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This guide includes original FAR multiple-choice questions and task-based cases on inventory cutoff, receivables, depreciation, cash flows, accruals and statement preparation.
- Each solution shows the calculation or accounting logic and explains why alternatives do not fit.
- These are independent study questions, not official, recalled, or predictive CPA Exam items.
On this page6 sections
How to use these FAR questions
These original examples practise the kinds of reasoning FAR calls for: identify the reporting context, select the relevant facts, apply an accounting rule, compute an amount and produce the requested result. They are not copied from the AICPA, recalled from a live exam, or intended to predict your appointment. Read the explanation even when you chose the correct option. The purpose is to practise a method you can apply to a new set of facts.
For each MCQ, first identify the date and the requested output. Ask whether the prompt wants an ending balance, a current-period amount, an entry or a cash-flow classification. Then calculate on scratch work when helpful. For the simulations, read the requirements first and use only the exhibits needed for each response. If your answer differs, isolate whether the issue was recognition, measurement, timing, arithmetic or presentation.
Original multiple-choice questions
A company has 100 units in inventory at a unit cost of $12. At year end, the units have a net realizable value of $10 each, and the applicable inventory rule requires measurement at the lower of cost and net realizable value. What inventory amount should be reported?
- $1,000
- $1,100
- $1,200
- $2,200
A company estimates its year-end allowance for credit losses at $18,000. Before adjustment, the allowance account has a $3,000 credit balance. What adjustment is needed to bring the allowance to the estimate, assuming no other relevant facts?
- Debit bad debt expense $3,000; credit allowance $3,000
- Debit bad debt expense $15,000; credit allowance $15,000
- Debit allowance $18,000; credit accounts receivable $18,000
- Debit bad debt expense $21,000; credit allowance $21,000
Equipment costing $60,000 has a $6,000 residual value and a six-year useful life. It is placed in service on January 1, and straight-line depreciation is used. What is depreciation expense for the first full year?
- $9,000
- $10,000
- $11,000
- $54,000
Under the indirect method, accounts receivable increases by $8,000 during the year. Assuming the increase relates to operating revenue and no other fact changes the adjustment, how is it treated in reconciling net income to operating cash flow?
- Add $8,000 because receivables are a current asset
- Subtract $8,000 because revenue recognized exceeds cash collected for the increase
- Classify $8,000 as an investing cash outflow
- Make no adjustment because the revenue remains recognized
A company receives $24,000 on October 1 for services to be provided evenly over the following 12 months. The reporting date is December 31. Ignoring taxes and assuming the service obligation is satisfied evenly, how much revenue has been earned by year end?
- $0
- $6,000
- $18,000
- $24,000
A company pays $12,000 on July 1 for a 12-month insurance policy and initially debits Prepaid Insurance. The company closes its books on December 31. What adjusting entry reflects six months of expired coverage?
- Debit Insurance Expense $6,000; credit Prepaid Insurance $6,000
- Debit Insurance Expense $12,000; credit Cash $12,000
- Debit Prepaid Insurance $6,000; credit Insurance Expense $6,000
- Debit Insurance Expense $1,000; credit Prepaid Insurance $1,000
A company issues a $100,000 note at face value on January 1 with a 6% annual stated rate. Interest is paid at each year end. What interest expense and interest payable should be recorded at December 31, before payment?
- $0 expense and $0 payable
- $3,000 expense and $3,000 payable
- $6,000 expense and $6,000 payable
- $6,000 expense and $0 payable
A machine with a carrying amount of $18,000 is sold for $21,000 cash. The gain is $3,000. Under the indirect method, how should the gain be treated in reconciling net income to operating cash flow, and where are the $21,000 proceeds generally classified?
- Add the gain to operating cash flow; classify proceeds as operating
- Subtract the gain from net income in the operating reconciliation; classify proceeds as investing
- Subtract the proceeds from net income; classify the gain as financing
- Make no operating adjustment; classify proceeds as financing
Worked simulation 1: inventory cutoff and adjustment
A retailer uses a calendar year. The unadjusted December 31 trial balance includes Inventory of $240,000 and Accounts Payable of $0 for the following shipment. The shipment contains 100 units costing $20 each. The goods were shipped FOB shipping point on December 29, received January 3, and the invoice for $2,000 arrived January 5. The retailer's stated policy is to recognize goods in transit when title passes under the shipping terms. Prepare the December 31 adjustment and state the corrected inventory and accounts payable amounts attributable to this shipment.
| Requirement | Response |
|---|---|
| Does the shipment belong in year-end inventory? | Yes. Under the stated FOB shipping point terms and policy, title passed when the shipment was sent on December 29. |
| December 31 entry | Debit Inventory $2,000; credit Accounts Payable $2,000. |
| Corrected inventory attributable to shipment | $2,000 included in the year-end inventory balance. |
| Corrected payable attributable to shipment | $2,000 included in Accounts Payable at year end. |
Workings: 100 units × $20 per unit = $2,000. The January receipt and invoice dates do not override the explicit title-transfer fact in the prompt. The year-end adjustment recognizes the asset and obligation in the period in which the goods belong. If the question omitted or changed the shipping terms, do not assume the same result; use the facts that establish the transfer point.
Worked simulation 2: accrued payroll
A business pays employees every Friday for a five-day workweek. Each workday's total payroll is $4,000. December 31 falls on Wednesday. No payroll expense or liability has yet been recorded for that week. Prepare the year-end adjusting entry and calculate the effect on current-year pretax income.
| Requirement | Response |
|---|---|
| Days worked but unpaid at year end | 3 days: Monday, Tuesday and Wednesday |
| Accrued payroll | 3 × $4,000 = $12,000 |
| Adjusting entry | Debit Payroll Expense $12,000; credit Payroll Payable $12,000. |
| Pretax income effect | Decreases by $12,000. |
The business received employee services during the current year, so the related expense belongs in this period even though payment occurs later. The liability reflects the unpaid amount at December 31. Accruing the full five-day weekly payroll would include Thursday and Friday work that had not yet occurred at the reporting date. Accruing only one day would omit two completed workdays.
Worked simulation 3: statement of cash flows
A company reports net income of $90,000. During the year, depreciation expense is $12,000; Accounts Receivable increases by $7,000; Inventory decreases by $4,000; Accounts Payable increases by $3,000; and the company records a $2,000 gain on sale of equipment. Assume these are the only adjustments requested and that they are operating items under the indirect-method reconciliation, except the equipment-sale proceeds themselves, which are outside the information provided. Calculate net cash provided by operating activities from the listed information.
| Reconciliation item | Adjustment to net income |
|---|---|
| Net income | $90,000 |
| Add depreciation expense | +$12,000 |
| Subtract increase in Accounts Receivable | -$7,000 |
| Add decrease in Inventory | +$4,000 |
| Add increase in Accounts Payable | +$3,000 |
| Subtract gain on equipment sale | -$2,000 |
| Net cash provided by operating activities | $100,000 |
Workings: $90,000 + $12,000 - $7,000 + $4,000 + $3,000 - $2,000 = $100,000. Depreciation reduced accounting income without using operating cash, so it is added back. The receivable increase reflects revenue not yet collected and is subtracted. The inventory decrease releases cash relative to expense recognized, so it is added. The payable increase means some expenses remain unpaid and is added. The equipment gain is removed from operating income in the indirect reconciliation because the equipment disposal is an investing activity. The sale proceeds are not given, so they cannot be calculated here.
A routine for reviewing your answers
Classify each miss before returning to a chapter. A recognition mistake means you applied the wrong event or rule. A measurement mistake means you selected the right method but used the wrong base, period or estimate. A timing mistake means you recognized the amount in the wrong reporting period. A calculation mistake calls for checking the arithmetic and formula. A presentation mistake means you got the amount but placed it in the wrong account or statement category. Fixing the underlying error is more useful than repeating the same question until its answer is familiar.
For longer cases, write a compact adjustment schedule before entering responses. Include the fact, calculation, debit or credit direction when relevant, and the requested destination. Reconcile the final output to the prompt. When a problem gives extra information, decide whether it is relevant instead of forcing every exhibit into the answer. On timed practice, note how much time you spent locating facts versus applying the rule.
AICPA's sample test is useful for becoming familiar with the examination software and navigation. It is shorter than a full section, unscored and not a readiness measure. The original examples on this page are independent learning material. Use the official blueprint to see the scope and representative FAR tasks, then use appropriate study resources to practise the technical rules at the required depth.
When you practise a cash-flow question, distinguish income-statement gains from the cash proceeds that created them. When you practise an accrual, distinguish the period when the service or financing cost occurred from the date it is paid. For balance sheet calculations, state the starting balance, the adjustment and the resulting ending balance. These small habits make it easier to detect a result that is mathematically tidy but answers a different accounting question.
On a mixed set, do not assume that the first clue names the topic. A prompt mentioning cash may be asking for a bank reconciliation, a transaction classification or an indirect-method adjustment. Identify the required output before selecting a familiar formula. In simulations, do a final pass through each field and confirm it is populated in the requested units, period and sign convention.
The answers here explain only the facts stated in each practice problem. A changed shipping term, reporting framework, policy, date or assumption may change the accounting result. Always read the scenario's specific requirement before applying a memorized treatment.
Common questions
Are these official CPA FAR exam questions?
No. They are original study questions and simulations written for this guide. They are not official, recalled or predictive exam items.
Do these practice questions cover every FAR topic?
No. They illustrate several FAR task types and accounting topics. Use the current AICPA blueprint and a complete course of study for full coverage.
Why practise simulations as well as MCQs?
The FAR score assigns equal weight to MCQs and TBSs. Simulations also practise extracting facts from exhibits and completing multi-part accounting tasks.
What should I do when I get an answer wrong?
Identify whether the cause was recognition, measurement, timing, arithmetic or presentation. Review the relevant rule, then solve a fresh example without the prior solution visible.
Does the AICPA sample test predict my FAR score?
No. It familiarizes candidates with the software and is not a scored readiness assessment.