I get a tad annoyed when people pass these riddles around yet refuse to discuss their logic. Everyone always seems to have different answers and the truth is never revealed. So... Here is my solution to this riddle. :-)
The Riddle reads as follows: "96% Failed this test. Can you answer it? How many squares are there? :-)"
The logic is simple. Start with the largest possible square. Count them. Then go one smaller. Count them. Go smaller. etc. etc. Be sure to remain aware of where the missing matches break the potential square.
That makes 1 square which is 5 blocks in height and width, 1 square of 3 blocks height and width, five squares of 2 blocks height and width, and 9 squares of 1 block height and width. Which gives us a total of 16 squares.
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