CPA Exam - FAR REVIEW: ACTUAL
QUESTIONS AND LATEST UPDATE 2026/
2027( GRADED A+)
Organization Costs: - CORRECT ANSWES -- - Initial Accounting Services
- Initial Legal Services
- State Incorporation Fees
- Expenses of Temporary Directors
- Organizational Meetings
Deferred Charges - CORRECT ANSWES -- Actually long-term prepaid expenses.
Deferred charges typically are presented on the BS in conjunction with intangible
assets.
Cash - CORRECT ANSWES -- Money that is FREE and CLEAR and available to be
spend in current operations.
Not Cash: - CORRECT ANSWES -- Security deposits & bond sinking funds
Three-Month Rule - CORRECT ANSWES -- Highly liquid securities with ORIGINAL
maturity dates of three months or less are treated as cash.
Bad Debts - Direct Write-Off Method - CORRECT ANSWES -- - No entry for bad
debts until customer actually defaults.
- At default, the cutomer's account is written off.
- Theoretically weak, matching issue
- Only allowed if bad debt expense is immaterial
Bad Debts - Allowance Method - CORRECT ANSWES -- Income Statement Approach
Balance Sheet Approach
Income Statement Approach - CORRECT ANSWES -- - Matching Concept
- Estimate of bad debt expense is based on the income statement
- Allowance account balance has no bearing on the amount of adjustment
Balance sheet reporting: - CORRECT ANSWES -- Accounts Receivable
Less: Allowance for bad debts
, = Net realizable value of A/R
Balance Sheet Approach - CORRECT ANSWES -- - Estimate of bad debt expense is
based on the balance sheet
- Period sales have no bearing on the amount of adjustment
Written-off account later collected - CORRECT ANSWES -- Reverse write-off entry.
Collect as usual.
Assigning Accounts Receivable - CORRECT ANSWES -- - Assignment of A/R
normally is done with recourse
- Assignment usually is done without notification to customers
Factoring Accounts Receivable - CORRECT ANSWES -- - With or without recourse.
Pledging A/R - CORRECT ANSWES -- - Use receivables as security for a loan
- Requires footnote disclosure
Noninterest-Bearing Notes - CORRECT ANSWES -- APB 21 requires interest to be
inputed
- When a note is made under customary trade terms and is due in less than one year,
there is no requirement to impute interest to that note.
Investments - CORRECT ANSWES -- - Held-to-Maturity
- Trading Securities
- Available-for-Sale Securities
Held-to-Maturity Securities - CORRECT ANSWES -- - Debt securities only
- Mgt has both intent and ability to hold the securities to maturity
- Classified on BS based on maturity date
- Carry on balance sheet at amortized cost
Trading Securities - CORRECT ANSWES -- - Equity or Debt securities held primarily
for sale in the near term
- Classified on BS as current
- Carried on BS at FMV
- Unreal holding gains/losses belong on the income statement
Available-for-sale Securities - CORRECT ANSWES -- - Debt or Equity securities not
classified as either HTM or Trading
- Debt is classified on BS by maturity date
QUESTIONS AND LATEST UPDATE 2026/
2027( GRADED A+)
Organization Costs: - CORRECT ANSWES -- - Initial Accounting Services
- Initial Legal Services
- State Incorporation Fees
- Expenses of Temporary Directors
- Organizational Meetings
Deferred Charges - CORRECT ANSWES -- Actually long-term prepaid expenses.
Deferred charges typically are presented on the BS in conjunction with intangible
assets.
Cash - CORRECT ANSWES -- Money that is FREE and CLEAR and available to be
spend in current operations.
Not Cash: - CORRECT ANSWES -- Security deposits & bond sinking funds
Three-Month Rule - CORRECT ANSWES -- Highly liquid securities with ORIGINAL
maturity dates of three months or less are treated as cash.
Bad Debts - Direct Write-Off Method - CORRECT ANSWES -- - No entry for bad
debts until customer actually defaults.
- At default, the cutomer's account is written off.
- Theoretically weak, matching issue
- Only allowed if bad debt expense is immaterial
Bad Debts - Allowance Method - CORRECT ANSWES -- Income Statement Approach
Balance Sheet Approach
Income Statement Approach - CORRECT ANSWES -- - Matching Concept
- Estimate of bad debt expense is based on the income statement
- Allowance account balance has no bearing on the amount of adjustment
Balance sheet reporting: - CORRECT ANSWES -- Accounts Receivable
Less: Allowance for bad debts
, = Net realizable value of A/R
Balance Sheet Approach - CORRECT ANSWES -- - Estimate of bad debt expense is
based on the balance sheet
- Period sales have no bearing on the amount of adjustment
Written-off account later collected - CORRECT ANSWES -- Reverse write-off entry.
Collect as usual.
Assigning Accounts Receivable - CORRECT ANSWES -- - Assignment of A/R
normally is done with recourse
- Assignment usually is done without notification to customers
Factoring Accounts Receivable - CORRECT ANSWES -- - With or without recourse.
Pledging A/R - CORRECT ANSWES -- - Use receivables as security for a loan
- Requires footnote disclosure
Noninterest-Bearing Notes - CORRECT ANSWES -- APB 21 requires interest to be
inputed
- When a note is made under customary trade terms and is due in less than one year,
there is no requirement to impute interest to that note.
Investments - CORRECT ANSWES -- - Held-to-Maturity
- Trading Securities
- Available-for-Sale Securities
Held-to-Maturity Securities - CORRECT ANSWES -- - Debt securities only
- Mgt has both intent and ability to hold the securities to maturity
- Classified on BS based on maturity date
- Carry on balance sheet at amortized cost
Trading Securities - CORRECT ANSWES -- - Equity or Debt securities held primarily
for sale in the near term
- Classified on BS as current
- Carried on BS at FMV
- Unreal holding gains/losses belong on the income statement
Available-for-sale Securities - CORRECT ANSWES -- - Debt or Equity securities not
classified as either HTM or Trading
- Debt is classified on BS by maturity date
