AICPA CPA Task Based Simulation: FAR

How do you handle contingencies on the CPA FAR exam? This video walks through an actual AICPA released task-based simulation on loss contingencies, gain contingencies, loan guarantees, and legal commitments — taught by Professor Farhat for CPA candidates and accounting students preparing for Financial Accounting and Reporting (FAR). Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students. You will learn how to classify a contingency as remote, reasonably possible, or probable, and when GAAP requires disclosure versus accrual. Professor Farhat analyzes legal counsel letters, loan-guarantee emails, and insurance claims to determine the correct financial reporting for each exhibit, emphasizing concepts over memorization. Video Timeline & Key Concepts: 0:00 — Introduction 3:24 — Loss contingency rules: remote, possible, and probable 5:30 — Simulation walkthrough begins 6:35 — Copyright infringement contingency (range of loss) 9:38 — Loan guarantees 12:41 — Property insurance claim (gain contingency) 15:06 — State health and safety penalty 16:26 — Product liability (remote) 17:37 — Letter of credit Frequently Asked Questions: When must a loss contingency be accrued under GAAP? A loss contingency is accrued when it is both probable and the amount can be reasonably estimated. If it is probable but not estimable, only disclosure is required. How do you record a probable loss that falls within a range of amounts? When a loss is probable and the amount is a range with no single amount more likely than another, GAAP requires accruing the lowest amount in the range and disclosing the range. Can a gain contingency be accrued? No. Gain contingencies are never accrued before they are realized because of conservatism. Disclosure may be appropriate, but recognition waits until the gain is realized. How is a loan guarantee reported? If it is probable that the company will have to pay under the guarantee and the amount is estimable, the full guaranteed amount is accrued and disclosed. What is the accrual for a letter of credit with no activity at year-end? A letter of credit is treated like a loan guarantee. Disclosure is required, but if there is no activity at year-end the accrual amount is zero. #CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses #FAR #contingencies #losscontingency #CPAsimulation #financialaccounting #ProfessorFarhat