[jeff]

Welcome to the Q2 2017 CPA Exam Study Group for BEC. 🙂

[yehia]

[A1lessio]

is it possible to sit for the exam in june or is that a black out month again?

AUD (08/02/2016)

[Anthony]

June is a blackout month. The 10 day extension doesn't apply to Q2 this year.

[marine]

I am confused. Please, help.
Does Internal rate of return take into account recognition of the project’s salvage value or No???
I saw a different answers in different question banks

[marine]

Its black out I think

[Joe]

@marine, IRR is the present value of the after tax cash flow that equal to the initial investment therefore, the salvage would be part of the cash flow at the very end and should be included in the calculation.

[Nutcracker2016]

Hi, I am confused with conformance and non-conformance costs:
I know:
Prevention Costs
Prevention costs are incurred to prevent the production of defective units. This
includes such cost elements as:
(1 ) Employee training
(2) Inspection expenses
(3) Preventive maintenance
(4) Redesign of product
(5) Redesign of processes
(6) Search for higher-quality suppliers
b. Appraisal Costs
Appraisal costs are incurred to discover and remove defective parts before they are
shipped to the customer or the next department. These costs include:
(1) Statistical quality checks
(2) Testing
(3) Inspection
(4) Maintenance of the laboratory

what is the difference between inspection expense and inspection in prevention and appraisal costs in Becker? I got this problem wrong by the way.

As part of a benchmarking process, a company's costs of quality for the current month have been identified as follows:

Employee training $20,000
Product recalls 8,000
Scrap 4,500
Quality inspectors 48,000
Preventive maintenance 19,500
Supplier education expense 17,500
Materials inspection expense 60,000
Processing product returns 2,500

What amount is the company's prevention cost for the current month?

$39,500

$57,000

$165,000

$175,500

You Answered Incorrectly.
Prevention costs are those that try to include proactive efforts to prevent defects before the products are produced. In this problem these include employee training, preventive maintenance, and supplier education expense for a total of $57,000.

Why quality inspectors or material inspection expense are not included??

[JJ2992]

Are the written communications changing in the way they are graded this quarter? Are they going to consider your content relevance to the question or just how well your answer was formatted and written?

[Anthony]

Nothing has changed in terms of grading compared to last format. It is the exact the same old thing.

[Grasshopper]

Hello Everyone,

I am taking BEC again on Tuesday. This is the third try within a year (have tested more times for it over the years) and I am trying to finally pass as I lose my Audit Credit 10/4 (thank you long wait). I am looking at the below question and I don't understand why only the common stock is taken into account for the cost of funds from retained earnings. I get that the bonds wouldn't be considered, but why not preferred stock?

Williams, Inc., is interested in measuring its overall cost of capital and has gathered the following data. Under the terms described as follows, the company can sell unlimited amounts of all instruments.

Williams can raise cash by selling $1,000, 8%, 20-year bonds with annual interest payments. In selling the issue, an average premium of $30 per bond would be received, and the firm must pay flotation costs of $30 per bond. The after-tax cost of funds is estimated to be 4.8%.
Williams can sell 8% preferred stock at par value, $105 per share. The cost of issuing and selling the preferred stock is expected to be $5 per share.
Williams' common stock is currently selling for $100 per share. The firm expects to pay cash dividends of $7 per share next year, and the dividends are expected to remain constant. The stock will have to be underpriced by $3 per share, and flotation costs are expected to amount to $5 per share.
Williams expects to have available $100,000 of retained earnings in the coming year; once these retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing.
Williams' preferred capital structure is long-term debt, 30%; preferred stock, 20%; and common stock, 50%.

The cost of funds from retained earnings for Williams, Inc., is:
Answer is 7.0%.
The cost of retained earnings is 7.0%.

The cost of retained earnings, using the Gordon Model, ignores flotation costs and underpricing, since the firm does not need to issue new stock. However, it must earn a return for the owners of the retained earnings, that is, the existing shareholders, as follows:

krm = (D1 / PO) + g, or krm = 7 / 100 + 0% = 7.0%

Where:

krm = Cost, in percentage, of using existing equity in the form of retained earnings
D1 = Estimated dividend that will be paid next year
PO = Current market price of the stock
g = Estimated annual growth rate in dividends, in percentage

Thanks for your help!

[HoldMyBeerCPA]

Is this where the party is at? Let's see if I can get this all in without pushing an exam back this time? Tonight, however, I take the night off.

[Holly]

The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has identified four alternative sources of funds, which are given as follows.

Pay a factor to buy the company's receivables, which average $125,000 per month and have an average collection period of 30 days. The factor will advance up to 80% of the face value of receivables at 10% and charge a fee of 2% on all receivables purchased. The controller estimates that the firm would save $24,000 in collection expense over the year. Assume that the fee and interest are not deductible in advance.
Borrow $110,000 from a bank at 12% interest. A 9% compensating balance would be required.
Issue $110,000 of 6-month commercial paper to net $100,000. (New paper would be issued every six months.)
Borrow $125,000 from a bank on a discount basis at 20%. No compensating balance would be required.

Assume a 360-day year on all of your calculations.

The cost of Alternative 1 is:
A. 10.0%.
B. 12.0%.
C. 14.8%.
Correct D. 16.0%.

Annual Cost

Interest on average balance
($100,000 x .10 rate) $10,000
Fee payable to factor
(2% of purchased receivables) 30,000
(.02 x $125,000 x 12 mo.) ——-
$40,000
Less savings on collection expense (24,000)
——-
Net Cost $16,000
=======

Cost as a % = $16,000 / $100,000 = 16%
===

The difference between the amount advanced and the receivable is not a cost of financing as that amount will be collected and returned to the company. If any amount is not collected, then it would be written off as bad debt.

What am I missing here with the answer using average balance $100,000 and not $125,000?

BEC - 79
REG - 85
AUD - 5/27/16

[jeff]

[Joe]

Are the TBS in BEC all written communication style simulations that require to write a letter or memo, or are the TBS in BEC calculation driven compared to the Written assignment portion of the exam?

[Zunnie]

Because the actually amount received is $100,000 (80% of $125,000).

The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has identified four alternative sources of funds, which are given as follows.

Pay a factor to buy the company's receivables, which average $125,000 per month and have an average collection period of 30 days. The factor will advance up to 80% of the face value of receivables at 10% and charge a fee of 2% on all receivables purchased. The controller estimates that the firm would save $24,000 in collection expense over the year. Assume that the fee and interest are not deductible in advance.
Borrow $110,000 from a bank at 12% interest. A 9% compensating balance would be required.
Issue $110,000 of 6-month commercial paper to net $100,000. (New paper would be issued every six months.)
Borrow $125,000 from a bank on a discount basis at 20%. No compensating balance would be required.

Assume a 360-day year on all of your calculations.

The cost of Alternative 1 is:
A. 10.0%.
B. 12.0%.
C. 14.8%.
Correct D. 16.0%.

Annual Cost

Interest on average balance
($100,000 x .10 rate) $10,000
Fee payable to factor
(2% of purchased receivables) 30,000
(.02 x $125,000 x 12 mo.) ——-
$40,000
Less savings on collection expense (24,000)
——-
Net Cost $16,000
=======

Cost as a % = $16,000 / $100,000 = 16%
===

The difference between the amount advanced and the receivable is not a cost of financing as that amount will be collected and returned to the company. If any amount is not collected, then it would be written off as bad debt.

What am I missing here with the answer using average balance $100,000 and not $125,000?

[Author]

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