SIMS

FAR 5 – Task-based Simulations
Task-based Simulation – Questions 5-2 – 5-10

FAR 5-SIMQ1 SIM1 2
FAR 5-SIMQ2 SIM4 4
FAR 5-SIMQ3 SIM9 6
FAR 5-SIMQ4 SIM18 7
FAR 5-SIMQ5 DRS1 8
FAR 5-SIMQ6 SIM31 10
Task-based Simulation – Solutions 5-11 – 5-16

FAR 5-SIMQ1 SIM1 11
FAR 5-SIMQ2 SIM4 12
FAR 5-SIMQ3 SIM9 13
FAR 5-SIMQ5 DRS1 15
i
Financial Accounting and Reporting (FAR)
Copyright © 2021 Yaeger CPA Review. All rights reserved.
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Task-based Simulation – Questions
Remember: The icons and buttons below are not functional. The formatting in this chapter mirrors the CPA exam. It is intended to familiarize
you with the look and feel of the exam.
FAR 5-SIMQ1 SIM1 SUBMIT

TESTLET
1  123456 CALC EXCEL AUTH LIT OVERVIEW HELP
On January 1, 20X4 Wert Inc. issued a $75,000 face value, 8% five-year bond for $69,209 that will yield 10%.
Interest is payable on June 30 and December 31.
The journal entry to record at January 1, 20X4 should be:
Account Debit Credit

Select
Select
Select
Account
Select Item
Additional Paid-in-Capital
Bonds Payable
Cash
Unamortized Bond Discount
OK Cancel
Complete the following bond amortization schedule. The beginning carrying value of $69,209 is provided. The
totals for the carrying value columns will calculate automatically.
Balance of
Interest Interest Bond Carrying
Date Paid Expense Amortization Discount Value
1/1/X4 $69,209
6/30/X4
12/31/X4
6/30/X5
12/31/X5
6/30/X6
12/31/X6
6/30/X7
12/31/X7
6/30/X8
12/31/X8
5-2
What is the total interest expense that Wert should record for the year 20X6? Select
Select Amount
$3,533
$7,148
$7,093
$3,588
OK Cancel
What is the bond carrying amount on December 31, 20X6? Select
Select Amount
$71,194
$71,753
$72,341
$72,958
OK Cancel

5-3

TESTLET
2  1 2 3 4 5 6 CALC EXCEL AUTH LIT OVERVIEW HELP
Last year, Perry Co. purchased 100% of the outstanding common stock of Court Co. in an acquisition by issuing
40,000 shares of its $1 par common stock with a fair value of $5 per share and providing contingent cash payment
if Court generates cash flows from operations of $1,000,000 over the next 5 years. The contingent consideration
had a fair value of $20,000 at the acquisition date. On the acquisition date, Court had assets with a book value of
$250,000 and a fair value of $450,000, and liabilities with a book and fair value of $140,000. Perry also incurred
direct acquisition costs of $25,000 paid in cash. Assume this is a business acquisition where a separate legal entity
is maintained.
What is the fair value of the total net assets of Court?
What should Perry record as its total investment in Court?
What is Perry’s total consideration paid to Court?
What amount of gain should Perry record from this investment in the
consolidated income statement?
How should Perry account for the $25,000 direct acquisition costs? Select
Select Item
Capitalize and amortize over life of investment
Expense as incurred
OK Cancel
What journal entry should Perry record related to this transaction?

Select
Select
Select
Select
Select
Select
Select
5-4
Account
Select Item
Gain on transaction
Common Stock
Contingent Performance Liability
Cash
Loss on transaction
Additional Paid-in-Capital
Investment in Court Co.
Acquisition Expense
OK Cancel
On January 2 of the current year, Perry sold equipment with an original cost of $160,000 and a carrying amount of
$96,000 to Court for $144,000. Perry had been depreciating the equipment over a five-year period using straight-
line depreciation with no residual value. Court is using straight-line depreciation over three years with no residual
value. In Perry's current year December 31 consolidating worksheet, determine the decrease in depreciation
expense.
Decrease in depreciation expense

5-5

TESTLET
3  1 2 3456 CALC EXCEL AUTH LIT OVERVIEW HELP
Example Amount of Accrual

Bay's sales were $400,000 and actual warranty expenditures of $10,000. It
estimates that the warranty costs related to sales is 3% in the year of the sale
and 4% in the year after the sale.
Bay was sued in a patent infringement case for $500,000. Bay's attorney
determined that it is reasonably possible that Bay will lose the case and have a
to pay $300,000.
Bay had a sales promotion during the year and offered a premium item with
proof of purchase (POP) of 2 products and $1. The premium item cost $1.50.
Bay estimated that 50% of the POP would be redeemed. Bay sold 16,000 of
products and 2,000 POP along with the $1 were redeemed.
Bay was fined by the government for environmental violations for $20,000.
Bay's attorney appealed the fine and now estimates that it is probable the fine
will be settled in a range of $15,000 to $17,000, although no amount in that
range can be determined to be the best estimate.
Bay was sued by a competitor for $50,000 due to predatory pricing practices.
Bay's attorney advised that it is probable Bay will lose, but the loss amount
cannot be reasonably estimated.

5-6

TESTLET
In year 1, Summer Corporation purchased 100% of Fields Corporation for $1.8 million and operated it as a separate
reporting unit. Fields’ Balance Sheet at the purchase date indicating both the carrying value and the fair values was
(dollars are rounded to the nearest thousand):
Fields Corporation Balance Sheet
Period ending, Year 1 ($000)
Carrying Fair Carrying Fair
Value Value Value Value
ASSETS LIABILITIES
Cash $ 85 $85 Accounts Payable $ 175 $175
Accounts Receivable 250 250 Long-Term Notes Payable 1,225 1,225
Inventory 675 800 Total liabilities $ 1,400
Property, Plant & Equipment, net 1,250 1,400
Copyrights 175 175 STOCKHOLDERS' EQUITY
Total Assets $ 2,435 Common Stock $ 750
Retained Earnings 285
Total Stockholders' Equity $ 1,035
Total Liabilities & Stockholders' Equity $ 2,435
What was the goodwill that should have been recorded as a result of the purchase in year 1?
During year 2, Summer began their impairment test on the Fields reporting unit and determined the fair value of
the unit to be $1.5 million and the carrying value of the assets and liabilities to be $1.1 million.
What is the implied value of goodwill?
What is the impairment of goodwill?
Prepare the journal entry to record the impairment of goodwill. Select the appropriate account name from the list
and fill in the dollar amount from your calculations. For any debit or credit boxes that are not needed, leave them
blank. Choose the applicable account name from this list:

Select
Select
Select Account
Goodwill
Amortization of Goodwill
Cash
Impairment Loss
OK Cancel

5-7
FAR 5-SIMQ5 DRS1 SUBMIT

TESTLET
Scroll down to complete all parts of the task.

Financial statements prepared under U.S. GAAP include a summary of significant accounting policies used within
the notes to the financial statements. One of the significant accounting policies that are disclosed includes fair
value measurements. Below is a draft of part of the fair value measurement section of the significant accounting
policies that Grant Corporation, an issuer, plans to use in its annual financial statements.
To revise the document, click on each segment of underlined text below and select the best choice for needed
correction, if any, from the list provided. If the underlined text is already correct in the context of the document,
select [Original text] from the list. If removal of the entire underlined text is the best revision to the document
as a whole, select [Delete text] from the list.
(DRAFT) Summary of significant accounting policies -- Fair value measurement
Grant Corporation measures financial instruments, such as derivatives, and non-financial assets such as
investment properties, at fair value at each balance sheet date. Fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date (an exit price), under current market conditions. The fair value measurement is based on
the presumption that the transaction to sell the asset or transfer the liability takes place either in the
principal market for the asset or liability or, in the absence of a principal market, in the most advantageous
market for the asset or liability. The principal market maximizes the price received for the asset or minimizes
the amount paid to transfer the liability.
1. Choose an option below:
 [Original text] The principal market maximizes the price received for the asset or minimizes the
amount paid to transfer the liability.
 [Delete text]
 The principal market has the lowest volume and level of activity.
 The principal market has the greatest volume and level of activity.
 The principal market does not consider volume and level of activity.
The most advantageous market has the greatest volume and level of activity.
 [Original text] The most advantageous market has the greatest volume and level of activity.
 [Delete text]
 The most advantageous market maximizes the price received for the asset or minimizes the amount
paid to transfer the liability.
 The most advantageous market has the lowest volume and level of activity.
 The most advantageous market does not consider volume and level of activity.
The fair value of an asset or a liability is measured using the assumptions that market participants would use
when pricing the asset or liability, assuming that market participants act in their economic best interest. A
fair value measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits from the asset’s highest and best use or by selling it to another market participant that
would utilize the asset in its highest and best use. Grant Corporation uses valuation techniques that are
appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing
the use of relevant observable inputs and minimizing the use of unobservable inputs.
5-8
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorized within the fair value hierarchy, which is described as follows:
Level 1 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable.
 [Original text] Level 1 — Valuation techniques for which the lowest level input that is significant to
the fair value measurement is unobservable.
 [Delete text]
 Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
 Level 1 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable.
Level 2 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
 [Original text] Level 2 — Quoted (unadjusted) market prices in active markets for identical assets or
liabilities.
 [Delete text]
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value
 [Original text] Level 3 – Valuation techniques for which the lowest level input that is significant to the
fair value measurement is directly or indirectly observable.
 [Delete text]
 Level 3 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
As for providing measurements of fair value assets level 1 is roughly commensurate with the market
approach, level 2 is roughly commensurate with the cost approach and level 3 is roughly commensurate with
the income approach. Grant Corporation uses the lowest level of inputs (level 1) as its highest priority of
valuation in the hierarchy.
 [Original text] As for providing measurements of fair value assets level 1 is roughly commensurate
with the market approach, level 2 is roughly commensurate with the cost approach and level 3 is
roughly commensurate with the income approach.
 [Delete text]
 As for providing measurements of fair value assets level 1 is roughly commensurate with the income
approach, level 2 is roughly commensurate with the cost approach and level 3 is roughly
commensurate with the market approach.
 As for providing measurements of fair value assets level 1 is roughly commensurate with the cost
approach, level 2 is roughly commensurate with the income approach and level 3 is roughly
commensurate with the market approach.

5-9

TESTLET
A holder of an interest in securitized financial assets shall obtain sufficient information about the payoff structure
and the payment priority of the interest to determine whether an embedded derivative exists. Research the
professional literature to determine the relevant citation that states this reference.
Enter your response in the answer fields below. Unless specifically requested, your response should not cite
implementation guidance. Guidance on correctly structuring your response appears above and below the answer
fields.
Type the paragraph here.

Type the topic here. Correctly formatted FASB ASC paragraphs are 1, 2, or 3
Correctly formatted FASB ASC digits followed in some cases by 1 or 2 upper case letters.
topics are 3 digits. Note: Correct paragraph responses appear in bold font in FASB ASC and do
not include subparagraphs denoted by a lower case letter.
FASB ASC - - -
Type the subtopic here. Type the section here.

Correctly formatted FASB ASC subtopics Correctly formatted FASB ASC sections are 2 digits or an
are 2 or 3 digits. upper case letter followed by 2 digits.
Some examples of correctly formatted FASB ASC responses are 205-10-05-1, 323-740-S25-1,
i 260-10-60-1A, 715-30-35-95, 820-10-35-16BB, and 810-10-55-205AE

5-10
Task-based Simulation – Solutions
FAR 5-SIMQ1 SIM1

Cash $69,209
Unamortized Bond Discount $5,791
Bonds Payable $75,000
For the bond amortization schedule:

Interest paid = Face of bond x stated rate x payment period = $75,000 x .08 x 6/12 = $3,000
Interest expense = Carrying value x yield x interest period = $69,209 x .10 x 6/12 = $3,460 at 6/30/X4
Amortization = Interest expense - interest paid = $3,460 - $3,000 = $460 at 6/30/X4
Balance of
Interest Interest Bond Carrying
Date Paid Expense Amortization Discount Value
1/1/X4 $5,791 $69,209

6/30/X4 $3,000 $3,460 $460 $5,331 $69,669
12/31/X4 $3,000 $3,483 $483 $4,847 $70,153
6/30/X5 $3,000 $3,508 $508 $4,339 $70,661
12/31/X5 $3,000 $3,533 $533 $3,806 $71,194
6/30/X6 $3,000 $3,560 $560 $3,247 $71,753
12/31/X6 $3,000 $3,588 $588 $2,659 $72,341
6/30/X7 $3,000 $3,617 $617 $2,042 $72,958
12/31/X7 $3,000 $3,648 $648 $1,394 $73,606
6/30/X8 $3,000 $3,680 $680 $714 $74,286
12/31/X8 $3,000 $3,714 $714 $(0) $75,000
$5,791
What is the total interest expense that Wert should record for the year 20X6? $7,148
($3,560 + $3,588)
What is the bond carrying amount on December 31, 20X6? $72,341
5-11
FAR 5-SIMQ2 SIM4
What is the fair value of the total net assets of Court? $310,000 ($450,000 - $140,000)
What should Perry record as its total investment in Court? (40,000 shares x $5) +20,000
$220,000
What is Perry’s total consideration paid to Court? $220,000 ((40,000 shares x $5) + $20,000)
What amount of gain should Perry record from this ($310,000 - $220,000)
$90,000
investment in the consolidated income statement?
How should Perry account for the $25,000 direct acquisition costs? Expense as incurred

Investment in Court Co. $220,000 (40,000 shares x $5) + $20,000
Acquisition Expense $25,000 (Provided in facts and expensed as incurred)
Cash $25,000 (Payment to third-party for acquisition cost)
Common Stock $40,000 (40,000 shares x $1 par)
Additional Paid-in-Capital $160,000 (40,000 shares x ($5 - $1))
Contingent Performance Liability $20,000 (Provided in facts)
Decrease in depreciation expense $16,000
When depreciation expense is calculated on a consolidated income statement after an intercompany sale, assume
that the sale from parent (Perry) to the subsidiary (Court) never happened. If the sale never happened for the
current year ended December 31, Perry would still own the asset at a cost of $160,000 with a life of 5 years using
the straight line depreciation method and Perry’s depreciation would be $160,000 / 5 years or $32,000. In reality,
the sale did occur and Court purchased the equipment for $144,000 on January 2 of the current year with a life of
3 years using the straight line depreciation method. Court’s actual depreciation was $144,000 / 3 years or
$48,000.
In consolidations, assume that the parent and the related entity did not sell to each other and if they did not sell to
each other, the consolidated depreciation expense would be the amount of depreciation expense calculated as
though no sale occurred between the parent and subsidiary. The consolidated depreciation expense is $32,000
but, the actual depreciation expense that Court recorded is $48,000. The consolidated depreciation expense has
to be decreased by $16,000 ($48,000 - $32,000).
The $16,000 decrease in depreciation can also be calculated by taking the pre-intercompany sale book value
($144,000) and the post-intercompany sale book value ($96,000) and divide the difference between the two by the
useful life (3 years) used by Court. ($144,000 - $96,000) / 3 = $16,000.
5-12
FAR 5-SIMQ3 SIM9
Example Amount of Accrual

Bay's sales were $400,000 and actual warranty expenditures of $10,000. It
estimates that the warranty costs related to sales is 3% in the year of the sale $28,000 A.
and 4% in the year after the sale.
Bay was sued in a patent infringement case for $500,000. Bay's attorney
determined that it is reasonably possible that Bay will lose the case and have a None B.
to pay $300,000.
Bay had a sales promotion during the year and offered a premium item with
proof of purchase (POP) of 2 products and $1. The premium item cost $1.50. $1,500
C.
Bay estimated that 50% of the POP would be redeemed. Bay sold 16,000 of
products and 2,000 POP along with the $1 were redeemed.
Bay was fined by the government for environmental violations for $20,000.
Bay's attorney appealed the fine and now estimates that it is probable the fine
$15,000 D.
will be settled in a range of $15,000 to $17,000, although no amount in that
range can be determined to be the best estimate.
Bay was sued by a competitor for $50,000 due to predatory pricing practices.
Bay's attorney advised that it is probable Bay will lose, but the loss amount None E.
cannot be reasonably estimated.
A.
Sales $ 400,000
Estimated warranty costs in year of sale 3%
Estimated warranty costs in year after sale 4%
Total estimated warranty costs based on sales 7%
Total estimated warranty expense to accrue $ 28,000
B. A reasonably possible contingent liability does not require an accrual and is only shown as a footnote
disclosure.
C.
Total estimated POP redemptions 8,000 (16,000 sold x 50%)
Less: POP redeemed 2,000
POP that could be redeemed 6,000
Outstanding premium claims 3,000 (6,000 / 2 POP per premium)
Estimated premium liability $1,500 (3,000 claims x ($1.50 premium cost - $1 paid by customer))
D. A contingent liability that is probable and can be estimated must be accrued. When a range of loss is
provided and no amount in the range is more appropriate than any other, the minimum amount in the
range ($15,000) should be accrued.
E. A contingent liability that is probable but cannot estimated does not require an accrual and is only shown
as a footnote disclosure.
5-13

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FAR 5 – Task-based Simulations

Task-based Simulation – Questions 5-2 – 5-10

Task-based Simulation – Solutions 5-11 – 5-16

Copyright © 2021 Yaeger CPA Review. All rights reserved.

FAR 5-SIMQ1 SIM1 SUBMIT

1  123456 CALC EXCEL AUTH LIT OVERVIEW HELP

The journal entry to record at January 1, 20X4 should be:

Account Debit Credit

What is the bond carrying amount on December 31, 20X6? Select

FAR 5-SIMQ2 SIM4 SUBMIT

2  1 2 3 4 5 6 CALC EXCEL AUTH LIT OVERVIEW HELP

What is the fair value of the total net assets of Court?

What should Perry record as its total investment in Court?

What is Perry’s total consideration paid to Court?

What journal entry should Perry record related to this transaction?

Account Debit Credit

Decrease in depreciation expense

FAR 5-SIMQ3 SIM9 SUBMIT

3  1 2 3456 CALC EXCEL AUTH LIT OVERVIEW HELP

Example Amount of Accrual

FAR 5-SIMQ4 SIM18 SUBMIT

4  1 2 3 4 5 6 CALC EXCEL AUTH LIT OVERVIEW HELP

What is the implied value of goodwill?

What is the impairment of goodwill?

Account Debit Credit

FAR 5-SIMQ5 DRS1 SUBMIT

5  1 2 3 4 5 6 CALC EXCEL AUTH LIT OVERVIEW HELP

Scroll down to complete all parts of the task.

(DRAFT) Summary of significant accounting policies -- Fair value measurement

FAR 5-SIMQ6 SIM31 SUBMIT

6  1 2 3 4 5 6 CALC EXCEL AUTH LIT OVERVIEW HELP

Type the paragraph here.

Type the subtopic here. Type the section here.

Account Debit Credit

For the bond amortization schedule:

1/1/X4 $5,791 $69,209

What is the bond carrying amount on December 31, 20X6? $72,341

Account Debit Credit

Decrease in depreciation expense $16,000

Example Amount of Accrual

Outstanding premium claims 3,000 (6,000 / 2 POP per premium)

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