[jeff]

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

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

[Cruzer]

Can someone give a good example or question that covers 2 operating cycles with discontinued operations involved? I understand that your record gain/loss on two separate components of disc ops: results of ops and gain/loss on disposal of assets but the period in which your record gain/loss confuses me. Thanks.

[Jj]

A company's division is losing 200k a month. The board decides on April 30, yr 1 to dispose of the division. The carrying value is the division on April 30 yr 1 is 4,000,0000 and it's fair value less cost to sell is 2,000,000.

After months of negotiations, the divisions net assets are sold on June 30, year 2 for 2,000,000. The division is still losing 200k per month. Tax rate is 40%.

How should the disposal of the division be reported in year 1 and year 2?

Answer:
year 1-
impairment loss= 1800000. (2,200,000 fv- 4,000,000 cv)
Loss from operations- 2400000. (200k x 12 months)

Total loss from discontinued operations after tax year 1= 2520000.(1800000+2400000)x(1-40%)

Year 2:
Loss from operations= 1200000. (200k x 6 months)
Loss on sale= 200000. (2000000-2200000)

Total loss year 2 after tax- 840000. (1200000+200000)x(1-40%)

So the loss from operations are recorded in both years. Impairment loss is recorded in year 1 (and every year until it's sold), gain or loss on sale is recorded in year 2 (when it's actually sold).

[Cruzer]

Awesome @Beantown23 thanks for the help. It makes sense now.

[SallyCPA]

I know this may seem ridiculous but I sometimes get really confused on subsequent events. It should be a really easy topic and I understand the concept but a lot of the questions and events sometimes contradict each other..does anyone else have this problem?

[Jj]

I'm not sure if this will help you but this is how I think about subsequent events…

Generally if it's something that happens that will make the financial statements as of the balance sheet date misleading, you have to adjust and reissue. Like if you find out 100k a customer owes you as of the balance sheet date (dec 31) went bankrupt and you won't get that money, you have to adjust the financials. If it's something that happens after the balance sheet date but before the financials are issued, just disclose.

[Vinti]

@CPAIN2K17 thank you so much. I will look for these trial course first then will decide.

[mtaylo24]

Haven't even put a dent into Ninja. Been on this for a week and I still have over 1000 questions left. That second section is a monster…

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[Anonymous]

Work threw a monkey wrench in my studying. Exam on 5/26, starting to study this week

[Wannafree]

Can someone explain me salary expense accrued at year end and pain in next year.I am little confused.
It would be nice if someone can insist on accrual and liabilities of salary at year end and next month and following month.

[mtaylo24]

@WannaFree Is this what you are looking for? Not referring to any text here, just thinking of how it is done in an industry month-end close.

Year 1, you accrue your liability

Dr. Salary Expense
Cr. Salary Liability

Year 2, you can either reverse your accrual and actually make the pmt

Dr. Salary Liability
Cr. Salary Expense
Dr. Salary Expense
Cr. Cash

Or just clear your liability

Dr. Salary Liability
Cr. Cash

The first scenario is ideal if you weren't spot on with your accrual

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[Wannafree]

@mtaylo ,Yes ,can you please put a number ? Say last week on 31st December was Wednesday and say he is paid $10 each day.so $30 in Year one is accrued and 20 belongs to year 2.Further say 1st 3 week total is $150.Now can you please pass the JE ?

[mtaylo24]

Yr 1 accrual

Dr PR Exp 30
Cr PR Liab 30

Yr 2 pmt

Dr pr exp 20
Dr pr liab 30
Cr cash 50

Can u clarify what you are askin for with the 3 week thing? That wouldnt be an accual right?

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[Wannafree]

Thanks mTaylo , got what I was looking for.Thank you.

[2017cpa]

On January 1, 20×1 Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000. Ritt's cost reflects an appropriate fair value measure for all of Shaw's outstanding common stock. The original cost to the noncontrolling investors for the 20% of Shaw's common stock not acquired by Ritt was $200,000. At the date of Ritt's purchase, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) which were $100,000 in excess of the carrying amount. Which one of the following is the amount of noncontrolling interest that should be reported in a consolidated balance sheet prepared immediately following the business combination?
$125,000
$200,000
$220,000
$243,750
You Answered Incorrectly.
This incorrect answer ($125,000) results from subtracting Ritt's cost ($975,000) of 80% of Shaw's common stock from the fair value of Shaw's identifiable net assets, or $1,100,000 − $975,000 = $125,000, an incorrect answer. Since Ritt acquired only 80% of Shaw's common stock, the full fair value of Shaw's common stock (including goodwill) would be ($975,000/.80) $1,218,750. The noncontrolling interest would be 20% of the total fair value (including goodwill), or .20 × $1,218,750 = $243,705, the correct answer.

I understand how they got the answer but I'm still not sure why the full fair value wouldn't be $975,000+ $200,000 (which I thought was the 80% and 20%).

[2017cpa]

On January 1, 20×1 Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000. Ritt's cost reflects an appropriate fair value measure for all of Shaw's outstanding common stock. The original cost to the noncontrolling investors for the 20% of Shaw's common stock not acquired by Ritt was $200,000. At the date of Ritt's purchase, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) which were $100,000 in excess of the carrying amount. Which one of the following is the amount of noncontrolling interest that should be reported in a consolidated balance sheet prepared immediately following the business combination?
$125,000
$200,000
$220,000
$243,750
You Answered Correctly!
Noncontrolling interest at the date of the business combination should be the noncontrolling interest proportionate share of total fair value at that date, including goodwill. The total fair value of Shaw (including goodwill) at the date Ritt acquired 80% of Shaw's common stock would be $1,218,750 ($975,000/.80). The noncontrolling interest would be .20 × $1,218,750 = $243,750, the correct answer.

I understand why the answer is correct but I don't understand why the total fair value wouldn't be $975,000+$200,000 (which I understood would be the 80% and 20%)

I would appreciate any clarification.

[Author]

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