[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

[Anonymous]

Non-monetary exchanges… I beg you… someone please help me…

I don't even want to type out a question/answer for fear of confusing myself even further (if that's possible). Please start at the most basic level… presume I'm an idiot…

Any assistance will be GREALY appreciated.

[Anonymous]

Non-monetary exchanges… I beg you… someone please help me…

I don't even want to type out a question/answer for fear of confusing myself even further (if that's possible). Please start at the most basic level… presume I'm an idiot…

Any assistance will be GREALY appreciated.

[NYCaccountant]

@ DJN If transaction lacks commercial substance (the cash flows of the new asset will not be significantly different than the cash flow for the old asset), was done to facilitate sales with existing customers, or the fair values cannot be ascertained. then you use the book value of the old asset as your recording basis for the asset received. Basically you have an truck that cost you 10,000 and has accumulated depreciation of 5,000, which gives it a book value of 5,000. You want to exchange the truck for another truck and the transaction lacks commercial substance. You would record the new truck at the carrying value of the old truck. Entry below

New Truck Dr. 5,000

Old Truck Cr 10,000

Acc Dep Dr. 5,000

What you are basically saying is that the new truck will not be substantially different than the old truck, so the new truck should be recored at the old trucks book value.

That's just one example of many. it gets a lil more crazy when it comes to boot. I hated this section when I first reviewed it and then it just stuck one day.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

@ DJN If transaction lacks commercial substance (the cash flows of the new asset will not be significantly different than the cash flow for the old asset), was done to facilitate sales with existing customers, or the fair values cannot be ascertained. then you use the book value of the old asset as your recording basis for the asset received. Basically you have an truck that cost you 10,000 and has accumulated depreciation of 5,000, which gives it a book value of 5,000. You want to exchange the truck for another truck and the transaction lacks commercial substance. You would record the new truck at the carrying value of the old truck. Entry below

New Truck Dr. 5,000

Old Truck Cr 10,000

Acc Dep Dr. 5,000

What you are basically saying is that the new truck will not be substantially different than the old truck, so the new truck should be recored at the old trucks book value.

That's just one example of many. it gets a lil more crazy when it comes to boot. I hated this section when I first reviewed it and then it just stuck one day.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[ZSRizvi]

Okay, so I guess it might be the wording but I'm confused about this detachable stock warrant problem.

Ray Corp. issued bonds with a face amount of $200,000. Each $1,000 bond contained detachable stock warrants for 100 shares of Ray's common stock. Total proceeds from the issue amounted to $240,000. The market value of each warrant was $2, and the market value of the bonds without the warrants was $196,000. The bonds were issued at a discount of:

The answer says the total amount of warrants is the 200 bonds x 100 warrants. But, what I'm getting is that each bond has one warrant attached to it. Meaning there should be 200 warrants in total, not 20,000 as Becker wants it calculated. I understand that the warrants allow conversion to 100 shares but those shares aren't the warrants themselves.

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[ZSRizvi]

Okay, so I guess it might be the wording but I'm confused about this detachable stock warrant problem.

Ray Corp. issued bonds with a face amount of $200,000. Each $1,000 bond contained detachable stock warrants for 100 shares of Ray's common stock. Total proceeds from the issue amounted to $240,000. The market value of each warrant was $2, and the market value of the bonds without the warrants was $196,000. The bonds were issued at a discount of:

The answer says the total amount of warrants is the 200 bonds x 100 warrants. But, what I'm getting is that each bond has one warrant attached to it. Meaning there should be 200 warrants in total, not 20,000 as Becker wants it calculated. I understand that the warrants allow conversion to 100 shares but those shares aren't the warrants themselves.

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[Monir]

@ambersolidum, I agree with you ! It's brutal. I am still stuck on this chapter more than a week.

@NYC, I know you explained and kinda start to making sense but still I am not grasping the concepts.

@ZSR, I can't help you with sthink detachable bonds. lol

[Monir]

@ambersolidum, I agree with you ! It's brutal. I am still stuck on this chapter more than a week.

@NYC, I know you explained and kinda start to making sense but still I am not grasping the concepts.

@ZSR, I can't help you with sthink detachable bonds. lol

[NYCaccountant]

@ZSR Each 1,000 bond contains 100 warrants. The total face value of all bonds combined was 200,000, which means that there had to be 200 bonds since each one is worth 1,000 (200,000/1,000=200). Now each bond contains 100 warrants, and so there are 200 bonds, which means there must be 20,000 warrants (200*100=20,000). Each bond has 100 warrants attached to it. The question is just not worded well, but I've seen this question before and never actually thought of there only being one warrant per bond. When I initially did this question, I got 20,000 for the warrants.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

@ZSR Each 1,000 bond contains 100 warrants. The total face value of all bonds combined was 200,000, which means that there had to be 200 bonds since each one is worth 1,000 (200,000/1,000=200). Now each bond contains 100 warrants, and so there are 200 bonds, which means there must be 20,000 warrants (200*100=20,000). Each bond has 100 warrants attached to it. The question is just not worded well, but I've seen this question before and never actually thought of there only being one warrant per bond. When I initially did this question, I got 20,000 for the warrants.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Anonymous]

@NYCaccountant – The most basic level of my confusion starts with book value vs. fair value. Using the Becker MCQ at the end of F-2 as an example, you have a truck with a FV of $3,000 and a carrying amount (i.e., book value) of $2,500 that is exchanged for stock. The answer is that the basis in the stock is now $3,000 (FV), not $2,500.

It makes more sense to me to use FV than BV, but questions like this one use FV and it throws me for a loop.

ETA: WAIT! is this because there is a change in cash flows? Maybe you use book value when there is no change in cash flows but fair value when there is a change in cash flows? (Please let that be true because if so it makes sense to me then!!!)

[Anonymous]

@NYCaccountant – The most basic level of my confusion starts with book value vs. fair value. Using the Becker MCQ at the end of F-2 as an example, you have a truck with a FV of $3,000 and a carrying amount (i.e., book value) of $2,500 that is exchanged for stock. The answer is that the basis in the stock is now $3,000 (FV), not $2,500.

It makes more sense to me to use FV than BV, but questions like this one use FV and it throws me for a loop.

ETA: WAIT! is this because there is a change in cash flows? Maybe you use book value when there is no change in cash flows but fair value when there is a change in cash flows? (Please let that be true because if so it makes sense to me then!!!)

[Monir]

@DJN, If you exchange for stock your cash flow will have impact and that would be consider monetary exchange. In that case you gotta use FV

[Monir]

@DJN, If you exchange for stock your cash flow will have impact and that would be consider monetary exchange. In that case you gotta use FV

[Anonymous]

OK, how 'bout this:

Lack commercial substance – no change in cash flows – use book value

With commercial substance – change in cash flows – use FV

Does that work as a general rule? I wish there were more practice questions on this point. (I can't believe I just said that… HA!)

[Author]

Replies