CPA FAR F4.M6 — Practice Questions
State & Local Government Accounting. Below are 4 real practice questions with worked explanations — a free sample of the F4.M6 set. The full adaptive version (spaced repetition, mastery checks, and the wider FAR bank) lives in the app.
Q1 · medium
Under current US GAAP, how are a not-for-profit entity's net assets classified on its statement of financial position?
- Three classes: unrestricted, temporarily restricted, and permanently restricted
- ✓ Two classes: with donor restrictions and without donor restrictions
- Four classes: program, support, endowment, and plant
- A single total of net assets with no subclasses
Why: Current NFP standards require two net asset classes - with donor restrictions and without donor restrictions. The older three-class model (unrestricted, temporarily restricted, permanently restricted) was replaced.
Q2 · hard
A donor promises a nonprofit $100,000, but only if the nonprofit raises $100,000 in matching gifts by year-end. Before any matching gifts are received, how should the nonprofit account for the promise?
- Recognize the full $100,000 of contribution revenue immediately
- Recognize $50,000 of contribution revenue now
- ✓ Recognize no contribution revenue until the matching condition is substantially met
- Record a $100,000 refundable liability
Why: A contribution subject to a measurable barrier and a right of return is conditional. No revenue is recognized until the condition - raising the matching gifts - is substantially met, because the donor is not yet obligated to give.
Q3 · medium
When does a not-for-profit recognize donated (volunteer) services as contribution revenue?
- Whenever any volunteer donates time to the organization, regardless of the nature, skill level, or measurable value of the work performed
- Only if the volunteer is paid a stipend for the work
- Never, because donated services are not recorded under GAAP
- ✓ When the services require specialized skills, are provided by people with those skills, and would otherwise be purchased
Why: Donated services are recognized only if they create or enhance a nonfinancial asset, or require specialized skills, are provided by people possessing those skills, and would typically need to be purchased if not donated.
Q4 · medium
A nonprofit receives a $200,000 cash gift that the donor restricts to constructing a new building. How is the gift initially reported?
- ✓ As contribution revenue that increases net assets with donor restrictions
- As a refundable liability until the building is constructed
- As unrestricted contribution revenue
- As a direct addition to the building asset account
Why: A donor-imposed purpose restriction does not delay revenue recognition. The gift is recognized immediately as contribution revenue increasing net assets with donor restrictions; the restriction is released when the funds are spent as specified.