[jeff]

Welcome to the Q2 2017 CPA Exam Study Group for FAR. 🙂

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

[CPAIN2K17]

Miro Co. began business on January, 2, year 2. Miro used the double‐declining balance method of depreciation for financial statement purposes for its building, and the straight‐line method for income taxes. On January 16, year 4, Miro elected to switch to the straight‐line method for both financial statement and tax purposes. The building cost $240,000 in year 2, which has an estimated useful life of 16 years and no salvage value. Data related to the building is as follows:

Year Double‐declining

balance depreciation Straight‐line depreciation
Year 2 $30,000 $15,000
Year 3 26,250 15,000

Miro’s tax rate is 40%. Which of the following statements is correct?
There should be no reduction in Miro’s deferred tax liabilities or deferred tax assets in year 4.
Miro’s deferred tax liability should be reduced by $1,875 in year 4.
Miro’s deferred tax asset should be reduced by $10,500 in year 4.
Miro’s deferred tax asset should be decreased by $750 in year 4.

The answer is D. Can someone explain to me where $750 is coming from?

[Jj]

@cpain2k17 I think it's because the new dep exp for the asset is 13500 (prospective), and the tax is 15000, creating a 1500 difference. 1500×40% is 750. The 750 reduces your deferred asset because your now deducting more for tax purposes 15000 than you have in your books 13500 for that year. In years 2 and 3 you're creating a deffered tax asset because your depreciation expense is higher than what you're expensing on your taxes.

[Jj]

Sorry I made a calculation mistake in the comment above, the new dep expense after switching to straight line is $13,125 (183750/14). $13,125 asset dep – $15,000 tax dep = 1875. 1875 x 40% tax rate is 750. sorry about that.

[LCros]

Let me know how I can help you guys understand the par method and cost method…Roger explains it really well if you have his lectures. The thing to remember is that with cost, the cost that you paid for automatically is a debit to Treasury stock. If you sell it, then you simply credit the treasury stock for the amount that you paid- cost in and cost out.

You never credit retained earnings, if you have an excess of the the cost, you credit APIC-T/S. If you need to more in the debit side to make it balance, you take off first any apic for treasury, if you have none then it hits RE.

For the par method, you treat it like you are actually retiring the stock. So if you buy it back, take it off at the par value, debit treasury stock at par then if you have to take off any additional apic-C/S that is associated with it with a debit.

if you sell it again, credit it for par value, and credit the excess for apic-c/s, because its treated like a new issuance. if you retire and you are using the par method, simply debit the c/s for the par amount and credit the t/s, because with the par method, it's treated like you are retiring once you initially bought it back; and you already took off the apic.

Hopes this helps and it's easy to understand.

[CPAIN2K17]

Thank you beantown, that makes sense!

[HottyToddy]

In Year 1, Community Helpers, a private voluntary health and welfare organization, received a bequest of a $100,000 certificate of deposit maturing in Year 11. The testator's only stipulations were that this certificate be held until maturity and that the interest revenue be used to finance the ongoing salaries for a currently operating preschool program. Interest revenue for Year 11 was $8,000. When the certificate was redeemed, the board of trustees adopted a formal resolution designating $20,000 of the proceeds for the future purchase of equipment for the preschool program.

What should be reported in the Year 11 year-end statement of financial position?

a. Temporarily restricted net assets (for purchase of equipment), $20,000; unrestricted net assets, $80,000.
b. Temporarily restricted assets―designated for preschool program, $28,000; Net assets unrestricted, $80,000.
c. Unrestricted net assets, $100,000.
d. Net assets temporarily restricted―designated for preschool program salaries, $8,000. Unrestricted net assets, $100,000.

The answer is C

Could someone please help me understand why the answer would not be D? Wouldn't the interest revenue earned from the CD be classified as temporarily restricted, since the donors require it to be used to pay for ongoing salaries?

[HoldMyBeerCPA]

Hey Toddy, I believe that the best answer is C, because the fact that the interest revenue may be used for “ongoing salaries for a currently operating school program.”

Since the interest earned can be used for current operations and isn't earmarked for future periods, there is no time-based restriction.

Additionally, since the interest can be used within the entity, there are no external spending requirements. As such, there should be no temporarily restricted assets after the maturity date of the CD.

[Jj]

Because its the year of maturity, and the interest is used to pay ongoing salaries. So in year 11 the 100k is moved to unrestricted and the 8k is moved to unrestricted also but the 8k is expensed in that year (on salaries), leaving 100k left in unrestricted.

[yari_cookie]

Hi guys!

Quick overview:
A year ago I started studying for AUD and fail using Becker… I was working full time and for me the lectures were too LONG! Finally I have a slow job and MY PRIORITY is my CPA lic. How ever switch to Wiley review. I also decided to start with FAR since in AUD Exam I got some FAR material.

*I was wondering if someone from the group experienced something similar like I did?. Also kind of wondering if I should buy additional practice questions since the first sections of FAR of chapter 1 don't have a lot of practice…. or should I trust the system and go with the flow?.

Thanks!!
Yari

[SallyCPA]

Thank you @LCRos that helped a lot! On to reviewing EPS today…

[Zainab0]

Hello guys .. I have FAR exam first time to me.. the exam will be after two days .. I would like to know if the exam questions similiar backer questions or totally different?

I try to do sample exam, but I felt it was difficult and I got a not good rate..

what I can do in this 2 day .. anyone have another sample exam to make practice .?

[sellers321]

Studying for Leases next week…Starting Monday I hate to even think about this section. I too

[Vinti]

Hello everyone, I am planning to take FAR exam, can you please suggest which review course should I go for? And do NINJA MCQS have SIMs also in it? And how much time will be required to prepare for FAR exam? Any help will be appreciated.

[CPAIN2K17]

@vinti Gleim, Becker, Wiley, Rogers are all pretty popular on here. You should look up each and see which one seems to fit your style best! Yes ninja MCQ has sims but they're not the best.

[Veggie]

I'm using Wiley to study and have a question on the T account for construction in progress. In the text it has the T account as:
DB: Construction Costs
DB: Profit
CR: Construction Billings
DB: Losses

But then I came across this problem:

At the end of the third year of a contract, total estimated project cost exceeds the contract price. In both of the first two years, the firm recognized gross profit on the contract under percentage of completion. What is the ending balance in the construction‐in‐progress account at the beginning of year four on the contract under the percentage‐of‐completion method (PC), and under the completed‐contract method (CC), had that method been used?

Answer is PC: Cost to date less overall loss CC: Cost to date less overall loss

I chose B: PC Cost to date less billings CC: Cost to date less billings

The explanation is Billings on contract represent a separate account, treated as a contra account to construction in progress. The construction‐in‐progress balance never includes any amount for billings.

So what goes in the CIP account and what goes in the billings account? Where does cash collections go for billings?

BEC (2/27) 85

CMA Part 1 (10/14) 440
CMA Part 2 (5/15) 420

[Author]

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