Preparing for the CPA FAR exam means mastering not just multiple-choice questions but also Task-Based Simulations (TBSs). These simulations test your ability to apply accounting concepts in real-world scenarios, making them one of the most challenging parts of the exam. In this post, we bring you CPA FAR TBS Part 2 (Questions 11–20) with complete answers and explanations. Covering key topics such as lease accounting, deferred taxes, revenue recognition, pensions, government funds, and consolidation, this set is designed to boost both your exam readiness and practical understanding.
📘 CPA FAR Task-Based Simulations (TBS) – Part 2 (Q11–20 with Answers)
Question 11 – Lease Accounting (ASC 842)
A company leases equipment for 5 years with annual payments of $50,000. Present value of lease payments = $220,000, fair value of equipment = $250,000. How should the lease be classified?
Answer: Finance lease.
Explanation: Under ASC 842, a lease is a finance lease if PV of lease payments ≥ 75% of fair value. Here, PV = 220,000 ÷ 250,000 = 88%. Since it exceeds 75%, it qualifies as a finance lease.
Question 12 – Inventory Valuation (LCM Rule)
Inventory cost = $120,000, Net Realizable Value (NRV) = $110,000, Replacement cost = $100,000. Reported value?
Answer: $110,000.
Explanation: Under US GAAP, inventory is valued at the lower of cost or NRV. Since NRV = $110,000 and cost = $120,000, company must write inventory down to $110,000. Replacement cost is ignored under GAAP (used in IFRS NRV vs RC approach).
Question 13 – Revenue Recognition (ASC 606)
A company signs a $600,000 3-year contract for software services. How much revenue is recognized in year 1 (straight-line)?
Answer: $200,000.
Explanation: ASC 606 requires revenue recognition over time if services are provided evenly. Total contract = $600,000 ÷ 3 years = $200,000 annually.
Question 14 – Deferred Tax Asset (DTA)
Tax depreciation exceeds book depreciation by $30,000. Tax rate = 25%. What is the deferred tax effect?
Answer: Deferred Tax Liability (DTL) = $7,500.
Explanation: Excess tax depreciation reduces taxable income now (temporary difference). This results in future higher taxable income, creating a deferred tax liability of $30,000 × 25% = $7,500.
Question 15 – Governmental Accounting
A city receives a $2M federal grant restricted to building a library. Where is it reported?
Answer: Special Revenue Fund.
Explanation: Governmental funds classify restricted revenues (e.g., grants for specific purposes) in special revenue funds. The money cannot be used for general operations.
Question 16 – Consolidated Financials
Parent acquires 80% of Sub for $800,000. Sub’s net assets FV = $900,000. What is the Non-Controlling Interest (NCI)?
Answer: $180,000.
Explanation: NCI is based on FV of Sub × ownership not acquired. Here, 20% × 900,000 = $180,000. Consolidated balance sheet must show this amount as NCI.
Question 17 – Statement of Cash Flows
Company issued bonds $500,000, purchased equipment $200,000, paid dividends $50,000. Net cash flow from financing?
Answer: $450,000 inflow.
Explanation: Financing activities include issuing bonds (+500,000) and paying dividends (–50,000). Equipment purchase is an investing activity. Net financing cash flow = +450,000.
Question 18 – Pension Expense
Service cost = $60,000, Interest cost = $15,000, Expected return on plan assets = $10,000. Pension expense?
Answer: $65,000.
Explanation: Pension expense = Service cost + Interest cost – Expected return = 60,000 + 15,000 – 10,000 = 65,000.
Question 19 – Nonprofit Accounting
Donor contributes $100,000 restricted for scholarships. How is it reported?
Answer: Net assets with donor restrictions.
Explanation: Nonprofit organizations must classify contributions as with donor restrictions if conditions exist. Funds restricted to scholarships cannot be used for general operations.
Question 20 – Foreign Currency Translation
A US parent has a UK subsidiary reporting in GBP. Translation adjustments go to?
Answer: Other Comprehensive Income (OCI).
Explanation: Under FASB ASC 830, translation adjustments from foreign subsidiaries are not in net income but reported in OCI, part of equity.
You’ve now completed CPA FAR TBS Part 2 (Q11–20) with clear explanations to strengthen your conceptual grip. Keep practicing with the full series of TBS sets to build confidence before exam day. Explore our other sections for CPA AUD, REG, ISC, TCP, and more. Stay consistent, and success in the CPA exam will follow. 🚀
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