Welcome to CPA FAR Task-Based Simulations (TBS) Part 3 (Q21–30). In this section, you’ll practice exam-style simulations covering key Financial Accounting and Reporting (FAR) topics such as leases, deferred taxes, revenue recognition, pensions, consolidation, and governmental accounting.
📘 CPA FAR Task-Based Simulations (TBS) Part 3 (Q21–30)
Q21. Lease Classification (ASC 842)
Scenario: A company leases equipment with a fair value of $120,000. The lease term is 6 years; the equipment’s useful life is 7 years. The present value of lease payments is $110,000.
Requirement: Classify the lease for the lessee.
Answer: Finance Lease.
Explanation: Since the lease term (6 years) covers substantially all of the economic life (7 years), it is treated as a finance lease under ASC 842.
Q22. Deferred Tax Asset
Scenario: A company reports warranty expense of $20,000 for GAAP but can only deduct $5,000 for tax purposes. The tax rate is 25%.
Requirement: Record deferred tax asset (DTA).
Answer: $3,750 DTA.
Explanation: Temporary difference = $20,000 – $5,000 = $15,000. DTA = $15,000 × 25% = $3,750.
Q23. Revenue Recognition (ASC 606)
Scenario: A company signs a contract for $500,000 to deliver 5 machines. Two machines are delivered this year.
Requirement: Recognize revenue for current year.
Answer: $200,000.
Explanation: Performance obligation is per machine. 2 of 5 delivered → (2/5) × $500,000 = $200,000 revenue.
Q24. Pension Accounting
Scenario: Pension expense = $120,000; cash contributed = $100,000.
Requirement: Record the pension journal entry.
Answer:
- Dr. Pension Expense $120,000
- Cr. Cash $100,000
- Cr. Pension Liability $20,000
Explanation: Pension liability increases by difference between expense and contribution.
Q25. Government Accounting (Fund Type)
Scenario: A city issues bonds to finance construction of a new school.
Requirement: Which fund should account for this transaction?
Answer: Capital Projects Fund.
Explanation: Capital projects funds are used for acquisition/construction of major capital assets.
Q26. Consolidation – NCI
Scenario: Parent owns 80% of Subsidiary. Subsidiary net income = $50,000.
Requirement: Compute Noncontrolling Interest (NCI) share.
Answer: $10,000.
Explanation: NCI = 20% × $50,000 = $10,000.
Q27. Change in Accounting Principle
Scenario: A company switches from FIFO to LIFO.
Requirement: How should this be reported?
Answer: Retrospective application (adjust prior periods).
Explanation: ASC requires retrospective application for changes in accounting principles unless impracticable.
Q28. Governmental Fund – Encumbrance
Scenario: A city places an order for supplies worth $8,000.
Requirement: Record initial entry in General Fund.
Answer:
- Dr. Encumbrances $8,000
- Cr. Budgetary Fund Balance – Reserve for Encumbrances $8,000
Explanation: Encumbrances track commitments to spend resources.
Q29. Consolidation – Elimination Entry
Scenario: Parent sells goods to Subsidiary for $40,000 (cost $30,000). Half remains in ending inventory.
Requirement: Eliminate intercompany profit.
Answer: Eliminate $5,000 unrealized profit.
Explanation: Unrealized profit = (40,000 – 30,000) × 50% = $5,000.
Q30. Statement of Cash Flows
Scenario: A company pays interest of $15,000 and dividends of $10,000.
Requirement: Classify each under US GAAP.
Answer:
Interest Paid → Operating Activities
Dividends Paid → Financing Activities
Explanation: Under US GAAP, interest paid is always operating, dividends paid is financing.
You’ve completed CPA FAR TBS Part 3 (Q21–30). These exam-style simulations strengthen your ability to handle real CPA exam tasks by combining technical accuracy with detailed reasoning.
👉 Next, continue with CPA FAR TBS Part 4 (Q31–40) for more challenging simulations, or explore our complete CPA Exam Practice Hub for all sections (AUD, REG, FAR, BAR, ISC, TCP). Stay consistent, and you’ll be fully prepared for exam day!
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