[jeff]

Welcome to the Q4 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

[Nikki]

Can someone clarify – For FAR SIMS on the exam that involve journal entries with 4 lines do you have to put zeros and N/A for the lines you do not use on the problem? If you don't enter zeros and N/A does that count against you?

[Lentilcounter]

@IwannabeaCPA2017

March 31 date is a distractor. It doesn't matter for what the question is asking you. I think if the question asked you about deferred revenue as of 06/30, then it would come into play. Don't feel bad about being slow on problems. This is my 4th time doing FAR and I'm still slow and its because this section is a beast.

BEC = 72 (6/08/16)
FAR = ?
REG = ?
AUD = ?

[Lentilcounter]

@Nikki, without breaking any AICPA rules, the best answer I can give you is read the instructions for each simulation careful. I think you will find what you are asking there.

BEC = 72 (6/08/16)
FAR = ?
REG = ?
AUD = ?

[JRM]

9. On January 1, year 1, Boston Group issued $100,000 par value, 5% five-year bonds when the market rate of interest was 8%. Interest is payable annually on December 31. The following present value information is available:

5% 8% Present value of $1 (n = 5) 0.78353 0.68058
Present value of an ordinary annuity (n = 5) 4.32948 3.99271

What amount is the value of net bonds payable at the end of year 1?
A.$88,022
B.$90,064 – Correct Answer
C.$100,000
D.$110,638

Please help.. Why is the answer not A. Here is how I solved it.

Step 1 100,000*.68058= 68,058
Step 2 100,000*.05=5,000 payment
Step 3= 5,000*3.99271 =19963.55

Step 4= 19963+68058=88,022

[JRM]

Present value of $1 (n = 5) 0.78353-(5%) 0.68058-(8%)

Present value of an ordinary annuity (n = 5) 4.32948-(5%) 3.99271-(8%)

[IwannabeaCPA2017]

@Lentil, thanks again. Makes more sense! True, I just need to stop comparing myself to others LOL. I keep seeing people around me finishing these exams at a much faster pace when I have started studying way before.. again I guess I just need to tune out the negative thinking. Good luck studying

[Jen-J]

Editing – I see it was answered.

[Lentilcounter]

@JRM – you calculated the carrying value of the bonds at 01/year 1.

to get the net bond payable at the end of the year, you have to amortize the discount too.

$88,022*0.08=$7,041.76 which is the total interest expense

$100,000*0.05=$5,000 is the interest payable/payment and it doesn't change

$7,041.76-$5,000 = $2,041.76 is the amount amortized

$88,022+$2,041.76 = $90,063.76 –> $90,064

You did half the battle which was figuring out the carrying amount of the bond. Good job on that.

BEC = 72 (6/08/16)
FAR = ?
REG = ?
AUD = ?

[JRM]

omg thank you so much!!! I must have overlooked the question. @lentilcounter

[Lentilcounter]

Can someone post an example of a problem where they are going from using straight-line depreciation method to double-declining balance depreciation method? For example, they use straight-line in years 1-2 and then change at the beginning of year 3. I understand that this change would be handled prospectively. I also understand that I would use the current book value as the depreciable basis to calculate the year 3 depreciation under DDB.

I cannot remember if I use the straight-line rate based on the original cost (not including salvage value)*2 or if I use the year 3 beginning depreciable basis for the rate calculation?

Brain fart!

BEC = 72 (6/08/16)
FAR = ?
REG = ?
AUD = ?

[Lentilcounter]

@iwannnabeaCPA2017…its something we struggle with as human beings…

Compare yourself now to your previous self. Comparing yourself to others isn't fair. They don't have your circumstances, testimony, or situation.

BEC = 72 (6/08/16)
FAR = ?
REG = ?
AUD = ?

[anonymous20000]

Hello, I'm a bit confused about the following question from the AICPA sample exam for FAR. It is part of the sims.

On October 15 year 3, one of Rev's facilities sustained significant water damage. At your request, we contacted the property insurance carrier to check the status of the $2500,000 claim that rev filed on November 15, year 3. On December 27 year 3, the property insurance carrier acknowledged that the losses appear to be covered by the insurance policy. However, the property insurance carrier stated that its adjuster is still reviewing the claim and does not expect to settle it until March, year 4. The property insurance carrier further indicated that any payment is subject to the $235,000 deductible included in the property insurance policy.

1) Is financial statement note disclosure required for year 3?
2) What is the asset (liability) balance as of December 31, year 3?

[Lentilcounter]

@anonymous20000

I'm taking an educated guess here. Am I right or wrong?

1.) Yes
2.) $235,000

BEC = 72 (6/08/16)
FAR = ?
REG = ?
AUD = ?

[anonymous20000]

@Lentilcounter

The AICPA answers are:

1) Yes
2) $0 – Not sure why the answer is 0. Can someone please explain?

[Anonymous]

@anonymous20000
1) Yes, the significant damage shall be disclosed. Because it's significant meaning the damage may impact on the ordinary operation and other reasons. To not mislead financial users, the damage shall be disclosed.

2) $0. When the company spend resources to repair the damaged facility, it's expense for the company. The insurance claim results in contingent gain and contingent assets which both will not recorded until they are realized. $235K deductible means the insurance carrier will pay a net proceeds equal the approved claim amount (will evaluated by the insurance adjuster) minus the deductible to the company. For example, if the approved claim is $1,000K, the insurance company won't pay full $1,000K, but only pay $765K (1,000-235). For the company, the insurance claim is not recorded in book as well as potential deductible amount. It just disclosed within the fact of the damage.

If the question changed to as the company has a lawsuit (company is the defendant, may pay to someone else, not insurance pay to the company) with potential $1,000K – $2,000K loss and no amount within the range is more likely a best estimate, and the company has insurance to cover its liability, and the deductible is $235 for the insurance claim. Then now, the company would have $235 liability. This is the company's contingent loss and liability. In this situation, because if the company doesn't have insurance to cover the potential loss, the company would have $1,000K (US GAAP) or $1,500 (IFRS) as liability accrued at FYE. Since the company has insurance to cover, the company is just liable for the deductible amount to the which the insurance won't pay for it. Note that this situation is different than the one in AICPA sample.

[Author]

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