[jeff]

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

[NYCaccountant]

The segment will probably have to be reclassified from income from continuing operations to discontinued operations after it is classified as held for sale. That is if it fits the criteria. I would include the 100,000 Impairment loss and 75,000 net loss as a component of discontinued operations, so the entry would something like this assuming no reclassification and I have a clean slate.

Loss from discontinued operations Dr. 175,000

Equipement or component (Not sure how it's set up) Cr. 100,000 Impairment loss

Cash/ Accounts payable Cr. 75,000 Expenses/ Paid bills

Now it says you booked anticipated losses in year 3 , which means that you would have accrued the loss. The entry might have looked like this:

Loss from discontinued operations Dr. 150,000

Accrued expense/ other liability Cr. 150,000

You will reverse this though when you restate the financials.

Now on 1/1/y3, I'll post a reversing entry to get rid of the liability that was incorrectly accrued.:

Accrued expense Dr. 150,000

Retained earnings – prior period adjustment Cr. 150,000

Then post this:

Loss from discontinued ops Dr. 150,000

Accrued expenses Cr. 150,000

During year 3.

That's how it's playing out in my mind, but I could be wrong. Just trying to be helpful.

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

[NYCaccountant]

The segment will probably have to be reclassified from income from continuing operations to discontinued operations after it is classified as held for sale. That is if it fits the criteria. I would include the 100,000 Impairment loss and 75,000 net loss as a component of discontinued operations, so the entry would something like this assuming no reclassification and I have a clean slate.

Loss from discontinued operations Dr. 175,000

Equipement or component (Not sure how it's set up) Cr. 100,000 Impairment loss

Cash/ Accounts payable Cr. 75,000 Expenses/ Paid bills

Now it says you booked anticipated losses in year 3 , which means that you would have accrued the loss. The entry might have looked like this:

Loss from discontinued operations Dr. 150,000

Accrued expense/ other liability Cr. 150,000

You will reverse this though when you restate the financials.

Now on 1/1/y3, I'll post a reversing entry to get rid of the liability that was incorrectly accrued.:

Accrued expense Dr. 150,000

Retained earnings – prior period adjustment Cr. 150,000

Then post this:

Loss from discontinued ops Dr. 150,000

Accrued expenses Cr. 150,000

During year 3.

That's how it's playing out in my mind, but I could be wrong. Just trying to be helpful.

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

[Anonymous]

NYCaccountant, thanks so much for the explanation! i think this makes sense. I forgot that this means error and i have to restate the RE in the year the error occurred. However, i still dont understand these explanations:

“Now it says you booked anticipated losses in year 3 , which means that you would have accrued the loss. The entry might have looked like this:

Loss from discontinued operations Dr. 150,000

Accrued expense/ other liability Cr. 150,000

Then post this:

Loss from discontinued ops Dr. 150,000

Accrued expenses Cr. 150,000″

Isnt these are the same accounts? i thought the first one was the incorrect accounts (as the original) and the when

accrued expense 150K DR

RE 150K CR

this is the adjustment? am i wrong to interpret your explanation? i am sorry if dont catch the explanation. am i missing something?

Thank you!

[Anonymous]

NYCaccountant, thanks so much for the explanation! i think this makes sense. I forgot that this means error and i have to restate the RE in the year the error occurred. However, i still dont understand these explanations:

“Now it says you booked anticipated losses in year 3 , which means that you would have accrued the loss. The entry might have looked like this:

Loss from discontinued operations Dr. 150,000

Accrued expense/ other liability Cr. 150,000

Then post this:

Loss from discontinued ops Dr. 150,000

Accrued expenses Cr. 150,000″

Isnt these are the same accounts? i thought the first one was the incorrect accounts (as the original) and the when

accrued expense 150K DR

RE 150K CR

this is the adjustment? am i wrong to interpret your explanation? i am sorry if dont catch the explanation. am i missing something?

Thank you!

[NYCaccountant]

Sorry let me clean this up. Updated response below:

The segment will probably have to be reclassified from income from continuing operations to discontinued operations after it is classified as held for sale. That is if it fits the criteria. I would include the 100,000 Impairment loss and 75,000 net loss as a component of discontinued operations, so the entry would look something like this assuming no reclassification and I have a clean slate.

Loss from discontinued operations Dr. 175,000

Equipment or component (Not sure how it's set up) Cr. 100,000 Impairment loss

Cash/ Accounts payable Cr. 75,000 Expenses/ Paid bills

Now it says you booked anticipated losses for year 3 in year 2 , which means that you would have accrued the loss. The entry might have looked like this:

Loss from discontinued operations Dr. 150,000

Accrued expense/ other liability Cr. 150,000

You will reverse the entry above though when you restate the financials for year 2.

So after reversing the entry I've adjusted my ending retained earnings for year 2.

Now on 1/1/y3, I'll post a reversing entry to get rid of the liability that was incorrectly accrued.:

Accrued expense Dr. 150,000

Retained earnings – prior period adjustment Cr. 150,000

So I adjusted my beginning retained earnings in my year 3 financial statements.

Then post this during year 3 after 1/1/y3.

Loss from discontinued ops Dr. 150,000

Accrued expenses Cr. 150,000

To record the anticipated loss in year 3.

That's how it's playing out in my mind, but I could be wrong. Just trying to be helpful. Sorry for the confusion.

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

[NYCaccountant]

Sorry let me clean this up. Updated response below:

The segment will probably have to be reclassified from income from continuing operations to discontinued operations after it is classified as held for sale. That is if it fits the criteria. I would include the 100,000 Impairment loss and 75,000 net loss as a component of discontinued operations, so the entry would look something like this assuming no reclassification and I have a clean slate.

Loss from discontinued operations Dr. 175,000

Equipment or component (Not sure how it's set up) Cr. 100,000 Impairment loss

Cash/ Accounts payable Cr. 75,000 Expenses/ Paid bills

Now it says you booked anticipated losses for year 3 in year 2 , which means that you would have accrued the loss. The entry might have looked like this:

Loss from discontinued operations Dr. 150,000

Accrued expense/ other liability Cr. 150,000

You will reverse the entry above though when you restate the financials for year 2.

So after reversing the entry I've adjusted my ending retained earnings for year 2.

Now on 1/1/y3, I'll post a reversing entry to get rid of the liability that was incorrectly accrued.:

Accrued expense Dr. 150,000

Retained earnings – prior period adjustment Cr. 150,000

So I adjusted my beginning retained earnings in my year 3 financial statements.

Then post this during year 3 after 1/1/y3.

Loss from discontinued ops Dr. 150,000

Accrued expenses Cr. 150,000

To record the anticipated loss in year 3.

That's how it's playing out in my mind, but I could be wrong. Just trying to be helpful. Sorry for the confusion.

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

[Anonymous]

Question on acquisitions with goodwill/gain (Becker F3, think CAR IN BIG):

Amount you paid

– FV of assets (which is also CAR+B)

= GW

and

FV of assets (CAR+B)

– Amount you paid

= Gain

I have NBV instead of FV in my notes in several places.

Is this just semantics? I.e., is FV in this case NBV plus the balance sheet adjustment to bring the assets up to FV? If so, why would that be called NBV and not FV?

I just hate it when think I finally have something straight in my head and then I come across something like this…

[Anonymous]

Question on acquisitions with goodwill/gain (Becker F3, think CAR IN BIG):

Amount you paid

– FV of assets (which is also CAR+B)

= GW

and

FV of assets (CAR+B)

– Amount you paid

= Gain

I have NBV instead of FV in my notes in several places.

Is this just semantics? I.e., is FV in this case NBV plus the balance sheet adjustment to bring the assets up to FV? If so, why would that be called NBV and not FV?

I just hate it when think I finally have something straight in my head and then I come across something like this…

[Anonymous]

Can someone please explain, especially where the fractional allocation comes from. (ETA: Sorry about the off formatting, it is correct before I post it, grrrrr…)

On July 1, year 1, Link Development Company purchased a tract of land for $900,000. Additional costs of $150,000 were incurred in subdividing the land during July through December year 1. Of the tract acreage, 70% was subdivided into residential lots as shown below and 30% was conveyed to the city for roads and a park.

Lot class Number of lots Sales price per lot

A 100 $12,000

B 100 8,000

C 200 5,000

Under the relative sales value method, the cost allocated to each Class A lot should be:

Per ASC 970, real estate donated to municipalities or other governmental agencies for uses that will benefit the project shall be allocated as a common cost of the project. None of the cost should be allocated to land donated to the city, since that land will not directly generate revenue (and therefore has no sales value). Therefore, the total cost of acquiring the land ($900,000 + $150,000 = $1,050,000) should be allocated to the lots which will generate revenue. The $1,050,000 cost is allocated based on the relative sales value of the lots, as computed below.

Lot class # of Sales price Total sales value

A 100 × $12,000 = $1,200,000

B 100 × 8,000 = 800,000

C 200 × 5,000 = 1,000,000

$3,000,000

Total cost Fraction allocated to Class A Allocated cost # of Cost per lot inClass A

$1,050,000 × ($1,200/$3,000) = $420,000 ÷ 100 = $4,200

[Anonymous]

Can someone please explain, especially where the fractional allocation comes from. (ETA: Sorry about the off formatting, it is correct before I post it, grrrrr…)

On July 1, year 1, Link Development Company purchased a tract of land for $900,000. Additional costs of $150,000 were incurred in subdividing the land during July through December year 1. Of the tract acreage, 70% was subdivided into residential lots as shown below and 30% was conveyed to the city for roads and a park.

Lot class Number of lots Sales price per lot

A 100 $12,000

B 100 8,000

C 200 5,000

Under the relative sales value method, the cost allocated to each Class A lot should be:

Per ASC 970, real estate donated to municipalities or other governmental agencies for uses that will benefit the project shall be allocated as a common cost of the project. None of the cost should be allocated to land donated to the city, since that land will not directly generate revenue (and therefore has no sales value). Therefore, the total cost of acquiring the land ($900,000 + $150,000 = $1,050,000) should be allocated to the lots which will generate revenue. The $1,050,000 cost is allocated based on the relative sales value of the lots, as computed below.

Lot class # of Sales price Total sales value

A 100 × $12,000 = $1,200,000

B 100 × 8,000 = 800,000

C 200 × 5,000 = 1,000,000

$3,000,000

Total cost Fraction allocated to Class A Allocated cost # of Cost per lot inClass A

$1,050,000 × ($1,200/$3,000) = $420,000 ÷ 100 = $4,200

[Anonymous]

Acme Co.’s accounts payable balance at December 31 was $850,000 before necessary year-end adjustments, if any, related to the following information:

• At December 31, Acme has a $50,000 debit balance in its accounts payable resulting from a payment to a supplier for goods to be manufactured to Acme’s specifications.

• Goods shipped FOB destination on December 20 were received and recorded by Acme on January 2; the invoice cost was $45,000.

In its December 31 balance sheet, what amount should Acme report as accounts payable?

The answer is 900k (50k + 850k). I don't understand why we are adding the 50k debit to the payable balance. Payables normal balance is a CR since it is a liability, so if we debited that account with the 50k debit wouldn't we be decreasing that account by 50k, making it 800k? I'm missing something here.

[Anonymous]

Acme Co.’s accounts payable balance at December 31 was $850,000 before necessary year-end adjustments, if any, related to the following information:

• At December 31, Acme has a $50,000 debit balance in its accounts payable resulting from a payment to a supplier for goods to be manufactured to Acme’s specifications.

• Goods shipped FOB destination on December 20 were received and recorded by Acme on January 2; the invoice cost was $45,000.

In its December 31 balance sheet, what amount should Acme report as accounts payable?

The answer is 900k (50k + 850k). I don't understand why we are adding the 50k debit to the payable balance. Payables normal balance is a CR since it is a liability, so if we debited that account with the 50k debit wouldn't we be decreasing that account by 50k, making it 800k? I'm missing something here.

[NYCaccountant]

@ DJN does NBV equal net book value? if so, I think thats wrong and it should be fair value. I'm thinking of NBV being the same thing as Net Assets, so it's the carrying amount of assets on the books minus the carrying amount of liabilities on the books, which should equal owners equity. In consolidations, everything is adjusted to fair value and then netted out to give you an update equity value. That value is then compared to the fair value of the consideration transferred and either a gain is recognized or the excess of the purchase price over the fair value of the net assets acquired would be allocated to goodwill.

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

[NYCaccountant]

@ DJN does NBV equal net book value? if so, I think thats wrong and it should be fair value. I'm thinking of NBV being the same thing as Net Assets, so it's the carrying amount of assets on the books minus the carrying amount of liabilities on the books, which should equal owners equity. In consolidations, everything is adjusted to fair value and then netted out to give you an update equity value. That value is then compared to the fair value of the consideration transferred and either a gain is recognized or the excess of the purchase price over the fair value of the net assets acquired would be allocated to goodwill.

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

[NYCaccountant]

@ CPA2014dream We are reversing that debit because technically its a prepay, so should be a prepaid expense. Entry below:

Prepaid expense Dr. 50,000

Accounts payable Cr 50,000

Originally the accounts payable balance was 850,000, but the credit will increase the balance to 900,000.

The key is “to be manufactured” which means we technically don't owe the money yet and the amount we paid is a prepay.

To answer your first question, we are trying assign cost to each lot. When we bought the land, we paid for the whole thing in bulk and added the costs of subdividing the land. No cost was assigned for each individual parse of land, so we will determine cost relative to the parse of lands sales price. If I have 4 pieces of land, and i'm selling each for 250, than 1 must be worth 25% of the sales price for all four together. So when i bought the land, 25% of the total cost must be allocated to each parcel of land.

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

[Author]

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