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Certified Public Accountant (CPA) Exam 2

Certified Public Accountant (CPA) Exam 2

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1 / 40

Which of the following is not a characteristic of a liability?

It arises from present obligations to other entities

It represents a probable future sacrifice of economic benefits

It is always payable in cash

It results from past transactions or events

2 / 40

What is the purpose of the weighted average cost method in inventory valuation?

To use the most recent costs for inventory valuation

To assign the lowest cost to cost of goods sold

To assign the highest cost to ending inventory

To average out the costs of all units available for sale

3 / 40

Which of the following is an operating activity?

Purchase of equipment

Payment of wages

Payment of dividends

Issuance of bonds

4 / 40

Which of the following ratios is a measure of a company’s profitability?

Gross margin ratio

Inventory turnover ratio

Current ratio

Debt-to-equity ratio

5 / 40

Which of the following is not a characteristic of common stock?

Limited liability

Residual claim on assets

Fixed dividends

Voting rights

6 / 40

Which of the following best describes a capital lease?

A lease that is recorded as an operating expense

A lease for office space

A lease that transfers ownership of the asset to the lessee by the end of the lease term

A short-term lease agreement

7 / 40

Which of the following statements is true about a trial balance?

It proves that no errors have been made

It proves that the financial statements are accurate

It proves that all transactions have been recorded

It proves that the ledger is in balance

8 / 40

Which of the following is a characteristic of managerial accounting?

Emphasizes historical data

Focuses on external reporting

Provides information for internal decision-making

Must comply with GAAP

9 / 40

What is the purpose of a flexible budget?

To provide a static plan for expected performance

To adjust for different levels of activity

To reduce management oversight

To simplify financial reporting

10 / 40

What is the purpose of a work-in-progress inventory account?

To track the cost of goods that are partially completed

To track the cost of raw materials

To track the cost of goods sold

To track the cost of completed goods

11 / 40

What is the primary purpose of a cost of goods sold statement?

To determine net income

To calculate gross profit

To list all expenses

To prepare a budget

12 / 40

What is the purpose of a bank reconciliation?

To reconcile the company’s cash balance with the bank statement

To ensure that the bank’s records are accurate

To prepare financial statements

To record bank transactions

13 / 40

What is the purpose of the statement of retained earnings?

To show the changes in retained earnings over a period

To report revenues and expenses

To report cash flows

To show the financial position at a point in time

14 / 40

Which of the following is an example of a contra asset account?

Accumulated depreciation

Prepaid insurance

Service revenue

Accounts payable

15 / 40

What is the primary objective of financial reporting?

To comply with tax regulations

To prepare budgets

To manage day-to-day operations

To provide information that is useful for decision-making

16 / 40

What is the main purpose of adjusting entries?

To allocate revenues and expenses to the correct period

To prepare the bank reconciliation

To correct errors

To close temporary accounts

17 / 40

What does the quick ratio measure?

Solvency

Market value

Liquidity

Profitability

18 / 40

What is the purpose of a post-closing trial balance?

To prepare the income statement

To verify the accuracy of the adjusting entries

To prepare the statement of cash flows

To verify the equality of debits and credits after closing entries are made

19 / 40

What is the primary purpose of a subsidiary ledger?

To prepare financial statements

To summarize financial transactions

To record all journal entries

To provide detailed information about specific accounts

20 / 40

Which of the following transactions would be classified as an investing activity on the statement of cash flows?

Sale of merchandise

Purchase of equipment

Issuance of bonds

Payment of dividends

21 / 40

Which of the following accounts is a temporary account?

Accounts receivable

Prepaid insurance

Depreciation expense

Retained earnings

22 / 40

Which of the following is not a method of depreciation?

Units of production

Double-declining balance

LIFO

Straight-line

23 / 40

Which of the following is not a component of comprehensive income?

Dividends paid

Foreign currency translation adjustments

Net income

Unrealized gains on available-for-sale securities

24 / 40

Which of the following is an example of a non-cash investing activity?

Sale of equipment for cash

Purchase of inventory

Issuance of stock to purchase assets

Payment of dividends

25 / 40

Which of the following is an intangible asset?

Inventory

Land

Patent

Equipment

26 / 40

What is the primary purpose of the statement of cash flows?

To summarize a company's revenues and expenses

To show changes in a company's cash position

To show a company's financial position at a point in time

To report a company's profitability

27 / 40

Which of the following items would be classified as a long-term liability?

Notes payable due in five years

Accounts payable

Accrued expenses

Current portion of long-term debt

28 / 40

What is the purpose of an audit committee?

To conduct external audits

To manage daily operations

To prepare financial statements

To oversee the financial reporting process and internal controls

29 / 40

Which of the following is not a characteristic of a perpetual inventory system?

Detailed records of each inventory transaction

Use of physical counts to update inventory records

Continuous tracking of inventory levels

Immediate update of inventory records upon sales and purchases

30 / 40

Which of the following is true about the equity method of accounting for investments?

It is used when the investor consolidates the investee

It is used when the investor has no influence over the investee

It is used when the investor has significant influence over the investee

It is used when the investment is less than 20%

31 / 40

Which of the following is true about variable costs?

They decrease per unit with an increase in activity level

They remain constant in total

They vary in total with changes in activity level

They are the same as fixed costs

32 / 40

What is a contingent liability?

A liability that depends on the occurrence of a future event

A liability that is recorded in the financial statements

A liability that is certain to be paid

A liability that is part of current liabilities

33 / 40

What is the purpose of the allowance for doubtful accounts?

To decrease cash

To estimate uncollectible accounts receivable

To record bad debt expense when an account is written off

To increase net income

34 / 40

Which of the following best describes a fixed asset turnover ratio?

A measure of a company's liquidity

A measure of a company's profitability

A measure of how efficiently a company uses its fixed assets to generate sales

A measure of a company's solvency

35 / 40

Which of the following is not included in the cost of a building?

Annual property taxes

Interest on loans to purchase the building

Purchase price

Legal fees

36 / 40

What is the purpose of a contra revenue account?

To increase expenses

To decrease revenue

To increase revenue

To decrease expenses

37 / 40

Which of the following financial statements provides information about a company’s performance over a specific period?

Balance sheet

Statement of retained earnings

Statement of cash flows

Income statement

38 / 40

In what type of audit opinion would an auditor state that the financial statements do not present fairly the financial position of the company?

Adverse opinion

Disclaimer of opinion

Unqualified opinion

Qualified opinion

39 / 40

Which of the following statements about goodwill is true?

It is tested annually for impairment

It is amortized over its useful life

It arises from the acquisition of tangible assets

It is a tangible asset

40 / 40

Which of the following is not a component of stockholders' equity?

Retained earnings

Long-term debt

Additional paid-in capital

Common stock

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