[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

[jstay]

i just don't get how you include the loss in year 2 when it was a part of year 1?

so they just didn't report it at all in year 1?

[HopefulCPA0601]

its not from continued operations because you have already decided you are going to sell.

the results of discops of a component are reported in discops in the period the component is either disposed or held for sale. the results of subsequent operations of a component classified as held for sale are reported in discops in the period in which they occur.

questions will most likely tell you that board decides to dispose of component.

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

[HopefulCPA0601]

no you include in year 1 any losses on impairment or losses from operations that relate to year 1.

in year 2 when you actually dispose, you include impairment loss, loss form operations during year 2, and loss in disposal

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

[D C]

I think i'm doing a bad job of communicating the problem to you all. So here it is.

Munn Corp.'s income statements for the years ended December 31, 20X2 and 20X1, included the following, before adjustments:

…………………………………………….20X2……………….20X1

….…….Operating income…………$ 800,000……………..$600,000

………..Gain on sale of division……. 450,000…………… —

………..………..………..………..……..

---

………..……

---

………..………..………..………..…$1,250,000………..…….600,000

………Provision for income taxes……375,000………..…….180,000

………..………..………..………..……..

---

………..……

---

……….Net income …..……….…..$ 875,000………..…… $420,000

On January 1, 20X2, Munn agreed to sell the assets and product line of one its operating divisions for $1,600,000. The sale was consummated on December 31, 20X2, and resulted in a gain on disposition of $450,000. This division's pretax losses were $320,000 in 20X2 and $250,000 in 20X1. The income tax rate for both years was 30%. In preparing revised comparative income statements, assuming that the division qualified as a component, Munn should report which of the following amounts of gain (loss) from discontinued operations?

A. 20X2: $130,000; 20X1: $0

B. 20X2: $130,000; 20X1: $(250,000)

C. 20X2: $91,000; 20X1: $0

D. 20X2: $91,000; 20X1: $(175,000)

B - 80
A - 71, 67, 77
R - 71, 77
F - 72, 77
DONE!!
Becker Self-study all the way! Did use Ninja Notes & Audio for FAR.

[jpowell31]

@CPAhopeful – note that the decision was made in 2012 (year 2) and sold in 2012. i think it's because it's comparative @DC. as soon as you list it as held for sale you show all info related as discontinued for consistency.

[D C]

@jpowell31… yes, the decision was made in year 2 which i don't think i was getting across to you all very well. Year 1 was done and in the books and decision was made in year 2 so why include year 1 losses??

i think your reason of comparative financials seams logical… but in becker year 1 its usually… decide to sell sell it that same year or the following year… here its a little backwards so I was thrown off..

so whats the consensus? if i get a problem like this.. i'm going to include year 1 losses i guess. making the right answer D as indicated in the software. I had picked C.

B - 80
A - 71, 67, 77
R - 71, 77
F - 72, 77
DONE!!
Becker Self-study all the way! Did use Ninja Notes & Audio for FAR.

[HopefulCPA0601]

oh sorry i didnt see the question, i was just talking about the theory. sorry if i confused anyone!!

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

[jpowell31]

@Anna – what's your question? the 19k is the difference between the beginning and ending cash surrender values along with the premium paid for the period. the value went up by $21k so you can reduce the expense of $40k premium for the year. the increase occurred over the period of the year so would already include the $6k so that amount doesn't actually factor into your calculation.

[jpowell31]

yeah @DC becker doesn't nte any questions like this but it also doesn't mention comparative/prior year losses. i think its the same reasoning you would apply to why you include all operating losses for the year no matter when the decision was made.

[jpowell31]

(during that year). my computer is on it's last legs!!! hoping it makes it to next week. my office already has a new one waiting but i have my becker software on this one.

[D C]

Could we possibly do a recap of Leases… specifically Capital (Finance) Leases/Sale Leasebacks

Sales Type – 2 profits (g/l from asset and interest).

What are the JEs for Lessor & Lessee?

Lessee:

DR: Leased Asset (PV of min lease pmts)

CR:…………Lease Obligation

Lessor:

DR: Lease Rec'l (Lease pmts * # of pmts–> Gross)

DR: COGS (Hist. Cost)

CR:………..Sales (Sale price of Asset given up -> Net)

CR:………..Asset (Hist. Cost)

CR:………..Unearned interest income (Gross-Net)

Finance – 1 profit (interest income only)

What are the JEs for Lessor & Leasee??

Lessee:

DR: Leased Asset (PV of min lease pmts)

CR:…………Lease Obligation

Lessor:

DR: Lease Rec'l (Lease pmts * # of pmts–> Gross)

CR:………..Asset (Hist. Cost)

CR:………..Unearned interest income (Gross-Net)

Sale Leaseback:

No matter if its a operating lease back or capital lease back you must “reserve” the amount that is the PV of min lease pmts.

So for operation lease back:

Sale price – Asset NBV = tentative gain, then subtract the PV of min lease pmts. The excess is subject to gain recognition rules. I think if you run into an operating lease back situation you will most likely be able to recognize all of the gain immediately. Please correct me if i'm wrong on any of this material.

For Capital lease back:

Sale price – Asset NBV = tentative gain, then subtract the PV of min lease pmts. The excess is subject to gain recognition rules.

major –>greater than 90% –> defer all

minor–> less than 10% –> recognize all

Middle–> 10%-90% –> recognize gains in excess of PV of min lease pmts.

So with the lease back questions, i think they will focus more on the gain recognition and deferral because the book (becker) doesn't really go into any JEs regarding this…

And with the Sales Type and Finance Type leases – MUST know how to calculate the Gross, Net, Unearned Interest, and Also know the JEs for both Lessee and Lessor.

Sorry for the long post.. i had a panic attack this morning thinking I had forgotten everything about leases… please correct any of the above if its not correct…

B - 80
A - 71, 67, 77
R - 71, 77
F - 72, 77
DONE!!
Becker Self-study all the way! Did use Ninja Notes & Audio for FAR.

[jpowell31]

bah. i already had a panic attack and know i need to review leases but this is something for tomorrow – this helps and scares me. my JEs weren't so detailed so thanks. and it helps to have a concise summary instead of theory separate from JEs. what you have looks correct to me! reading is easier than remembering though 🙁

[Anonymous]

DC, for the discop question, I had D.

[jpowell31]

i just spent 15 minutes dumbfounded on a % completion contract wondering WTF was going on. then realized it was showing two years for the same contract rather than two separate projects/contracts…. THIS IS WHY I AM BAD AT TAKING EXAMS (well really it's the time management thing but UGH)

[Anonymous]

jpowell31,

the difference is 21000 (108-87), my question is why is the expense not = 25000 if the company paid 40000 of which 15 was attributed to cash surrender value and other 6000 were from another source (?) (15000 +6000 = 21000)

[Author]

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