FAR Study Group October November 2013 - Page 17

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  • #476164
    Anonymous
    Inactive

    My cpaexcel lecture on healthcare says that NFP recognize revenues at gross and bad debts are recognized separately. Public entities recognize the revenues adjusted for uncollectables. I think I'll just come back to this later. I'm confusing myself I think.

    #476235
    Anonymous
    Inactive

    My cpaexcel lecture on healthcare says that NFP recognize revenues at gross and bad debts are recognized separately. Public entities recognize the revenues adjusted for uncollectables. I think I'll just come back to this later. I'm confusing myself I think.

    #476166
    Anonymous
    Inactive

    Cumulative preferred dividends question:

    If you have 8% preferred stock does the div actually have to be DECLARED or can you “assume” it and include it as a liability absent declaration? I'm thinking specifically in the context of computing EPS with this question.

    #476237
    Anonymous
    Inactive

    Cumulative preferred dividends question:

    If you have 8% preferred stock does the div actually have to be DECLARED or can you “assume” it and include it as a liability absent declaration? I'm thinking specifically in the context of computing EPS with this question.

    #476168
    munxmun
    Member

    Can someone help me with this question. Becker's explanation does not make sense to me 🙁 Question is from F2 homework.

    Sonex Construction Co. incurred the following costs and made the following estimates in the first two years of a three-year construction project.

    Year 1 Year 2

    Actual current year costs incurred $ 1,200,000 $ 1,000,000

    Estimated costs to complete contract 1,800,000 550,000

    Contract price 5,000,000 5,000,000

    Billings and collections 2,500,000 1,500,000

    Using the percentage of completion method of accounting, what amount would Sonex show as either a net current asset or a net current liability as of the end of Year 2 due to its construction activity?

    a. $0

    b. $4,000,000 asset.

    c. $1,500,000 liability.

    d. $1,800,000 asset.

    Explanation

    Choice “a” is correct. If the sum of cumulative costs incurred plus cumulative gross profit recognized exceeds cumulative billings, the excess is reported as a current asset. If cumulative billings exceeds the sum of cumulative costs incurred plus cumulative gross profit recognized, the difference is reported as a current liability. If the two amounts are equal, no asset or liability is recognized.

    Year End 1 Year End 2

    Cumulative costs incurred $ 1,200,000 $ 2,200,000

    Add: Cumulative gross profit recognized 800,000 1,800,000

    Less: Cumulative billings (2,500,000) (4,000,000)

    Total: $ (500,000) $ 0

    Choices “b”, “d”, and “c” are incorrect, per the above explanation.

    #476239
    munxmun
    Member

    Can someone help me with this question. Becker's explanation does not make sense to me 🙁 Question is from F2 homework.

    Sonex Construction Co. incurred the following costs and made the following estimates in the first two years of a three-year construction project.

    Year 1 Year 2

    Actual current year costs incurred $ 1,200,000 $ 1,000,000

    Estimated costs to complete contract 1,800,000 550,000

    Contract price 5,000,000 5,000,000

    Billings and collections 2,500,000 1,500,000

    Using the percentage of completion method of accounting, what amount would Sonex show as either a net current asset or a net current liability as of the end of Year 2 due to its construction activity?

    a. $0

    b. $4,000,000 asset.

    c. $1,500,000 liability.

    d. $1,800,000 asset.

    Explanation

    Choice “a” is correct. If the sum of cumulative costs incurred plus cumulative gross profit recognized exceeds cumulative billings, the excess is reported as a current asset. If cumulative billings exceeds the sum of cumulative costs incurred plus cumulative gross profit recognized, the difference is reported as a current liability. If the two amounts are equal, no asset or liability is recognized.

    Year End 1 Year End 2

    Cumulative costs incurred $ 1,200,000 $ 2,200,000

    Add: Cumulative gross profit recognized 800,000 1,800,000

    Less: Cumulative billings (2,500,000) (4,000,000)

    Total: $ (500,000) $ 0

    Choices “b”, “d”, and “c” are incorrect, per the above explanation.

    #476170
    NYCaccountant
    Participant

    @ DJN Dividends on cumulative preferred stock have to be declared for them to be reported on the balance sheet as a liability. Absent the declaration, they are reported as dividends in arrears in the notes to the financial statements.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    #476241
    NYCaccountant
    Participant

    @ DJN Dividends on cumulative preferred stock have to be declared for them to be reported on the balance sheet as a liability. Absent the declaration, they are reported as dividends in arrears in the notes to the financial statements.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    #476172
    Anonymous
    Inactive

    @NYCaccountant, – thank you. For some reason I had it in my head that “cumulative” also meant it was “automatic” and did not have to be actually declared.

    BTW, when are you taking FAR? And it that your last exam?

    #476243
    Anonymous
    Inactive

    @NYCaccountant, – thank you. For some reason I had it in my head that “cumulative” also meant it was “automatic” and did not have to be actually declared.

    BTW, when are you taking FAR? And it that your last exam?

    #476174
    NYCaccountant
    Participant

    @ Mun Basically in year one you were 40 percent done with the project based on actual and estimated costs (1,200,000 (actual costs) + 1,800,000 (Estimated costs left)=3,000,000/1,200,000=40%. So you say that this project will cost 3,000,000 to construct and so far you've spent 1,200,000, which means that your 40% complete with the project. Because you've taken

    40% of the cost, you should take 40% of the total fee you are charging the client (5,000,000 *40%=2,000,000) as revenue.

    The entries would be:

    Construction expense Dr. 1,200,000 income statement account

    Accounts Payable/Cash Cr. 1,200,000 income statement account

    Construction in progress Dr. 2,000,000 Asset account

    Revenue Cr.2,000,000 income statement account

    Then you billed and collected from the client 2,500,000. Journal entry below

    Cash Dr. 2,500,000 Asset account

    Billings on construction contract Cr. 2,500,000 contra asset account.

    Now the only things relevant to this question are construction in progress and billings on construction contract.

    So you earned 2,000,000 worth of revenue related to construction and collect 2,500,000, which means you have a liability in year one (Deferred revenue). Billings on construction is a contra asset account of construction in progress.

    So after year one you have a liability for 500,000 because you collected more cash then you earned.

    Now in year two, you are 80% complete with the project. Now on a cumulative basis (year 1 and year 2 combined) you have earned 80% of the project fee (5,000,000*80%=4,000,000). So long story short, your construction in progress account should now have a cumulative (year 1 and year 2 balance of 4,000,000. Now during year 2 you billed and collected another 1,500,000 from the client, which means on a cumulative basis (year 1 and year 2) you have collected 4,000,000 from the client. Now remember that billing and collections on construction contracts is a contra asset account of construction in progress. so at this point your balance sheet looks like this:

    Construction in progress Dr. 4,000,000

    Billings on construction contract Cr. 4,000,000

    They net each other out, and equal 0.

    I hope that helps.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    #476245
    NYCaccountant
    Participant

    @ Mun Basically in year one you were 40 percent done with the project based on actual and estimated costs (1,200,000 (actual costs) + 1,800,000 (Estimated costs left)=3,000,000/1,200,000=40%. So you say that this project will cost 3,000,000 to construct and so far you've spent 1,200,000, which means that your 40% complete with the project. Because you've taken

    40% of the cost, you should take 40% of the total fee you are charging the client (5,000,000 *40%=2,000,000) as revenue.

    The entries would be:

    Construction expense Dr. 1,200,000 income statement account

    Accounts Payable/Cash Cr. 1,200,000 income statement account

    Construction in progress Dr. 2,000,000 Asset account

    Revenue Cr.2,000,000 income statement account

    Then you billed and collected from the client 2,500,000. Journal entry below

    Cash Dr. 2,500,000 Asset account

    Billings on construction contract Cr. 2,500,000 contra asset account.

    Now the only things relevant to this question are construction in progress and billings on construction contract.

    So you earned 2,000,000 worth of revenue related to construction and collect 2,500,000, which means you have a liability in year one (Deferred revenue). Billings on construction is a contra asset account of construction in progress.

    So after year one you have a liability for 500,000 because you collected more cash then you earned.

    Now in year two, you are 80% complete with the project. Now on a cumulative basis (year 1 and year 2 combined) you have earned 80% of the project fee (5,000,000*80%=4,000,000). So long story short, your construction in progress account should now have a cumulative (year 1 and year 2 balance of 4,000,000. Now during year 2 you billed and collected another 1,500,000 from the client, which means on a cumulative basis (year 1 and year 2) you have collected 4,000,000 from the client. Now remember that billing and collections on construction contracts is a contra asset account of construction in progress. so at this point your balance sheet looks like this:

    Construction in progress Dr. 4,000,000

    Billings on construction contract Cr. 4,000,000

    They net each other out, and equal 0.

    I hope that helps.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    #476176
    NYCaccountant
    Participant

    @ DJN I'm taking FAR October 5th, and it will be my first CPA exam ever. Just starting the journey.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    #476247
    NYCaccountant
    Participant

    @ DJN I'm taking FAR October 5th, and it will be my first CPA exam ever. Just starting the journey.

    FAR - 93
    REG - 87
    BEC - 84!!!!
    AUD - 99!!!!!! CPA exam complete.

    #476178
    Anonymous
    Inactive

    @NYCaccountant, judging by your participation in these FAR threads you will pass with absolutely flying colors.

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