100 US GAAP MCQs for *CMA Part 1: Financial Accounting

100 US GAAP MCQs for *CMA Part 1: Financial Accounting

100 US GAAP MCQs for *CMA Part 1: Financial Accounting* new syllabus. Grouped 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: 

*Q2.* “Record asset at historical cost, not market value” is which convention?  

A. Conservatism  B. Materiality  C. Historical cost  D. Going concern  

*Ans: 

*Q3.* Assumption that business will continue indefinitely is?  

A. Entity  B. Periodicity  C. Going concern  D. Monetary unit  

*Ans: 

*Q4.* Stakeholder with primary interest in dividends + share price?  

A. Creditor  B. Employee  C. Shareholder  D. Govt  

*Ans: 

*Q5.* Bank lending money is concerned mainly with?  

A. Profitability  B. Liquidity + solvency  C. Growth  D. Market share  

*Ans: 

*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:

*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: 

*Q8.* Conservatism convention:  

A. Overstate assets, understate liabilities  

B. Anticipate losses, not gains  

C. Record all gains immediately  

D. Ignore uncertainty  

*Ans: 

*Q9.* Materiality depends on:  

A. Size only  B. Nature + size + context  

C. Auditor’s opinion only  D. Tax law  

*Ans: 

*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: 

*Q11.* Entity concept means:  

A. Owner + business finances mixed  

B. Business separate from owner  

C. Only corporation is entity  

D. No relevance  

*Ans: 

*Q12.* Primary users of general purpose financial statements per FASB?  

A. Mgmt only  B. Investors + creditors  

C. Govt only  D. Employees only  

*Ans: 

*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:

*Q14.* Realization principle for revenue:  

A. Cash received  B. Earned + realizable  

C. Order received  D. Budget made  

*Ans: .

*Q15.* Which is NOT qualitative characteristic of useful info?  

A. Relevance  B. Reliability  C. Comparability  D. Conservatism  

*Ans: 

*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: 

*Q17.* Under SLM, dep expense each year is:  

A. Increasing  B. Decreasing  C. Constant  D. Zero  

*Ans:

*Q18.* Asset carrying value $80k, fair value $60k, undiscounted CF $70k. Impairment loss?  

A. $0  B. $10k  C. $20k  D. $80k  

*Ans: 

*Q19.* Impairment loss under GAAP recognized in:  

A. OCI  B. P&L  C. Equity  D. Not recognized  

*Ans: 

*Q20.* After impairment, new dep base = ?  

A. Old cost  B. New carrying value / remaining life  

C. Fair value  D. Original cost  

*Ans:

*Q21.* Units-of-production dep depends on:  

A. Time  B. Output/units produced  

C. SLM rate  D. Market value  

*Ans:

*Q22.* Dep is process of:  

A. Valuation  B. Allocation of cost  

C. Cash outflow  D. Funding replacement  

*Ans: 

*Q23.* Land is not depreciated because:  

A. No cost  B. Indefinite useful life  

C. GAAP prohibits  D. Tax rule  

*Ans:

*Q24.* If salvage value increases, SLM dep:  

A. Increases  B. Decreases  C. No change  D. Becomes zero  

*Ans: 

*Q25.* Impairment test under GAAP done when:  

A. Every year  B. Triggering event/indicator exists  

C. Only at sale  D. Never  

*Ans: 

*Q26.* Gain on sale of PPE recorded if:  

A. Proceeds > CV  B. Proceeds < CV  

C. Always  D. Never  

*Ans: 

*Q27.* Accumulated depreciation is:  

A. Asset  B. Liability  C. Contra-asset  

D. Equity  

*Ans: 

*Q28.* Change in dep method is:  

A. Error  B. Change in estimate – prospective  

C. Change in policy – retrospective  

D. Fraud  

*Ans: 

*Q29.* Capital expenditure increases:  

A. Expense  B. Asset value  

C. Liability  D. Revenue  

*Ans: 

*Q30.* Revenue expenditure is:  

A. Capitalized  B. Expensed in period  

C. Added to asset  D. Deferred  

*Ans: 

*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:

*Q32.* During inflation, ending inventory value highest under?  

A. FIFO  B. LIFO  C. Weighted avg  D. Same  

*Ans: 

*Q33.* US GAAP allows which inventory method?  

A. FIFO  B. LIFO  C. Both FIFO + LIFO  D. Only weighted avg  

*Ans: 

*Q34.* LIFO liquidation occurs when:  

A. Inventory units increase  B. Inventory units decrease below base  

C. Price increases  D. Price decreases  

*Ans: .

*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: 

*Q36.* Purchase 100@10, 100@12, sold 120. FIFO COGS?  

A. $1,240  B. $1,200  C. $1,320  D. $1,100  

*Ans: 

*Q37.* Same data, LIFO COGS?  

A. $1,240  B. $1,200  C. $1,320  D. $1,100  

*Ans: 

*Q38.* During deflation, FIFO profit vs LIFO?  

A. FIFO profit < LIFO  

B. FIFO profit > LIFO  

C. Same  

D. Zero  

*Ans: 

*Ans: 

*Q39.* Inventory shrinkage recorded as:  

A. Increase asset  B. Expense loss  

C. Liability  D. Revenue  

*Ans: 

*Q40.* Periodic vs perpetual: diff in timing of?  

A. Purchase entry  B. COGS recognition  

C. Sales entry  D. Cash

*Q41.* Weighted avg cost per unit = ?  

A. Total cost / total units  

B. Latest cost  

C. Oldest cost  

D. Market price  

*Ans: 

*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: 

*Q43.* Inventory turnover = ?  

A. COGS / Avg inventory  

B. Sales / Inventory  

C. Profit / Inventory  

D. Assets / Inventory  

*Ans: 

*Q44.* Net realizable value = ?  

A. Selling price  

B. Selling price - completion + disposal cost  

C. Cost  

D. Market price  

Ans 

*Q45.* Write-down of inventory under GAAP:  

A. Reversed if value recovers  

B. Not reversed  

C. Added to asset  

D. Goes to equity  

*Ans: 

*Batch 4: Receivables, Allowance, Cash Flow 46-60*

*Q46.* Allowance for doubtful accounts is:  

A. Asset  B. Contra-asset  

C. Liability  D. Expense  

*Ans: 

*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: 

*Q48.* Write-off of AR: Debit?  

A. Bad debt expense  

B. Allowance for doubtful accounts  

C. Cash  

D. Sales  

*Ans

*Q49.* Recovery of written-off AR: Credit?  

A. Cash  B. Allowance  C. Bad debt expense  D. Sales  

*Ans: 

*Q50.* Age-wise analysis used for:  

A. Dep method  

B. Estimating allowance for doubtful accounts  

C. Inventory valuation  

D. Tax  

*Ans:.

*Q51.* CFO under indirect method starts with:  

A. Cash  B. Net income  

C. Sales  D. Assets  

*Ans: 

*Q52.* Increase in AR during year:  

A. Added to NI for CFO  B. Deducted from NI  

C. No effect  D. Added to CFI  

*Ans 

*Q53.* Depreciation expense in CFO:  

A. Deducted  B. Added back to NI  

C. Ignored  D. Part of CFI  

*Ans: 

*Q54.* Purchase of equipment is:  

A. CFO  B. CFI  C. CFF  D. Not CF  

*Ans: 

*Q55.* Issue of bonds is:  

A. CFO  B. CFI  C. CFF  D. Not CF  

*Ans: 

*Q56.* Loss on sale of asset in CFO:  

A. Deducted  B. Added back to NI  

C. Ignored  D. Part of CFI  

*Ans: 

*Q57.* Cash basis vs accrual: accrual records?  

A. Only cash  B. Revenue when earned, expense when incurred  

C. Only expenses  D. Only revenue  

*Ans: 

*Q58.* Prepaid insurance $12k for 1 yr, 3 months passed. Expense?  

A. $12k  B. $3k  C. $9k  D. $0  

*Ans: 

*Q59.* Unearned revenue is:  

A. Asset  B. Liability  C. Equity  D. Revenue  

*Ans: 

*Q60.* Accrued expense means:  

A. Paid in advance  

B. Incurred but not yet paid  

C. Paid and incurred  

D. Not incurred  

*Ans:

*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:

*Q62.* Deferred tax arises due to:  

A. Permanent difference  

B. Temporary difference  

C. Both  

D. Neither  

*Ans: 

*Q63.* Permanent difference example:  

A. Depreciation diff  

B. Fine/penalty not deductible  

C. Warranty provision  

D. Unearned revenue  

*Ans

*Q64.* Temp difference: tax dep > book dep creates?  

A. Deferred tax asset  

B. Deferred tax liability  

C. Current tax asset  

D. No effect  

*Ans: 

*Q65.* DTL shown in:  

A. Asset side  B. Liability side  

C. Equity  D. Not shown  

*Ans: 

*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

*Q67.* Capital maintenance: proprietary theory views equity as?  

A. Residual interest of owner  

B. Creditor claim  

C. Govt claim  

D. Employee claim  

*Ans: 

*Q68.* Entity theory treats business as separate from?  

A. Creditors  B. Owner  

C. Employees  D. Govt  

*Ans: 

*Q69.* Residual theory: income belongs to?  

A. Creditors  B. Govt  

C. Residual claimant = common shareholders  

D. Employees  

*Ans: 

*Q70.* Financial capital maintenance means?  

A. Physical capacity maintained  

B. Money amount of equity maintained  

C. Asset value maintained  

D. No depreciation  

*Ans: 

*Q71.* Physical capital maintenance means?  

A. Money capital maintained  

B. Operating capacity maintained  

C. Profit maintained  

D. Sales maintained  

*Ans:

*Q72.* Deferred tax asset arises when:  

A. Taxable profit > accounting profit  

B. Taxable profit < accounting profit  

C. No difference  

D. Always  

*Ans:

*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: 

*Q74.* Timing difference = synonym for?  

A. Permanent difference  

B. Temporary difference  

C. Current tax  

D. Tax rate  

*Ans: 

*Q75.* Tax rate change affects:  

A. Current tax only  

B. DTA/DTL balance  

C. Cash only  

D. No effect  

*Ans: 

*Q76.* Risk contingency in accounting:  

A. Record liability if probable + estimable  

B. Always record  

C. Never record  

D. Disclose only if remote  

*Ans

*Q77.* Remote contingency:  

A. Accrue  B. Disclose  C. Ignore  

D. Record as asset  

*Ans: 

*Q78.* Reasonably possible contingency:  

A. Accrue  B. Disclose in notes  

C. Ignore  D. Record as asset  

*Ans: 

*Q79.* Gross profit = ?  

A. Sales - COGS  

B. Sales - all expenses  

C. Operating income  

D. Net income  

*Ans: 

*Q80.* Operating profit = ?  

A. Gross profit - operating expenses  

B. Sales - COGS  

C. Net income + tax  

D. EBITDA  

*Ans: 

*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: 

*Q82.* MD&A section explains:  

A. Only numbers  

B. Mgmt view on results + future risks  

C. Auditor opinion  

D. Tax details  

*Ans: 

*Q83.* Notes to accounts provide:  

A. Summary only  

B. Detail + accounting policies  

C. Cash only  

D. Not required  

*Ans: 

*Q84.* Auditor’s report gives:  

A. Mgmt opinion  

B. Independent opinion on F/S fairness  

C. Tax opinion  

D. Budget  

*Ans: 

*Q85.* Current ratio = ?  

A. Current assets / Current liabilities  

B. Quick assets / CL  

C. Cash / CL  

D. Total assets / TL  

*Ans: 

*Q86.* Quick ratio excludes:  

A. Cash  B. Inventory  

C. AR  D. Marketable securities  

*Ans: 

*Q87.* Debt-to-equity ratio measures:  

A. Profitability  B. Leverage/solvency  

C. Efficiency  D. Liquidity  

*Ans: 

*Q88.* ROE = ?  

A. NI / Sales  B. NI / Avg equity  

C. Sales / Assets  D. EBIT / Assets  

*Ans:

*Q89.* ROA = ?  

A. NI / Avg assets  

B. Sales / Assets  

C. Gross profit / Assets  

D. EBIT / Equity  

*Ans: 

*Q90.* Days sales outstanding = ?  

A. 365 / AR turnover  

B. 365 / Inventory turnover  

C. AR / Sales  

D. Sales / AR  

*Ans: 

*Q91.* Inventory days = ?  

A. 365 / Inventory turnover  

B. COGS / Inventory  

C. Sales / Inventory  

D. 365 / AR turnover  

*Ans: 

*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: 

*Q93.* Change in accounting principle under GAAP:  

A. Prospective  B. Retrospective with cumulative adjustment  

C. Ignore  D. Current year only  

*Ans: 

*Q94.* Segment reporting required when?  

A. Always  B. Public company with reportable segments  

C. Never  D. Only for tax  

*Ans: 

*Q95.* EPS = ?  

A. NI / Shares outstanding  

B. Sales / Shares  

C. Assets / Shares  

D. Debt / Shares  

*Ans: 

*Q96.* Comprehensive income includes:  

A. NI only  

B. NI + OCI items  

C. Cash flow only  

D. Revenue only  

*Ans:

*Q97.* OCI example:  

A. Sales revenue  

B. Unrealized gain on AFS securities  

C. Wages expense  

D. Interest expense  

Ans 

*Q98.* Related party transaction must be:  

A. Ignored  B. Disclosed in notes  

C. Recorded at market always  

D. Not allowed  

*Ans: 

*Q99.* Going concern uncertainty: auditor?  

A. Unqualified always  

B. Add emphasis paragraph if doubt  

C. Ignore  

D. Adverse opinion  

*Ans:

*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: 

www.gmsisuccess.in