Free CPA Practice Questions & Sample Tests
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FAR · 5 free questions
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FAR - Revenue RecognitionA retailer transfers control of a product to a customer on December 28. It sends the invoice on January 2 and receives cash on January 15. The product is the only performance obligation. Under Topic 606, when should the retailer recognize revenue?
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AUD: Auditing and Attestation
AUD exam topicsAudit Evidence
Which statement correctly distinguishes the sufficiency and appropriateness of audit evidence?
- A.Sufficiency measures quantity; appropriateness measures relevance and reliability
- B.Sufficiency measures reliability; appropriateness measures quantity
- C.Both terms measure only the quantity of evidence
- D.Both terms measure only whether evidence came from an external source
Show answer and explanation
Correct answer: A. Sufficiency measures quantity; appropriateness measures relevance and reliability
PCAOB AS 1105 defines sufficiency as the quantity of audit evidence and appropriateness as its quality, meaning its relevance and reliability.
Why each choice is right or wrong
- A. This matches the definitions in PCAOB AS 1105.
- B. The definitions are reversed. Reliability is part of appropriateness, not sufficiency.
- C. Only sufficiency measures quantity. Appropriateness measures quality.
- D. External sourcing can affect reliability, but it does not define both concepts.
Source reviewed 2026-08-12: PCAOB AS 1105, Audit Evidence
Reliability of Audit Evidence
An auditor receives a bank confirmation directly through a controlled electronic confirmation process. How does that evidence generally compare with a photocopy supplied by the client?
- A.It is generally more reliable because it comes from an independent source directly to the auditor
- B.It is generally less reliable because it was not prepared by management
- C.The two forms are always equally reliable
- D.Neither form can qualify as audit evidence
Show answer and explanation
Correct answer: A. It is generally more reliable because it comes from an independent source directly to the auditor
AS 1105 explains that evidence obtained from a knowledgeable independent source outside the company is generally more reliable than evidence obtained solely from internal company sources.
Why each choice is right or wrong
- A. Independent evidence delivered directly to the auditor generally has stronger reliability.
- B. Independence from management generally strengthens, rather than weakens, reliability.
- C. The source, nature, and circumstances of obtaining evidence affect reliability.
- D. Both can be evidence, but the auditor evaluates their relative reliability.
Source reviewed 2026-08-12: PCAOB AS 1105, Audit Evidence
Audit Documentation
Which audit file best satisfies the objective that an experienced auditor with no previous connection to the engagement can understand the work performed?
- A.A checklist containing initials but no procedures, evidence, or conclusions
- B.A file describing the procedures, evidence obtained, conclusions reached, and who performed and reviewed the work
- C.A verbal explanation provided after the documentation completion date
- D.A copy of the prior-year file with no current-year update
Show answer and explanation
Correct answer: B. A file describing the procedures, evidence obtained, conclusions reached, and who performed and reviewed the work
AS 1215 requires documentation sufficient to show the procedures performed, evidence obtained, conclusions reached, and the identities and dates of preparers and reviewers.
Why each choice is right or wrong
- A. Initials alone do not explain the work, evidence, or conclusions.
- B. This file contains the core information an experienced auditor needs to understand the engagement work.
- C. Oral explanation by itself does not represent sufficient support for the work performed.
- D. Prior-year documentation can inform planning but does not document current-year work by itself.
Source reviewed 2026-08-12: PCAOB AS 1215, Audit Documentation
Control Deficiencies
Which factor most directly distinguishes a material weakness from a less severe control deficiency?
- A.Whether the control is manual or automated
- B.Whether there is a reasonable possibility that a material misstatement will not be prevented or detected on a timely basis
- C.Whether the deficiency was found before year-end
- D.Whether management agrees with the auditor
Show answer and explanation
Correct answer: B. Whether there is a reasonable possibility that a material misstatement will not be prevented or detected on a timely basis
AS 2201 defines a material weakness by the reasonable possibility that a material financial-statement misstatement will not be prevented or detected on a timely basis.
Why each choice is right or wrong
- A. Manual and automated controls can each contain deficiencies of different severity.
- B. Likelihood and potential magnitude drive the material-weakness conclusion.
- C. Discovery timing alone does not establish the severity category.
- D. Management agreement does not replace the auditor's evaluation of likelihood and magnitude.
Source reviewed 2026-08-12: PCAOB AS 2201, An Audit of Internal Control Over Financial Reporting
Audit Reports
In an audit of a public company under PCAOB standards, the auditor concludes that the financial statements present fairly, in all material respects, in conformity with the applicable financial reporting framework. Which opinion does that conclusion support when no modification is required?
- A.Unqualified opinion
- B.Adverse opinion
- C.Disclaimer of opinion
- D.No assurance conclusion
Show answer and explanation
Correct answer: A. Unqualified opinion
AS 3101 uses an unqualified opinion when the auditor concludes the financial statements present fairly, in all material respects, under the applicable framework.
Why each choice is right or wrong
- A. This is the standard conclusion supporting an unqualified opinion.
- B. An adverse opinion communicates material and pervasive misstatement.
- C. A disclaimer communicates that the auditor does not express an opinion.
- D. An audit report expresses assurance through an opinion when sufficient appropriate evidence supports it.
Source reviewed 2026-08-12: PCAOB AS 3101, The Auditor's Report on an Audit of Financial Statements
FAR: Financial Accounting and Reporting
FAR exam topicsRevenue Recognition
A retailer transfers control of a product to a customer on December 28. It sends the invoice on January 2 and receives cash on January 15. The product is the only performance obligation. Under Topic 606, when should the retailer recognize revenue?
- A.December 28
- B.January 2
- C.January 15
- D.The date the sales contract was signed
Show answer and explanation
Correct answer: A. December 28
Topic 606 recognizes revenue when the performance obligation is satisfied by transferring the promised good or service. Here, control transfers on December 28.
Why each choice is right or wrong
- A. Control transferred and the performance obligation was satisfied on December 28.
- B. Sending an invoice does not control the recognition date when control transferred earlier.
- C. Cash collection affects the receivable, not the date the performance obligation was satisfied.
- D. Contract signing identifies the arrangement, but it does not by itself mean the product was transferred.
Source reviewed 2026-08-12: FASB Revenue Recognition, Topic 606
Elements of Financial Statements
A company controls a present economic resource because of a past transaction. Which financial-statement element best describes that resource?
- A.Asset
- B.Liability
- C.Expense
- D.Distribution to owners
Show answer and explanation
Correct answer: A. Asset
FASB Concepts Statement No. 8 defines an asset as a present right of an entity to an economic benefit.
Why each choice is right or wrong
- A. A controlled present right to an economic benefit is an asset.
- B. A liability is a present obligation to transfer an economic benefit.
- C. An expense is an outflow or consumption affecting equity, not the controlled resource itself.
- D. A distribution to owners is a transfer from the entity to its owners.
Source reviewed 2026-08-12: FASB Concepts Statement No. 8, Chapter 4, Elements of Financial Statements
Statement of Cash Flows
A company purchases equipment for cash. In which section of the statement of cash flows is that cash payment generally classified?
- A.Operating activities
- B.Investing activities
- C.Financing activities
- D.Noncash activities only
Show answer and explanation
Correct answer: B. Investing activities
Cash paid to acquire long-lived productive assets is generally an investing cash outflow.
Why each choice is right or wrong
- A. Operating activities generally relate to transactions entering net income and normal operations.
- B. Purchasing equipment is an acquisition of a long-lived asset and is generally investing.
- C. Financing activities generally involve owners and creditors providing or receiving capital.
- D. The purchase uses cash, so it is not only a noncash disclosure.
Source reviewed 2026-08-12: FASB Statement No. 95, Statement of Cash Flows
Financial Statement Presentation
Which financial statement presents a company's assets, liabilities, and owners' equity at a specified date?
- A.Balance sheet
- B.Income statement
- C.Statement of cash flows
- D.Statement of operations for a period
Show answer and explanation
Correct answer: A. Balance sheet
The balance sheet presents assets, liabilities, and owners' equity at a point in time.
Why each choice is right or wrong
- A. The balance sheet is the point-in-time statement of financial position.
- B. The income statement presents performance over a period.
- C. The statement of cash flows explains cash inflows and outflows over a period.
- D. A statement of operations is another performance statement covering a period.
Source reviewed 2026-08-12: SEC Beginners' Guide to Financial Statements
Accounting Equation
A company has total assets of $480,000 and total liabilities of $310,000. What is total owners' equity?
- A.$170,000
- B.$310,000
- C.$480,000
- D.$790,000
Show answer and explanation
Correct answer: A. $170,000
The balance-sheet equation is assets = liabilities + owners' equity. Equity is therefore $480,000 minus $310,000, or $170,000.
Why each choice is right or wrong
- A. $480,000 minus $310,000 equals $170,000.
- B. This repeats liabilities rather than solving for equity.
- C. This repeats assets and ignores liabilities.
- D. Adding assets and liabilities does not solve the accounting equation for equity.
Source reviewed 2026-08-12: SEC Beginners' Guide to Financial Statements
REG: Taxation and Regulation
REG exam topicsIndividual Taxation
An unmarried taxpayer paid more than half the cost of maintaining a home where a qualifying child lived for more than half the year. Assuming all other requirements are met, which filing status best fits these facts?
- A.Single
- B.Married filing jointly
- C.Married filing separately
- D.Head of household
Show answer and explanation
Correct answer: D. Head of household
An unmarried taxpayer who pays more than half the cost of maintaining a home for a qualifying dependent may qualify for head of household status.
Why each choice is right or wrong
- A. Single may describe the taxpayer's marital status, but the facts support the more specific head of household status.
- B. Married filing jointly requires the taxpayer to be married or treated as married under the applicable rules.
- C. Married filing separately also requires the taxpayer to be married or treated as married.
- D. The unmarried status, household-cost test, and qualifying child facts support head of household status.
Source reviewed 2026-08-12: IRS Filing Status guidance
Cash Method
A cash-method consultant completes work in December, receives the customer's check in January, and has no constructive receipt in December. When is the service income generally included under the cash method?
- A.December, when the work was completed
- B.January, when payment was received
- C.Only when the check clears the bank
- D.When the customer records the expense
Show answer and explanation
Correct answer: B. January, when payment was received
Under the cash method, income is generally included when it is actually or constructively received.
Why each choice is right or wrong
- A. Completion of the work alone does not establish receipt under the cash method.
- B. January is when the facts state that the taxpayer received payment.
- C. Actual receipt of the check generally matters before the later bank-clearance date.
- D. The customer's accounting does not determine the consultant's receipt date.
Source reviewed 2026-08-12: IRS Publication 538, Accounting Periods and Methods
Depreciable Property
Which asset is generally eligible for tax depreciation when it is used in a business and has a determinable useful life longer than one year?
- A.A delivery vehicle
- B.Land
- C.Inventory held for sale
- D.A personal expense with no business use
Show answer and explanation
Correct answer: A. A delivery vehicle
Depreciable property generally must be owned, used in a business or income-producing activity, have a determinable useful life, and last more than one year. Land is not depreciable.
Why each choice is right or wrong
- A. A business delivery vehicle is tangible property with a determinable useful life.
- B. Land is not depreciable because it does not wear out or become obsolete in the required sense.
- C. Inventory is recovered through cost of goods sold rather than depreciation.
- D. A purely personal expense is not depreciable business or income-producing property.
Source reviewed 2026-08-12: IRS Publication 946, How To Depreciate Property
Basis of Purchased Property
A taxpayer buys equipment for $40,000 and pays $2,000 of freight and installation costs necessary to place it in service. Ignoring later adjustments, what is the equipment's cost basis?
- A.$2,000
- B.$38,000
- C.$40,000
- D.$42,000
Show answer and explanation
Correct answer: D. $42,000
The basis of purchased property generally includes its cost and certain costs required to acquire and prepare it for use. Here, $40,000 plus $2,000 equals $42,000.
Why each choice is right or wrong
- A. This includes only the added costs and omits the purchase price.
- B. Freight and installation are not subtracted from purchase price in these facts.
- C. This omits costs necessary to place the equipment in service.
- D. $40,000 plus $2,000 equals a $42,000 cost basis.
Source reviewed 2026-08-12: IRS Publication 551, Basis of Assets
Business Records
What is the strongest reason for a business to retain records that support items reported on a federal tax return?
- A.To substantiate income, deductions, and credits reported on the return
- B.To guarantee that the IRS will never examine the return
- C.To replace the need to file a return
- D.To convert personal expenses into business deductions
Show answer and explanation
Correct answer: A. To substantiate income, deductions, and credits reported on the return
IRS recordkeeping guidance explains that records support the income, expenses, deductions, and credits reported on a return.
Why each choice is right or wrong
- A. Supporting reported tax items is a central purpose of business records.
- B. Recordkeeping does not prevent an examination.
- C. Maintaining records does not replace a filing obligation.
- D. Documentation cannot change the underlying character of a personal expense.
Source reviewed 2026-08-12: IRS Publication 583, Starting a Business and Keeping Records
BAR: Business Analysis and Reporting
BAR exam topicsFinancial Statement Analysis
A company has current assets of $240,000 and current liabilities of $120,000. Using the AICPA formula, what is the company's current ratio?
- A.0.5
- B.1.0
- C.2.0
- D.3.0
Show answer and explanation
Correct answer: C. 2.0
The current ratio is current assets divided by current liabilities: $240,000 divided by $120,000 equals 2.0.
Why each choice is right or wrong
- A. This reverses the numerator and denominator: $120,000 divided by $240,000.
- B. A ratio of 1.0 would require current assets and current liabilities to be equal.
- C. $240,000 divided by $120,000 equals 2.0.
- D. A ratio of 3.0 would require current assets to be three times current liabilities.
Source reviewed 2026-08-12: AICPA CPA Exam Analytics Definitions and Valuation Metrics
Working Capital
A company has current assets of $500,000 and current liabilities of $320,000. What is working capital?
- A.$180,000
- B.$320,000
- C.$500,000
- D.$820,000
Show answer and explanation
Correct answer: A. $180,000
Working capital equals current assets minus current liabilities. $500,000 minus $320,000 equals $180,000.
Why each choice is right or wrong
- A. This correctly subtracts current liabilities from current assets.
- B. This repeats current liabilities rather than calculating working capital.
- C. This repeats current assets and ignores current liabilities.
- D. Adding the two balances does not calculate working capital.
Source reviewed 2026-08-12: SEC Beginners' Guide to Financial Statements
Percent Variance
Budgeted revenue was $400,000 and actual revenue was $420,000. Using budget as the reference, what is the percent variance?
- A.4%
- B.5%
- C.20%
- D.105%
Show answer and explanation
Correct answer: B. 5%
Percent variance is (actual minus budget) divided by budget. ($420,000 - $400,000) / $400,000 equals 5%.
Why each choice is right or wrong
- A. This does not result from dividing the $20,000 variance by the $400,000 reference.
- B. $20,000 divided by $400,000 equals 5%.
- C. This treats the $20,000 dollar variance as a percentage without using the reference base correctly.
- D. This expresses actual as a percentage of budget rather than the percent variance.
Source reviewed 2026-08-12: U.S. Bureau of Labor Statistics, Calculating Percent Changes
Non-GAAP Measures
A public company presents an adjusted non-GAAP earnings measure. Which accompanying presentation is generally required by SEC rules and guidance?
- A.The most directly comparable GAAP measure and a quantitative reconciliation
- B.Only the adjusted measure, if management considers it useful
- C.A statement that the adjusted measure is audited
- D.A guarantee that the adjustment will recur every period
Show answer and explanation
Correct answer: A. The most directly comparable GAAP measure and a quantitative reconciliation
SEC non-GAAP requirements call for presentation of the most directly comparable GAAP measure and a reconciliation between the measures, subject to the applicable rule.
Why each choice is right or wrong
- A. This provides the GAAP anchor and transparent reconciliation required for the comparison.
- B. Usefulness to management does not remove the GAAP comparison and reconciliation requirements.
- C. A non-GAAP presentation is not made compliant by calling it audited.
- D. SEC presentation requirements do not require a recurrence guarantee.
Source reviewed 2026-08-12: SEC Compliance and Disclosure Interpretations, Non-GAAP Financial Measures
Contribution Margin
A product sells for $75 per unit and has variable cost of $45 per unit. What is contribution margin per unit?
- A.$30
- B.$45
- C.$75
- D.$120
Show answer and explanation
Correct answer: A. $30
Contribution margin per unit equals selling price per unit minus variable cost per unit. $75 minus $45 equals $30.
Why each choice is right or wrong
- A. $75 minus $45 equals $30 per unit.
- B. This repeats variable cost rather than subtracting it from price.
- C. This repeats selling price and ignores variable cost.
- D. Adding price and variable cost does not calculate contribution margin.
Source reviewed 2026-08-12: IMA CMA exam contribution-margin example
ISC: Information Systems and Controls
ISC exam topicsSOC Engagements
A payroll processor has controls that may affect a customer's internal control over financial reporting. Which SOC examination focuses on those controls?
- A.SOC 1
- B.SOC 2
- C.SOC 3
- D.A compilation engagement
Show answer and explanation
Correct answer: A. SOC 1
A SOC 1 examination addresses controls at a service organization that are likely to be relevant to user entities' internal control over financial reporting.
Why each choice is right or wrong
- A. SOC 1 is designed for controls relevant to user entities' internal control over financial reporting.
- B. SOC 2 addresses controls relevant to the trust services criteria, not specifically financial reporting controls.
- C. SOC 3 is a general-use report related to the trust services criteria.
- D. A compilation does not examine a service organization's controls.
Source reviewed 2026-08-12: AICPA SOC 1 guidance
SOC 2
A service organization wants an examination of controls relevant to security, availability, processing integrity, confidentiality, or privacy. Which engagement is designed for that purpose?
- A.SOC 1
- B.SOC 2
- C.Compilation
- D.Financial statement review
Show answer and explanation
Correct answer: B. SOC 2
SOC 2 examinations address controls relevant to one or more of the AICPA Trust Services Criteria.
Why each choice is right or wrong
- A. SOC 1 focuses on controls relevant to user entities' internal control over financial reporting.
- B. SOC 2 is the examination aligned with the Trust Services Criteria.
- C. A compilation does not examine service-organization controls.
- D. A financial statement review is not a SOC controls examination.
Source reviewed 2026-08-12: AICPA SOC 2 guidance
NIST Cybersecurity Framework
Under NIST Cybersecurity Framework 2.0, which Function addresses establishing and monitoring the organization's cybersecurity risk-management strategy, expectations, and policy?
- A.Govern
- B.Detect
- C.Respond
- D.Recover
Show answer and explanation
Correct answer: A. Govern
The Govern Function covers the cybersecurity risk-management strategy, expectations, and policy that guide the other Functions.
Why each choice is right or wrong
- A. Govern establishes and monitors the risk-management direction and accountability context.
- B. Detect focuses on finding and analyzing possible cybersecurity attacks and compromises.
- C. Respond focuses on actions taken regarding a detected incident.
- D. Recover focuses on restoring affected assets and operations after an incident.
Source reviewed 2026-08-12: NIST Cybersecurity Framework 2.0
Logical Access
Which access-control design most directly applies the principle of least privilege?
- A.Give every employee administrator access for convenience
- B.Grant users only the access needed to perform assigned tasks
- C.Share one privileged account across the department
- D.Keep access unchanged after employees change roles
Show answer and explanation
Correct answer: B. Grant users only the access needed to perform assigned tasks
Least privilege restricts access to the minimum authorizations necessary for assigned organizational tasks.
Why each choice is right or wrong
- A. Universal administrator access exceeds normal task requirements.
- B. Limiting authorization to assigned needs is the core least-privilege design.
- C. Shared privileged accounts weaken accountability and do not minimize authorization.
- D. Role changes should trigger access review rather than preserving outdated privileges.
Source reviewed 2026-08-12: NIST SP 800-53 Revision 5, Security and Privacy Controls
Incident Response
A security team confirms that malware is actively spreading between company systems. Which response should take immediate priority?
- A.Contain the incident to limit further harm
- B.Delete all incident records
- C.Delay action until the annual risk assessment
- D.Restore every system before stopping the spread
Show answer and explanation
Correct answer: A. Contain the incident to limit further harm
Incident response should contain active harm while preserving the ability to analyze, eradicate, and recover in a coordinated manner.
Why each choice is right or wrong
- A. Containment limits further impact while the response team continues analysis and remediation.
- B. Deleting records can destroy evidence needed for investigation and recovery.
- C. An active incident requires timely response rather than deferral to a periodic assessment.
- D. Restoration before containment can allow malware to compromise restored systems again.
Source reviewed 2026-08-12: NIST SP 800-61 Revision 3, Incident Response Recommendations
TCP: Tax Compliance and Planning
TCP exam topicsPartnership Basis
A taxpayer contributes property with an adjusted basis of $30,000 and a fair market value of $50,000 to a partnership for an interest. There are no liabilities, and no gain is recognized. What is the taxpayer's initial basis in the partnership interest?
- A.$0
- B.$20,000
- C.$30,000
- D.$50,000
Show answer and explanation
Correct answer: C. $30,000
The initial basis of a partnership interest includes the adjusted basis of property contributed. With no liabilities and no recognized gain, the initial basis is $30,000.
Why each choice is right or wrong
- A. A nonrecognition contribution does not make the contributed property's adjusted basis disappear.
- B. The built-in appreciation of $20,000 is not the partner's initial basis.
- C. The property's $30,000 adjusted basis carries into the initial partnership-interest basis in these facts.
- D. Fair market value does not replace adjusted basis for this initial-basis calculation.
Source reviewed 2026-08-12: IRS Publication 541, Basis of Partner's Interest
Installment Sales
An installment sale has a contract price of $100,000 and gross profit of $40,000. What gross profit percentage applies to eligible principal payments?
- A.25%
- B.40%
- C.60%
- D.100%
Show answer and explanation
Correct answer: B. 40%
The gross profit percentage is gross profit divided by contract price. $40,000 divided by $100,000 equals 40%.
Why each choice is right or wrong
- A. This percentage does not result from the stated gross profit and contract price.
- B. $40,000 divided by $100,000 equals 40%.
- C. This is the complement of the gross profit percentage, not the percentage itself.
- D. A 100% percentage would require gross profit to equal the full contract price.
Source reviewed 2026-08-12: IRS Publication 537, Installment Sales
Adjusted Basis
A taxpayer buys property for $90,000, makes a $15,000 capital improvement, and claims $20,000 of allowable depreciation. Ignoring other adjustments, what is adjusted basis?
- A.$55,000
- B.$70,000
- C.$85,000
- D.$125,000
Show answer and explanation
Correct answer: C. $85,000
Adjusted basis starts with cost, increases for the capital improvement, and decreases for depreciation: $90,000 + $15,000 - $20,000 = $85,000.
Why each choice is right or wrong
- A. This subtracts both adjustments instead of adding the capital improvement.
- B. This subtracts depreciation but omits the basis increase for the improvement.
- C. $90,000 plus $15,000 minus $20,000 equals $85,000.
- D. This adds depreciation even though depreciation reduces adjusted basis.
Source reviewed 2026-08-12: IRS Publication 551, Basis of Assets
Property Dispositions
A taxpayer sells property for an amount realized of $130,000. The property's adjusted basis is $95,000. Ignoring special character and deferral rules, what is realized gain?
- A.$35,000
- B.$95,000
- C.$130,000
- D.$225,000
Show answer and explanation
Correct answer: A. $35,000
Realized gain is amount realized minus adjusted basis. $130,000 minus $95,000 equals $35,000.
Why each choice is right or wrong
- A. This correctly subtracts adjusted basis from amount realized.
- B. This repeats adjusted basis rather than calculating gain.
- C. This repeats amount realized and ignores basis.
- D. Adding amount realized and basis does not calculate gain.
Source reviewed 2026-08-12: IRS Publication 544, Sales and Other Dispositions of Assets
Below-Market Loans
Why can a below-market loan between related parties create federal tax consequences even when little or no stated interest is paid?
- A.Section 7872 can treat forgone interest as transferred and retransferred under its rules
- B.Every below-market loan is automatically treated as a sale of property
- C.The principal balance is always deductible by the borrower
- D.Related parties are prohibited from making loans
Show answer and explanation
Correct answer: A. Section 7872 can treat forgone interest as transferred and retransferred under its rules
Section 7872 provides rules that can impute transfers and interest income or expense from forgone interest on covered below-market loans.
Why each choice is right or wrong
- A. This describes the statutory mechanism that can impute tax consequences from forgone interest.
- B. A loan is not automatically recharacterized as a property sale.
- C. Borrowed principal is not automatically deductible.
- D. The statute addresses tax treatment; it does not categorically prohibit related-party loans.
Source reviewed 2026-08-12: 26 U.S.C. Section 7872, Treatment of Loans With Below-Market Interest Rates