[jeff]

FAR Resources:

Free FAR Notes & Audio – https://www.another71.com/cpa-exam-study-plan

FAR 10 Point Combo: https://www.another71.com/products-page/ten-point-combo

FAR Score Release: https://www.another71.com/cpa-exam-scores-results-release

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

[Anonymous]

Can anyone explain the logical reasoning behind this?

A company exchanged land with an appraised value of $50,000 and an original cost of $20,000 for

machinery with a fair value of $55,000. Assuming that the transaction has commercial substance, what is

the gain on the exchange?

a. $0

b. $5,000

c. $30,000

d. $35,000

Solution:

Choice “c” is correct.

In transactions that have commercial substance, gain is recognized in a

nonmonetary exchange equal to the difference between the fair value of the asset given up and the book

value of the asset given up. ($50,000 – $20,000 = $30,000).

I know that's the rule, but why wouldn't the asset just be written up to FV and then you have a gain of $5,000?

[NYCaccountant]

Thanks @ Elizabeth. Wiley does seem to throw you alot of trick questions though.

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

[Anonymous]

It's more a matter of “because that's the rule” than because one is more or less “right”. The rule is that on things like land, you don't write it up ever because that doesn't fit with the conservative side of accounting. You only recognize its fair value if/when you sell it. It's arguable that financial statements would present a more fair and accurate view of a company's position if everything was reported at fair value…cause the building which has depreciated to $0.00 is still worth more than that! And various other assets and liabilities would be more accurate at fair values than at book value. However, the accounting rule, due to conservatism, is that you report at lower of book or market for almost all assets, so that you avoid ever having something overstated.

I guess one reason for using the book value is that it's cheaper and easier than getting it appraised every year to reflect an accurate value. *shrug*

Oh, and as far as why not write it up to its FV right before the sale – maybe try to picture the journal entry. You can't just increase the value by $30k without putting that against something…so what would it be? “Gain on ____”. So, either you have 2 gain transactions (one something like “gain on holding” and one “gain on sale”), or you just make one gain transaction, and given that there's just one transaction (the sale) giving rise to the gains, one transaction to record the gain is simpler.

…beyond that, I try not to question the logic of FAR. 😛 Or any of the other accounting rules, either… (Like why in the heck do governments get special rules to follow and don't have to follow corporate rules?!)

[zakahracw]

Totally freaking out! I have 10 days until my exam and am not where I wanted to be especially since I bought a final review package that I will barely use. I also have skipped F10 in Becker!

This is my plan for the next week

Today – F4 & 5 MCQ's; Progress Exam 2-5

Sunday – F6 MCQ'; Progress Exams 2-6

Monday – F7 MCQ's

Tuesday – F8 & 9 MCQ's

Wednesday – SIM's

F10

Thursday – Final Exam 1

Friday – Final Exam 2

Saturday – Progress Exams

Sunday – Progress Exams

Monday – Exam Day

~Z

"Live your Best Life"

[Anonymous]

Hi everyone-

I am taking FAR on 8/1 and I don't feel very comfortable with at all. I am going through as many MCQs and simulations as necessary over the next week until I take the test. Any other suggestions? I am using Becker material and this is not my first go around with the exam.

[Anonymous]

thanks Elisabeth! makes sense.

[Tncincy]

Hey,

How to study the research questions. I have studied just about everything, what to do about the research questions?

It begins with a 75
Been here too long as a cheerleader....ready to pass

[LT-P]

@tncincy just get familiar with searching through the AL .. use the research practice SIMS.

- passed all 4 exams on my first try using Becker!

Ethics: TBD

[Anonymous]

This is probably a stupid question, but can someone explain to me why the first $50,000 which was paid Year 2 is included with the annuity on the year one income statement?>

House Publishers offered a contest in which the winner would receive $1,000,000, payable over 20 years. On December 31, Year 1, House announced the winner of the contest and signed a note payable to the winner for $1,000,000, payable in $50,000 installments every January 2. Also on December 31, Year 1, House purchased an annuity for $418,250 to provide the $950,000 prize monies remaining after the first $50,000 installment, which was paid on January 2, Year 2.

In its Year 1 income statement, what should House report as contest prize expense?

a.

$1,000,000

b.

$418,250

c.

$468,250

d.

$0

Explanation

Choice “c” is correct. $468,250 contest prize expense.

First payment on 1/2/ Year 2 $ 50,000

Present value of 19 subsequent payments 418,250

Contest prize expense in Year 1 income statement $ 468,250

[Anonymous]

dsteele139, the $50,000 is still an expense in year 1 because that is when it was incurred. It isn't PART of the annuity but the question asks for the total prize expense in year 1 so you add the amount of the annuity for the remaining payments plus the $50,000 first payment to be made next year to get the total expense in year 1.

[NYCaccountant]

The cash paid in the first year is already presented at fair value and earned. House publisher owes the winner $950,000

more, but this will be paid out over 20 years. GAAP states that liabilities and assets that will be “realized” beyond 12 months

must be stated to reflect their Present values. So essentially the long term debt will have to be restated to present value. The entire 1,000,000 was earned, but 950k of that will be paid out in the future.

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

[Bea]

I am struggling with those PV and FV of annuities, bonds and leases… I just can not understand the concept and which factor and when should be used… I am the only one finding those difficult? 🙁

R- P
F- P
A- P
B- P

[Mike1987]

@mrozosia. Those were the hardest chapters for me as well, I regret not paying attention in my college accounting classes now as I do not understand the concept. I basically just kept on doing questions and trying to memorize how to do it till something clicked. It still takes me too long to think through each question though.

[LT-P]

@mrozosia that is my weakest area too. I practically took up the whole FAR thread getting help for one question :/

- passed all 4 exams on my first try using Becker!

Ethics: TBD

[Bea]

ufff, now as you have responded I know that this is hard part of FAR… I will keep doing questions and simulations (Becker), over and over, hopefully I will get the sense of it…

Mike1987 & Tanaya thanks for your reply and good luck with your study 🙂

R- P
F- P
A- P
B- P

[Author]

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