Going concern
d) Historical cost
Answer: c) Going concern
Explanation: Basis for preparing financials assuming no liquidation.
82. The Sarbanes-Oxley Act created which oversight body?
a) FASB
b) GASB
c) PCAOB
d) SEC
Answer: c) PCAOB
Explanation: PCAOB regulates auditors of public companies.
83. Which type of account is “Unearned Revenue”?
a) Asset
b) Liability
c) Expense
d) Equity
Answer: b) Liability
Explanation: It’s an obligation to deliver services in the future.
84. Which financial statement shows profitability over a period of time?
a) Balance Sheet
b) Income Statement
c) Statement of Cash Flows
d) Statement of Equity
Answer: b) Income Statement
Explanation: Reports revenues and expenses for a period.
85. Under the accrual basis, revenue is recognized when:
a) Cash is received
b) Services are performed
c) Both a & b
d) None of the above
Answer: b) Services are performed
Explanation: Accrual accounting recognizes revenue when earned, not when cash is collected.
86. Which of the following is NOT included in current assets?
a) Inventory
b) Accounts receivable
c) Marketable securities
d) Buildings
Answer: d) Buildings
Explanation: Buildings are long-term assets.
87. Which of the following measures solvency?
a) Debt-to-equity ratio
b) Current ratio
c) Quick ratio
d) Working capital
Answer: a) Debt-to-equity ratio
Explanation: Solvency relates to long-term debt-paying ability.
88. Which accounting method is required for publicly traded companies in the U.S.?
a) Cash basis
b) Accrual basis
c) Hybrid basis
d) Modified cash basis
Answer: b) Accrual basis
Explanation: GAAP requires accrual basis for external reporting.
89. When a company sells receivables with recourse, it must:
a) Derecognize receivables with no liability
b) Recognize contingent liability
c) Record gain only
d) Do nothing
Answer: b) Recognize contingent liability
Explanation: With recourse = company remains liable for uncollectibles.
90. Which of the following is NOT part of stockholders’ equity?
a) Retained earnings
b) Treasury stock
c) Common stock
d) Bonds payable
Answer: d) Bonds payable
Explanation: Bonds payable are liabilities, not equity.
91. Which of the following items is NOT a cash equivalent?
a) Treasury bills
b) Commercial paper
c) Certificates of deposit (90 days)
d) Accounts receivable
Answer: d) Accounts receivable
Explanation: Cash equivalents are highly liquid, short-term investments.
92. Which accounting principle requires disclosure of all significant facts?
a) Matching
b) Full disclosure
c) Conservatism
d) Consistency
Answer: b) Full disclosure
Explanation: Requires reporting of all relevant information in financials.
93. What is the purpose of a trial balance?
a) Prepare financial statements
b) Ensure debits equal credits
c) Detect fraud
d) Adjust accounts
Answer: b) Ensure debits equal credits
Explanation: Trial balance checks equality of ledger balances.
94. Which accounting concept requires consistency in applying methods?
a) Conservatism
b) Consistency
c) Matching
d) Going concern
Answer: b) Consistency
Explanation: Prevents arbitrary changes in accounting methods.
95. Which of the following is an example of an adjusting entry?
a) Recording cash sales
b) Recording depreciation expense
c) Paying salaries
d) Declaring dividends
Answer: b) Recording depreciation expense
Explanation: Adjusting entries allocate revenues/expenses properly.
96. Which of the following would NOT appear in the Statement of Cash Flows?
a) Depreciation expense
b) Issuance of stock
c) Repayment of debt
d) Payment of dividends
Answer: a) Depreciation expense
Explanation: Depreciation is non-cash, only adjusted in operating section.
97. Which standard-setting body issues IFRS?
a) IASB
b) FASB
c) PCAOB
d) SEC
Answer: a) IASB
Explanation: The International Accounting Standards Board issues IFRS.
98. What type of opinion is issued when auditor cannot obtain sufficient evidence?
a) Qualified
b) Adverse
c) Disclaimer
d) Clean
Answer: c) Disclaimer
Explanation: A disclaimer = auditor cannot provide opinion.
99. Under GAAP, which inventory costing methods are allowed?
a) FIFO & LIFO only
b) FIFO, LIFO, Weighted Average, Specific Identification
c) Weighted Average only
d) FIFO only
Answer: b) FIFO, LIFO, Weighted Average, Specific Identification
Explanation: GAAP permits all four methods.
100. Which of the following is an extraordinary item under IFRS?
a) Earthquake loss
b) Fire damage
c) Foreign currency gain
d) None of the above
Answer: d) None of the above
Explanation: IFRS does not allow extraordinary items classification.
This completes CPA FAR Part 2 (MCQs 51–100). By practicing these questions, you’ve reinforced key concepts in GAAP, IFRS, audit reporting, solvency analysis, and stockholders’ equity.
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