Free CPP MCQ Questions and Answers — Questions and Answers
Question 1: An external auditor will accept all of the following procedures EXCEPT:
- Blank payroll checks are kept in storage at the payroll department. (Correct answer)
- The payroll checking account is being reconciled by the accounting department.
- Payroll check signatures are the responsibility of the Treasury Department.
- The payroll supervisor makes sure that timely deposits are made.
Correct answer: Blank payroll checks are kept in storage at the payroll department.
External auditors seek strong internal controls, particularly segregation of duties, to prevent fraud and errors. Keeping blank payroll checks in the payroll department creates a significant control weakness because the same department that calculates and processes payroll also has access to the means of payment. This lack of segregation of duties increases the risk of unauthorized payments or fraud, which an auditor would not accept.
Question 2: Which benefit, even if it is limited to highly paid employees, is tax-free for all employees?
- Transportation-related fringe benefits (Correct answer)
- Cafeteria plans
- 401(k) plans
- Sports facilities
Correct answer: Transportation-related fringe benefits
Qualified transportation-related fringe benefits, such as transit passes, qualified parking, and vanpooling, are generally excludable from an employee's gross income up to certain statutory limits. This tax-free status applies to all employees, regardless of their pay level, making it a universally tax-advantaged benefit.
Question 3: Which of the following records must be kept for three years as required by the FLSA?
- Notices of discipline for employees
- A record of the employee's responsibilities (Correct answer)
- Daily time records
- Evidence of coverage for workers' compensation
Correct answer: A record of the employee's responsibilities
The Fair Labor Standards Act (FLSA) mandates that certain records be kept for specific durations. A record of an employee's occupation, which includes their job duties and responsibilities, falls under the category of payroll records and must be retained for three years. Daily time records, on the other hand, are typically required to be kept for two years.
Question 4: Which of the following describes an independent contractor?
- A repairman who is occasionally called in to keep the dental office's PCs operating properly. (Correct answer)
- A commission-based salesperson who works from home.
- An employee who works in the mail room by day but comes in to clean the offices after hours.
- On a temporary basis, a retiree returned to work.
Correct answer: A repairman who is occasionally called in to keep the dental office's PCs operating properly.
An independent contractor is distinguished by the degree of control the hiring entity has over the worker. A repairman called in occasionally to fix PCs typically sets their own hours, uses their own methods and tools, and offers services to multiple clients, indicating a lack of employer control over the 'how' and 'when' of the work. This autonomy is a hallmark characteristic of an independent contractor, unlike the other options which describe various forms of employment.
Question 5: In 2025, employee Cindy's company paid her $620 for meal expenses that she could prove she had while relocating from her previous home to her new workplace. What portion of this cost, if any, is not included in Cindy's federally taxable income?
- $296
- $0
- $310 (Correct answer)
- $620
Correct answer: $310
While most relocation expenses for non-military employees are taxable from 2018-2025, meal expenses often have a specific treatment. If the $620 for meals is considered a business-related meal expense incurred during the relocation process, only 50% of these expenses are typically considered non-taxable. Therefore, $620 multiplied by 0.50 equals $310, which would be the portion not included in Cindy's federally taxable income.
Question 6: Due to office remodeling, a salaried-exempt executive employee is not allowed to work two days throughout the workweek. The $500 weekly income of the employee is guaranteed. What is the minimum payment required under FLSA for this employee's work week?
- $500 (Correct answer)
- $100
- $250
- $350
Correct answer: $500
Under the Fair Labor Standards Act (FLSA), an exempt salaried employee must receive their full predetermined salary for any week in which they perform any work, regardless of the number of days or hours worked. Since the employee was not allowed to work two days due to office remodeling (an employer-imposed reason), their guaranteed weekly income of $500 must still be paid in full to maintain their exempt status.
Question 7: Which of the following employees is eligible to receive compensatory time off in place of overtime pay under the Fair Labor Standards Act?
- Students in high school who work more than eight hours a day
- Salespeople who work from home
- Municipal firefighters (Correct answer)
- Retirees who come back to work part-time
Correct answer: Municipal firefighters
Under the Fair Labor Standards Act (FLSA), compensatory time off in lieu of overtime pay is generally permitted only for employees of state and local government agencies. Private sector employers are typically required to pay cash overtime for hours worked over 40 in a workweek. Therefore, municipal firefighters, as public sector employees, are eligible for comp time, unlike the other options which represent private sector or general employee categories.
Question 8: For its factory workers, Time Express Corp.. offers a short-term disability plan through a third-party insurance provider. This benefit is not paid for by the employees. For the first four months of the six-month coverage term, Pamela was paid $400 per month. Pamela's disability benefits were taxed in what way by the third-party payer?
- The employer deducted Social Security and Medicare taxes from the amount of the premium.
- For each of the four months, Social Security and Medicare taxes were deducted from $400. (Correct answer)
- A tax was never deducted from any payments.
- For each of the four months, $400 in federal income tax was withheld.
Correct answer: For each of the four months, Social Security and Medicare taxes were deducted from $400.
When an employer fully pays for a short-term disability plan and benefits are paid by a third-party insurer, these benefits are generally considered taxable income to the employee. For the first six calendar months that an employee receives short-term disability payments, Social Security and Medicare taxes (FICA) must be withheld from these amounts. Therefore, for each of the four months Pamela received benefits, FICA taxes were deducted from the $400 payment.
Question 9: Which document shows how much a corporation's assets are worth?
- Income statement
- Variance analysis
- Profit/loss statement
- Balance sheet (Correct answer)
Correct answer: Balance sheet
The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It details the company's assets (what it owns), liabilities (what it owes), and owner's equity (the residual value after liabilities are subtracted from assets), thereby showing the worth of a corporation's assets.
Question 10: An environment that combines customer service and back-office transaction-intensive processes is referred to as:
- Open systems
- Shared services (Correct answer)
- Outsourcing
- Pre-processing
Correct answer: Shared services
Shared services consolidate support functions, such as payroll, HR, or IT, from multiple business units into a single, centralized entity. This model is designed to improve efficiency and reduce costs by combining customer service interactions (e.g., employee inquiries) with high-volume, transaction-intensive back-office processes (e.g., payroll processing, benefits administration). It creates a unified environment for these operations across the organization.
Question 11: Change control in payroll system maintenance pertains to:
- Methods for testing and scheduling modifications before their implementation in production (Correct answer)
- Adding additional information to an employee's record
- Establishing a new system through an acquisition or merger
- Division of duties in compliance with accounting standards
Correct answer: Methods for testing and scheduling modifications before their implementation in production
Change control in payroll system maintenance refers to the structured process of managing and documenting all modifications to the payroll system. Its primary purpose is to ensure that any changes, whether updates, bug fixes, or new features, are thoroughly tested and approved before being implemented in the live production environment. This systematic approach minimizes errors, maintains data integrity, and prevents disruptions to critical payroll operations.
Free CPP MCQ Questions and Answers
An external auditor will accept all of the following procedures EXCEPT: