[Asja]

Wiley Question –

Wiley mentoring Prof told me to move on after a question toally pulled the rug from under my feet, like how the heck am I supposed to move on when all my logic has been twisted… I need your input guys like never before. I’m thinking I might ditch the whole course and go with Ninja only because I feel like these issues with WIley stall me too much.

This is regarding REBATEs, which apparently, to me, were accounted for the same was as normal warranties…based on matching principal, am I not right? Sales for the current year, multiply by the estimated rate of redemptions, there is your rebate expense???? NO???

SO this is the problem in TBS:
E-mail from an executive:
vDuring the month of December, Year 3, we offered our dealers a $50 rebate for each $500 drum of NewAge chemical sold. The sales records show that 8,500 drums of New Age chemical were sold during December, Year 3. As of December 31, Year 3, 3,500 requests for rebates for that month’s sales were received and processed. Our redemption rate appears to be the same as in Year 2 We began offering a rebate of $50 on sales of drums of NextAge during December, Year 2. At the end of December Year 2, we anticipated a redemption rate of 80% on the sale of 5,000 drums of NextAge. There were no redemptions completed by December 31, Year 2. During Year 3 we paid a total of $190,000 for all cash rebates. If you have any questions, please let me know

The only other related exhibit they had was just a flier that said: Your customers will receive a rebate of $50.00 for each $500.00 drum of NewAge chemical
purchased during the month of December, Year 3.
Customers must send a copy of this flyer along with sales records by February 28, Year 4 to [this address]

Anyways…I was just wanting to see what you guys can come up with before giving you the answer Wiley gave vs one that i came up with.
“As of December year 3, management estimated and accrued _______ for rebate liabilities:
and
“Company reports _______ promotional expense in year 3”

THanks
“

[jeff]

Candidly, it's not Wiley – it's the nature of the FAR material.

Your professor is right – you need to move on if you get bogged down on a question – or even a concept.

You'll never make it through the material otherwise.

Just like on exam day – you can't get hung up on a question or you'll never finish your exam. Same way with your prep – move on and come back to it if you have time.

Get through your Wiley material – and then add ninja later if you have time or want to review with it.

[Asja]

Jeff, thanks for the advice and for letting me post on here…I take your advice on taking notes on questions we get wrong…and it was frustrating when I couldn't understand why my answer was wrong. I need to be able to trust myself when I learned something and this totally shatteres the self-trust that I need in order to proceed with learning the rest of the material….
Thanks again and I'm hoping someone will shed light on how they would approach the problem I posted. the $190,000 reduces the rebate liability, and 8500*.80*$50 is the rebate expense because it matches current year revenue to the expense.

[Jimmy Dugan]

It's not Wiley, or Surgent, or [insert next course name here]. None of them are going to explain in minute detail every nuance of every rule to you. You have to be comfortable knowing that you may not “get” all the concepts on the first time through. It comes with time and answering more and more questions.

[Asja]

I'd understand if it was an AICPA question…what I am talking about is a TBS question that WIley authors created.

This is their answer

Promotion expense is calculated by completing a T-account of the rebate liability. The beginning balance in the liability is calculated as sales of 5,000 drums in December Year 2, times the redemption rate of 80% to get 4,000 rebates to be redeemed. At $50 per rebate, the beginning balance of the liability is $200,000 (5,000 × .8) × $50).

The ending balance was calculated in the previous question as $165,000 (((8,500 × .8) – 3,500) × $50). The email regarding the rebate promotion states that $190,000 was paid in cash during Year 3. Using the T-account for rebate liability, calculate the promotion expense for Year 3 as $155,000.

It isn't right and they shouldn't have it in the content. And, yes, they should be able to explain why they use the “contingent liability” rebate expense as a plug instead of having it match with revenues like any other warranty estimate.

If $190,000 was the TOTAL paid for all rebates, then why are they subrtacting out the 3500 cashed in from the 8500 sold in year 3? THey will deduct it from the liability, but not add it to the liability?

[Asja]

It doesn't make sense mathematically.. if $190,000 was cashed at $50 per rebate, that means 3,800 rebates were cashed…If they excluded the 3500 cashed from this year, then the ones cashed can only pertain to the ones from last year (which is 5000*.80 – 4000 rebates that could be cashed from last year…so 200 left…plus 5000 from this year, 5200* 50 = 260000

I hate this accountnig, is stupid…I should be an actuary…bye guys

[Accounting_is_Taxing]

Don't take this the wrong way, but are you sure you want to be a CPA? You seem to lack emotional maturity for this process. You must persevere through this process to get through it. The exam itself isn't even the hard part. Once you get your license, you will have to do high level work that is much more complicated than this.

By the way, you have to pass exams to become an actuary. Those exams are MUCH harder than the CPA exam.

[jeff]

It's difficult material and none of us study in a vacuum. That would suck (mic drop).

We all have 10,000 things going on around us while we try to study and sometimes one frustrating FAR question can put us on tilt.

Take a few days off and recalibrate and get back in there. Even if you do tax returns out of your home office for some side cash – you'll be glad you're a CPA.

[Recked]

I'm not sure where your confusion lies but make sure you are properly accounting for “inter-year” transactions.
The products sold in year 2, some of those rebates will be redeemed in year 3. Is that the part that is messing you up?
Rebates are similar to warranty expense, given the anticipated expense is accrued.

[Giant$]

My 2 cents….stay focused on the end goal. Hurdles will present themselves every study session, you can stop and analyze every single detail or “hurdle” over it and continue to progress.

I've noticed a lot of posts from you on Another71 which is fine but that is valuable time that can be used studying. We're all different but while I was studying, I would never of even taken the time to type/post this to only get the answer to 1 question, I was too focused on completing as many MCQ's per day as possible. Wiley must offer other revenue recognition questions involving rebates, maybe they will help clarify the concept better. Flag this question and come back to it after you've completed a full review.

Every candidate encounters questions that don't click but the focus needs to be on the end goal, not acing the CPA exams, just passing the CPA exams.

[Recked]

Ok, so I re-read the question.
I remember this type of question throwing me off as well, where you had to calculate the ending balance and back into the expense using the T-accounts.
The memo that was included was done so to show you that any rebate not redeemed by Feb of Year 3 would be expired, so there is no more accounting for any outstanding rebates from year 2.
They also showed that no Year 2 rebates were redeemed by the end of the year 2. Those 2 pieces of the puzzle help you determine that you need to find the ending balance, and can use the excess accrual from the prior year to plug the expense for year 3.
Hope this helps.
–
FAR was super frustrating for me as well. So many quizzes I would get a 10% or 20% and it was absolutely deflating. Just keep working at it. Completely normal and part of the process.
Remember that most people answering your questions are more likely than not just tech people and not CPAs, and have no idea how to help you learn, except to try and provide you the same answer.

[jombe]

Like Recked said above regarding the memo –
I was confused over how they justified the ending balance @ $165k, but once I read the memo, it's pretty straightforward.
At end of year 3, your bottom accrual only reflects the sales made from Dec Year 3. Once you can digest that, the rest of it should be self-explanatory.

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581 days of listening to lectures, reading texts & 10,000+ MCQs...

[dukenuke]

If you let yourself get bogged down like this you’ll never get through all of the material in a timely manner and this process will be even more frustrating than it already inherently is. Also time management is vital to successfully passing. On exam day you’ll have to budget your time wisely. Otherwise one question can steel your time and keep you from successfully answering countless others. Just think how many other questions you could have covered in the time spent on this one item?

[NoName]

Here is my advice:

1. Yes – move on (document or make note of the topic so that you can come back and review at a later point). There is simply too much else you need to grasp and if you have a weak understanding of one topic that isn't necessarily going to harm your test score.

2. Sometimes it is nice to have another provider's book/notes as reference. I primarily used two providers but I also had old Becker books and sometimes also checked the Ninja explanation. Having a minimum of one other source is extremely helpful.

[Author]

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