Preparing for the CPA FAR section requires strong problem-solving skills, especially with Task-Based Simulations (TBSs) that mirror real exam challenges. This Part 4 (Q31–40) set covers essential topics such as pensions, intercompany transactions, deferred taxes, nonprofit accounting, cash flow adjustments, leases, and segment reporting. Each simulation is presented with a clear requirement, correct answer, and explanation to help you build both conceptual understanding and exam confidence. Whether you’re sitting for the CPA exam in the United States, Canada, UK, or Australia, these practice TBSs are tailored to match exam standards and ensure you’re prepared for any scenario.
📘 CPA FAR Task-Based Simulations (TBS) – Part 4 (Q31–40)
Q31. Accounting for Pensions
Scenario:
XYZ Corp sponsors a defined benefit pension plan. At year-end:
- Projected Benefit Obligation (PBO) = $1,200,000
- Fair Value of Plan Assets = $1,000,000
- Prior Service Cost not yet amortized = $50,000
Requirement:
What amount of pension liability should XYZ report on its balance sheet?
Answer:
$200,000
Explanation:
Pension liability = PBO – Plan Assets = $1,200,000 – $1,000,000 = $200,000. Prior service cost is included in OCI and amortized, not added directly to the liability.
Q32. Consolidation – Intercompany Sale of Equipment
Scenario:
Parent Co sold equipment to Subsidiary for $50,000 (original cost $80,000, accumulated depreciation $40,000). Straight-line depreciation, 5 years remaining.
Requirement:
What elimination entry is required at year-end?
Answer:
- Eliminate intercompany gain of $10,000
- Adjust accumulated depreciation
Explanation:
Carrying value = $80,000 – $40,000 = $40,000. Sale at $50,000 created $10,000 unrealized gain. On consolidation, remove the gain and adjust depreciation to correct to original basis.
Q33. Deferred Tax Asset/Liability
Scenario:
A company has taxable temporary differences of $100,000. Tax rate = 25%.
Requirement:
What deferred tax liability should be reported?
Answer:
$25,000
Explanation:
Deferred Tax Liability = Temporary Difference × Tax Rate = $100,000 × 25% = $25,000.
Q34. Governmental Accounting – Modified Accrual
Scenario:
A city records property taxes levied = $500,000. At year-end, $40,000 remains uncollected and expected to be collected 90 days after year-end.
Requirement:
How much revenue should the city recognize?
Answer:
$500,000
Explanation:
Under modified accrual, revenues are recognized if measurable and available (within 60–90 days). Since $40,000 will be collected within 90 days, full $500,000 is revenue.
Q35. Revenue Recognition – Performance Obligation
Scenario:
A company signs a contract to deliver software and provide one year of technical support for $120,000. Standalone prices: software $100,000, support $20,000.
Requirement:
How much revenue should be allocated to software at contract inception?
Answer:
$100,000
Explanation:
Transaction price allocated based on standalone prices:
Software = ($100,000 / $120,000) × $120,000 = $100,000. Support = $20,000.
Q36. Lease Classification
Scenario:
A lease has the following terms:
- Non-cancelable period: 5 years
- Economic life of asset: 6 years
- Present value of lease payments = 95% of asset fair value
Requirement:
How should the lessee classify the lease?
Answer:
Finance lease
Explanation:
Meets criteria: lease term ≥ major part of asset life (5/6 = 83%) and PV ≥ substantially all fair value (95%). Therefore, finance lease.
Q37. Nonprofit Accounting – Contributions
Scenario:
A donor pledges $50,000 to a nonprofit, conditional on raising $50,000 from others. At year-end, only $30,000 was raised.
Requirement:
How should the nonprofit account for the pledge?
Answer:
Do not recognize revenue; disclose as conditional contribution.
Explanation:
Conditional contributions are not recognized until conditions are substantially met. Only when $50,000 matching funds are raised can revenue be recorded.
Q38. Statement of Cash Flows – Indirect Method
Scenario:
Net Income = $300,000.
Depreciation = $50,000.
Increase in AR = $20,000.
Decrease in AP = $15,000.
Requirement:
Calculate cash flow from operating activities.
Answer:
$315,000
Explanation:
CFO = NI + Depreciation – Increase AR – Decrease AP
= 300,000 + 50,000 – 20,000 – 15,000 = $315,000.
Q39. EPS (Earnings Per Share)
Scenario:
Net Income = $200,000.
Preferred dividends = $20,000.
Weighted-average common shares = 50,000.
Requirement:
What is Basic EPS?
Answer:
$3.60
Explanation:
EPS = (NI – Preferred Dividends) ÷ Common Shares
= (200,000 – 20,000) ÷ 50,000 = $3.60.
Q40. Segment Reporting
Scenario:
A company has 10 segments. One segment has revenues of $12 million, total company revenue = $100 million.
Requirement:
Is this segment reportable?
Answer:
Yes
Explanation:
Reportable if revenue ≥ 10% of total revenues. Here, $12m ÷ $100m = 12% → reportable.
You’ve just completed CPA FAR TBS Part 4 (Q31–40), tackling complex areas such as pensions, consolidations, deferred taxes, leases, and nonprofit reporting. These detailed simulations are designed to give you the clarity and problem-solving practice required on exam day. Continue practicing with our other CPA FAR TBS sets (Parts 1–3) and stay tuned for the Master CPA FAR TBS Collection, which brings together all 40 questions for full-scale revision. Consistent practice with real-world styled problems will keep you ahead of the curve.
Previous Parts: Part 1, Part 2, and Part 3
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