[jeff]

FAR Resources:

Free FAR Notes & Audio – https://www.another71.com/cpa-exam-study-plan

FAR 10 Point Combo: https://www.another71.com/products-page/ten-point-combo

FAR Score Release: https://www.another71.com/cpa-exam-scores-results-release

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

[Study Monk]

mjp44

Trading and available-for-sales securities are REPORTED at fair value. Therefore whenever a financial statement is prepared the person doing the financials is going to get a report of all their trading securities and they are going to revalue them and recognize an UNREALIZED gain. This is so our current assets are not overstated/understated. If we have overstated securities than the users of the financials are going to think we have more cash on hand than we actually do and this will conflict with the conservatism principle.

Since this question is asking for year 2 information we know that they are closing year 1's financials. As soon as year 1 is closed the value of those trading securities is getting revalued from $86,000 to $92,000 resulting in an UNREALIZED gain. You will get the REALIZED gain when you sell them. The reason I emphasized the realized and unrealized is because realized gains are recognized on the sale of trading securities which is probably what you remember that is confusing you. However we still recognize UNREALIZED gains for both trading and available-for-sales whenever preparing financials that will be viewed by outside users.

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Study Monk]

mjp44

Trading and available-for-sales securities are REPORTED at fair value. Therefore whenever a financial statement is prepared the person doing the financials is going to get a report of all their trading securities and they are going to revalue them and recognize an UNREALIZED gain. This is so our current assets are not overstated/understated. If we have overstated securities than the users of the financials are going to think we have more cash on hand than we actually do and this will conflict with the conservatism principle.

Since this question is asking for year 2 information we know that they are closing year 1's financials. As soon as year 1 is closed the value of those trading securities is getting revalued from $86,000 to $92,000 resulting in an UNREALIZED gain. You will get the REALIZED gain when you sell them. The reason I emphasized the realized and unrealized is because realized gains are recognized on the sale of trading securities which is probably what you remember that is confusing you. However we still recognize UNREALIZED gains for both trading and available-for-sales whenever preparing financials that will be viewed by outside users.

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[mjp44]

Thanks! Make sense now! @ Study Monk… Just to clarify, because we had already recognized an unrealized gain of $6,000 (92K-86K) in year 1, only the additional $12,500 (104,500-92,000)needs to be recognized on the income statement upon the sale in year 2, is that the logic? Now, if this was an A-F-S security, the full amount of the gain ( 104,500-86,000) would have to recognized on the income statement in year 2, because the unrealized gain of $6,000 was recognized in OCI in year 1 so you would have to reverse it out of OCI and move it to the income statement, hence a gain recongition of $18,500 in yr 2 for A-F-S security. Correct?

FAR- PASSED (11/13)
REG- PASSED (2/14)
BEC- PASSED (5/14)
AUD- PASSED (8/14)

If it's important to you, you will find a way. If it isn't, you will find an excuse.

[mjp44]

Thanks! Make sense now! @ Study Monk… Just to clarify, because we had already recognized an unrealized gain of $6,000 (92K-86K) in year 1, only the additional $12,500 (104,500-92,000)needs to be recognized on the income statement upon the sale in year 2, is that the logic? Now, if this was an A-F-S security, the full amount of the gain ( 104,500-86,000) would have to recognized on the income statement in year 2, because the unrealized gain of $6,000 was recognized in OCI in year 1 so you would have to reverse it out of OCI and move it to the income statement, hence a gain recongition of $18,500 in yr 2 for A-F-S security. Correct?

FAR- PASSED (11/13)
REG- PASSED (2/14)
BEC- PASSED (5/14)
AUD- PASSED (8/14)

If it's important to you, you will find a way. If it isn't, you will find an excuse.

[Last chance]

Q.

On September 1, year 1, Brak Co. borrowed on a $1,350,000 note payable

from Federal Bank. The note bears interest at 12% and is payable in three equal annual principal payments of $450,000. On this date, the bank’s prime rate was 11%. The first annual payment for interest and principal was made on September 1, year 2. At December 31, year 2, what amount should Brak report as accrued interest payable?

a. $54,000

b. $49,500

c. $36,000

d. $33,000

Answer

(c) Accrued interest payable at 12/31/Y2 is interest expense which has been incurred by 12/31/Y2, but has not yet been paid by that date. Interest was last paid on 9/1/Y2; the accrued interest payable includes interest expense incurred from 9/1/Y2 through 12/31/Y2 (four months). The original balance of the note payable was $1,350,000 but the 9/1/Y2 principal payment of $450,000 reduced this balance to $900,000. Therefore, the interest payable at 12/31/Y2 is $36,000 ($900,000 ×12% × 4/Y3). The prime rate (11%) does not affect the computation because it is not the stated rate on this note.

Can someone please explain me why the answer is not $90,000 (interest payable 12/1/02-12/1/03)

The answer is accrue int for 9/1/02-12/1/02 4months.. I'm so confused

Thanks you so much!!!!!

I would really appreciate it

[Last chance]

Q.

On September 1, year 1, Brak Co. borrowed on a $1,350,000 note payable

from Federal Bank. The note bears interest at 12% and is payable in three equal annual principal payments of $450,000. On this date, the bank’s prime rate was 11%. The first annual payment for interest and principal was made on September 1, year 2. At December 31, year 2, what amount should Brak report as accrued interest payable?

a. $54,000

b. $49,500

c. $36,000

d. $33,000

Answer

(c) Accrued interest payable at 12/31/Y2 is interest expense which has been incurred by 12/31/Y2, but has not yet been paid by that date. Interest was last paid on 9/1/Y2; the accrued interest payable includes interest expense incurred from 9/1/Y2 through 12/31/Y2 (four months). The original balance of the note payable was $1,350,000 but the 9/1/Y2 principal payment of $450,000 reduced this balance to $900,000. Therefore, the interest payable at 12/31/Y2 is $36,000 ($900,000 ×12% × 4/Y3). The prime rate (11%) does not affect the computation because it is not the stated rate on this note.

Can someone please explain me why the answer is not $90,000 (interest payable 12/1/02-12/1/03)

The answer is accrue int for 9/1/02-12/1/02 4months.. I'm so confused

Thanks you so much!!!!!

I would really appreciate it

[Anonymous]

December4th, the first payment of principal AND interest gets paid on 9/1. So right after the payment, there is no interest accrued and not paid. Then four months pass until year end that the interest starts to accrue on the new balance of the reduced note payable after the first payment. You are correct that interest has accrued for the full year, but accrued interest PAYABLE is the amount that has been accrued and not yet paid. Does this help?

[Anonymous]

December4th, the first payment of principal AND interest gets paid on 9/1. So right after the payment, there is no interest accrued and not paid. Then four months pass until year end that the interest starts to accrue on the new balance of the reduced note payable after the first payment. You are correct that interest has accrued for the full year, but accrued interest PAYABLE is the amount that has been accrued and not yet paid. Does this help?

[Last chance]

@dante

Thank u so much for the explanation!

As soon as u explained, i had this flash memory abt this lecture lol

Yes it is accrued and not been paid.

But i'm still confused on wording

So.. If the question was

“What amount to report as accrued interest payable in 12/31/02 in balance sheet?”

Does that make any difference?

Thank you again!!!!

[Last chance]

@dante

Thank u so much for the explanation!

As soon as u explained, i had this flash memory abt this lecture lol

Yes it is accrued and not been paid.

But i'm still confused on wording

So.. If the question was

“What amount to report as accrued interest payable in 12/31/02 in balance sheet?”

Does that make any difference?

Thank you again!!!!

[Anonymous]

Accrued interest payable is the same thing…it is the amount that has been accrued but not paid. This is what the question was asking about. I think maybe you are getting it mixed up with interest expense? In that case, it would be been incurred the whole year and not just for the 4 months.

[Anonymous]

Accrued interest payable is the same thing…it is the amount that has been accrued but not paid. This is what the question was asking about. I think maybe you are getting it mixed up with interest expense? In that case, it would be been incurred the whole year and not just for the 4 months.

[Last chance]

@dante

Thank you! I cant believe i totally forgot abt this concept.

My exam is coming soon and this is not a good sign…

Sigh….

Yes i was confused with the interest expense(current liability)

Ok back to work…

[Last chance]

@dante

Thank you! I cant believe i totally forgot abt this concept.

My exam is coming soon and this is not a good sign…

Sigh….

Yes i was confused with the interest expense(current liability)

Ok back to work…

[ready2baCPA]

Has anyone used the Online Gleim system with a Mac Operating System? I'm wondering if I will be able to watch the videos and access the test prep software online.

FAR: 78 THANK YOU LORD!
BEC: 75 THANK YOU LORD!
AUD: 69 (August 2013), 70 (October 2013), 75!!! THANK YOU LORD!
REG: 87!!!! AMEN AMEN, and AMEN!
THANK YOU LORD, I'M DONE!

[Author]

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