[jeff]

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

Free CPA Exam Survival Guide: https://www.another71.com/cpa-exam-survival-guide/

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

[Anonymous]

CPA2014Dream,

there are some examples here https://www.principlesofaccounting.com/illustrative%20entries/entrieslist.htm

[jpowell31]

@cpa2014dream – this is how i remember it, not sure if it'll be much help but:

for remembering if you have to add/subtract the premium/discount just remember that you are working towards the face value of the bond…so if your face value is $600,000, carrying value is $575,000 and the amortization expense is $1,000 you would add it because when you're finished amortizing the discount/premium you want to get to face value. if you have to add, it's a discount. if you subtract (i.e. you sold the bond for more than par) it's a premium.

also, if there's one of 3 journal entries i know, it's DR for discount – (both D's) and you'd CR premium (step one – when bonds are actually sold), reverse it (CR premium on bonds payable) by its amortized portion each period.

@pia ach – Indirect method – you're adjusting/starting with net income and making the following adjustments:

+ non cash expenses/losses

-noncash income/gains

+ increase in (liabilities)

– increase in (assets)

– decrease in (liabilities)–> your change in accrued interest payable would come under here

+ decrease in (assets) –>your change in prepaid expenses would come under here

Direct Method is a bit longer and probably what you're seeing in your notes from becker

there's 3 sections: cash from customers, cash paid to suppliers and employees then other cash paid – the last of which is broken down:

Other Operating expenses (here we're starting with expenses rather than income so it's the opposite!)

– decrease in prepaids

+ increase in prepaids

+decrease in accruals

– increase in accrued liabilities

[jpowell31]

oops when i was explaining to reverse it i meant DR premium bonds payable

[jpowell31]

with regard to CFs though the end result is always the same and indirect method is more popular/shorter so i would go with remembering that one!

[Guti]

jpowell31, this is the entire question. I think what I posted was correct. Here they want to know interest expense. Not cash interest expense. The cash interest expense is alreay 70K, they want to know accrual.

In its cash flow statement for the current year, Ness Co. reported cash paid for interest of $70,000. Ness did not capitalize any interest during the current year. Changes occurred in several balance sheet accounts as follows:

Accrued interest payable 17,000 decrease is deducted

Prepaid interest 23,000 decrease is added .

In its income statement for the current year, what amount should Ness report as interest expense?

Accrued interest payable 17,000 decrease is deducted

Prepaid interest 23,000 decrease is added .

Let’s say year 2 interest expense is 100K.

If I prepaid 23K of interest at the end of year one, and now on year two my PPD went down by 23K then I need to deduct 23K cause cash went out the door on year one, and 23K is the amortization of that ppd on year 2.

If I do an accrual of 17K on year 1 and then my accrual account is reduced of year two then cash went out the door on year 2,so you add 17k.

If they want to know interest expense (not cash) for the year then what they did is correct.

FAR-84
AUD-
REG-
BEC-

[jpowell31]

yep i agree. @pia asked in terms of cashflows and the way it was read looked like becker was contradicting but really it's just the direct method that states it differently (in terms of cashflows, not determining expense).

[HopefulCPA0601]

not sure if you guys already mentioned this bc i havent had time to read through the responses, but for the cash flow statement:

@pia – when using indirect method:

for normal debit balance items, do the opposite, so subtract decrease, add increase

for normal credit balance items, do the same, so add increase subtract decrease

Accrued interest payable 17,000 decrease is deducted – because its credit balance do the same as what its doing

Prepaid interest 23,000 decrease is added – because its debit balance, do the opposite

BEC: 65 - 79* - 84 DONE
AUD: 65 - 76 DONE
REG: 63 - 77 DONE
FAR: 65 - 63 - 67 - 69 - 73 - 71 - 83 DONE

Becker Notes & Flashcards, Wiley Test Bank, Ninja MCQ

[Guti]

Lets say you get a stock dividend of 100K

CR C-Stock 100K

What is the debit>? It cant be cash cause is not a cash dividend.

FAR-84
AUD-
REG-
BEC-

[Anonymous]

@Gian — DR. Retained Earnings.

If < 25% then it's mkt value of stock.

If > 25% then it's par value of stock (no APIC).

[Anonymous]

retained earnings?

[Guti]

Im talking about from the investor perspective. I know you debit R/e when you distribute the stock dividend and crdit C-Stock, but the one getting the stock has to credit C-Stock but they cand debit cash.

What is the debit>? It cant be cash cause is not a cash dividend.

FAR-84
AUD-
REG-
BEC-

[Anonymous]

Then why do you credit C/S?

There will be no journl entry, just a memo entry

[lannebrown]

So I am having trouble figuring out the difference between the following two questions. I thought I understood the concept but the two questions seem to contradict themselves. I must be missing something. Help lol

On September 1, Year 1, Cano & Co., a U.S. corporation, sold merchandise to a foreign firm for 250,000 francs. Terms of the sale require payment in francs on February 1, Year 2. On September 1, Year 1, the spot exchange rate was $.20 per franc. At December 31, Year 1, Cano's year end, the spot rate was $.19, but the rate increased to $.22 by February 1, Year 2, when payment was received. How much should Cano report as foreign exchange gain or loss in its Year 2 income statement?

a. $5,000 gain.

b. $2,500 loss.

c. $0

d. $7,500 gain.

Explanation

Choice “d” is correct. Foreign exchange gains and losses are recorded at year end on uncompleted contracts. The gain for Year 2 is the exchange rate change from 12/31/Year 1 to 2/1/Year 2:

($.22 – $.19) or $.03 x $250,000 = $7,500

On October 1 of the current year, a U.S. company sold merchandise on account to a British company for 2,000 pounds (exchange rate, 1 pound = $1.43). At the company's December 31 fiscal year end, the exchange rate was 1 pound = $1.45. The exchange rate was 1 pound = $1.50 on collection in January of the subsequent year. What amount would the company recognize as a gain(loss) from foreign currency transactions when the receivable is collected?

a. $140

b. ($140)

c. $0

d. $100

Explanation

Choice “d” is correct. The company will report a $100 gain when the receivable is collected. When a foreign currency transaction is not settled at year-end, a transaction gain or loss must be reported on the year-end income statement. The gain or loss is calculated using the change in exchange rates between the transaction date and year-end. On December 31, the company will record a gain of $40 [2,000 pounds x ($1.45/pound year-end exchange rate – $1.43/pound exchange rate) on transaction date]. When the transaction is settled in the subsequent period, a gain or loss must be reported. The gain or loss is calculated using the change in exchange rates between year-end and the collection date. The $100 gain recorded on the collection date is calculated as follows:

$100 = 2,000 pounds x ($1.50/pound collection date exchange rate – $1.45 year-end exchange rate)

Choices “c”, “a”, and “b” are incorrect, per the above.

AUD - 72,85 expires 12/31/15 yikes
FAR - 72,68,76!!!!
REG - 72, NOV 2015
BEC - 67,66,10/24/2015

[Guti]

anjanja, so how does the investor increase his investment share? Just with a memo?

FAR-84
AUD-
REG-
BEC-

[Anonymous]

lannebrown,

I don't think there is a difference, why do you think questions contradict themselves?

1. 250000*0.03 = 7500

2. 2000*0.05=100

[Author]

Replies