[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]

@jstay

ok, that helps. so it is the same as an allowance account. so confusing sometimes when everything is referred to in different ways. so now i have a question. when reclassifying from trading to AFS why do i not hit that valuation account.

The example was: i had 70 in trading securities in X1, which had a FMV of 50 when reclassed to AFS. The question asked how much was the change in the valuation account. Now, i thought that you would account for the unrealized gain/loss, but the answer is 0. My thoughts were to:

DR Unrealized loss 30

CR Allowance for change 30

So the change in the valuation account would have been 30. But the answer said the valuation account is not affected.

[Anonymous]

Here is the entire question:

The following information pertains to Smoke, Inc.'s investment in marketable equity securities:

• On December 31, 20X1, Smoke reclassified a security with a $70,000 cost and a $50,000 market value from trading to available for sale.

• A marketable equity security available for sale costing $75,000, written down to $30,000 in 20X0, had a $60,000 market value on December 31, 20X1.

What is the net effect of the above items on Smoke's valuation allowance for marketable equity securities available for sale as of December 31, 20X1?

a. No effect

b. 10 decrease

c. 20 increase

d. 30 decrease

Answer D. The reclassification from trading to available for sale would be done at the fair market value of $50,000 and the valuation allowance would not be affected. The security that had been written down to $30,000 in 20X0 would be written back up to $60,000 in 20X1, decreasing the valuation allowance.

[jstay]

for your first question: valuation isnt used because it was already at FV. trading puts gain/losses on I/S

and question two: first part is the same as above. second part is related to the following journal entries:

first to write it down in x0

unrealized loss 35

valuation account 35

second year- to record recovery

valuation account 30

unrealized gain 30

im pretty sure

[Anonymous]

I understand the second part just not the first…when you are reporting at fair value, i thought you DR the investment or valuation account, and any G/L is unrealized. Why aren't we reporting the jump from 70 to 50? That's where i am confused. I don't understand what you mean when you say it was already at FV.

[jstay]

trading is reported at FV at year end. so we dont need to make any adjustments because the 20,000 loss was already reported

[Anonymous]

@jstay lol okay i feel super stupid right now but…when trading is reported at FV @ YE how are we getting to that number if not by that JE i mentioned previously? Where and when was it already reported?

[jstay]

its reported in the I/S. its the same JE with a debit/credit to unrealized gain/loss and debit/credit to the valuation account

To trading: report unrealized/gain losses (adjust to FV)-report in earnings immediately.

From Trading- noting- gain/loss is already reported at FV on I/S

To Avail for sale from HTM- report gain/loss in oci

from avail for sale to HTM- amortize gain/loss that was in oci onto I/S over remaining life

[Anonymous]

You are correct, it was C. Honestly, you are on top of everything and should have little trouble with the exam. How many hours a day have you been putting in this for the last two months?

[jstay]

ehh i had trouble with that one- present values are a pain. i started end of may studying on thursday-sunday (i worked as an intern monday thru wednesday) so id bring my index cards there and what not. but then once august started i started studying full time.

[jstay]

ehh i had trouble with that one- present values are a pain. i started end of may studying on thursday-sunday (i worked as an intern monday thru wednesday) so id bring my index cards there and what not. but then once august started i started studying full time.

[Anonymous]

Good stuff, does pension expense have an impact on Cash Flow account?

[jstay]

im not really sure, i mean if it is a cash expense wouldnt it enter into operating activities as part of net income? but then again if the liability increased- wouldnt it be a long tern liability and not enter into the calculation of operating activites?

OR lol what if they bought an investment and put it into the pension fund, wouldnt that be an outflow for investing?

im confused?

[Anonymous]

@CPAHOPEFUL I believe that pension contributions are an operating expense on the cash flow statement.

[Anonymous]

Yeah that is what I figured but jstay I had the same thoughts as you. Thought maybe it could be a liability but it is just in the operating section.

OC 8.5

RC 8.2

NRV 10

NRVLM 7.8

Is the answer 8.5 here?

[janellesherman]

Hello! I am new to this site, definitely wish I found it sooner before I took my first 2 tests. Seems to be a lot of good information. I am sitting for FAR 10/4 and am looking for some suggestions. I am using Becker review and having a hard time with the lectures. Do many of you watch the whole lecture and then work all of the questions or watch each segment then work on the homework?

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[Author]

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