Select Transactions

FAR — Select Transactions Exam: CPA — FAR (Financial Accounting & Reporting) Last Updated: June 2026 --- ## Leases — ASC 842 ### Classification Lessee classifies leases as Finance or Operating based on any of these criteria: | Criterion | Threshold | |---|---| | Title transfers at end of lease | Yes | | Purchase option reasonably certain to exercise | Yes | | Lease term is major part of remaining economic life | ≥ 75% (common threshold) | | PV of payments is substantially all of fair value | ≥ 90% (common threshold) | | Specialized nature — only lessee can use it | Yes | If any criterion met → Finance lease. Otherwise → Operating lease. ### Lessee Accounting Both lease types: Recognize a Right-of-Use (ROU) asset and lease liability on Day 1. | | Finance Lease | Operating Lease | |---|---|---| | ROU asset | Amortized separately (usually SL) | Amortized as part of lease cost | | Liability | Reduced by principal portion of payment | Reduced by payment (varies) | | P&L | Interest expense + amortization | Single lease cost (SL over term) | | Cash flow | Operating: interest paid; Financing: principal | Operating: full payment | > Exam Tip: In a finance lease, front-load expense recognition (interest + amortization is higher early). In an operating lease, expense is straight-line. Initial measurement of lease liability = PV of future lease payments, discounted at: - Rate implicit in lease (if determinable), or - Incremental borrowing rate Short-term lease exemption: Lease term ≤ 12 months → can elect to expense (no ROU asset/liability). --- ## Bonds Payable ### Issuance Bonds issued at par (face…