[jeff]

I’ve had a few requests for April/May Study Groups…March will be here before you know it.

In order to take an early April exam, you should begin studying…now. 🙂

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

I've spent my morning so far struggling with pensions. For some reason I can't get those journal entries straight in my head. This is going to be a long day.

[Anonymous]

Baker Co. has a franchise restaurant business. On January 15 of the current year, Baker charged an investor a fran­chise fee of $65,000 for the right to operate as a franchisee of one of Baker’s restaurants. A cash payment of $25,000 towards the fee was required to be paid to Baker during the current year. Four subsequent annual payments of $10,000 with a present value of $34,000 at the current market interest rate represent the balance of the fee which is expected to be collected in full. The initial cash payment is nonrefundable and no future services are required by Baker. What amount should Baker report as franchise revenue during the current year?

a. $0

b. $25,000

c. $59,000

d. $65,000

Correct answer is C. Revenue on a franchise agreement should be recognized when the franchisor has substantially performed all material services and conditions, and collectibility is reasonably assured. Baker should recognize $59,000 in revenue: the initial cash payment ($25,000) plus the present value of the future cash payments ($34,000).

Are these the correct JEs for the above?

DR Cash 25,000

DR Notes Receivable 34,000

CR Franchise Revenue 59,000

[NYCaccountant]

I believe that entry is:

Cash Dr – 25,000

Note receivable Dr . 40,0000

Discount on note receivable – Cr. 6,000 Represents interest that will be earned over the four years.

Revenue – Cr. 59,000

I think you can probably do it either way, but I think this way is much cleaner because it separate interest from principle.

So in second year, just doing straight line, but it should be done using the effective rate.

Cash Dr 10,000

Note receivable Cr. 10,000

Discount Dr. 1,500

Interest Revenue Cr. 1,500

Of that 40,000 in payments, $6,000 will be imputed interest because the present value of 40,000 discounted to today would be 34,000, so the extra $6,000 must be interest for borrowing.

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

[stoleway]

Oops, changed my mind

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[Anonymous]

@NYC, thanks again my superhero!

[Anonymous]

@Amor D–I googled your problem and the second link for Chapter 18 Notes shows it the way you did it for the franchisor. It doesn't show booking a discount on the note. Now I'm confused. https://www.google.com/search?sourceid=navclient&aq=&oq=franchise+journal+entry&ie=UTF-8&rlz=1T4WQIB_enUS575US575&q=franchise+journal+entry&gs_l=hp…0j0i22i30l4.0.0.0.7225………..0.tZEx06kf4M8#q=franchisor+journal+entry&spell=1

[Anonymous]

Ahhh. Just saw where NYC said you could probably do it either way. Perfect. Thanks!

[NYCaccountant]

Yes, you can do it either way. It has the same net effect on your financials, but I did it the other way because it's cleaner and much easier to explain why. Think about it, if I was reading your financials and I saw just a note payable for 34,000, I would not know of the interest component at all.The only reason the note is discounted is because technically you've only earned 34,000 to date (in regards to the 40k worth of payments), and the balance will be imputed interest to reflect the time value of money. It's really a preference because I've seen it done both ways before, but for @Amor, I thought it would be more beneficial to show the entire picture and why this or why that. It's much easier to comprehend when you're looking at the big picture instead of just focusing on the one journal entry. There by if you ever get stuck, you can just simply back your way into the answer because understand why and not just how.

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

[teeteenounouche]

CPAMommyof3, the example in the slides didn't give an amount for PV of the payments so that may be the reason for the simpler JE…

Florida:
AUD: 73, 81! Thank you Lord!
BEC: 73, 77! Thank you Lord! and WTB
REG: 71, 82! Thank you Lord! and A71
FAR: 72, 78! Thank you God and my Mommy in Heaven!

CPA Excel, Ninja Notes & Audio, Wiley Test Bank, CPAreviewforfree

[Anonymous]

I got that question from WTB. I just wanted to make sure I know how to lay out my JEs for that situation. (It didn't ask for any JEs.)

Bond problems are really intimidating. Once I saw the problem, I can answer it next time. But when I see them in different formats, then I panic and unable to think, just like in that problem, okay how much is NR? What about the difference between the PV as against the face of the note?

NYC knows FAR topics upside down. I hate him! LOL

P.S. I had to google imputed interest. Investopedia explains it and yet I still don't know what the heck imputed interest is. Oh my, I need to move on to the next topic.

[Amay]

@Amor I got weaker on everything except for 2 areas I got comparable in – specific transactions/events and governmental. It was no help at all. I have to study everything with the same amount of effort!

@NYC The videos do help me, mainly on the mos difficult subjects I am not used to seeing at work. They help me focus and not drift off into space like when I do when I am just reading the material. It makes me write the notes (I don't highlight) and I make myself stay awake by racing against the video length – the goal is to not hit pause and write notes as fast as possible while still retaining the info. Obviously I still hit pause if I need to.

F1: Standard Setting, Income Statement, and Reporting Requirements

F2: Matching (Revenue & Expenses), Foreign Currency Accounting, and Other Financial Statement Presentations

F3: Marketable Securities and Business Combinations

F4: Working Capital and Fixed Assets

F5: Leases, Liabilities, and Bonds

F6: Pensions and Income Tax Accounting

F7: Stockholders' Equity, Cash Flows, and Ratio Analysis

F8: Governmental Accounting

F9: Governmental and Not-for-Profit Organizations

F10: Fair Value, Partnerships, VIEs, AROs, Liabilities, Contingencies, Subsequent Events, Financial Instruments, Review of IFRS vs. U.S. GAAP, and Liquidation Basis of Accounting

BEC: 73, 81
AUD: 85
FAR: 71, 77
REG: 74, 75...finally DONE! 😀

*This is my 2nd attempt at the CPA exam. For all of you who have failed this exam many times, given up on it, or taken a break like me, remember that it is still possible to finish what you started...failure is the opportunity to begin again more intelligently 🙂

[Anonymous]

@Amor D–Don't move on yet. I'm working that section today too! I didn't know what imputed interest was either. It may be the blind leading the blind, but we could help each other work through some stuff today. For instance–I'm having a huge problem remembering the different JEs for Par Value Method so I just noticed that the buy back is TAC CAT. DR Treasury stock and Apic-Common stock and CR Cash and Apic-Treasury stock. It may not stick, but I'm trying because there are so many questions in the WTB about how it affects Total Stockholder's Equity and the only way to get through some of these problems is to remember all the JEs. 🙂

[Amay]

That being said, I don't want to spend too much time watching lectures for my re-take. I skipped 4 ch. lectures the first time around, maybe those are the only ones I should watch and just focus on MCQs the rest of the way. Not sure yet. Study strategy evolves as I go…

BEC: 73, 81
AUD: 85
FAR: 71, 77
REG: 74, 75...finally DONE! 😀

*This is my 2nd attempt at the CPA exam. For all of you who have failed this exam many times, given up on it, or taken a break like me, remember that it is still possible to finish what you started...failure is the opportunity to begin again more intelligently 🙂

[KRina]

@Tee and How many, thanks a lot. I do understand.

what I need now is a break down of APIC for the par value of treasury stock. For some reason, I don't understand how to calculate APIC when purchase and reissued. Any help is greatly appreciated.

I am going to try Roger's you tube

[cpain2015]

Just started Studying this week for FAR. Sitting for the exam at the end of May! It's going to be a brutal 2 months.

FAR - 73, 75 PASSED
AUD - 74, 96
BEC - 79
REG - 89! Done. I'm a CPA!!

[Author]

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