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CPA FAR — Liabilities, Leases, Equity & Governmental flashcards

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Bonds, contingencies, ASC 842 leases, income taxes, pensions, equity and EPS, investments, consolidations, foreign currency, and governmental and not-for-profit reporting for the CPA Exam. Since 2024, lessor accounting, consolidations and much governmental accounting are tested in BAR.

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Learn deck · part of CPA Exam (core) · written against: AICPA CPA Exam Blueprints under CPA Evolution (2024 core: FAR, AUD, REG); no year-indexed tax figures. Updated 2026-10-10.

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  1. What are the five governmental fund types, and which basis of accounting do they use?
    General, special revenue, debt service, capital projects and permanent funds. They use the modified accrual basis with the current financial resources measurement focus.
    Governmental
  2. Into which two classes does a not-for-profit organization divide its net assets?
    Net assets without donor restrictions and net assets with donor restrictions.
    Not-for-Profit
  3. How are held-to-maturity, trading, and available-for-sale debt securities measured, and where do unrealized gains go?
    HTM: amortized cost, no unrealized gains recognized. Trading: fair value, gains in net income. AFS: fair value, unrealized gains in OCI.
    Investments
  4. Under ASC 842, which five criteria make a lessee's lease a finance lease if any one is met?
    Ownership transfers; a purchase option the lessee is reasonably certain to exercise; the term is a major part of economic life; the PV of payments is substantially all of fair value; or the asset is so specialized it has no alternative use to the lessor.

    Mnemonic: OWNES
    Leases
  5. What are the components of net periodic pension cost for a defined benefit plan?
    Service cost, interest cost, expected return on plan assets (a reduction), amortization of prior service cost, and amortization of net gain or loss.
    Pensions
  6. Under the cost method, how is a purchase of treasury stock recorded and presented?
    It is debited to treasury stock at cost and shown as a reduction of total equity; no gain or loss is ever recognized on treasury stock.
    Stockholders' Equity
  7. How is basic EPS computed when a company has cumulative preferred stock?
    Net income minus the current-year cumulative preferred dividend (whether declared or not), divided by the weighted-average common shares outstanding.

    Watch out: noncumulative preferred dividends are deducted only if declared.
    EPS
  8. What is the difference between a temporary and a permanent book-tax difference?
    A temporary difference reverses in future years and creates deferred taxes; a permanent difference never reverses and creates no deferred tax.

    Example: municipal bond interest and fines are permanent differences.
    Income Taxes
  9. When must a parent consolidate another entity under US GAAP?
    When it has a controlling financial interest — usually more than 50% of the voting interest, or as the primary beneficiary of a variable interest entity.
    Consolidations
  10. A US company sells goods on credit to a German customer, billed in euros. How is the receivable handled before collection?
    It is a foreign currency transaction: the receivable is remeasured at the current rate at each balance sheet date, and the transaction gain or loss goes to net income.
    Foreign Currency

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About these cards

Review status: Second-reader reviewed, with corrections applied.

Checked against:

  • Checked against the AICPA CPA Exam FAR blueprint (topic list only; no text copied).
  • Checked against the FASB ASC topic structure (Topics 260, 320, 321, 323, 450, 470, 505, 715, 740, 805, 810, 830, 842, 958) and GASB Statement 34 and 84 concepts; reference only, no standards text copied.

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