[jeff]

Welcome to the Q3 2017 CPA Exam Study Group for FAR. 🙂

Introduce yourselves and let your fellow NINJAs know when you plan to take your FAR exam.

The Five Steps (NINJA Framework): https://www.another71.com/pass-the-cpa-exam/

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

[Wannafree]

@sevenandfive ,
Amount of interest avoidable can be capitalized provided it should't exceed the actual interest expense for the period.

[Wannafree]

@abig ,what is your question ? Not clear.

[WillWorkForCake]

Is a change from LIFO -> FIFO considered a change in estimate or change in principle?

[QueenCPA]

Just took FAR 🙁

[Radez]

It's a change in accounting principle. FASB addresses it directly in its first of the implementation examples – ASC 250-10-55-1 through 55-3

[sevenandfive]

@wannaFree Thank you

Can anyone also help me with the par value method? Why do we credit APIC-C/S and not APIC T/S when we reissue repurchased shares (that's what is shown in Becker's example in the book)? Thanks

[Radez]

sevenandfive, I think the reason is that under the par method, you're not distinguishing between classes of APIC. You only book APIC Treasury stock when you record TS at cost and then resell at a gain (gain goes to APIC). That later absorbs any loss on treasury stock before impacting retained earnings.

If you only ever recorded the par of the stock under the par method, then the only APIC available to you for that class of stock would be APIC common.

Disclaimer: equity's one of my weaker areas.

[lampy44]

Hey everyone! I just took AUD a few weeks ago and not feeling very confident about it at all. I am moving onto FAR. For AUD I used Becker and will be using Becker again for FAR. I am feeling a little bit at a loss however. I felt like I really gave it my all for AUD and am worried that since FAR is a lot more material I will never be ready for my exam come October. Does anyone have any study tips for FAR in general with Becker? I am just feeling a little defeated right now and dont want to waste time. I want to get back on the horse and pass FAR!

Thanks 🙂

[Wannafree]

Under par value method, purchase of treasury stock is recorded by
debiting treasury stock Dr(the total par value of the shares).
Cash account Cr(actual amount paid to purchase the treasury stock)
Any additional paid-in capital or discount on capital relating to treasury shares is cancelled by a debit or credit respectively.Please note APIC-TS is cancelled at the time of purchase.So no APIC-TS ( for purchased stock ) now exist.

At this point, if the sum of credit side of the journal entry is less than the sum of debit side, additional paid-in capital account will be credited for the difference. Note credited to APIC-CS account not APIC-TS.(so no balance in APIC-TS)

Alternatively if the sum of credit side exceeds the sum of debit side of the journal entry, the difference will be debited to additional paid-in capital account up to the available balance and the rest, if any, will be debited to retained earnings account.
Now re-selling TS

cash account Dr (for the actual amount received)
treasury stock Cr (for the par value of the treasury shares)

if the cash received on resale is:

more than the total par value of treasury shares, the excess is credited to additional paid-in capital account.
less than the total par value of treasury shares, the difference is debited to additional paid-in capital from treasury stock provided it has sufficient credit balance otherwise retained earnings account is debited.
Hope it clarifies .

[Wannafree]

@amlampert ,welcome abode on Horse's Back.Start reading the Becker's without any bias and don't read the exam experiences of FAR as it is evolving now.

[Wannafree]

Based on all the exam experiences folks have shared here can we say with consensus that FAR is most difficult sections of all 4 now ? Earlier some people used to think REG some people FAR and some people AUD.I used to consider BEC as most difficult due to memo writing but now settled for FAR.

[Radez]

wannaFree, I would say REG is the one that I have the most chance of failure. I think it was the hardest because more in REG depends on you applying the right conceptual paradigm up front. In the prep work there were a lot of problems that to do with tax basis in property, and if you didn't get it right in the beginning, all subsequent calculations were wrong too. With FAR, I think there is less of that, but maybe I feel that way because I have the most professional experience with FAR-type knowledge.

At the very least, they are both at the top for me based on the breadth of knowledge covered by both.

[Wannafree]

Question : Why lessor is not using PV ? any explanation of references would be appreciated.
On January 1, Year One, AnnaLee Company buys a warehouse for $800,000 and is in the process of leasing it to Ziton Company for four out of its five year life. AnnaLee normally has an implicit rate of 10 percent whereas Ziton has an incremental borrowing rate of 8 percent. Assume the payment amounts have been computed appropriately. For these computations assume that the present value of $1 in four years at 8 percent annual interest is .72 and at 10 percent is .66. Assume that the present value of an ordinary annuity of $1 for four years at 8 percent annual interest is 3.27 and at 10 percent is 3.10. Assume that the present value of annuity due of $1 for four years at 8 percent annual interest is 3.55 and at 10 percent is 3.46. Payments are set to be $210,000 per year with the payments to begin immediately. The lessee has an option to buy the asset at the end of the lease for $70,000 which is viewed as a bargain. It is a direct financing lease. What is the total increase in net income that AnnaLee will report in Year One?
Answer :&&&&&

For the lessor in a direct financing lease, there is no immediate income recognized. That only occurs in a sales type lease. Instead, the entire amount to be received in excess of the cost of the asset will be recognized over the term of the lease as interest revenue. The lessor always uses the implicit interest rate built into the contract which is 10 percent here. A present value computation is not needed by the lessor. It is assumed that present value was used to compute the proper annual payments. The amount to be received is the four payments of $210,000 each ($840,000) plus the $70,000 purchase option because it is a bargain. The total is $910,000. Because the cost was $800,000, the extra $110,000 to be received above cost is unearned interest revenue. The $910,000 receivable is immeidately reduced by the first payment of $210,000 to $700,000. Subtracting the $110,000 unearned interest revenue account leaves a net receivable of $590,000. At a 10 percent interest rate, the lessor recognizes interest revenue for the first year of $59,000.

[JMG]

@wannaFree I have yet to take FAR but I could definitely see how it could be considered the hardest given the volume of material and layers of knowledge required for each question.

I took REG under the old format and passed, didn't think it was too bad.

Took BEC under the old and failed, retook under new and waiting result. The changes made the exam significantly more challenging. Especially with time management.

Took AUD under the new, waiting result. This was by far the easiest section thus far for me.

[Radez]

wannaFree, the short answer is we do it that way because FASB says so. ASC 840-30-30-6 defines gross investment in the lease as the sum of the lease payments etc. ASC 840-30-30-13 tells you that the difference between gross investment and carrying value of the property is the unearned revenue. ASC 840-30-35-23 tells you to amortize that using a constant rate of return (ie. implicit interest rate).

Also, for what it's worth, FASB is updating guidance on leases, with new guidance going into effect in December 2018. When you review lease accounting in the codification, ASC 842 has the new guidance, so be careful when you're reviewing.

PwC looks like they have a robust guide to lease accounting if you want to understand more as well:
https://www.pwc.com/us/en/cfodirect/publications/accounting-guides/pwc-lease-accounting-guide-asc-842.html

Finally, you can create an account with the FASB at asc.fasb.org by choosing to order the basic view. It is free, and gives you access to the codification for accounting research. I have found the interface to be relatively intuitive once you build up a working knowledge of how it's laid out, and it has been invaluable in helping me gut-check things that don't make sense and understand the concepts better.

All the best.

[Author]

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