[iamstrong]

I checked out the FAR AICPA practice exam.
It was fair but the last SIM was a doozy to me.
I am not able to figure out how they got $11,250 for question 15 (interest expense) and 11,000 for liabilities at the bottom.
If anyone has any insight I would be greatful.
I’m testing on the 11th- it’s my last exam and praying this is my last FAR retake!!!
thanks
Rachel

[Anonymous]

Just figured this one out! At least the interest expense part of it.

So the first calculation of $187,500 presented in the interest expense general ledger detail is correct. They get this number by doing the following: [10,000,000 x (0.025+0.0125)]/2. The second one, however, is wrong. This is because semi-annual payments are being made on the principle (new principal is 10mil – 1mil pmt, or 9mil), so the calculation for 12/31 should be [$9,000,000 x (0.025+0.0150)]/2 = $180,000. $187,500 + $180,000 = $367,500 or the new interest expense number. The old interest expense number was $356,250, so you must add $11,250 to get to $367,500.

Haven't gotten to the $11,000 increase in liabilities but I'll keep you posted!

[iamstrong]

Thank you! i'm hoping that was a difficult SIM!

[iamstrong]

the only think i can come up with- is with the discontinued operation of segment B- there is no income taxes payable? The document says income tax expense is $11,000?
IS that too far fetched?

[Anonymous]

.

[MantisAlfredo]

Yes if anyone could explain the adjustments to the last table that'd be great. Why are assets adjusted 100,000? and liabilities adjusted 11,000?

[iamstrong]

Hi Mantis

The assets are adjusted to (100,000) because you are decreasing AR by 450,000 and increasing inventory by 350,000. I hope that helps?

[Anonymous]

The adjustments for assets is based on the reduction of Accounts Receivable (450k) and the increase in inventory 350k which nets out to a decrease of (100k). This comes from the email where the accountant journals in the transaction for inventory that was shipped, but the email from the controller says the items are FOB Destination. Since they don't arrive until January, the transaction does not occur until then and the journal should be reversed.

With all the other income items entered, the Net Income is reduced by (89k). On the balance sheet that would be be reflected as a reduction of Stockholder's Equity. For the balance sheet to balance, Liabilities must be reduced by 11k (100k assets = 11k liabilities + 89k Equity).

[iamstrong]

Thanks AF!

[Author]

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