100 US GAAP MCQs for *CMA Part 1: Financial Accounting* new syllabusGrouped by topic. Exam style + 1-line why for each.
*Note:* CMA Part 1 uses US GAAP for F/S reporting Qs, but
main focus = managerial accounting. Still, these concepts show up in Section C
“Financial Statement Analysis” + ethics/corporate finance.
*Batch 1: Concepts, Conventions, Principles, Stakeholders
1-15*
*Q1.* Which principle requires expenses matched with
revenues of same period?
A. Revenue recognition
B. Matching C. Conservatism D. Consistency
*Ans: B* | Matching principle = US GAAP core.
*Q2.* “Record asset at historical cost, not market value” is
which convention?
A. Conservatism B.
Materiality C. Historical cost D. Going concern
*Ans: C* | Cost principle under GAAP.
*Q3.* Assumption that business will continue indefinitely
is?
A. Entity B.
Periodicity C. Going concern D. Monetary unit
*Ans: C* | Going concern basis.
*Q4.* Stakeholder with primary interest in dividends + share
price?
A. Creditor B.
Employee C. Shareholder D. Govt
*Ans: C* | Shareholder = residual claim.
*Q5.* Bank lending money is concerned mainly with?
A. Profitability B.
Liquidity + solvency C. Growth D. Market share
*Ans: B* | Creditor interest = repayment ability.
*Q6.* Conflict of interest for manager:
A. Maximize shareholder wealth by legal means
B. Approve project giving personal bonus but negative NPV
for company
C. Follow GAAP
D. Reduce cost
*Ans: B* | Personal gain vs company goal = agency problem.
*Q7.* Goal congruence means:
A. All depts have same budget
B. Individual goals align with org goals
C. CEO decides all goals
D. No conflict ever
*Ans: B* | Key CMA concept.
*Q8.* Conservatism convention:
A. Overstate assets, understate liabilities
B. Anticipate losses, not gains
C. Record all gains immediately
D. Ignore uncertainty
*Ans: B* | “Anticipate no profit, provide for all losses”.
*Q9.* Materiality depends on:
A. Size only B.
Nature + size + context
C. Auditor’s opinion only
D. Tax law
*Ans: B* | GAAP: item material if it affects decision.
*Q10.* Consistency principle violated if:
A. Company uses FIFO both years
B. Company switches FIFO to LIFO without disclosure
C. Company depreciates SLM both years
D. Company follows GAAP
*Ans: B* | Consistency = same method period to period.
*Q11.* Entity concept means:
A. Owner + business finances mixed
B. Business separate from owner
C. Only corporation is entity
D. No relevance
*Ans: B* | Separate legal entity.
*Q12.* Primary users of general purpose financial statements
per FASB?
A. Mgmt only B.
Investors + creditors
C. Govt only D.
Employees only
*Ans: B* | FASB CF: primary users.
*Q13.* Dual aspect concept means:
A. 2 accountants check each entry
B. Every transaction has debit + credit
C. 2 financial statements
D. 2 methods for depreciation
*Ans: B* | Debit = Credit.
*Q14.* Realization principle for revenue:
A. Cash received B.
Earned + realizable
C. Order received D.
Budget made
*Ans: B* | GAAP revenue recognition 5-step.
*Q15.* Which is NOT qualitative characteristic of useful
info?
A. Relevance B.
Reliability C. Comparability D. Conservatism
*Ans: D* | Conservatism = convention, not QC per FASB CF.
*Batch 2: Depreciation, Impairment 16-30*
*Q16.* Machine cost $100k, salvage $10k, life 9 yrs. SLM
annual dep?
A. $10k B.
$11,111 C. $9,000 D. $12,000
*Ans: A* | ($100k-$10k)/9 = $10k.
*Q17.* Under SLM, dep expense each year is:
A. Increasing B.
Decreasing C. Constant D. Zero
*Ans: C* | Straight line = constant.
*Q18.* Asset carrying value $80k, fair value $60k,
undiscounted CF $70k. Impairment loss?
A. $0 B. $10k C. $20k
D. $80k
*Ans: A* | US GAAP 2-step: If undisc CF $70k > CV $80k?
No, $70k < $80k → test fails. Loss = CV - FV = $80k-$60k = $20k. Wait:
2-step: Step1: CV vs undisc CF. $80k > $70k → impaired. Step2: Loss = CV -
FV = $20k.
*Ans: C. $20k*
*Q19.* Impairment loss under GAAP recognized in:
A. OCI B.
P&L C. Equity D. Not recognized
*Ans: B* | Expense in income statement.
*Q20.* After impairment, new dep base = ?
A. Old cost B. New
carrying value / remaining life
C. Fair value D.
Original cost
*Ans: B* | Dep on revised book value.
*Q21.* Units-of-production dep depends on:
A. Time B.
Output/units produced
C. SLM rate D. Market
value
*Ans: B* | Activity-based.
*Q22.* Dep is process of:
A. Valuation B.
Allocation of cost
C. Cash outflow D.
Funding replacement
*Ans: B* | Cost allocation, not valuation.
*Q23.* Land is not depreciated because:
A. No cost B.
Indefinite useful life
C. GAAP prohibits D.
Tax rule
*Ans: B* | Land life indefinite.
*Q24.* If salvage value increases, SLM dep:
A. Increases B.
Decreases C. No change D. Becomes zero
*Ans: B* | Dep = (Cost - Salvage)/Life.
*Q25.* Impairment test under GAAP done when:
A. Every year B.
Triggering event/indicator exists
C. Only at sale D.
Never
*Ans: B* | When events suggest CV not recoverable.
*Q26.* Gain on sale of PPE recorded if:
A. Proceeds > CV
B. Proceeds < CV
C. Always D.
Never
*Ans: A* | Proceeds - CV = gain.
*Q27.* Accumulated depreciation is:
A. Asset B.
Liability C. Contra-asset
D. Equity
*Ans: C* | Reduces gross PPE.
*Q28.* Change in dep method is:
A. Error B. Change in
estimate – prospective
C. Change in policy – retrospective
D. Fraud
*Ans: B* | Estimate change = prospective GAAP.
*Q29.* Capital expenditure increases:
A. Expense B. Asset
value
C. Liability D.
Revenue
*Ans: B* | Adds to asset.
*Q30.* Revenue expenditure is:
A. Capitalized B.
Expensed in period
C. Added to asset D.
Deferred
*Ans: B* | Repairs, maintenance.
*Batch 3: Inventory FIFO LIFO 31-45*
*Q31.* During inflation, FIFO vs LIFO: COGS?
A. FIFO > LIFO B.
FIFO < LIFO
C. Same D. Can’t
say
*Ans: B* | FIFO uses old cheap cost → lower COGS.
*Q32.* During inflation, ending inventory value highest
under?
A. FIFO B. LIFO C. Weighted avg D. Same
*Ans: A* | FIFO ending inv = latest higher cost.
*Q33.* US GAAP allows which inventory method?
A. FIFO B. LIFO C. Both FIFO + LIFO D. Only weighted avg
*Ans: C* | GAAP allows FIFO, LIFO, avg. IFRS bans LIFO.
*Q34.* LIFO liquidation occurs when:
A. Inventory units increase
B. Inventory units decrease below base
C. Price increases D.
Price decreases
*Ans: B* | Old layer liquidated, boosts profit.
*Q35.* LCM rule under GAAP: inventory valued at?
A. Cost B.
Market C. Lower of cost or net
realizable value
D. Higher of cost or market
*Ans: C* | Conservatism.
*Q36.* Purchase 100@10, 100@12, sold 120. FIFO COGS?
A. $1,240 B.
$1,200 C. $1,320 D. $1,100
*Ans: A* | 100×10 + 20×12 = $1,240.
*Q37.* Same data, LIFO COGS?
A. $1,240 B.
$1,200 C. $1,320 D. $1,100
*Ans: C* | 100×12 + 20×10 = $1,320.
*Q38.* During deflation, FIFO profit vs LIFO?
A. FIFO profit < LIFO
B. FIFO profit > LIFO
C. Same
D. Zero
*Ans: B* | FIFO COGS higher, profit lower? Wait deflation:
old cost high. FIFO uses high old cost → higher COGS → lower profit. LIFO uses
new low cost → lower COGS → higher profit.
*Ans: A. FIFO profit < LIFO*
*Q39.* Inventory shrinkage recorded as:
A. Increase asset B.
Expense loss
C. Liability D.
Revenue
*Ans: B* | Debit COGS/loss.
*Q40.* Periodic vs perpetual: diff in timing of?
A. Purchase entry B.
COGS recognition
C. Sales entry D.
Cash entry
*Ans: B* | COGS updated continuously in perpetual.
*Q41.* Weighted avg cost per unit = ?
A. Total cost / total units
B. Latest cost
C. Oldest cost
D. Market price
*Ans: A* | Avg method.
*Q42.* LIFO conformity rule requires:
A. Use LIFO for tax if used for financial
B. Use FIFO for tax
C. No rule
D. Use avg for tax
*Ans: A* | If LIFO for financial, must use for tax.
*Q43.* Inventory turnover = ?
A. COGS / Avg inventory
B. Sales / Inventory
C. Profit / Inventory
D. Assets / Inventory
*Ans: A* | Efficiency ratio.
*Q44.* Net realizable value = ?
A. Selling price
B. Selling price - completion + disposal cost
C. Cost
D. Market price
*Ans: B* | NRV for LCM.
*Q45.* Write-down of inventory under GAAP:
A. Reversed if value recovers
B. Not reversed
C. Added to asset
D. Goes to equity
*Ans: B* | GAAP prohibits reversal of inventory write-down.
*Batch 4: Receivables, Allowance, Cash Flow 46-60*
*Q46.* Allowance for doubtful accounts is:
A. Asset B.
Contra-asset
C. Liability D.
Expense
*Ans: B* | Reduces AR.
*Q47.* Bad debt expense under allowance method recorded
when?
A. Customer defaults
B. At time of sale, based on estimate
C. Cash received
D. Year end only
*Ans: B* | Matching principle.
*Q48.* Write-off of AR: Debit?
A. Bad debt expense
B. Allowance for doubtful accounts
C. Cash
D. Sales
*Ans: B* | Write-off uses allowance, not expense again.
*Q49.* Recovery of written-off AR: Credit?
A. Cash B.
Allowance C. Bad debt expense D. Sales
*Ans: B* | Reinstate AR + allowance first.
*Q50.* Age-wise analysis used for:
A. Dep method
B. Estimating allowance for doubtful accounts
C. Inventory valuation
D. Tax
*Ans: B* | Aging schedule → % uncollectible.
*Q51.* CFO under indirect method starts with:
A. Cash B. Net
income
C. Sales D.
Assets
*Ans: B* | Indirect method starts NI.
*Q52.* Increase in AR during year:
A. Added to NI for CFO
B. Deducted from NI
C. No effect D. Added
to CFI
*Ans: B* | Cash not collected yet.
*Q53.* Depreciation expense in CFO:
A. Deducted B. Added
back to NI
C. Ignored D. Part of
CFI
*Ans: B* | Non-cash expense.
*Q54.* Purchase of equipment is:
A. CFO B. CFI C. CFF
D. Not CF
*Ans: B* | Capital expenditure = investing.
*Q55.* Issue of bonds is:
A. CFO B. CFI C. CFF
D. Not CF
*Ans: C* | Financing activity.
*Q56.* Loss on sale of asset in CFO:
A. Deducted B. Added
back to NI
C. Ignored D. Part of
CFI
*Ans: B* | Non-cash loss.
*Q57.* Cash basis vs accrual: accrual records?
A. Only cash B.
Revenue when earned, expense when incurred
C. Only expenses D.
Only revenue
*Ans: B* | Accrual basis.
*Q58.* Prepaid insurance $12k for 1 yr, 3 months passed.
Expense?
A. $12k B. $3k C. $9k
D. $0
*Ans: B* | $12k×3/12 = $3k.
*Q59.* Unearned revenue is:
A. Asset B.
Liability C. Equity D. Revenue
*Ans: B* | Obligation to deliver service.
*Q60.* Accrued expense means:
A. Paid in advance
B. Incurred but not yet paid
C. Paid and incurred
D. Not incurred
*Ans: B* | Wages payable, etc.
*Batch 5: Tax, Deferred Tax, Capital Theories 61-80*
*Q61.* Current tax expense based on:
A. Accounting profit
B. Taxable profit
C. Revenue D. Cash
profit
*Ans: B* | Tax law profit.
*Q62.* Deferred tax arises due to:
A. Permanent difference
B. Temporary difference
C. Both
D. Neither
*Ans: B* | Timing diff reverses.
*Q63.* Permanent difference example:
A. Depreciation diff
B. Fine/penalty not deductible
C. Warranty provision
D. Unearned revenue
*Ans: B* | Fine never deductible.
*Q64.* Temp difference: tax dep > book dep creates?
A. Deferred tax asset
B. Deferred tax liability
C. Current tax asset
D. No effect
*Ans: B* | Pay less tax now, more later.
*Q65.* DTL shown in:
A. Asset side B.
Liability side
C. Equity D. Not
shown
*Ans: B* | Deferred tax liability.
*Q66.* Prior period excess tax provision $5k rectified.
Entry?
A. Dr Tax exp Cr Cash
B. Dr Tax payable Cr Retained earnings
C. Dr Retained earnings Cr Tax payable
D. Dr Cash Cr Revenue
*Ans: B* | Prior period adjustment to opening RE.
*Q67.* Capital maintenance: proprietary theory views equity
as?
A. Residual interest of owner
B. Creditor claim
C. Govt claim
D. Employee claim
*Ans: A* | Equity = assets - liabilities.
*Q68.* Entity theory treats business as separate from?
A. Creditors B.
Owner
C. Employees D.
Govt
*Ans: B* | Entity separate from owner.
*Q69.* Residual theory: income belongs to?
A. Creditors B.
Govt
C. Residual claimant = common shareholders
D. Employees
*Ans: C* | After all claims paid.
*Q70.* Financial capital maintenance means?
A. Physical capacity maintained
B. Money amount of equity maintained
C. Asset value maintained
D. No depreciation
*Ans: B* | Money measure of capital.
*Q71.* Physical capital maintenance means?
A. Money capital maintained
B. Operating capacity maintained
C. Profit maintained
D. Sales maintained
*Ans: B* | Current cost accounting concept.
*Q72.* Deferred tax asset arises when:
A. Taxable profit > accounting profit
B. Taxable profit < accounting profit
C. No difference
D. Always
*Ans: B* | Pay more tax now, less later.
*Q73.* Valuation allowance on DTA if:
A. DTA will be realized
B. “More likely than not” DTA not realized
C. Always required
D. Never required
*Ans: B* | GAAP conservatism.
*Q74.* Timing difference = synonym for?
A. Permanent difference
B. Temporary difference
C. Current tax
D. Tax rate
*Ans: B* | Reverses over time.
*Q75.* Tax rate change affects:
A. Current tax only
B. DTA/DTL balance
C. Cash only
D. No effect
*Ans: B* | Remeasure DTA/DTL.
*Q76.* Risk contingency in accounting:
A. Record liability if probable + estimable
B. Always record
C. Never record
D. Disclose only if remote
*Ans: A* | Contingency rules ASC 450.
*Q77.* Remote contingency:
A. Accrue B.
Disclose C. Ignore
D. Record as asset
*Ans: C* | No action.
*Q78.* Reasonably possible contingency:
A. Accrue B. Disclose
in notes
C. Ignore D. Record
as asset
*Ans: B* | Disclosure only.
*Q79.* Gross profit = ?
A. Sales - COGS
B. Sales - all expenses
C. Operating income
D. Net income
*Ans: A* | Before operating expenses.
*Q80.* Operating profit = ?
A. Gross profit - operating expenses
B. Sales - COGS
C. Net income + tax
D. EBITDA
*Ans: A* | EBIT.
*Batch 6: Reporting, Ratios, Other 81-100*
*Q81.* Annual report includes:
A. Only B/S
B. B/S, IS, CF, Notes, MD&A
C. Only IS
D. Only auditor report
*Ans: B* | Complete package.
*Q82.* MD&A section explains:
A. Only numbers
B. Mgmt view on results + future risks
C. Auditor opinion
D. Tax details
*Ans: B* | Management Discussion & Analysis.
*Q83.* Notes to accounts provide:
A. Summary only
B. Detail + accounting policies
C. Cash only
D. Not required
*Ans: B* | Required disclosures.
*Q84.* Auditor’s report gives:
A. Mgmt opinion
B. Independent opinion on F/S fairness
C. Tax opinion
D. Budget
*Ans: B* | Unqualified/qualified/adverse.
*Q85.* Current ratio = ?
A. Current assets / Current liabilities
B. Quick assets / CL
C. Cash / CL
D. Total assets / TL
*Ans: A* | Liquidity ratio.
*Q86.* Quick ratio excludes:
A. Cash B.
Inventory
C. AR D. Marketable
securities
*Ans: B* | (Cash+MS+AR)/CL.
*Q87.* Debt-to-equity ratio measures:
A. Profitability B.
Leverage/solvency
C. Efficiency D.
Liquidity
*Ans: B* | Capital structure.
*Q88.* ROE = ?
A. NI / Sales B. NI /
Avg equity
C. Sales / Assets D.
EBIT / Assets
*Ans: B* | Return on equity.
*Q89.* ROA = ?
A. NI / Avg assets
B. Sales / Assets
C. Gross profit / Assets
D. EBIT / Equity
*Ans: A* | Return on assets.
*Q90.* Days sales outstanding = ?
A. 365 / AR turnover
B. 365 / Inventory turnover
C. AR / Sales
D. Sales / AR
*Ans: A* | Collection period.
*Q91.* Inventory days = ?
A. 365 / Inventory turnover
B. COGS / Inventory
C. Sales / Inventory
D. 365 / AR turnover
*Ans: A* | Days inventory held.
*Q92.* Prior period error correction under GAAP:
A. Current year income
B. Restate prior year + adjust opening RE
C. Ignore
D. Add to expense
*Ans: B* | Retrospective restatement.
*Q93.* Change in accounting principle under GAAP:
A. Prospective B.
Retrospective with cumulative adjustment
C. Ignore D. Current
year only
*Ans: B* | Restate prior periods.
*Q94.* Segment reporting required when?
A. Always B. Public
company with reportable segments
C. Never D. Only for
tax
*Ans: B* | ASC 280.
*Q95.* EPS = ?
A. NI / Shares outstanding
B. Sales / Shares
C. Assets / Shares
D. Debt / Shares
*Ans: A* | Earnings per share.
*Q96.* Comprehensive income includes:
A. NI only
B. NI + OCI items
C. Cash flow only
D. Revenue only
*Ans: B* | NI + unrealized gains/losses.
*Q97.* OCI example:
A. Sales revenue
B. Unrealized gain on AFS securities
C. Wages expense
D. Interest expense
*Ans: B* | Bypass P&L.
*Q98.* Related party transaction must be:
A. Ignored B.
Disclosed in notes
C. Recorded at market always
D. Not allowed
*Ans: B* | Disclosure required.
*Q99.* Going concern uncertainty: auditor?
A. Unqualified always
B. Add emphasis paragraph if doubt
C. Ignore
D. Adverse opinion
*Ans: B* | If substantial doubt.
*Q100.* Subsequent event after year-end but before issue
date:
A. Always adjust F/S
B. Adjust if provides evidence of condition at B/S date
C. Ignore always
D. Add to next year
*Ans: B* | Adjusting vs non-adjusting event.
