CFA Level 1 Practice Test 2026

About the CFA Level 1 exam

The CFA Institute - Chartered Financial Analyst Level 1 (CFA Level 1) is a banking & finance examination administered in International 🌍. It is designed to assess candidates' knowledge and proficiency across 8 key subject areas including Ethics & Standards, Quantitative Methods, Economics, Financial Reporting. This exam is widely recognized as an essential benchmark for finance professionals.

Use short CFA Level 1 practice sets to identify topics to revisit. Choose a subject and difficulty, answer questions, then review the explanations. New accounts get 30 question credits; further new questions use paid credits. Retaking previously seen questions is free.

Whether you're a first-time candidate or retaking the CFA Level 1 to improve your score, InfinityMock helps you identify your strengths and weaknesses through detailed performance analytics. Our platform covers Ethics & Standards, Quantitative Methods, Economics, Financial Reporting, Corporate Finance, Equity Investments, Fixed Income, Portfolio Management, with questions available at Easy, Medium, and Hard difficulty levels. Track your progress, review detailed explanations, and build the confidence you need to pass on exam day.

CFA Level 1 — quick answers

CFA Level 1 at a glance

8 free CFA Level 1 practice questions (2026)

Answer these first — no signup, no card. Every answer is explained. For more practice, sign up for 30 free question credits and choose a subject above.

1. Under the joint IFRS 15 and ASC 606 framework for revenue recognition, when a contract contains multiple performance obligations, the transaction price is allocated to each performance obligation based on:

   • the relative standalone selling prices of each distinct good or service.
   • the estimated cost plus a standard industry profit margin for each obligation.
   • the historical transaction price of similar contracts.
   • the fair value of the assets transferred at the end of the contract term.
   Show answer & explanation

   Answer: A. the relative standalone selling prices of each distinct good or service.

   Under the IFRS 15 / ASC 606 five-step model, Step 4 requires allocating the transaction price based on the relative standalone selling prices of the distinct goods or services at contract inception.

   Topic: Financial Reporting · medium

2. Under US GAAP, interest paid and dividends received are classified respectively as:

   • Operating cash flow and Operating cash flow.
   • Operating cash flow and Investing cash flow.
   • Financing cash flow and Investing cash flow.
   • Financing cash flow and Operating cash flow.
   Show answer & explanation

   Answer: A. Operating cash flow and Operating cash flow.

   Under US GAAP, interest paid and dividends received are both classified as operating cash flows. In contrast, IFRS allows more flexibility, where interest paid can be classified as operating or financing, and dividends received can be operating or investing.

   Topic: Financial Reporting · easy

3. An analyst is converting the financial statements of a firm using LIFO inventory valuation to FIFO. The firm has a LIFO reserve of $45,000 and faces a marginal tax rate of 30%. To adjust the balance sheet to reflect FIFO, the analyst should:

   • increase inventory by $45,000, decrease cash by $13,500, and increase retained earnings by $31,500.
   • increase inventory by $45,000, increase deferred tax liability by $13,500, and increase retained earnings by $31,500.
   • increase inventory by $45,000, increase deferred tax asset by $13,500, and increase retained earnings by $31,500.
   • decrease inventory by $45,000, decrease deferred tax liability by $13,500, and decrease retained earnings by $31,500.
   Show answer & explanation

   Answer: B. increase inventory by $45,000, increase deferred tax liability by $13,500, and increase retained earnings by $31,500.

   To convert from LIFO to FIFO, inventory must be increased by the LIFO reserve ($45,000). To balance this, the deferred tax liability increases by LIFO reserve * tax rate ($45,000 * 30% = $13,500) and retained earnings increase by LIFO reserve * (1 - tax rate) ($45,000 * 70% = $31,500).

   Topic: Financial Reporting · hard

4. Compared to expensing, capitalizing an expenditure in the current period will most likely result in:

   • higher cash flow from operations (CFO) and lower leverage in the initial year.
   • lower cash flow from operations (CFO) and higher leverage in the initial year.
   • higher cash flow from investing (CFI) and higher profitability in the initial year.
   • lower cash flow from investing (CFI) and higher asset turnover in the initial year.
   Show answer & explanation

   Answer: A. higher cash flow from operations (CFO) and lower leverage in the initial year.

   Capitalizing an expenditure classifies the cash outflow as cash flow from investing (CFI) instead of operating (CFO), yielding a higher CFO. Since the cost is depreciated over time rather than expensed immediately, initial earnings and equity are higher, which lowers leverage ratios such as debt-to-equity.

   Topic: Financial Reporting · medium

5. Under US GAAP, establishing or increasing a valuation allowance for a deferred tax asset (DTA) will:

   • increase net income and increase the carrying value of the DTA.
   • decrease net income and decrease the carrying value of the DTA.
   • have no effect on net income but decrease the carrying value of the DTA.
   • decrease net income and have no effect on the carrying value of the DTA.
   Show answer & explanation

   Answer: B. decrease net income and decrease the carrying value of the DTA.

   A valuation allowance reduces the carrying value of a DTA when it is more likely than not that some or all of the asset will not be realized. An increase in the allowance increases the deferred income tax expense on the income statement, thereby decreasing net income.

   Topic: Financial Reporting · medium

6. Under the current lease accounting standards, which of the following statements best describes a key difference in lessee accounting between IFRS 16 and US GAAP (ASC 842)?

   • IFRS 16 requires all leases to be classified as finance leases, whereas US GAAP permits a dual-model classification of operating and finance leases.
   • US GAAP requires all leases to be recognized on the balance sheet, while IFRS 16 allows operating leases to remain off-balance sheet.
   • IFRS 16 allows a low-value asset exemption for lessees, whereas US GAAP does not have an explicit low-value asset exemption.
   • US GAAP requires amortization of the right-of-use asset to be straight-line for all leases, whereas IFRS 16 always uses the effective interest method.
   Show answer & explanation

   Answer: C. IFRS 16 allows a low-value asset exemption for lessees, whereas US GAAP does not have an explicit low-value asset exemption.

   Under IFRS 16, lessees can elect to exempt leases of low-value assets (such as computers or small office furniture) from balance-sheet recognition. US GAAP does not have an explicit low-value asset exemption, though both standards allow an exemption for short-term leases (12 months or less).

   Topic: Financial Reporting · hard

7. An analyst decomposes Return on Equity (ROE) using the 5-way DuPont analysis. If a company increases its operating profit margin (EBIT / Revenue) while its tax rate, interest burden, asset turnover, and leverage ratio remain constant, which of the following will most likely occur?

   • ROE will increase.
   • ROE will remain unchanged because operating profit is not part of DuPont components.
   • ROA will decrease while ROE increases.
   • The interest burden ratio (EBT / EBIT) will increase.
   Show answer & explanation

   Answer: A. ROE will increase.

   Under the 5-way DuPont decomposition: ROE = (Tax Burden) * (Interest Burden) * (Operating Profit Margin) * (Asset Turnover) * (Leverage Ratio). If the operating profit margin increases and all other factors are held constant, ROE must increase.

   Topic: Financial Reporting · medium

8. Which of the following measures is most appropriate to detect aggressive revenue recognition practices or potential earnings manipulation related to credit sales?

   • Days Sales Outstanding (DSO) and the ratio of balance sheet accruals to average active assets.
   • Asset turnover and the debt-to-equity ratio.
   • The current ratio and working capital productivity.
   • Days Inventory Outstanding (DIO) and the cash conversion cycle.
   Show answer & explanation

   Answer: A. Days Sales Outstanding (DSO) and the ratio of balance sheet accruals to average active assets.

   A rapid increase in Days Sales Outstanding (DSO) relative to industry peers can indicate aggressive credit terms or premature revenue recognition (e.g., channel stuffing). High or increasing balance sheet accruals are also a primary indicator of aggressive earnings manipulation.

   Topic: Financial Reporting · hard

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CFA Level 1 Exam Subjects

Available practice subjects: Ethics & Standards, Quantitative Methods, Economics, Financial Reporting, Corporate Finance, Equity Investments, Fixed Income, Portfolio Management. Select a subject for focused preparation. Coverage is not a guarantee of the complete official syllabus.

📖 CFA Level 1 Study Guide

Read our comprehensive How to Pass the CFA Level 1 in 2026 — Complete Study Guide for expert preparation tips, study plans, and strategies.

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