FAR Study Group – Q2 2018 - Page 11

Good luck for exam!! @gguzman

any good (free) sample tests/sims I can use? I have ninja but want to get some more in before I take the exam next week and since this is my last one and I'm GD determined to pass I don't want to purchase anything else.

@pam I have found a lot of testbanks for the cpa exam by googling the AICPA number of a question in either cpaexcel or ninja.

The differences in Beal Inc.'s Balance Sheet accounts at December 31, 20X4 and 20X3, are presented below:

Assets Increase (Decrease)
Cash and cash equivalents $ 120,000
Short-term investments 300,000
Account receivable, net –
Inventory 80,000
Long-term investments (100,000)
Plant assets 700,000
Accumulated depreciation –
$1,100,000
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $ (5,000)
Dividends payable 160,000
Short-term bank debt 325,000
Long-term debt 110,000
Common Stock, $10 par 100,000
Additional paid-in capital 120,000
Retained Earnings 290,000
$1,100,000
The following additional information relates to 20X4:

Net income was $790,000.
Cash dividends of $500,000 were declared.
Building costing $600,000, with a carrying amount of $350,000, was sold for $350,000.
Equipment costing $110,000 was acquired through issuance of long-term debt.
A long-term investment was sold for $135,000. There were no other transactions affecting long-term investments. These investments are categorized as available for sale.
10,000 shares of common stock were issued for $22 a share.
The short-term investments are classified as trading securities.
In Beal's 20X4 Statement of Cash Flows, net cash provided by operating activities was

Answer:
Net income $790,000
Increase in inventory (80,000)
Decrease in AP/accrued liabilities ( 5,000)
Gain on sale of long-term investments ($135,000 − $100,000) (35,000)
Increase in short-term investments (from purchase) (300,000)
Depreciation expense 250,000
Equals net operating cash inflow $620,000
The accumulated depreciation account did not change during the year. Therefore, depreciation expense equals $250,000, which offsets the decrease in the account due to the sale of the equipment.

Hi brethren, I spent a lot of time with this question and still I cant figure out conceptually how and why did they add back the accumulated depreciation for the sold building. Every other item I get how it came about except for the depreciation expense.

If you guys can help me figure out how did this happen ill appreciate it.

The answer to the question below does not make sense to me. It references that “Service cost is a component of compensation expense, not net periodic pension cost.”. Isn't Service Cost the “S” in PRIUS? (this is NINJA's acronym for the component of net periodic pension cost. can somebody clarify?

Service cost $160,000
Actual and expected gain on plan assets 35,000
Unexpected loss on plan assets related to
a disposal of a subsidiary 40,000
Amortization of prior service cost 5,000
Annual interest on pension obligation 50,000

What amount should Lee report as a separate line item titled “net periodic pension cost” in its current year-end income statement?

Service cost is a component of compensation expense, not net periodic pension cost. To compute the net periodic pension cost, subtract the expected rate of return on plan assets, add the amortization of prior service cost, and add the interest cost on the pension obligation:

$(35,000) + $5,000 + $50,000 = $20,000

@benj2017 – the ninja notes specifically state
Prior Service Cost Amortization
– Return on Plan Assets (Estimated)
+ Interest
+ Unexpected Losses or (-) Gains
+ Service Cost
= Net Periodic Pension Cost

so how is this not part of the net periodic pension cost? or at least, what is the nuance that i dont follow?

@benj2017 – before writing this question, i had reviewed the ninja notes, the ninja book, and the wiley book for clarification, and i am unable to find any guidance that mandates that “service cost” is reflected as a part of compensation expense on the income statement. The Ninja notes reference service cost – “(NEW) Only Component of NPBC allowed as an Operating Expense on Income Statement” but use “allowed”, not required, etc. no mention of compensation expense. just trying to get my ducks in a row here on the areas i'm unclear on . my test is tomorrow. trust me, i'm plenty familiar with the CPA exam tricking/confusing us on purpose, but cannot find a reference that explains this to me clearly. are you able to point me to where this is stated?

Hi all,

I'm using Becker 2017 and NINJA monthly to help me study FAR.

I have a question on the investment in equity securities section. In NINJA book, FAR 2, page 81, it says if the percentage ownership is less than 20%, then Fair Value method should be used to account for the investment in equity securities. However, I've looked everywhere in NINJA book, and all I can find is the cost method.

I know per ASU 2016-01, the accounting for equity investment has changed. The guideline requires all investments that are within its scope to be measured at fair value, with changes in fair value recognized in net income. Is this the “Fair Value Method” that NINJA book was talking about?

Can someone please help me explain what is going on here? Is the fair value method gone? Thank you!!