[Q3] FAR Study Group 2014 - Page 86

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  • July 15, 2014 at 7:24 am #598754
    Anonymous
    Inactive

    Hey all,

    I have a question on conditional promises. For conditional promises (pledges), do you record anything when the conditional promise is made? Becker says you record when earned.. but do you initially record:

    DR Pledge receivable – temp restricted

    CR. Restricted Revenue

    And if that is correct, what is the journal entry after?

    Getting confused between conditional pledges and restricted contributions. not sure if they are related.

    July 15, 2014 at 8:05 am #598755
    Anonymous
    Inactive

    there is no initial entry if there is a CONDITIONAL promise. the condition has to be substantially met to make the entry and record the contribution revenue. so a guy promises to donate $1,000,000 if you can raise your own $1,000,000 first, well, there's no entry till you're close enough to say that you've substantially met the condition and there is only a remote possibility the condition will not be met. until then, you've just got someone promising you something, and you haven't done anything to earn that contribution, so there's no reason to act like you have any right to it.

    when you have substantially met the condition, at THAT point you record pledge receivable and contribution revenue. this is not necessarily restricted. that depends on the donor. if the donor puts a time or purpose restriction on it, then it's temporarily restricted. at this point it works just the same as any other contribution, the two concepts aren't really related.

    the important part is conditional promises are not recognized as revenue until the conditions are substantially met. you don't record it as a restricted revenue like you did in your journal entry, restrictions are used for time/purpose restrictions. and afterwards, when the pledge is collected, it's just DR cash CR receivable like any other collection.

    July 15, 2014 at 2:56 pm #598756
    Anonymous
    Inactive

    I have this stupid ESL question. Does FV option and FV method mean the same thing? In accounting for AFS securuties context

    July 15, 2014 at 3:00 pm #598757
    Lidis
    Participant

    Good morning NINJAS,

    I need to know the 25% rule on leases. Could someone explain please

    Than you

    Lidis

    July 15, 2014 at 4:01 pm #598758
    samdiegoCPA
    Member

    @anjanja

    Yes it does! Not even an ESL thing… wish they'd use just one word for things.

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

    July 15, 2014 at 4:03 pm #598759
    samdiegoCPA
    Member

    @Revenue

    Capital Leases:

    -If the beginning of the lease term falls within the last 25% of the total estimated economic life of the property, you cannot use 3 or 4 to classify.

    *3 and 4 is 75% and 90% rules.

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

    July 15, 2014 at 4:11 pm #598760
    Anonymous
    Inactive

    I was just watching this video www. youtube.com/watch?v=ystxRWAO3xM on AFS securities and when the guy is explaining FV option, he is referring to the other (regular) method as “regularFair Value method”.

    I was doing this SIM in ninja mcq, sim #20, it said that AFS securities were accounted under fair value METHOD, so I put unrealized gains and losses to I/S, but the right answer was OCI

    July 15, 2014 at 4:19 pm #598761
    samdiegoCPA
    Member

    @anjanja Ok, you are right. I am still waking up. Here are my notes for the FV Option for Investments.

    The FV Option: An entity may elect to value its securities at FV.

    -A firm can elect the FV option on an instrument-by-instrument basis.

    -If the firm elects the FV option for reporting AFS or HTM securities, the security is revalued to FV and any G/L is recorded in earnings for the period.

    -If the FV option is elected for instruments that would otherwise be reported using the equity method, the securities are revalued to FV. Any G/L is recorded in earnings for the period.

    -If the FV option is elected for instruments that would normally use the equity method, it must be applied to all interests in that entity (both debt and equity).

    -The FV option can be elected on the date an investment is first recognized or when the investment no longer qualifies for FV treatment.

    -The rules for the SCF continue to apply for determining the classification of a purchase or sale of security on the SCF. Additional disclosures in the notes to the F/S are required if the FV option is elected.

    Also, I was using the 2012 book before and it used to be called the Cost Method, but now is called the Fair Value Method apparently. So essentially it's the Cost/FV Method and the Equity Method which can use the FMV Option on an instrument by instrument basis.

    Anyone else confirm?

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

    July 15, 2014 at 4:30 pm #598762
    Anonymous
    Inactive

    why are those things never clear, I hate it!

    July 15, 2014 at 4:35 pm #598763
    samdiegoCPA
    Member

    I don't know but I want to make my own review course and explain things in like elementary terms. Not that the way it's explained is that hard, but it is confusing when you are learning 1038 different things at once.

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

    July 15, 2014 at 5:01 pm #598764
    kappa1032
    Participant

    Whens your test again SamDiego?

    FAR - 81
    REG - 74, 87
    AUD - 88
    BEC - 88

    Finally.

    “The only guarantee for failure is to stop trying”
    ― John C. Maxwell

    July 15, 2014 at 5:24 pm #598765
    kappa1032
    Participant

    Garson Co. recorded goods in transit purchased FOB shipping point at year-end as purchases. The goods were excluded from ending inventory. What effect does the omission have on Garson's assets and retained earnings at year-end?

    A.

    No effect on assets; retained earnings overstated

    B.

    No effect on assets; retained earnings understated

    C.

    Assets understated; no effect on retained earnings

    D.

    Both assets and retained earnings understated

    The answer is D — I'm a little confused on this…wouldn't receiving the goods debit Inventory (asset) and credit A/P or Cash? How does that affect retained earnings?

    FAR - 81
    REG - 74, 87
    AUD - 88
    BEC - 88

    Finally.

    “The only guarantee for failure is to stop trying”
    ― John C. Maxwell

    July 15, 2014 at 5:38 pm #598766
    Anonymous
    Inactive

    consider the effects of understating ending inventory on the cost of goods sold formula.

    beginning inventory + purchases – ending inventory = cost of goods sold

    If ending inventory is understated, COGS will be overstated, which means net income (and RE by extension) are understated.

    July 15, 2014 at 5:40 pm #598767
    samdiegoCPA
    Member

    @kappa1032 Saturday, yikes.

    -Because it was excluded and should have been included FOB shipping point (buyers books), assets are understated.

    -Because it says Purchases was excluded from ending inventory, which overstates COGS, which understates profit, which understates RE.

    For me, I just have to memorize this because even using the formula doesn't make sense to me.

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

    July 15, 2014 at 6:01 pm #598768
    kappa1032
    Participant

    Thanks, that helped =)

    FAR - 81
    REG - 74, 87
    AUD - 88
    BEC - 88

    Finally.

    “The only guarantee for failure is to stop trying”
    ― John C. Maxwell

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