FAR Study Group – Q2 2018 - Page 5

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  • March 31, 2018 at 8:00 am #1752972
    PDiddy2000
    Participant

    Hi everyone – I'm taking FAR on Monday, April 2. This is my first attempt on FAR and all the exams for that matter. I've been studying since January 8. I think information overload and burnout is starting to set in. After I take FAR, I immediately starting preparing for AUD on May 8. Thanks to the delay score releases, I decided early on to take 3 exams in Q2. Good Luck to everyone!

    March 31, 2018 at 12:38 pm #1753128
    Anonymous
    Inactive

    Hi everyone,

    I ran across this NINJA question and I believe the answer is incorrect. I think the year 2 compensation expense should be $300,000. The year 1 should be $50,000 and yr. 3 and 4 should be $175,000.

    NINJA has the answer at $175,000 each year. (total compensation expense: 700/000/4) Since the estimate changed in year 2, that is when the cumulative change should be recognized I believe.

    Any input?

    On January 1, Year 1, a company issued its employees 10,000 shares of restricted stock. On January 1, Year 2, the company issued to its employees an additional 20,000 shares of restricted stock. Additional information about the company's stock is as follows:

    Fair Value of Stock
    Date (per share)
    ——————- ——————-
    January 1, Year 1 $20
    December 31, Year 1 22
    January 1, Year 2 25
    December 31, Year 2 30
    The shares vest at the end of a 4-year period. There are no forfeitures. What amount should be recorded as compensation expense for the 12-month period ended December 31, Year 2?

    A.
    $175,000

    B.
    $205,000

    C.
    $225,000

    D.
    $500,000

    March 31, 2018 at 12:50 pm #1753134
    Anonymous
    Inactive

    Ok,

    I think I might have answered my own question. I think the NINJA explanation is incorrect or at least misleading, but the answer is right.

    Total Compensation Expense Yr. 1 = 50,000

    Total Compensation Expense Y2. = $125,000 + $50,000

    The two issuances are treated separately and not as one 4 year plan. I think if the additional shares were a change in estimate for the year 1 issuance, (i.e. less employees participating, etc.) then the compensation expense for that plan would be adjusted over the original 4 year period.

    I think it should be made clear (in the explanation anyway) that each issuance is separate and the compensation expense is therefore recognized in different four year periods. (year 1-4 for first issuance and year 2-5 for second issuance)

    March 31, 2018 at 2:34 pm #1753200
    SONA
    Participant

    Matching Principle.

    Ninja explanation is correct IMO and with reference to book.

    March 31, 2018 at 2:48 pm #1753203
    Anonymous
    Inactive

    @Sona

    Wouldn't matching imply different 4 year periods?

    1st issuance: year 1-4 (50,000 each year)

    2nd issuance: year 2-5 ($125,000 each year)

    Total compensation expense for year 2 = $125,000 + $50,000

    The NINJA explanation says you get there by dividing by $700,000 by 4 years which gives you the right amount, but in my opinion ignores the matching principle.
    Total year 1 comp. exp. would be $50,000 and total year 5 would be $125,000, and total years 2-4 would be $175,000. Dividing $700,000 by four years doesn't get you there….

    March 31, 2018 at 3:29 pm #1753241
    Anonymous
    Inactive

    I would think the expense would be:

    Year 1: 50k
    Year 2: 50k + 125k
    Year 3: 50k + 125k
    Year 4: 50k + 125k
    Year 5: 125k

    March 31, 2018 at 3:31 pm #1753242
    Anonymous
    Inactive

    @AF,

    That makes sense to me too. Like I said, it is just the NINJA explanation which to me seems a little misleading or incomplete.

    March 31, 2018 at 6:03 pm #1753295
    SONA
    Participant

    Correct……….. agree with your calculation totally.

    March 31, 2018 at 10:26 pm #1753355
    seepeehay
    Participant

    Your computation is right. I agree with you, Ninja's explanation was a little confusing. I saw the same problem in Becker even the amounts are exactly the same. lol

    For restricted stock the formula is:

    Total compensation cost = Market price at grant date x # of shares

    It's not a change in accounting estimate, they are two separate issuance with 4 year periods. $50,000 from 1st issuance and and $125,000 from 2nd issuance, total $175,000 for Year 2.

    March 31, 2018 at 10:34 pm #1753358
    Anonymous
    Inactive

    Hello I recently came across your podcasts. I sense that the book is supplemental when studying for the exams and a candidate can pass basically by doing video and practicing questions. Am I correct in that assumption?

    April 1, 2018 at 8:35 am #1753416
    SONA
    Participant

    AICPA Sample test last Testlet:

    Hey thanks a lot for the explanation. I was also stuck on the same what @cpaswag asked before. Also I would like to ask, there is debt agreement which has 10,000,000 and then also principal paid: won't these increase assets (cash) and increase by liabilities after the adjustments of principal payments?

    Please let me know how that affects to assets and liabilities.

    I am not able to find out the interest expense? LIBOR……. how come interest exp is $367500, What percentage are they using to calculate?

    April 1, 2018 at 12:16 pm #1753545
    SONA
    Participant

    Can anyone please explain the difference between following 2 question?
    Both are Non-GOVT NFP right? Why bad debt expense treated differently?

    Question 1:

    Terry, an auditor, is performing test work for a private not-for-profit hospital. Listed below are components of the statement of operations:
    Revenue for charity care services $100,000
    Bad debt expense 70,000
    Net assets released from restrictions
    used for operations 50,000
    Other revenue 80,000
    Net patient service revenue (includes revenue
    releted to charity care) 500,000

    What amount would be reported as total revenues, gains, and other support on the statement of operations?
    (Bad Debt ignored)

    Question 2:

    Hospital, Inc., a not-for-profit entity with no governmental affiliation, reported the following in its accounts for the current year ended December 31:
    Gross patient service revenue from all services provided
    at the established billing rates of the hospital (note
    that this figure includes charity care of $25,000) $775,000
    Provision for bad debts 15,000
    Difference between established billing rates and fees
    negotiated with third-party payers (contractual adjustments) 70,000
    What amount would the hospital report as net patient service revenue in its statement of operations for the current year ended December 31?
    (Bad debt not ignored)

    April 1, 2018 at 1:50 pm #1753652
    PDiddy2000
    Participant

    The latter is asking for “net patient revenue” which is calculated prior to bad debt expense. Bad debt expense is not used to calculate net patient revenue.

    April 1, 2018 at 3:24 pm #1753854
    glopooka
    Participant

    Pdiddy2000,
    I am following the same schedule/time frame you are. Taking FAR tomorrow, first exam, and I have been studying since January. Burnout is totally sitting in. It is 4:30 on the day before and I am barely able to get myself to study anymore.
    I am also taking AUD next and hopefully will be able to take 3 this quarter too. Good luck!

    April 1, 2018 at 4:19 pm #1753877
    PDiddy2000
    Participant

    @glopooka

    It's nice to know someone else is on the same track as me. Preparing for the CPA exams can be a very lonely journey. Good luck to you. I have a feeling this group is going to be very busy on June 27 when they release the test scores for Q2. We got this, Let's do it!!

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