Net income is $336,000. Beginning total assets are $3,800,000 and ending total assets are $4,200,000. What is return on average assets?
A. 7.6%
B. 8.0%
C. 8.8%
D. 8.4%
Show answer and reasoning
Correct answer: D. 8.4%
Average assets are ($3,800,000 + $4,200,000) ÷ 2 = $4,000,000. Return on assets is $336,000 ÷ $4,000,000 = 8.4%.
- A: 7.6% uses an unsupported asset base.
- B: 8.0% divides by ending assets but then rounds incorrectly or uses a different numerator.
- C: 8.8% approximates use of beginning assets rather than average assets.
Source: BAR Area I.A.1, representative task: calculate profitability ratios -- https://assets.ctfassets.net/rb9cdnjh59cm/71s84dkfo3KEsoLlz4vv6G/f4314469ec5368b5b4dd0d0184f00a71/CPA_Exam_Blueprints_2026.pdf
Which observation most strongly indicates lower-quality current-period earnings?
A. Operating cash flow consistently exceeds net income
B. Gross margin is stable while revenue grows
C. Receivables grow more slowly than credit sales
D. Net income rises mainly because of a one-time gain on an asset sale
Show answer and reasoning
Correct answer: D. Net income rises mainly because of a one-time gain on an asset sale
A nonrecurring disposal gain can increase reported net income without demonstrating sustainable operating performance, so earnings driven mainly by that gain are less persistent.
- A: Cash generation exceeding accounting income generally supports, rather than undermines, earnings quality.
- B: Stable margins accompanying growth do not by themselves indicate that earnings are nonrecurring or poorly supported.
- C: Receivables growing more slowly than credit sales is generally more consistent with sound collection than aggressive revenue recognition.
Source: BAR Area I.A.2, representative task: analyze financial statements and identify factors affecting quality of earnings -- https://assets.ctfassets.net/rb9cdnjh59cm/71s84dkfo3KEsoLlz4vv6G/f4314469ec5368b5b4dd0d0184f00a71/CPA_Exam_Blueprints_2026.pdf
A product sells for $80 and has variable cost of $52 per unit. What is its contribution-margin ratio?
Show answer and reasoning
Correct answer: A. 35%
Contribution margin per unit is $80 − $52 = $28. The contribution-margin ratio is $28 ÷ $80 = 35%.
- B: 52% treats the dollar variable cost as though it were the contribution-margin percentage.
- C: 65% is the variable-cost ratio ($52 ÷ $80), not the contribution-margin ratio.
- D: 28% confuses the $28 contribution margin per unit with a percentage of selling price.
Source: BAR Area I.B.1, representative task: calculate and interpret cost-management measures -- https://assets.ctfassets.net/rb9cdnjh59cm/71s84dkfo3KEsoLlz4vv6G/f4314469ec5368b5b4dd0d0184f00a71/CPA_Exam_Blueprints_2026.pdf
Fixed costs are $210,000 and contribution margin is $30 per unit. How many units must be sold to break even?
A. 5,000 units
B. 7,000 units
C. 8,000 units
D. 10,000 units
Show answer and reasoning
Correct answer: B. 7,000 units
Break-even volume equals fixed costs divided by contribution margin per unit: $210,000 ÷ $30 = 7,000 units. The $200,000 bond proceeds are excluded because borrowing is a financing activity rather than an investing activity.
- A: 5,000 units would generate only $150,000 of contribution margin, leaving $60,000 of fixed costs uncovered.
- C: 8,000 units would produce $30,000 of operating income and is above break-even.
- D: 10,000 units would produce $90,000 of operating income and is not the break-even volume.
Source: BAR Area I.B.1, representative task: calculate break-even point and use cost-volume-profit analysis -- https://assets.ctfassets.net/rb9cdnjh59cm/71s84dkfo3KEsoLlz4vv6G/f4314469ec5368b5b4dd0d0184f00a71/CPA_Exam_Blueprints_2026.pdf
A company has fixed costs of $360,000, sells its product for $75, and incurs $45 of variable cost per unit. How many units must it sell to earn $90,000 of operating income?
A. 12,000 units
B. 13,500 units
C. 15,000 units
D. 18,000 units
Show answer and reasoning
Correct answer: C. 15,000 units
Required units equal (fixed costs + target operating income) ÷ contribution margin per unit: ($360,000 + $90,000) ÷ ($75 − $45) = 15,000 units.
- A: 12,000 units cover fixed costs but provide no target profit.
- B: 13,500 units generate $405,000 of contribution margin, only $45,000 above fixed costs.
- D: 18,000 units generate $180,000 of operating income, twice the stated target.
Source: BAR Area I.B.1, representative task: use cost-volume-profit analysis for decision-making -- https://assets.ctfassets.net/rb9cdnjh59cm/71s84dkfo3KEsoLlz4vv6G/f4314469ec5368b5b4dd0d0184f00a71/CPA_Exam_Blueprints_2026.pdf
