Preparing for the CPA Exam – Financial Accounting and Reporting (FAR) requires consistent practice with high-quality questions. This post covers CPA FAR Practice Questions Part 4 (MCQs 151–200), focusing on advanced topics in GAAP, IFRS, governmental and nonprofit accounting, segment reporting, and financial statement analysis.
📘 CPA FAR Practice Questions – Part 4 (MCQs 151–200)
MCQ 151.
Under IFRS, which of the following is not a component of financial statements?
A. Statement of Financial Position
B. Statement of Comprehensive Income
C. Statement of Changes in Equity
D. Statement of Cash Receipts
✅ Answer: D
Explanation: IFRS requires a Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity, and Statement of Cash Flows. “Statement of Cash Receipts” is not a required component.
MCQ 152.
Which inventory method is prohibited under IFRS but allowed under U.S. GAAP?
A. FIFO
B. LIFO
C. Weighted Average
D. Specific Identification
✅ Answer: B
Explanation: IFRS prohibits the use of LIFO, while GAAP allows it. This is a key difference in inventory accounting.
MCQ 153.
A government entity reports infrastructure assets. Under GASB standards, these may be reported using:
A. The fair value model
B. The cost-depreciation model
C. The modified approach
D. The revaluation model
✅ Answer: C
Explanation: GASB allows the modified approach for certain infrastructure assets, eliminating depreciation if conditions are met and disclosures are provided.
MCQ 154.
Which of the following is an example of a contra asset account?
A. Accounts Receivable
B. Allowance for Doubtful Accounts
C. Prepaid Expenses
D. Unearned Revenue
✅ Answer: B
Explanation: Allowance for Doubtful Accounts reduces Accounts Receivable and is classified as a contra asset.
MCQ 155.
When translating foreign currency financial statements under IFRS, which rate is used for assets and liabilities?
A. Historical rate
B. Average rate
C. Closing rate
D. Forward rate
✅ Answer: C
Explanation: Assets and liabilities are translated at the closing rate (exchange rate at the reporting date).
MCQ 156.
Which of the following is a temporary account that is closed at year-end?
A. Retained Earnings
B. Accumulated Depreciation
C. Service Revenue
D. Accounts Payable
✅ Answer: C
Explanation: Revenue accounts are temporary and closed at year-end to Retained Earnings.
MCQ 157.
The percentage-of-completion method is most appropriate for:
A. Short-term contracts
B. Long-term construction contracts
C. Retail sales transactions
D. Service contracts
✅ Answer: B
Explanation: The percentage-of-completion method is used for long-term construction contracts to recognize revenue as work progresses.
MCQ 158.
Which qualitative characteristic of financial reporting is emphasized when financial information is free from error and bias?
A. Relevance
B. Faithful Representation
C. Comparability
D. Understandability
✅ Answer: B
Explanation: Faithful representation means the information is complete, neutral, and free from error.
MCQ 159.
Under GAAP, which category of funds is used to account for business-like activities of governments?
A. Governmental Funds
B. Fiduciary Funds
C. Proprietary Funds
D. Special Revenue Funds
✅ Answer: C
Explanation: Proprietary funds are used for government activities that operate like businesses (e.g., utilities).
MCQ 160.
The primary purpose of the Statement of Cash Flows is to:
A. Report financial position at a point in time
B. Provide information on cash receipts and payments
C. Show profitability over a period
D. Present changes in equity
✅ Answer: B
Explanation: The cash flow statement shows cash receipts and payments, categorized into operating, investing, and financing activities.
MCQ 161.
Which of the following best describes comprehensive income?
A. Net income only
B. Net income plus owner contributions
C. All changes in equity except owner transactions
D. Retained earnings only
✅ Answer: C
Explanation: Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
MCQ 162.
Which depreciation method results in the highest expense in the early years?
A. Straight-line
B. Double-declining balance
C. Units of production
D. Sum-of-years-digits
✅ Answer: B
Explanation: Double-declining balance is an accelerated method, producing higher depreciation in earlier years.
MCQ 163.
Governmental accounting requires budgets to be legally adopted. The budgetary comparison schedules are included in:
A. Required Supplementary Information (RSI)
B. Notes to the financial statements
C. Basic financial statements
D. Statistical section
✅ Answer: A
Explanation: Budgetary comparison schedules are presented as RSI under GASB standards.
MCQ 164.
Which of the following is not an element of the FASB Conceptual Framework?
A. Assets
B. Liabilities
C. Revenues
D. Transactions
✅ Answer: D
Explanation: The elements are assets, liabilities, equity, revenues, expenses, gains, losses, and comprehensive income. “Transactions” are events but not an element.
MCQ 165.
If an error is discovered in prior period financial statements, under GAAP it is corrected by:
A. Adjusting current period expenses
B. Restating prior period financials
C. Reporting as an extraordinary item
D. Including in current year net income
✅ Answer: B
Explanation: Prior period errors require restatement of prior period financial statements.
MCQ 166.
Which of the following statements about capital leases (finance leases) is true?
A. They are always expensed as rent
B. They must meet at least one GAAP/IFRS criterion
C. They cannot be reported on the balance sheet
D. They are reported only by lessors
✅ Answer: B
Explanation: Finance leases are capitalized if they meet at least one of the criteria (e.g., transfer of ownership, bargain purchase option, 75% of life, 90% of value).
MCQ 167.
The primary government-wide financial statements required by GASB include:
A. Statement of Net Position and Statement of Activities
B. Balance Sheet and Income Statement
C. Fund Balance Sheet and Budgetary Statement
D. Cash Flow Statement only
✅ Answer: A
Explanation: GASB requires a Statement of Net Position and a Statement of Activities for government-wide reporting.
MCQ 168.
Which of the following is considered a contingent liability?
A. Accounts payable
B. Warranty obligations
C. Bonds payable
D. Lease obligations
✅ Answer: B
Explanation: Warranty obligations are contingent liabilities, dependent on future uncertain events.
MCQ 169.
When a company issues convertible bonds, the accounting under IFRS requires:
A. Entirely liability classification
B. Entirely equity classification
C. Split between liability and equity
D. Recognition only upon conversion
✅ Answer: C
Explanation: IFRS requires split accounting for convertible bonds: part as liability, part as equity.
MCQ 170.
Which financial statement reports retained earnings?
A. Income Statement
B. Balance Sheet
C. Statement of Changes in Equity
D. Statement of Cash Flows
✅ Answer: C
Explanation: Retained earnings are reported in the Statement of Changes in Equity (or a separate retained earnings statement).
MCQ 171.
Under GAAP, which impairment test is used for long-lived assets?
A. Recoverability test + Fair value test
B. Direct fair value test only
C. Lower of cost or market
D. Ceiling test
✅ Answer: A
Explanation: U.S. GAAP applies a two-step impairment test: recoverability test (undiscounted cash flows) and fair value measurement.
MCQ 172.
Which type of opinion is issued when financial statements are fairly presented, but with an exception?
A. Unqualified
B. Adverse
C. Qualified
D. Disclaimer
✅ Answer: C
Explanation: A qualified opinion is issued when financial statements are fairly stated except for one specific issue.
MCQ 173.
Which inventory method typically produces the lowest taxable income in times of rising prices?
A. FIFO
B. LIFO
C. Weighted average
D. Specific identification
✅ Answer: B
Explanation: LIFO (Last-in, First-out) results in higher cost of goods sold and lower taxable income during inflation.
MCQ 174.
The equity method of accounting is used when an investor owns:
A. Less than 10%
B. 20%–50%
C. More than 75%
D. 100%
✅ Answer: B
Explanation: The equity method is typically used when ownership is 20%–50%, indicating significant influence.
MCQ 175.
Which section of the cash flow statement includes dividends paid?
A. Operating activities
B. Investing activities
C. Financing activities
D. Supplemental disclosures
✅ Answer: C
Explanation: Dividends paid are reported under financing activities.
MCQ 176.
Which principle requires expenses to be matched with related revenues?
A. Revenue recognition principle
B. Historical cost principle
C. Matching principle
D. Full disclosure principle
✅ Answer: C
Explanation: The matching principle requires expenses to be recognized in the same period as the related revenues.
MCQ 177.
When government funds are restricted for a specific purpose, they are classified as:
A. General fund
B. Special revenue fund
C. Proprietary fund
D. Fiduciary fund
✅ Answer: B
Explanation: Special revenue funds are used for revenues legally restricted to specific purposes.
MCQ 178.
Which of the following is an intangible asset with an indefinite life?
A. Patent
B. Copyright
C. Goodwill
D. Franchise agreement
✅ Answer: C
Explanation: Goodwill has an indefinite life and is not amortized, but tested annually for impairment.
MCQ 179.
A deferred tax liability arises when:
A. Tax expense < Tax payable
B. Tax expense > Tax payable
C. Tax refund is due
D. Permanent differences exist
✅ Answer: B
Explanation: Deferred tax liabilities occur when taxable income will be higher in the future (tax expense exceeds tax payable).
MCQ 180.
Which is required for consolidation under GAAP?
A. >20% ownership
B. >50% ownership
C. 100% ownership
D. Legal control only
✅ Answer: B
Explanation: More than 50% ownership (controlling interest) generally requires consolidation.
MCQ 181.
Which of the following is an example of a Level 1 input under fair value measurement?
A. Quoted prices in active markets
B. Discounted cash flow analysis
C. Appraisal values
D. Internal assumptions
✅ Answer: A
Explanation: Level 1 inputs are quoted prices in active markets for identical assets/liabilities.
MCQ 182.
Which of the following leases must be reported as an operating lease under GAAP?
A. Meets at least one finance lease criterion
B. Meets none of the finance lease criteria
C. Always shorter than 12 months
D. Always longer than 10 years
✅ Answer: B
Explanation: If none of the finance lease criteria are met, the lease is classified as an operating lease.
MCQ 183.
Which type of government fund is used to manage pension benefits?
A. Special revenue fund
B. Permanent fund
C. Agency fund
D. Pension (trust) fund
✅ Answer: D
Explanation: Pension trust funds account for resources held for employee retirement benefits.
MCQ 184.
Which inventory method results in the most recent costs being assigned to ending inventory?
A. LIFO
B. FIFO
C. Weighted average
D. Specific identification
✅ Answer: B
Explanation: FIFO assigns the most recent costs to ending inventory.
MCQ 185.
Which ratio measures a company’s ability to pay short-term obligations with liquid assets?
A. Current ratio
B. Quick ratio
C. Debt-to-equity ratio
D. Return on assets
✅ Answer: B
Explanation: The quick ratio (acid-test) excludes inventory, focusing on most liquid assets.
MCQ 186.
Which financial statement uses the indirect method or direct method?
A. Balance Sheet
B. Statement of Cash Flows
C. Income Statement
D. Statement of Changes in Equity
✅ Answer: B
Explanation: The Statement of Cash Flows can be prepared using indirect or direct method.
MCQ 187.
Which of the following differences between GAAP and IFRS relates to development costs?
A. Expensed under both
B. Capitalized under both
C. Expensed under GAAP, capitalized under IFRS
D. Capitalized under GAAP, expensed under IFRS
✅ Answer: C
Explanation: GAAP requires development costs to be expensed; IFRS allows capitalization if criteria are met.
MCQ 188.
Which of the following is a contra equity account?
A. Treasury stock
B. Retained earnings
C. Additional paid-in capital
D. Preferred stock
✅ Answer: A
Explanation: Treasury stock reduces total equity, making it a contra equity account.
MCQ 189.
Which type of government fund is used when resources must be maintained in perpetuity?
A. Permanent fund
B. General fund
C. Debt service fund
D. Proprietary fund
✅ Answer: A
Explanation: Permanent funds are used when resources must be invested, and earnings are used for public purposes.
MCQ 190.
What is the purpose of interim financial reporting?
A. Provide audited annual results
B. Provide timely information to users
C. Replace full-year reporting
D. Reduce reporting requirements
✅ Answer: B
Explanation: Interim reporting provides timely, relevant information to users between annual reports.
MCQ 191.
Which pension accounting method recognizes expense when benefits are earned by employees?
A. Cash basis
B. Pay-as-you-go
C. Accrual basis
D. Defined contribution method
✅ Answer: C
Explanation: Under accrual basis, expense is recognized when benefits are earned, not when paid.
MCQ 192.
Which impairment model does IFRS use for financial assets?
A. Two-step impairment test
B. Incurred loss model
C. Expected credit loss model
D. Ceiling test
✅ Answer: C
Explanation: IFRS uses the expected credit loss model for impairment of financial assets.
MCQ 193.
Which of the following is an example of a derivative?
A. Common stock
B. Bond
C. Option contract
D. Preferred stock
✅ Answer: C
Explanation: Options, futures, and swaps are derivatives because their value depends on an underlying asset.
MCQ 194.
When a company issues stock above par value, the excess is recorded as:
A. Retained earnings
B. Additional paid-in capital
C. Treasury stock
D. Unearned revenue
✅ Answer: B
Explanation: Excess over par is recorded in additional paid-in capital.
MCQ 195.
Which measurement basis is used for most plant assets under GAAP?
A. Fair value
B. Historical cost
C. Net realizable value
D. Revaluation
✅ Answer: B
Explanation: Plant assets are generally carried at historical cost less accumulated depreciation.
MCQ 196.
Which of the following differences is permanent, not temporary, for tax purposes?
A. Depreciation differences
B. Bad debt expense vs tax deduction
C. Municipal bond interest income
D. Warranty expense timing
✅ Answer: C
Explanation: Municipal bond interest is tax-exempt permanently. Other differences reverse in future periods.
MCQ 197.
Which statement about noncontrolling interest (NCI) is true?
A. NCI is reported in equity section
B. NCI is treated as liability
C. NCI is deducted from net income
D. NCI is reported only in footnotes
✅ Answer: A
Explanation: NCI is reported in the equity section of the consolidated balance sheet.
MCQ 198.
Which section of the CAFR (Comprehensive Annual Financial Report) contains the auditor’s report?
A. Introductory section
B. Financial section
C. Statistical section
D. Budgetary section
✅ Answer: B
Explanation: The auditor’s report is included in the financial section of the CAFR.
MCQ 199.
Which ratio measures a company’s profitability?
A. Current ratio
B. Return on equity (ROE)
C. Quick ratio
D. Debt-to-equity ratio
✅ Answer: B
Explanation: ROE measures profitability, showing return to shareholders based on equity invested.
MCQ 200.
Which statement is true about segment reporting under IFRS/GAAP?
A. Only consolidated companies must report
B. Segments are based on products/services and management approach
C. Reporting is optional
D. Segments must be geographic only
✅ Answer: B
Explanation: Segment reporting follows the management approach, based on how the business is internally evaluated.
You’ve now completed CPA FAR Part 4 (MCQs 151-200), finishing the full set of 200 FAR practice questions. This batch included exam-style scenarios on governmental reporting, comprehensive income, deferred tax, GAAP vs IFRS differences, and segment reporting—all highly tested areas on the CPA exam.
👉 Next, check out: