You’re on a roll
Create a free account to save your CPA progress, track your accuracy by topic, and pick up right where you left off.
Free Questions › CPA › Business Analysis and Reporting
Free CPA Business Analysis and Reporting Practice Questions & Answers
500 exam-style Business Analysis and Reporting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 331
A VIE has $500,000 of equity and $20m of assets. Investor A holds 3% of the equity but guarantees the VIE's debt and directs its key activities. Investor B holds 95% with no decision rights. The VIE is consolidated by:
Select an option first.
Correct answer: B — Investor A — the PRIMARY BENEFICIARY has POWER over key activities AND exposure to significant losses (via the guarantee)
Explanation: The VIE model DECOUPLES consolidation from equity ownership. Investor A has BOTH criteria: POWER (directs key activities) AND exposure to significant losses (the debt guarantee). It consolidates despite holding only 3%. This is exactly the structure the VIE rules were written to catch — a thinly capitalised entity controlled by a party with little equity at stake.
Question 332
A company's segment has revenue of $8m, profit of $500,000 and assets of $15m. Consolidated totals: revenue $100m, profit $12m, assets $120m. The segment is:
Select an option first.
Correct answer: C — REPORTABLE — its assets ($15m) exceed 10% of combined assets ($12m), even though revenue and profit fall short
Explanation: The three 10% tests are ALTERNATIVE — ANY ONE triggers reportability. Revenue: $8m < $10m (fails). Profit: $500,000 < $1.2m (fails). ASSETS: $15m > $12m (PASSES). One test is enough. Candidates who check only revenue miss it.
Question 333
A company's ROU asset is $500,000 and its lease liability is $500,000 (an operating lease, 5 years, $115,000 annual payment, 5% rate). Year 1 TOTAL expense is:
Select an option first.
Correct answer: D — $115,000 — a single STRAIGHT-LINE lease expense equal to the total lease cost divided by the term
Explanation: An OPERATING lease reports a SINGLE straight-line LEASE EXPENSE = total lease cost / term = $575,000 / 5 = $115,000. A FINANCE lease would instead report amortisation ($100,000) PLUS interest ($25,000) = $125,000 in Year 1 — FRONT-LOADED. Same lease, different classification, $10,000 difference in Year 1 expense.
Question 334
Under IFRS 16, the same lease would report Year 1 expense of:
Select an option first.
Correct answer: D — $125,000 — IFRS uses a SINGLE model treating all leases as finance leases (amortisation plus interest, FRONT-LOADED)
Explanation: IFRS 16 has NO operating lease classification for lessees — every lease produces amortisation ($100,000) plus interest ($500,000 × 5% = $25,000) = $125,000 in Year 1, front-loaded. US GAAP's operating lease gives a flat $115,000. The SAME lease produces DIFFERENT operating income and EBITDA under the two frameworks.
Question 335
A contract with a customer includes a $50,000 upfront fee that does NOT transfer a distinct good or service, plus 3 years of service. The fee should be:
Select an option first.
Correct answer: C — DEFERRED and recognised over the period of BENEFIT — which may EXCEED the stated contract term if renewals are expected
Explanation: An upfront fee that transfers NOTHING DISTINCT is an ADVANCE PAYMENT for future services. It is DEFERRED and recognised over the PERIOD OF BENEFIT — which may EXTEND BEYOND the stated contract term if the customer is expected to renew (a gym membership renewed for years). The benefit period, not the contract term, governs.
Get the full CPA question bank — free
Drop your email and we'll send you fresh CPA practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 336
A company's variable consideration: expected value is $180,000, but only $140,000 is highly probable not to reverse. The transaction price includes:
Select an option first.
Correct answer: B — $140,000 — the CONSTRAINT limits variable consideration to the amount for which a significant reversal is probable NOT to occur
Explanation: TWO steps. Step 1: ESTIMATE (expected value = $180,000). Step 2: CONSTRAIN to the amount for which it is PROBABLE that a significant reversal will NOT occur ($140,000). Stopping at the estimate skips the constraint — the single most commonly missed step in ASC 606.
Question 337
A company recognises revenue over time and has $2m of costs incurred, of which $500,000 relates to WASTED materials. Total estimated costs are $8m (excluding waste). Progress is:
Select an option first.
Correct answer: A — 18.75% — ($2m − $0.5m wasted) / $8m; wasted costs are EXCLUDED from the progress measure and EXPENSED
Explanation: WASTED materials do NOT depict transfer of control, so they are EXCLUDED from the cost-to-cost measure and EXPENSED as incurred. Progress = ($2,000,000 − $500,000) / $8,000,000 = $1,500,000/$8,000,000 = 18.75%. Including the waste gives 25% — falsely inflating progress and accelerating revenue that has not been earned.
Question 338
A company acquires a group of assets (not a business) for $5m; the identifiable assets have fair values of $5.4m; transaction costs are $100,000. The assets are recorded at:
Select an option first.
Correct answer: B — $5.1m, allocated PRO RATA on relative fair values — an asset acquisition produces NO goodwill and NO bargain purchase gain
Explanation: In an ASSET ACQUISITION, transaction costs are CAPITALISED: $5,000,000 + $100,000 = $5,100,000, allocated PRO RATA to the identifiable assets on relative fair values. NO goodwill and NO bargain purchase gain arise — those concepts exist only in a BUSINESS COMBINATION, where transaction costs are instead EXPENSED. Two rules invert.
Question 339
A parent's foreign sub's functional currency is the PARENT'S. The sub's inventory is remeasured at:
Select an option first.
Correct answer: C — The HISTORICAL rate — inventory is a NON-MONETARY item under REMEASUREMENT
Explanation: REMEASUREMENT: MONETARY items (cash, receivables, payables) at the CURRENT rate; NON-MONETARY items (inventory, PP&E, intangibles) at HISTORICAL rates; COGS and depreciation at the HISTORICAL rates of the related assets. Under TRANSLATION (functional = local), everything on the balance sheet would use the CURRENT rate instead.
Question 340
A company's equity-method investment: it pays $4m for 25% of an investee whose net assets have a BOOK value of $12m and a FAIR value of $15m (the $3m difference relates to depreciable assets with a 10-year life). Annual amortisation reducing equity-method income is:
Select an option first.
Correct answer: B — $75,000 — 25% of the $3m differential, amortised over 10 years
Explanation: The investor's share of the FV/BV differential = 25% × $3,000,000 = $750,000, amortised over 10 years = $75,000 per year, REDUCING equity-method income. Goodwill within the purchase price ($4m − 25% × $15m = $250,000) is NOT amortised. Two components, two different treatments.
Question 341
The five governmental fund types (GRaSPP) are:
Select an option first.
Correct answer: A — General, Special Revenue, Debt Service, Capital Projects, Permanent
Explanation: GRaSPP: General, Special Revenue, Debt Service, Capital Projects, Permanent. All five use MODIFIED ACCRUAL and the CURRENT FINANCIAL RESOURCES focus — no capital assets, no long-term debt.
Question 342
Governmental funds use:
Select an option first.
Correct answer: D — MODIFIED accrual, CURRENT FINANCIAL RESOURCES
Explanation: GOVERNMENTAL funds use MODIFIED ACCRUAL and CURRENT FINANCIAL RESOURCES. PROPRIETARY and FIDUCIARY funds — and the GOVERNMENT-WIDE statements — use FULL ACCRUAL and ECONOMIC RESOURCES. This split is the architecture of the whole topic.
Question 343
Under modified accrual, revenue is recognised when it is:
Select an option first.
Correct answer: C — MEASURABLE and AVAILABLE
Explanation: Modified accrual recognises revenue when it is MEASURABLE and AVAILABLE. 'AVAILABLE' generally means collectible within the current period or within 60 DAYS after year-end — the single most-tested number in governmental accounting.
Question 344
The two PROPRIETARY fund types are:
Select an option first.
Correct answer: A — INTERNAL SERVICE and ENTERPRISE
Explanation: PROPRIETARY funds: INTERNAL SERVICE (serving internal government customers on a cost-reimbursement basis) and ENTERPRISE (serving external customers). Both use FULL ACCRUAL and the economic resources focus.
Question 345
An ENTERPRISE fund is REQUIRED when:
Select an option first.
Correct answer: C — Debt is secured SOLELY by fee revenue, OR law requires fees to cover costs, OR pricing policy targets cost recovery
Explanation: An Enterprise fund is REQUIRED if ANY of three conditions is met. Merely serving external customers does not by itself compel Enterprise treatment — one of the three specific triggers must be present.
Question 346
The four FIDUCIARY fund types are:
Select an option first.
Correct answer: D — Custodial, Investment Trust, Private-Purpose Trust, Pension/OPEB Trust
Explanation: FIDUCIARY funds: Custodial; Investment Trust; Private-Purpose Trust; and Pension (and OPEB) Trust. They use FULL ACCRUAL — and are EXCLUDED from the government-wide statements entirely, because the assets are not the government's to spend.
Question 347
Fiduciary funds are EXCLUDED from the government-wide statements because:
Select an option first.
Correct answer: D — The resources belong to OTHERS and cannot be used to support the government's own programmes
Explanation: FIDUCIARY resources are held FOR OTHERS — they are not available to support the government's programmes. Including them in the government-wide statements would misleadingly suggest the government could spend them. This exclusion is the most distinctive fact about fiduciary funds.
Question 348
The government-wide statements use:
Select an option first.
Correct answer: B — FULL ACCRUAL and the ECONOMIC RESOURCES measurement focus
Explanation: GOVERNMENT-WIDE statements (the Statement of Net Position and the Statement of Activities) use FULL ACCRUAL and ECONOMIC RESOURCES — reporting ALL assets and liabilities, including capital assets and long-term debt.
Question 349
The fund balance classifications, from most to least constrained, are:
Select an option first.
Correct answer: D — Nonspendable, Restricted, Committed, Assigned, Unassigned
Explanation: The hierarchy: NONSPENDABLE (inventory, prepaids, permanent fund principal) → RESTRICTED (external constraints) → COMMITTED (highest-level formal action) → ASSIGNED (intent, lower level) → UNASSIGNED (residual).
Question 350
Only which fund may report a POSITIVE Unassigned fund balance?
Select an option first.
Correct answer: A — The GENERAL FUND
Explanation: Only the GENERAL FUND may report a POSITIVE Unassigned fund balance — it is the residual classification. Other governmental funds can report a NEGATIVE unassigned balance (when expenditures exceed available resources) but never a positive one.
Question 351
COMMITTED fund balance requires:
Select an option first.
Correct answer: A — Formal action by the government's HIGHEST decision-making authority (a council vote or ordinance)
Explanation: COMMITTED requires action by the HIGHEST decision-making authority, and can only be removed by the same level of action. ASSIGNED requires only an expressed INTENT at a lower level. RESTRICTED comes from EXTERNAL constraints (creditors, grantors, law).
Question 352
The government-wide Net Position categories are:
Select an option first.
Correct answer: A — Net investment in capital assets; Restricted; Unrestricted
Explanation: GOVERNMENT-WIDE NET POSITION has three components: NET INVESTMENT IN CAPITAL ASSETS (capital assets less related debt); RESTRICTED; and UNRESTRICTED. The FUND BALANCE classifications are entirely different — keep the two sets apart.
Question 353
Encumbrance accounting is used in:
Select an option first.
Correct answer: C — GOVERNMENTAL funds, as a BUDGETARY control
Explanation: ENCUMBRANCES are a BUDGETARY control in GOVERNMENTAL funds. On issuing a purchase order: DR Encumbrances / CR Reserve for Encumbrances. An encumbrance is NOT an expenditure — it reserves spending authority.
Question 354
In a governmental fund, the purchase of a capital asset is recorded as:
Select an option first.
Correct answer: B — An EXPENDITURE
Explanation: Governmental funds use the CURRENT FINANCIAL RESOURCES focus, so a capital purchase is an EXPENDITURE, not an asset. The capital asset appears ONLY in the GOVERNMENT-WIDE statements — which is precisely why a RECONCILIATION between the two is required.
Question 355
In a governmental fund, the issuance of long-term bonds is recorded as:
Select an option first.
Correct answer: B — An OTHER FINANCING SOURCE
Explanation: Bond proceeds appear as an OTHER FINANCING SOURCE (not revenue), and the long-term LIABILITY appears ONLY in the government-wide statements. This is one of the two most common reconciling items, alongside capital assets.
Question 356
Depreciation is recorded in:
Select an option first.
Correct answer: B — The GOVERNMENT-WIDE statements and PROPRIETARY funds — but NOT in governmental funds
Explanation: DEPRECIATION requires a capital ASSET, which governmental funds do not report. So depreciation appears in the GOVERNMENT-WIDE statements and in PROPRIETARY (and fiduciary) funds — never in a governmental fund.
Question 357
MD&A in a governmental report is:
Select an option first.
Correct answer: C — REQUIRED SUPPLEMENTARY INFORMATION, presented BEFORE the basic financial statements
Explanation: MD&A is REQUIRED SUPPLEMENTARY INFORMATION (RSI) and — unusually — is presented BEFORE the basic financial statements. As RSI it receives only LIMITED auditor procedures, not an opinion.
Question 358
The government-wide Statement of Activities uses a:
Select an option first.
Correct answer: D — NET PROGRAMME COST format — expenses by function, less programme revenues
Explanation: The Statement of Activities uses a distinctive NET (EXPENSE) REVENUE format: expenses by FUNCTION, with PROGRAMME REVENUES deducted to show the NET cost of each function borne by taxpayers. GENERAL revenues (taxes) are then presented below.
Question 359
PROGRAMME revenues in the Statement of Activities include:
Select an option first.
Correct answer: D — Charges for services, operating grants, and capital grants
Explanation: PROGRAMME revenues are directly linked to a function: charges for services, operating grants and contributions, and capital grants and contributions. GENERAL revenues (taxes, unrestricted grants, investment earnings) are NOT linked to a function.
Question 360
A PERMANENT fund holds resources where:
Select an option first.
Correct answer: B — Only the EARNINGS may be spent; the PRINCIPAL is legally restricted — and it benefits the GOVERNMENT
Explanation: A PERMANENT FUND: the PRINCIPAL is legally restricted and may not be spent; only the INCOME is available, and it must benefit the GOVERNMENT or its citizenry. If the earnings benefit OUTSIDE individuals or organisations, it is a PRIVATE-PURPOSE TRUST (a fiduciary fund) instead.
More free CPA topics
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.