Blog

What are the most tested FAR Topics?

i-75 students often ask me what are the most tested topics for each exam? For FAR, the most heavily tested areas are Business Combinations, Leases, Bonds, Stockholders Equity, and a mix of Government and Not For Profit. Lets start with business combinations. Calculating goodwill and non-controlling interest are always on the CPA FAR Exam. Look for a question where the AICPA asks the FAR Candidate to prepare journal entries to record the “eliminations”. The work-paper eliminations are a big part of the business combination accounting therefore expect a question where you have to eliminate subsidiary equity, the parent investment, and set up goodwill and non-controlling interest. Staying with business combinations, the other question that could be asked is with regard to inter-company transactions, especially inventory. The parent will usually sell inventory the subsidiary at a profit and that profit will need to be eliminated against consolidated cost of goods sold or consolidated inventory. This is considered one of the most difficult questions on the entire CPA FAR exam. The video below explains it in dream detail.

Leases are also heavily tested but i would expect the questions on leases to be lightweight compared to business combinations. This is because lease rules have recently changed and when that happens, the CPA Exam will test the new rules but not with much depth. For example, even operating leases now require the lessee to record the right of use asset and lease liability on the lessee balance sheet, unless the lease is for less than 12 months. Bonds are another heavily tested topic on the financial accounting and reporting exam and the AICPA blueprint indicates that a FAR candidate must know the effective interest method of amortizing a bond discount or premium. Bonds are often issued between interest dates and when they are, accrued interest must be calculated. Also, whenever there is no interest payment on December 31, accrued interest needs to be recorded as an adjusting entry. Also, entries to pay off the bonds before maturity are sometimes tested. Bond issuance costs is another twist when it comes to bonds. Stockholders’ Equity is often forgotten about by candidates going into the exam because other topics seem more difficult yet questions about common stock, preferred stock, treasury stock, cash dividends, stock dividends, are often tested especially the debits and credits. Bonds and stockholders’ equity are good simulation topics. Governmental Accounting is consistently tested since the journal entries are unique, especially for the modified accrual funds. The government wide financial statements and the reconciliation are considered more challenging and likely tested in multiple choice. Not for profit accounting is back to full accrual but most candidates get confused with the net asset concepts and when revenue should be recognized.

Leave a Reply

%d bloggers like this: