CPA FAR Accounting Changes, Contingencies & Subsequent Events Practice Questions
Accounting Changes, Contingencies & Subsequent Events makes up 5 of every 50 questions on a Tigertest CPA FAR practice test. Here are 10 of the 20 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on the AICPA's 2026 FAR blueprint. Original multiple-choice questions; simulations not included. Not affiliated with the AICPA or NASBA.
1. A company revises the remaining useful life of its equipment. The change is applied:
- A.As a prior-period adjustment
- B.Prospectively, now and later
- C.Retrospectively to prior years
- D.As a cumulative catch-up now
Answer: B. A change in estimate affects the current and future periods only. Prior statements are not restated.
2. A company switches from double-declining balance to straight-line depreciation. Under ASC 250 this is:
- A.A cumulative effect in income
- B.A prior-period adjustment
- C.Applied retrospectively
- D.Applied prospectively
Answer: D. A change in depreciation method is a change in estimate effected by a change in principle, so it is applied prospectively.
3. Equipment cost $120,000 with no salvage value and a 10-year life. After 4 years the company decides the total life will be 8 years. Depreciation in year 5 is:
- A.$18,000
- B.$9,000
- C.$12,000
- D.$15,000
Answer: A. Book value is $120,000 - $48,000 = $72,000, spread over the 4 remaining years: $18,000. $15,000 wrongly spreads the original cost over the new total life.
4. A company changes its inventory method from FIFO to weighted average cost. The change is reported by:
- A.Cumulative effect in income
- B.Disclosure only
- C.Retrospective application
- D.Prospective application
Answer: C. A change in accounting principle is applied retrospectively to all periods presented unless it is impracticable to do so.
5. A company changes to LIFO, and it is impracticable to determine the effect on prior periods. The company:
- A.Books a cumulative effect
- B.Delays the change a year
- C.Applies LIFO prospectively
- D.Restates every prior period
Answer: C. When the period-specific or cumulative effects cannot be determined, ASC 250 applies the new principle from the earliest date practicable, usually the start of the current year for LIFO.
6. A company finds a material error in statements it issued last year. It should:
- A.Restate the prior periods
- B.Disclose it without correcting
- C.Adjust only next year
- D.Correct it in this year's income
Answer: A. Correcting an error in previously issued statements is a restatement: prior periods presented are corrected, and the opening retained earnings of the earliest period is adjusted.
7. A company's 2025 ending inventory was overstated by $15,000, and the error was never corrected. Ignoring taxes, 2025 net income was:
- A.Not affected
- B.Understated by $15,000
- C.Overstated by $30,000
- D.Overstated by $15,000
Answer: D. Overstated ending inventory understates cost of goods sold, so net income is overstated by the same $15,000.
8. A company's 2025 ending inventory was overstated by $15,000, and the error was never corrected. Ignoring taxes, 2026 net income is:
- A.Not affected
- B.Understated by $15,000
- C.Overstated by $15,000
- D.Understated by $30,000
Answer: B. The overstated 2025 ending inventory becomes overstated 2026 beginning inventory, which overstates 2026 cost of goods sold and understates 2026 income by $15,000.
9. An inventory error made at the end of 2025 was never corrected. At the end of 2026, retained earnings are:
- A.Misstated by twice the error
- B.Correct, as the error reversed
- C.Overstated by the error
- D.Understated by the error
Answer: B. Inventory errors counterbalance: the overstatement of 2025 income is offset by the understatement of 2026 income, so retained earnings are correct after two years.
10. A lawsuit loss is probable, and the estimate ranges from $200,000 to $500,000 with no amount in the range more likely than another. The company accrues:
- A.$500,000
- B.$0
- C.$350,000
- D.$200,000
Answer: D. ASC 450 accrues the best estimate; when no amount in the range is better than another, the minimum is accrued and the possible further loss is disclosed.
Practice all 20 accounting changes, contingencies & subsequent events questions, and the rest of the 200-question bank, in the free CPA FAR training sets. Questions you miss come back until you have mastered them.
Start practicingFree to start. No account needed.