[jeff]

FAR Resources:

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

[NYCaccountant]

To re-class the prepayment for the goods to be manufactured:

Prepaid expense Dr. 50,000

Credit Ap Cr. 50,000

Remember, the AP originally had a debit of 50k, which means that it is negative by 50k.

When you post the credit, this effectively balances the AP account to zero, which actually increases

the AP balance from the original amount.

When they receive the goods, the entry would be:

Supplies Expense Dr. 50,000

Prepaid Expense Cr. 50,000

For the second question, the taxes withheld will be reported as a liability, journal entry below:

Salary Expense Dr. 10,000

Cash Cr. 8,000

Fica Taxes Cr. 2,000

I just made those numbers up. The companies entire salary expense is 10K and 2k of that will be used to pay for taxes.

So instead of paying the employees the full 10k, we'll pay them 8k and withhold the 2k to pay for taxes.

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

[ZSRizvi]

Thank you, NYCaccountant!

That first problem makes so much more sense now. At times, the way Becker words questions is confusing. I was rather lost about the A/P debit balance. And thank you for the clarification on the FICA taxes. Since those weren't covered in the lecture, I was trying to figure out what and how they're reported.

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[Anonymous]

Possibly a silly question but why is there no tax effect on the numerator in diluted EPS calculation for convertible preferred stock? Yet there is one for the convertible bonds.

“Convertible preferred stock is handled the same way as convertible bonds except there is no tax effect.”

[NYCaccountant]

The interest on convertible bonds flows through the income statement as interest expense. The dividends on preferred stock are paid out of retained earnings and do not flow through the income statement, consequently this has a zero tax effect on your income statement. When you take away bond interest expense, you're increasing your net income and tax liability at the same time. Increase in income net of increase in taxes, gives you the numerator you want.

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

[Anonymous]

Thanks. I sort of understand…but aren't dividends deductible? I'm terrible with anything having to do with tax so please excuse me!

[carpeCPA]

@ZSRizvi – did you ever get an answer for your question? I struggle with this too.

Does anyone have any advice on identifying “changes in accounting principles inseparable from changes in accounting estimates?

REG - 93 (Jul'13)
FAR - 97 (Dec '13)
AUD - 99 (May '14)
BEC - Jul '14

Becker Self Study/Ninja Notes/Ninja Audio/Ninja MCQ/Wiley Test Bank/Wiley Book

[NYCaccountant]

@ Rache1 I think a good basis for this is when you base estimates around accounting principles. For example, when you estimate the allowance for doubtful accounts, you can use one of two methods – as percent of ending AR, or as percent of net credit sales. These are two differenct accounting principles, but essentially you are estimating the value for both. So, when you make a change in principle from one method to the next, you are also making a change in estimate. At least that's how I see it, could be totally off base though.

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

[carpeCPA]

That helps! Thanks, NYCaccountant!

REG - 93 (Jul'13)
FAR - 97 (Dec '13)
AUD - 99 (May '14)
BEC - Jul '14

Becker Self Study/Ninja Notes/Ninja Audio/Ninja MCQ/Wiley Test Bank/Wiley Book

[Tootsie]

Hi everyone, just got through F1.1. It was not bad at all. I actually kinda liked it, lol. It took me back to my grad school days, which was only a couple of years ago.

I am doing F1.2 tomorrow. So when does it get hairy? Happy studying!

FAR - 76
AUD - 88!!! DONE!!!!!!!!
BEC - 76
REG - 77

never, never, never give up

[Mike1987]

@Tootsie, F2 was the toughest chapter for me homework wise.

[Tncincy]

I am troubled. I keep reading these posts that say bs degree, ms degree, the school attended, the gpa. now even passing the cpa does not matter. so why are we taking this test if you can't get a job unless you are a 4.0 from one of the top 10 schools with a great recruiter and so many years of experience.

Do I need to post this in a new post?

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

[Tncincy]

Well far fam,

studying seem so mundane, I am finding it hard to really get into it. Studying again or starting over is very hard. There are so many excuses to start tomorrow….the clock is ticking and it will be oct before I know it. I need some study dust.

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

[Anonymous]

OK, I have another question. It's a little hard to explain but it pertains to measuring fair values when doing business combinations. In what instances is it appropriate to just divide the percentage of shares purchased by the consideration transferred to get the total FV of the business? Like if you purchase 80% of P company for $100,000. Then to get the implied fair value, you can just do .$100,000/.8 = $125,000 which would be the total.

But in cases where there is a noncontrolling interest, it doesn't always work out that way. For example, in this problem:

On April 1, year 1, Parson Corp purchased 80% of the outstanding stock of Sloan Corp for $700,000 cash. FV of net identifiable assets was $800,000 on the date of acquisition. The FV of Sloan's stock on the date of acquisition was $18 per share. Sloan had a total of 50,000 shares issued and outstanding. What amount of goodwill should be recorded?

Answer:

$700,000 consideration

$180,000 NCI ($18 * 10,000 shares)

($800,000) net identifiable assets

$80,000 goodwill

I understand this but I'm just not understanding why the NCI wouldn't be worth $175,000 theoretically if $700,000 is 80% (since that would imply the total FV would be $875,000). I'm just confused because I remember in some college accounting classes we could do it that way and I've seen it in some other questions too. I'm just not sure when it applies. I'm thinking if the FV of the shares are given we have to use that? But why wouldn't it be the same?

Sorry if I'm rambling…does anyone follow what I'm asking?

[quittingcpa2013]

I figured out the secret to passing this exam:

Know everything about accounting.

[ZSRizvi]

@dante, I'm on that chapter right now but I'm doing the equity method. Give me a few hours and I might be able to answer your question, LOL.

I actually had a question pertaining to the equity method:

Moss Corp. owns 20% of Dubro Corp.'s preferred stock and 40% of its common stock. Dubro's stock outstanding at December 31, Year 1, is as follows:

10% cumulative preferred stock $ 100,000

Common stock 700,000

Dubro reported net income of $60,000 and paid dividends of $10,000 to its preferred shareholders for the year ended December 31, Year 1. How much total revenue should Moss record due to its investment in Dubro?

The answer is $22,000.

What I don't get is, I thought cash dividends reduce your “investment in investee” account and aren't considered “revenue”? So then why are preferred dividends considered revenue? Is it because they aren't considered voting stock?

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[Author]

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