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FAR study guide

FAR CPA Exam Study Guide for 2026.

FAR is usually the broadest content build. A good FAR plan balances rules, journal-entry logic, financial statement presentation, and cumulative review.

Practice FARFAR question page

By World of Accountants editorial team. Last reviewed August 23, 2026. World of Accountants is independent and not affiliated with the AICPA, NASBA, Becker, NINJA, UWorld, Gleim, or other CPA review providers.

FAR sample question

See the kind of FAR judgment this guide prepares you to answer.

Use the example to test your starting point, then move into a focused FAR set while the idea is fresh.

FAR-000001FAR-IRevenue recognition

During the year-end close for a manufacturer, an entity receives an advance payment for goods it has not yet shipped. What should be recorded initially?

  1. A.A contract liability should be recorded until the promised goods are transferred.
  2. B.Revenue should be recognized immediately for the full cash receipt
  3. C.A receivable should be recorded even though cash was received
  4. D.No liability should be recorded until shipment because the performance obligation has not yet been satisfied
Answer: A. A contract liability should be recorded until the promised goods are transferred.

A contract liability should be recorded until the promised goods are transferred.

Why the other answers are wrong
  • B. Cash collection alone does not establish revenue recognition. Because the goods have not been transferred, the receipt creates an obligation to perform.
  • C. A receivable is not the right starting point because the entity already received cash. The unresolved issue is the obligation to deliver goods.
  • D. This choice notices that performance has not occurred, but reaches the wrong accounting result. The unperformed obligation is exactly why a contract liability is recorded.

What FAR tests

FAR rewards candidates who can connect rules to financial statement presentation. Expect practice around recognition, measurement, journal entry logic, statement classification, consolidations, leases, bonds, government accounting, and nonprofit accounting.

How to study it

Use short focused sets. After each set, identify whether each miss came from rule memory, calculation setup, reading, or answer-choice elimination.

High-value topics

Revenue, leases, bonds, equity, cash flows, consolidations, statement classification, contingencies, subsequent events, and governmental and nonprofit reporting.

Practice plan

Start with a focused FAR set, review every missed explanation, bookmark weak items, then retest those topics later in the week.

Study workflow

Use FAR questions as a review system, not a click-through drill.

The fastest way to waste a question bank is to answer a set, glance at the score, and move on. For FAR, treat every missed question as a note about how you read facts, applied rules, or eliminated distractors.

Before the set

Choose one constraint: a topic, area code, difficulty level, or missed-question mode. Focused sets make the review pattern easier to see than a huge mixed session.

During the set

Answer before looking at explanations. If you are stuck, identify the fact that should decide the answer instead of guessing from familiar keywords.

After each miss

Write the miss type in plain English: rule memory, reading error, calculation setup, judgment call, or tempting distractor. That note tells you what to repair.

Later in the week

Return to bookmarks and weak topics after a gap. Reworking a missed FAR idea later is more useful than repeating it immediately from short-term memory.

FAR topic guides

Use these FAR topic pages before your next practice set.

FARLeases explained for FAR CPA candidates

Right-of-use assets, lease liabilities, classification, and common FAR traps.

 FARRevenue recognition for FAR CPA candidates

Performance obligations, transaction price, allocation, timing, and cash-vs-revenue mistakes.

 FARBonds payable for FAR CPA candidates

Discounts, premiums, carrying amount, effective interest, and extinguishment basics.

 FARHow many FAR questions should you do before exam day?

A practical way to think about FAR question volume, review quality, and readiness.

 FARStatement of cash flows for FAR CPA candidates

Operating, investing, financing, indirect method adjustments, and classification traps.

 FARGovernmental accounting for FAR CPA candidates

Fund types, modified accrual, government-wide statements, and reconciliation logic.

 FARConsolidations for FAR CPA candidates

Acquisition method, eliminating entries, noncontrolling interest, and intercompany transactions.

 AUD / FAR / REG / BAR / ISC / TCPHard CPA practice questions for exam-like review

Hard CPA questions across all six sections with explanations and review tools.

 AUD / FAR / REG / BAR / ISC / TCPCPA practice test-style MCQ sets

Build a practice test-style MCQ set with explanations and section filters.

Sample questions

Try a few FAR examples before opening the full bank.

These are real questions from the current question bank. The practice app includes more questions, filters, explanations, bookmarks, and progress tracking.

FAR-000001FAR-IRevenue recognition

During the year-end close for a manufacturer, an entity receives an advance payment for goods it has not yet shipped. What should be recorded initially?

  1. A.A contract liability should be recorded until the promised goods are transferred.
  2. B.Revenue should be recognized immediately for the full cash receipt
  3. C.A receivable should be recorded even though cash was received
  4. D.No liability should be recorded until shipment because the performance obligation has not yet been satisfied
Answer: A. A contract liability should be recorded until the promised goods are transferred.

A contract liability should be recorded until the promised goods are transferred.

Why the other answers are wrong
  • B. Cash collection alone does not establish revenue recognition. Because the goods have not been transferred, the receipt creates an obligation to perform.
  • C. A receivable is not the right starting point because the entity already received cash. The unresolved issue is the obligation to deliver goods.
  • D. This choice notices that performance has not occurred, but reaches the wrong accounting result. The unperformed obligation is exactly why a contract liability is recorded.
FAR-000002FAR-IILong-lived assets

During the year-end close for a manufacturer, equipment has a carrying amount greater than the undiscounted cash flows expected from use and disposal. What should management do next under U.S. GAAP?

  1. A.Write the asset down to zero immediately
  2. B.Measure impairment as the excess of carrying amount over fair value.
  3. C.Recognize no impairment because depreciation is already recorded
  4. D.Use discounted cash flows only to decide whether recoverability failed
Answer: B. Measure impairment as the excess of carrying amount over fair value.

Measure impairment as the excess of carrying amount over fair value.

Why the other answers are wrong
  • A. The choice "Write the asset down to zero immediately" misses the issue because impairment is measured against fair value, not automatically zero.
  • C. The choice "Recognize no impairment because depreciation is already recorded" misses the issue because depreciation does not replace impairment testing.
  • D. The choice "Use discounted cash flows only to decide whether recoverability failed" misses the issue because undiscounted cash flows are used for the recoverability screen.
FAR-000003FAR-IILeases

During the year-end close for a manufacturer, a lessee obtains the right to use equipment for most of the asset's useful life. What is the likely financial statement effect at commencement?

  1. A.The lessee records rent expense only as cash is paid
  2. B.The lessor records the lessee's right-of-use asset
  3. C.The lessee recognizes a right-of-use asset and lease liability if the contract is a lease.
  4. D.No accounting occurs until the lease ends
Answer: C. The lessee recognizes a right-of-use asset and lease liability if the contract is a lease.

The lessee recognizes a right-of-use asset and lease liability if the contract is a lease.

Why the other answers are wrong
  • A. The choice "The lessee records rent expense only as cash is paid" misses the issue because most leases create recognized assets and liabilities for the lessee.
  • B. The choice "The lessor records the lessee's right-of-use asset" misses the issue because the right-of-use asset belongs to the lessee.
  • D. The choice "No accounting occurs until the lease ends" misses the issue because recognition generally occurs at commencement.
FAR-000004FAR-IIBonds payable

During the year-end close for a manufacturer, a bond is issued at a premium because the stated interest rate exceeds the market rate. How does the premium affect interest expense over time?

  1. A.The premium increases interest expense above cash interest each period
  2. B.The premium is recognized as revenue on the issue date
  3. C.Treat that factor as outside bonds payable unless management requests a different treatment
  4. D.Amortizing the premium reduces interest expense below the cash interest paid.
Answer: D. Amortizing the premium reduces interest expense below the cash interest paid.

Amortizing the premium reduces interest expense below the cash interest paid.

Why the other answers are wrong
  • A. The choice "The premium increases interest expense above cash interest each period" misses the issue because that describes discount amortization, not premium amortization.
  • B. The choice "The premium is recognized as revenue on the issue date" misses the issue because a bond premium is not revenue to the issuer.
  • C. The choice "The premium is never amortized" misses the issue because bond premiums are amortized over the bond term.
FAR-000005FAR-IIIConsolidations

During the year-end close for a manufacturer, a parent sells inventory to a subsidiary and the inventory remains unsold at period-end. What consolidation adjustment is needed?

  1. A.Eliminate the intercompany profit still included in ending inventory.
  2. B.Recognize the profit again on consolidation
  3. C.Eliminate only the cash collected from the subsidiary
  4. D.Record goodwill for the intercompany sale
Answer: A. Eliminate the intercompany profit still included in ending inventory.

Eliminate the intercompany profit still included in ending inventory.

Why the other answers are wrong
  • B. The choice "Recognize the profit again on consolidation" misses the issue because the profit is not earned outside the consolidated group.
  • C. The choice "Eliminate only the cash collected from the subsidiary" misses the issue because cash collection is not the consolidation issue.
  • D. The choice "Record goodwill for the intercompany sale" misses the issue because goodwill is not created by internal inventory sales.
FAR-000006FAR-IRevenue recognition

A contract bundles a machine and a one-year service plan for $120,000. Their standalone selling prices are $100,000 and $50,000, respectively. If the service plan is performed evenly and the first quarter is complete, how much of the transaction price should be allocated to the service plan revenue recognized to date?

  1. A.$10,000
  2. B.$20,000
  3. C.$40,000
  4. D.$50,000
Answer: A. $10,000

The service plan receives $40,000 of the $120,000 transaction price: $120,000 x ($50,000 / $150,000). One quarter is $10,000, so that is the revenue recognized to date.

Why the other answers are wrong
  • B. This does not apply the relative standalone selling-price allocation and the one-quarter performance period together.
  • C. $40,000 is the full amount allocated to the service plan before considering that only one quarter has been performed.
  • D. $50,000 is the standalone selling price, not the allocated transaction price or the amount recognized for one quarter.
FAR-000007FAR-IILeases

At the beginning of a month, a lessee has a lease liability of $100,000. The monthly effective interest is $6,000 and the monthly payment is $20,000, made at the end of the month. What is the lease liability immediately after the payment?

  1. A.$80,000
  2. B.$86,000
  3. C.$94,000
  4. D.$106,000
Answer: B. $86,000

Interest increases the liability to $106,000, and the $20,000 payment reduces it to $86,000. The payment includes $6,000 of interest and $14,000 of principal reduction.

Why the other answers are wrong
  • A. Subtracting the full payment ignores the $6,000 of interest accrued during the month.
  • C. This subtracts only the principal reduction from the opening liability without first adding current-period interest.
  • D. The payment reduces, rather than increases, the liability after interest is accrued.
FAR-000008FAR-IIBonds payable

A bond has a carrying amount of $980,000 at the start of the period. The cash coupon is $40,000 and the effective interest expense is $49,000. What carrying amount should be reported at the end of the period if the bond was issued at a discount?

  1. A.$971,000
  2. B.$980,000
  3. C.$989,000
  4. D.$1,029,000
Answer: C. $989,000

The $9,000 discount amortization is effective interest expense of $49,000 less cash interest of $40,000. A discount amortization increases the carrying amount to $989,000.

Why the other answers are wrong
  • A. A decrease would be associated with premium amortization in this simplified fact pattern, not discount amortization.
  • B. Leaving the carrying amount unchanged omits the period's discount amortization.
  • D. The carrying amount increases by the $9,000 amortization, not by the full effective interest expense.

Next step

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