Free CPA FAR Exam Flashcards

Balance sheet, income statement, statement of comprehensive income, statement of cash flows, and statement of changes in equity. Comprehensive income can be shown as one continuous statement or as two separate but consecutive statements.

Reported separately as discontinued operations, net of tax, below income from continuing operations (ASC 205-20). A minor product-line disposal without a major strategic shift stays in continuing operations instead.

Interest paid is operating under US GAAP (unlike IFRS, which allows financing); dividends paid is financing; purchase of equipment is investing. Interest received and dividends received are also operating under GAAP.

Restate the prior period(s) affected and adjust beginning retained earnings of the earliest period presented; disclose the nature of the error and its effect (ASC 250). This differs from a change in accounting estimate, which is handled prospectively.

A Type I event provides evidence about conditions that existed at the balance sheet date, so the financials are adjusted. A Type II event arises from conditions after the balance sheet date and is disclosed only, never recorded.

Governmental funds use current financial resources measurement focus with modified accrual accounting. Government-wide statements use economic resources measurement focus with full accrual accounting (GASB 34).

Nonspendable, Restricted, Committed, Assigned, Unassigned. Nonspendable can't be spent (e.g., inventory); restricted is externally imposed; committed is self-imposed by the government's highest authority; assigned reflects intended use; unassigned is the residual.

The General Fund. Other governmental funds can report a negative unassigned balance (a deficit) but never a positive one — any positive residual in another fund is classified as assigned or restricted instead.

A budgetary commitment recording a purchase order or contract before the related expenditure is actually incurred. It reserves (commits or assigns) fund balance but is not itself a GAAP expenditure or liability.

It required accrual-based, entity-wide government-wide financial statements in addition to the traditional fund-based statements, plus Management's Discussion & Analysis (MD&A) as required supplementary information.

Two: net assets with donor restrictions and net assets without donor restrictions. ASU 2016-14 eliminated the older three-tier unrestricted / temporarily restricted / permanently restricted model.

Not until the condition is substantially met. A conditional promise to give is not recognized as revenue until the barrier is overcome, unlike an unconditional promise, which is recognized immediately.

Functional (program services vs. management & general vs. fundraising) and natural (salaries, rent, supplies, depreciation). ASC 958 requires an analysis showing both, typically in a statement of functional expenses.

As a donor-restricted endowment within net assets with donor restrictions. The corpus stays restricted indefinitely, while spendable earnings may be restricted or unrestricted depending on the donor's stipulation.

Form 10-K is the annual report filed with the SEC and includes audited financial statements. Form 10-Q is the quarterly report filed for each of the first three fiscal quarters and includes unaudited, reviewed financials.

It's estimated and allocated proportionately across the interim periods it benefits rather than expensed entirely in the quarter incurred, because interim periods are treated as integral parts of the full annual period.

It identifies reportable operating segments under ASC 280 — a segment is separately reportable if its revenue, profit or loss, or assets equal at least 10% of the combined totals for all operating segments.

FIFO: ending inventory approximates current replacement cost (higher), and lower COGS yields higher net income. LIFO: ending inventory reflects older, lower costs, and higher COGS yields lower net income and lower income taxes.

Lower of Cost or Market (LCM) — market is replacement cost, bounded by a ceiling (net realizable value) and a floor (NRV minus normal profit margin). Companies using FIFO or weighted-average instead apply the simpler LCNRV test.

If LIFO is used for federal income tax reporting, it must also be used for external financial (book) reporting — a company cannot report FIFO on its books while claiming LIFO tax benefits.

Straight-line spreads cost evenly by time. Double-declining-balance is accelerated, applying a constant rate to declining book value and ignoring salvage value until the final year. Units-of-production expenses cost based on actual usage or output, not time.

First test recoverability: if carrying value exceeds undiscounted future cash flows, the asset is impaired. Then measure the loss as carrying value minus fair value and write the asset down — the write-down cannot be reversed later under US GAAP.

Depreciation stops immediately, and the asset is measured at the lower of carrying value or fair value less costs to sell, reported separately from other assets on the balance sheet.

Goodwill is never amortized — it's tested at least annually for impairment (an optional qualitative screen, then a quantitative fair-value-vs-carrying-value test). A finite-life intangible is amortized over its useful life and tested for impairment only when indicators exist.

Research costs are expensed as incurred. Development costs are also generally expensed as incurred under US GAAP — unlike IFRS, which capitalizes development costs meeting specific criteria — except for narrow exceptions like certain internal-use software costs.

The stated (coupon) rate exceeds the market rate, so investors pay more than face value. The premium is amortized using the effective interest method, which reduces interest expense below the cash interest paid each period.

As a direct reduction of (contra to) the related debt liability, not as a separate asset. They're amortized to interest expense over the life of the debt using the effective interest method, the same as a bond discount.

It eliminates the separate bifurcation previously required for cash conversion and beneficial conversion features on most convertible instruments. Convertible debt is now recorded as a single liability at its full face amount, with no separate equity component.

Immediately at origination or purchase — CECL requires estimating lifetime expected credit losses upfront, replacing the older incurred-loss model that waited until a loss was probable.

AFS debt securities: unrealized gains/losses go through Other Comprehensive Income (OCI), not net income. Trading debt securities and most equity securities (post-ASU 2016-01) flow unrealized gains/losses through net income instead.

The equity method (ASC 323). Ownership between 20-50% is presumed to give significant influence (not control), so the investor recognizes its proportionate share of the investee's net income or loss, adjusting the investment's carrying value.

Treasury stock is a contra-equity account recorded at reacquisition cost — no gain or loss ever hits the income statement. On reissuance, any difference from cost adjusts additional paid-in capital (or retained earnings if APIC is insufficient).

Basic EPS = (Net income minus preferred dividends) divided by weighted-average common shares outstanding during the period. Preferred dividends are subtracted because that income isn't available to common shareholders.

The treasury stock method — assume the options are exercised, then assume the hypothetical proceeds are used to repurchase shares at the average market price. Only the net incremental shares increase the diluted share count, and only if the effect is dilutive.

(1) Identify the contract with a customer, (2) identify the performance obligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations, (5) recognize revenue when or as each performance obligation is satisfied.

It depends on whether the company controls the good or service before transferring it to the customer. If it controls it, recognize revenue gross as principal; if it merely arranges for another party to provide it, recognize only the net fee as agent.

Over time applies if the customer simultaneously receives and consumes benefits as the entity performs, performance creates or enhances an asset the customer controls, or the asset has no alternative use and the entity has an enforceable right to payment for progress. Otherwise, revenue is recognized at the point in time control transfers.

Estimate it using either the expected value method (probability-weighted) or the most likely amount method, whichever better predicts the outcome, then constrain the estimate to the amount that's probable not to result in a significant revenue reversal later.

Yes. Unlike the old ASC 840 rules, both finance and operating leases require lessees to recognize a right-of-use (ROU) asset and lease liability. The difference is expense pattern: finance leases split interest and amortization; operating leases recognize one straight-line lease expense.

Ownership transfers by the end of the lease; a written bargain purchase option exists; the lease term is a major part (about 75%) of remaining economic life; the present value of payments is substantially all (about 90%) of fair value; or the asset is so specialized it has no alternative use to the lessor. Meeting any one triggers finance lease treatment.

The short-term lease exemption — leases with a term of 12 months or less, and no purchase option the lessee is reasonably certain to exercise, can be expensed straight-line without balance sheet recognition.

The acquisition method. Goodwill equals consideration transferred plus the fair value of any noncontrolling interest, minus the fair value of identifiable net assets acquired. If the result is negative, it's a bargain purchase and the gain is recognized immediately in income.

The voting model consolidates based on owning more than 50% of voting rights. The VIE model applies when voting rights don't align with economics — consolidation goes to whichever party has the power to direct the VIE's significant activities and absorbs its losses or benefits (the primary beneficiary), regardless of ownership percentage.

NCI is measured at fair value at the acquisition date (the full-goodwill method) and presented as a separate component within total equity on the consolidated balance sheet, never as a liability or mezzanine item.

A temporary difference reverses in a future period and creates a deferred tax asset or liability, such as depreciation timing. A permanent difference never reverses and affects only the effective tax rate, not deferred taxes, such as tax-exempt municipal bond interest.

A deferred tax asset (DTA). The company will get a tax deduction later that it already recognized for book purposes, meaning it will pay less tax in the future relative to book income — common examples are warranty expense accruals and NOL carryforwards.

When it is more likely than not (over 50% probability) that some or all of the DTA will not be realized. The valuation allowance reduces the DTA's carrying amount to the amount expected to actually be realized.

Only the service cost component is included within operating income (typically in compensation expense). All other components — interest cost, expected return on plan assets, amortization of gains/losses — are reported outside operating income, often in other income/expense.

Funded status equals the fair value of plan assets minus the projected benefit obligation (PBO). It's reported on the balance sheet as a net pension asset if overfunded, or a net pension liability if underfunded.

Compensation expense is measured once at the grant date using an option-pricing model (such as Black-Scholes) and recognized over the requisite service (vesting) period — it is not remeasured for later changes in the stock price.