[jeff]

Free Study Planner, Notes, Audio, Flashcards: https://www.another71.com/cpa-exam-study-plan/

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

[Anonymous]

The first one + tax liability

[Anonymous]

M.O.D.

Thanks for answering. I'm still a little confused with getting 5,010 to begin with. Normally you multiply your annual payment by your annuity factor to get the present value. But based on this question it doesn't seem like that's what the 20,000 is. I'm failing to see the relationship between the 20,000 and our annuity factors.

[M.O.D.]

@ Esther, Anna

It is a reverse annuity: it is how you pay off a mortgage or any installment loan.

Instead of you paying the loan off, the loan pays you off

However in this case, one company is paying off another.

Or look at it from the point of view of the bank receiving interest (the question is about receiving interest).

So the question is if you start with a present value of 20000, what are the payments to get to 0 future value.

Instead of multiplying by the annuity factor, you divide.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

Thanks M.O.D., I just noticed BA Mathematics lol

I was thinking about that all day yesterday but I am obviously too dumb and need to put together some excel table to see how it works but don't really have time for it

[Anonymous]

I am totally lost here

On December 1, Year 4, Tigg Mortgage Co. gave Pod Corp. a $200,000, 12% loan. Pod received proceeds of $194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of $4,450, beginning January 1, Year 5. The repayments yield an effective interest rate of 12% at a present value of $200,000 and 13.4% at a present value of $194,000. What amount of accrued interest receivable should Tigg include in its December 31, Year 4, balance sheet?

A. $0

B. $4,450

C. $2,166

D. $2,000

Answer (D) is correct.

Accrued interest receivable is always equal to the face amount times the nominal rate for the period of the accrual. Hence, the accrued interest receivable is $2,000 [$200,000 × 12% × (1 ÷ 12)].

I don't see Roger discussing Notes much in his book. Why are there 2 present values? How is nonrefundable loan origination fee treated? What is the approach here, where do I start?

[Anonymous]

Anna, the key here is to look at the amount Pod financed in the loan. The other information is mostly noise for this question. The note is for $200K, which includes the fee paid to the mortgage company, so Pod is on the hook for the whole amount. A common example of this is when you buy a car and the taxes and plates are lumped into the loan. The interest paid to the bank is for the loan (note), not the car itself.

DM

[Anonymous]

cpastudent22 ,

Available-for-sale securities are recognized in the balance sheet at fair value. However, any related unrealized holding gains and losses are excluded from net income and reported as other comprehensive income.

Financial Statement Presentation

If an enterprise presents a classified balance sheet, it should include trading securities in the current assets section. It should list individual held-to-maturity securities and individual available-for-sale securities as either current or noncurrent per FASB ASC 210-10-45. Accordingly, those held-to-maturity securities and available-for-sale securities that the enterprise expects to sell or that are scheduled to mature within the next year (or operating cycle, if longer) shall be classified as current assets; all others should be classified as noncurrent assets.

DM

[Anonymous]

Thanks M.O.D. – gonna read your explanation soon. In the meantime…

Kuchman Kookware issued 40,000 shares of its $8.00 par value common stock for $9 on January 1, Year 1. Kuchman repurchased 1,000 shares at $8 per share on April 1, Year 2, resold 500 shares at $9 per share on July 1, Year 2, and, on October 1, Year 2, resold the final 500 shares at $5 per share. Assuming Kuchman uses the par value method of accounting for its treasury stock, retained earnings at December 31. Year 2 would be reduced by:

a. $500

b. $1,000

c. $1,500

d. $0

Answer is A. Can someone help me with the journal entries please? Thanks!

[Anonymous]

And another one…

A Board of Commissioners directly elected by the citizens of the City of Lewisville governs the Lewisville Library, and the Library represents a legally recognized jurisdiction within its State. The City Council of the City of Lewisville approves the budget of the library and, by law, is entitled to any excess earnings of the library. The City of Lewisville's Library should be reported as a:

a. Blended component unit of the City of Lewisville.

b. Special purpose government.

c. Primary government.

d. Discrete component unit of the City of Lewisville.

Answer is D. I feel like these should be some of the simplest questions but I always get them wrong. Can someone dumb it down for me? (I read Becker's SELF hint – still not getting it).

[M.O.D.]

@ Anna

From the point of view of Tigg:

D Loan rec 200

C…Cash 194

C… Fees revenue 6

The payments are given as 4450 monthly, which include interest and principal.

The question is how much of the first payment is principal and how much is interest.

The interest is always calculated off of the principal due (left). Since the whole 200 is due (this being the first payment, nothing has reduced the total due), 200,000 x 12%/year /12 months = 2000 interest due

So now we know that for the first payment 2000 is interest and 2450 will be principal. This ratio will change as the principal amount declines over the life of the loan, so we are lucky they asked for the first payment only.

The second present values given are distractors.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

Thanks dmende and M.O.D.,

but then there is this:

On December 1, Year 4, Money Co. gave Home Co. a $200,000, 11% loan. Money paid proceeds of $194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of $4,310, beginning January 1, Year 5. The repayments yield an effective interest rate of 11% at a present value of $200,000 and 12.4% at a present value of $194,000. What amount of income from this loan should Money report in its Year 4 income statement?

A. $1,833

B. $7,833

C. $0

D. $2,005

Answer (D) is correct.

Under the effective-interest method, the effective rate of interest is applied to the net carrying amount of the receivable to determine periodic interest revenue. Thus, interest revenue from the loan for the month of December equals $2,005 [$194,000 × 12.4% × (1 ÷ 12)].

So, nonrefundable loan origination fee is deducted from the note amount? Is the effective rate based on Note – fee and the fee is amortized against the interest income? I thought it was similar to BIC. Also, how does the lender account for the fee, is there some kind of expense attributable to it? How is that recorded? I am ready to give up on this

[Anonymous]

Esther,

It's discrete because it's legally separated ( legally recognized jurisdiction within its State), separate elected gov. board (directly elected by the citizens of the City), economic resources go to the gov.

[Anonymous]

entries for the par value method https://www.another71.com/cpa-exam-forum/topic/can-someone-please-explain-this-par-value-method-for-treasury-stock

[M.O.D.]

@ Anna,

yes they amortized the loan fee over the life of the loan using the effective interest method.

Another way to get to it is using straight line:

200,000 x 12%/12 = 1833 interest

6000/60 = 100

1833 + 100 =1933 (approx 2005)

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

And this? How does this even make sense?

On January 1, Davis College transferred $500,000 of accounts receivable to the Scholastic Finance Company. Davis gave a 14% note for $450,000 representing 90% of the transferred accounts and received proceeds of $432,000 after payment of a 4% fee. On February 1, Davis remitted $80,000 to Scholastic, including interest for 1 month on the unpaid balance. As a result of this $80,000 remittance, accounts receivable transferred and notes payable will be decreased by what amounts?

A/R Transferred

Notes Payable

A. $80,000 $80,000

B. $72,000 $74,750

C. $80,000 $74,750

Answer (C) is correct.

When transferred accounts receivable are collected, the cash should be remitted to the transferee. The accounts receivable transferred account should be decreased for the amount collected ($80,000), and the note should be decreased by the amount remitted ($80,000) minus interest [$450,000 × 14% × (1 month ÷ 12 months) = $5,250].

D. $74,750 $80,000

Is this a collateral loan? How do I know if transferred accounts receivable are collected?

[Author]

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