[jeff]

FAR Resources:

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

[Tootsie]

I am half-way through Becker's F1 chapter. Peter Olinto is funny.

Is anyone memorizing what goes on all of the financial statements? I think I might need to write them all out.

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

never, never, never give up

[pink48915]

Is anyone on F7 stockholders' Equity?

I couldn't understand the core concept of this question.

On January 2 of the current year, Kind Co. granted Morgan, its president, compensatory stock options to buy 1,000 shares of Kine's $10 par common stock. The options call for a price of $20 per share and are exercisable for 3 years following the grant date. Morgan exercised the options on December 31 of the current year. The market price of the stock was $45 on January 2 and $70 on December 31. Using an acceptable options pricing model, Morgan determined that the fair value of the options granted was $30,000. By what net amounts should stockholders' equity increase as a result of the grant and exercise of the options?

Answer : $20,000.

I know this has something to do with the granted date and when it is exercised, so I thought the answer would be $30,000.

How do I get the 20,000 under this question?

[NYCaccountant]

On grant date entry is:

Compensation Expense Dr.30,000

Additiona Paid in Capital- Options Cr. 30,000

On Excercise date entry is :

Cash Dr. 20,000

Additional Paid in Capital – Options Dr.30,000

Common Stock Cr. 10,000

Additional Paid in Capital Cr.40,000

Stock holders equity decreased by the 30,000, and increased by common stock (10,000), and Additional paid in capital (40,000). Net effect is 20,000.

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

[pink48915]

@NYCaccountant

So this has nothing to do with the Market value and the “exercisable for 3 years following the grant date”?

[Anonymous]

ZSRizvi….yes, that is exactly why. Preferred dividends are treated as regular dividends and go to income.

My question still stands! anyone?

[NYCaccountant]

The market value of the options was 30k on the grant date. You'll expense this immediately because the options are 100% vested. The key is “excercisable for 3 years”. This means the holder has the option to excercise the options for up to three years, and does not mean that the options will vest over 3 years. two different things. The company will take the full expense in earnings on the grant date, and not prorate it over 3 years. This is because the options are already vested.

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

[pink48915]

thanks @NYCaccountant that was really really helpful!!!

[ZSRizvi]

@dante

Okay, so I just went through that chapter and what you're saying makes absolute sense (to me). That's the way Becker teaches it, as well. That if it isn't a wholly-owned subsidiary, you need to divide the FV acquired by the percentage acquired.

That answer doesn't even make sense because if the NCI is $18 x 10,000 shares, then the remaining shares of 40,000 x $18 = $720,000. Not the $700,000 that WAS acquired.

Is that a Becker question? I didn't see it on the homework problems.

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.

[masterof74s]

Hey Guys,

Could anyone help explain something to me!

Grant Inc acquired 30% of South Co.'s voting stock for $200,000 on January 2, Year 1. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During Year 1 South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six months ended June 30, Year 2. and $200,000 for the year ended December 31, Year 2. On July 1, Year 2 Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2. In its Year 2 income statement, what amount should Grant report as gain from the sale of half of its invetsment.

The answer is $30,500

Purchase Price 1/2/1 200,000

+ 80,000 x 30% – 24,000

– 50,000 x 30% = 15,000

12/31/1 balance = 209,000

+ year 2 income 1/2 yr 100,000 x 30% = 30,000

balance at 6/30/2 = 239,000

x 50% sold = 119,500

cost sold = 150,000

gain = 30,500

My question is why is the $100,000 of income from june added in full why isnt it $100,000 x30% x (6/12 months) ?

AUD - 68, 74, 76 - DONE
BEC - 78 - DONE
REG - 52, 74, 74, 63, 74
FAR - 68, 78 - DONE

[Anonymous]

Can someone explain, I don't understand this whole explanation, I'm sure someone can make it sound less complicated:

Winn Co. sells subscriptions to a specialized directory that is published semiannually and shipped to subscribers on April 15 and October 15. Subscriptions received after the March 31 and September 30 cutoff dates are held for the next publication. Cash from subscribers is received evenly during the year and is credited to deferred subscription revenue. Data relating to year 2 are as follows:

Deferred subscription revenue, 1/1/Y2 $ 750,000

Cash receipts from subscribers 3,600,000

In its December 31, year 2 balance sheet, Winn should report deferred subscription revenue of $900,000.

This answer is correct. The 12/31/Y2 balance of deferred subscription revenue should reflect the liability for subscriptions still outstanding at that time. The 12/31/Y1 deferred revenue ($750,000) would have been earned when the April 15 directory was mailed, and therefore is no longer a liability. The cash collected through the September 30 cutoff date (9/12 x $3,600,000 = $2,700,000) would also have been earned when the April 15 and October 15 directories were mailed (note that the cash was received evenly throughout the year). However, the cash collected after September 30 (3/12 x $3,600,000 = $900,000) will not be earned until the 4/15/Y3 directory is mailed, and therefore is deferred revenue at 12/31/Y2.

[ZSRizvi]

@masterof74s

The question says that the entire net income was for ONLY the months January until June; which means it's only attributable to those 6 months. The remainder of the year had income of $200,000; so from months of July until December.

LOL I just did this last night, hence why I remember the answer. 🙂

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.

[ZSRizvi]

@CPA2014Dream

Okay I see what they're doing. They're giving you a bit of an overload with dates and that's why it's confusing.

So, what I did was, step 1: The balance you see in the January 1 deferred revenue account–>completely ignore it. It will be earned as revenue throughout the year.

Now it says that the cash receipts are received evenly throughout the year. So: $3,600,000 / 12 = $300,000 each month.

What I did next was go to the cut-off date closest to year-end: September 30. Any cash collected after that is to be deferred revenue. Why? Because it's a cut-off date, which means that the actual subscriptions/magazines/whatever won't be sent to the customers until NEXT year. So, since there are three months remaining (Oct, Nov, Dec), the deferred revenue would be: $300,000 x 3 months = $900,000 remains as a credit in the “deferred revenue account.”

At least that's how I did it. If someone has a simpler solution, let me know as well. Or let me know if I'm doing it wrong. LOL.

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]

double post

[Anonymous]

@ZSRizvi That was much easier!! Thanks.

I have another. In this problem I am not sure why I should subtract the 90 in this problem. Isn't the balance in the account a debit as well?

On November 1, year 2, Key Co. paid $3,600 to renew its insurance policy for 3 years and used an income statement account to record this transaction. At December 31, year 2, Key’s unadjusted trial balance showed a balance of $90 for prepaid insurance and $4,410 for insurance expense. What amounts should be reported for prepaid insurance and insurance expense in Key’s December 31, year 2 financial statements?

Prepaid insurance Insurance expense

A. $3,300 $1,200

B. $3,400 $1,200

C. $3,400 $1,100

D. $3,490 $1,010

Answer: C This answer is correct. Based on the information given, Key has only one prepaid insurance policy at 12/31/Y2. The 3­-year policy acquired on 11/1/Y2 has been in force for 2 months, so 34 months remain unexpired. Therefore, 12/31/Y2 prepaid insurance is $3,400 ($3,600 x 34/36). Key must make an adjusting entry to transfer $3,310 ($3,400 – $90) from insurance expense to prepaid insurance. This will leave the account balances at $3,400 for prepaid insurance ($90 + $3,310) and $1,100 for insurance expense ($4,410 – $3,310). (Apparently, Key Co. records policy payments as charges to insurance expense during the year and adjusts the prepaid insurance account at the end of the year.)

I tried using T-Accounts to understand it but it doesn't make sense.

[Anonymous]

ZSRizvi, it's from the Wiley review book. I'm not using Becker. It just doesn't make sense…shouldn't they be the same? UGH

[Author]

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