[Q3] FAR Study Group 2014 - Page 76

Viewing 15 replies - 1,126 through 1,140 (of 2,797 total)
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  • #598603
    Anonymous
    Inactive

    Yeah, I know it doesn't make sense, they recorded the purchase, but inventory was excluded. I guess I am getting used to AICPA twisted wording

    #598604
    Guti
    Participant

    anjanja,samdiegoCPA

    So you guys think we should add it back?

    So this answer will be 64,000+16,000=80,000X2/5= 32,000 for year 2 expense.

    Try to remember this type of question; It will help you the day of the exam. The majority of questions I have seen on change of estimate only require a change of years in depreciation, or a change were salvage value is not included. This type of question is what they love to test.

    FAR-84
    AUD-
    REG-
    BEC-

    #598605
    Guti
    Participant

    anjanja,samdiegoCPA

    So you guys think we should add it back?

    So this answer will be 64,000+16,000=80,000X2/5= 32,000 for year 2 expense.

    Try to remember this type of question; It will help you the day of the exam. The majority of questions I have seen on change of estimate only require a change of years in depreciation, or a change were salvage value is not included. This type of question is what they love to test.

    FAR-84
    AUD-
    REG-
    BEC-

    #598606
    Anonymous
    Inactive

    You don't need to add anything, you just take your current carrying value of your asset (100 minus accumulated depreciation that is 16000 = 84000). From this point on you are applying DDB so SV doesn't apply anymore. Just take 84000 and multiply by 0.4. I can't remember particular question but I can't imagine it would be done any other way

    #598607
    samdiegoCPA
    Member

    @anjanja Ohhh… I see what you're saying now. In your example, essentially you are adding it back, but just reverting back to the original cost.

    What we were doing: $100-20 = $80 – $16 = $64, switch, +$20 SV = $84

    What you're saying: $100-20 = $80 – $16 = $64, switch, $100-16 = $84

    Your way is easier I think.

    AUD: 84
    REG: 84
    BEC: 79
    FAR: 83

    #598608
    Guti
    Participant

    Both methods of doing it bring us to the same answer. Thank you both!

    FAR-84
    AUD-
    REG-
    BEC-

    #598609
    Anonymous
    Inactive

    But salvage value amount is only subtracted for the calculation in Y1, it's not subtracted anywhere on the balance sheet. You just have debit balance for the asset of 100000 and accumulated depreciation of 16000 at the beginning of Y2. Since the change in estimate is accounted for prospectively, you don't add or subtract anything, you just use your book value which is 84000.

    I don't add salvage value back and I don't add previous depreciation back. There is no 64000, what is 64000?

    I am confused now though

    #598610
    Guti
    Participant

    You just ignore salvage value like you said cause we dont use it for double declining balance. We just subtract depeciation of year one and calculate depreciation for year two using double declining.

    84000 (100-16)

    So Y2 depreciation should be 84000*0.4=33600 – second year depreciation

    FAR-84
    AUD-
    REG-
    BEC-

    #598611
    Anonymous
    Inactive

    Park Corp. recorded sales of inventory costing $500,000 to Small Co., its wholly owned subsidiary, on the same terms as sales made to third parties. At December 31, 20X3, Small held one-fifth of these goods in its inventory. The following information pertains to Park and Small's sales for 20X3.

    …………………………Park…………Small

    Sales…………… $2,000,000…..$1,400,000

    Cost of sales…..$800,000……..$700,000

    ……………………$1,200,000….$700,000

    In its 20X3 consolidated income statement, what amount should Park report as cost of sales?

    a$1,060,000

    b$1,100,000

    c$1,260,000

    d$1,500,000

    The intercompany sales of $500,000 must be eliminated when calculating sales for consolidated financial statement purposes. In addition, since Small has sold 4/5 of the goods purchased from Park, Small's cost of sales includes $400,000 as the cost of those goods, which must also be eliminated. Included in Park's cost of sales is the cost related to the entire $500,000 of sales to Small. Since only 4/5 of those goods have actually been sold to third parties, the remaining 1/5 must be eliminated, at 40% of sales price, or $40,000. Finally, the remaining 1/5 is in Small's inventory at the amount paid to Park. The intercompany profit of 60% or $60,000 must also be eliminated from inventory.

    The resulting entry would appear as follows:

    Sales 500,000

    Inventory 60,000

    Cost of sales 440,000

    As a result, consolidated cost of sales would be $800,000 + $700,000 – $440,000 or $1,060,000.

    Totally confused. Why is intercompany profit 60%, how is it calculated? Why sales debited by 500000 if it's a cost of inventory?

    #598612
    Anonymous
    Inactive

    How do I study for authoritative literature? And, I guess I'll ask why we need to be tested on this? I would think this would be almost a freebie kind of question, but I cannot figure these out that easily

    #598613
    Guti
    Participant

    The 60% profit comes from the GP Park general sales=

    2M-800K= 1.2M/2M=.60

    500,000 X60% = 300GP Sp 500K-200K=300K

    The profit of Parent to sub was 300K at 60% GP. You need to eleminate this profit. Since 1/5 of the inventory still remains. You take 1/5X300K= 60K So of the 500K 60K remains and the rest 440K have been sold=

    Sales 500K

    InV 60K

    CGS 440K

    FAR-84
    AUD-
    REG-
    BEC-

    #598614
    Anonymous
    Inactive

    Right, OK, margin is 60%, but why sales is 500?

    Park Corp. recorded sales of inventory costing $500,000

    D Cash 800 (500*1.6)

    C Sales 800

    COS 500

    Inventory 500

    ?

    #598615
    jeff
    Keymaster

    NINJA Rollie – Finishing FAR Lectures and hammering NINJA MCQ

    https://www.another71.com/ninja-cpa-blogger-rollie-5/

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

    #598616
    Anonymous
    Inactive

    I have a question when it comes to journal entries on the simulations… kinda hard to explain so bear with me…

    so you double click in the box to pick an account… oops, I didn't want to pick that account so you double click again to change it and pick a different account. Lets say you want to leave that box blank and not put an account at all in there. How do you DELETE the account that's there? if you double click you have to pick a DIFFERENT account there's no place to pick “nothing” and erase the account that's there and leave that box blank. Make sense? I know there's cut,copy, and paste in the corner but you can't highlight anything so idk how to even use those. (Using Becker)

    #598617
    samdiegoCPA
    Member

    I know for NINJA there is a choice for “blank”… I think on the actual exam you can delete it because I don't remember ever being frustrated with that on the exam and I definitely would remember that!

    AUD: 84
    REG: 84
    BEC: 79
    FAR: 83

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