CPA Quiz
Questions: 16 · 10 minutes
1. A company's bank statement shows $72,000. Outstanding checks total $8,000, and there are no other reconciling items. What is the adjusted bank balance?
$80,000
$72,000
$68,000
$64,000
2. Under common law, a company offers a service contract with a specified completion date. The other party replies that it accepts only if the completion date changes materially. What is the reply generally treated as?
An unconditional acceptance that forms the original contract
A revocation of the original offer by the offeror
A completed contract that either party may later revise
A counteroffer rather than an acceptance
3. Compared with a tax deduction of the same dollar amount, what does a tax credit generally do?
It directly reduces tax liability, subject to the credit's applicable rules
It reduces gross income before any deductions are considered
It increases deductible business expenses
It postpones recognition of taxable income to a later year
4. Which equation forms the foundation of the balance sheet?
Assets + Revenue = Liabilities + Expenses
Assets = Liabilities + Equity
Equity = Assets + Liabilities
Net income = Assets − Liabilities
5. During an audit, a test count reveals recurring inventory differences that could be material. What is the most appropriate initial audit response?
Accept management's inventory total because a physical count occurred
Expand or modify audit procedures and evaluate the risk of material misstatement
Immediately issue an adverse opinion before performing more work
Exclude inventory from the audit because the records appear unreliable
6. A consulting firm completes an agreed service for a client on December 20 but will not receive payment until January. Under accrual accounting, when should it generally recognize the revenue?
In January, because that is when cash is collected
When the client signs the original engagement letter
In December, when the service obligation is satisfied
Only after the client confirms that the payment is nonrefundable
7. A company pays $12,000 on October 1 for 12 months of insurance and initially records it as prepaid insurance. What adjusting entry is needed on December 31?
Debit Prepaid Insurance $3,000 and credit Insurance Expense $3,000
Debit Insurance Expense $3,000 and credit Prepaid Insurance $3,000
Debit Insurance Expense $9,000 and credit Prepaid Insurance $9,000
Debit Cash $3,000 and credit Insurance Expense $3,000
8. Shortly after year-end, a major customer declares bankruptcy because of severe financial difficulties that existed before year-end. How should the reporting company generally treat this information?
Treat it as a change in accounting principle
Ignore it because the bankruptcy declaration occurred after year-end
Record it only in the following year's revenue account
Adjust the year-end financial statements if the information affects the estimated collectible receivable
9. Which three elements make up the classic fraud triangle?
Authority, opportunity, and concealment
Intent, materiality, and detection
Pressure, collusion, and audit risk
Pressure or incentive, opportunity, and rationalization
10. Financial statements contain a material departure from applicable accounting standards, but the effect is not pervasive. Assuming sufficient appropriate evidence was obtained, which audit opinion is generally appropriate?
An unmodified opinion with no reference to the departure
A disclaimer of opinion
A qualified opinion describing the material departure
An adverse opinion because every material departure is pervasive
11. An audit team member owns a small direct financial interest in the audit client. What is the primary professional concern?
The direct financial interest impairs the team member's independence
The investment affects independence only if it produces dividend income
The investment is acceptable if its market value is disclosed to management
The investment matters only if the team member votes the shares
12. One employee can add vendors to the accounting system, approve invoices, and release electronic payments. Which change would most directly improve segregation of duties?
Require the employee to submit a monthly summary of completed payments
Assign vendor approval and payment release to separate authorized employees
Ask the employee to compare vendor prices before approving invoices
Rotate the employee's password every month
13. When inventory purchase costs are rising, how does FIFO generally compare with LIFO for the same inventory activity?
FIFO and LIFO necessarily report the same ending inventory
FIFO generally reports lower ending inventory and higher cost of goods sold
FIFO generally reports higher ending inventory and lower cost of goods sold
FIFO generally reports lower ending inventory and lower cost of goods sold
14. A company has current assets of $180,000 and current liabilities of $120,000. What is its current ratio?
1.50
1.00
1.33
0.67
15. How is a cash purchase of manufacturing equipment generally classified on the statement of cash flows?
Operating cash inflow
Financing cash outflow
Investing cash outflow
A noncash operating activity
16. What level of assurance is ordinarily provided by an audit of financial statements?
Reasonable assurance that the statements are free of material misstatement
Absolute assurance that every misstatement was detected
Limited assurance that no obvious errors were noticed
Assurance only that management followed its internal policies