Practice Exam Questions And Correct

Certified Public Accountant (CPA) Practice Exam Questions And Correct Answers (Verified Answers) Plus Rationales 2026 Q&A | Instant Download Pdf

1. (AUD)

Which of the following provides the most reliable audit evidence?

• Inquiries of management
• Inspection of client-prepared schedules
• Inspection of documents obtained directly from an external source
• Analytical procedures

Rationale: External evidence obtained directly by the auditor provides the

highest reliability because it is independent of the client’s internal controls.

• / 4

2. (FAR)

Which financial statement element is increased by revenues?

• Assets
• Liabilities
• Equity
• Expenses

Rationale: Revenues increase net income, which increases retained

earnings and therefore equity.

3. (REG)

Which of the following entities is subject to double taxation?

• Partnership
• S corporation
• Sole proprietorship
• C corporation

Rationale: C corporations are taxed at the corporate level, and dividends

are taxed again at the shareholder level.

4. (BEC)

Which ratio best measures a company's ability to pay short-term obligations?

• Debt-to-equity ratio
• Current ratio 2 / 4

• Return on equity
• Gross margin ratio

Rationale: The current ratio (current assets ÷ current liabilities) assesses

liquidity and the ability to meet short-term debts.

5. (AUD)

An auditor's primary objective when performing tests of controls is to

determine:

• Whether controls exist
• Whether controls are properly designed
• Whether controls are operating effectively
• Whether controls are documented

Rationale: Tests of controls evaluate the effectiveness of internal controls

in preventing or detecting misstatements.

6. (FAR)

Which inventory cost flow assumption results in the lowest net income during inflationary periods?

A. FIFO

B. LIFO

• Weighted average
• Specific identification 3 / 4

Rationale: Under inflation, LIFO uses higher recent costs for cost of goods

sold, reducing net income.

7. (REG)

A valid contract requires all of the following except:

• Consideration
• Mutual assent
• Written documentation
• Legal capacity

Rationale: Most contracts do not require a written form to be enforceable

unless covered by the Statute of Frauds.

8. (BEC)

Which of the following is a leading indicator of future economic activity?

• Stock market performance
• Unemployment rate
• Consumer price index
• Corporate profits

Rationale: The stock market tends to predict future economic trends,

making it a leading indicator.

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