[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

[Anonymous]

The two questions below… could somebody help me out as to why you deduct the dividends on one, but not the other? I'm completely confused, I was thinking it should be deducted for both… Thanks in advance.

On January 1, Year One, the David Company acquires 40 percent ownership of Go Corporation for $200,000 although Go's balance sheet reports assets of only $80,000 with no liabilities. However, David made its acquisition because Go owns the rights to a patent that recently become very valuable and is assumed to be worth $420,000. The patent has an expected remaining life of five years. Officials of David believe that have acquired the ability to have significant influence over the operating and financing decisions of Go. In Year One, Go reports net income of $100,000 and pays a cash dividend of $10,000. David has chosen not to use the fair value option for this investment. On December 31, Year One, what should David report on its balance sheet for this investment?
$200,000
$202,400
$236,000
$240,000
Explanation: David has the ability to apply significant influence over the decisions of Go so that the equity method is applied. David recognizes income as it is earned by the investee so that $40,000 is reported in Year One ($100,000 times 40 percent). David views dividends as a return of its investment ($4,000 or $10,000 times 40 percent). Consequently, the investment initially reports $236,000 at the end of Year One ($200,000 cost plus $40,000 income less $4,000 dividends). However, David paid an amount in excess of the underlying book value of the investment. The company paid $200,000 but 40 percent of book value is only $32,000 ($80,000 in net assets times 40 percent). Some explanation for this additional $168,000 payment ($200,000 less $32,000) is required. Go held rights to a patent worth $420,000. Because David bought a 40 percent interest, an additional payment of $168,000 for the patent was anticipated ($420,000 times 40 percent). Because that amount equals the excess payment, no goodwill has to be recognized. The patent has a five-year life; David's payment is amortized over that period at the rate of $33,600 per year ($168,000 divided by 5 years). This amortization reduces the income recognized by David as well as the investment account which drops from $236,000 to $202,400.

On January 1, Year One, Giant Company bought 40 percent of the outstanding shares of Tiny Company for $500,000. This investment provided Giant with the ability to significantly influence the decisions of Tiny. At the date of the purchase, Tiny had a net book value (assets minus liabilities) of $1.1 million. On that same day, Tiny owned a building with a $300,000 book value but a fair value of $450,000. This building had a 10-year remaining life. During Year One, Tiny reported net income of $90,000 and paid a cash dividend of $20,000. The fair value method is not being applied to this investment. At the end of Year One, what should Giant report as its Investment Income from Tiny Company?
$21,000
$22,000
$30,000
$36,000
Explanation: Because Giant has the ability to significantly influence Tiny, the equity method will be applied. Giant paid $500,000 for 40 percent of the outstanding stock of a company with a net book value of $1.1 million. The underlying book value for that investment was $440,000 (40 percent of $1.1 million). Giant paid $60,000 in excess of that amount ($500,000 minus $440,000). Some assignment must be made of this additional payment. The building was worth $150,000 more than its book value ($450,000 less $300,000). Giant should assign $60,000 (40 percent of the $150,000 increase in value) to the building. That explains the entire excess amount so that no goodwill is recognized. This $60,000 allocation of Giant's purchase price is amortized over the 10-year life of the building at the rate of $6,000 per year. For Year One, Giant recognizes income of $36,000 (40 percent of the $90,000 income reported by Tiny) and $6,000 amortization of the building allocation for a net amount of $30,000.

[danamilagros]

I need help underrating these questions

Since there is no reasonable basis for estimating the degree of collectability, Astor Co. uses the installment method of revenue recognition for the following sales:

20X2 20X1
——– ——–
Sales $900,000 $600,000
Collections from:
20X1 sales 100,000 200,000
20X2 sales 300,000 —
Accounts written off:
20X1 sales 150,000 50,000
20X2 sales 50,000 —
Gross profit percentage 40% 30%

What amount should Astor report as deferred gross profit in its December 31, 20X2, balance sheet for the 20X1 and 20X2 sales?

A.
$150,000

B.
$160,000

C.
$225,000

D.
$250,000

Also, If any one knows an essay way to learn the lessor side of leases, I will appreciate the help.

[IwannabeaCPA2017]

It is an amazing feeling when you not only get the bond MCQ right but are also getting the SIMS too and actually understand!! For once and finally I feel much better covering bonds out of the 3 attempts I have taken. Not trying to brag but it is a GREAT FEELING!! and watch my exam wont have any sh1t on bonds come exam day.. :/ LMAO

[IwannabeaCPA2017]

@danamil, I haven't gotten back into leases yet but I recall there was a simple “trick” to understand. For Leases, if it is an operating lease you record rental income versus capital lease you don't have rental income but record lease liability or interest expense. Something along those lines. There is a free video on youtube from Roger CPA. I highly recommend it because he covers it in detail and was very helpful for me!

For Def. GP to find that it is the GP percentage x ending receivable. I could be wrong but is the Answer 250,000?

[IwannabeaCPA2017]

@Bhue. In regards to those question for your first question its asking about the Balance Sheet account so you would have to account for the Dividend (the percentage x amount paid). It is asking for the carrying value.. where as the 2nd question is asking for the income statement account. For income statement all you gotta do is take the percentage own x amount of net income (your share) under equity method. If it was cost method or fair value approach then you would record dividend income. Hope that helps.

[jeff]

Ask the NINJAs: Material isn't Sticking – 25% Average Score

Ask the NINJAs: REG Material isn't Sticking; 25% Average Score

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

[jeff]

Ask the NINJAs: 2017 CPA Review Materials on 2018 CPA Exam

Ask the NINJAs: 2017 CPA Review Materials on 2018 CPA Exam

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

[Recked]

Anyone feeling especially confident?
I am scheduled for Nov 9th and the window to push is getting slim with 4ish days to decide.
I am not feeling too confident, but I am not sure you ever really feel confident.
Did 4 30MCQ's yesterday for a 77 83 87 and 67, total average of 78.5%. Not much room for error.

My options for a push would be Nov 24th or Nov29th.
Pros – I could hammer out lots of MCQ's.
Cons – Further losing short term memory of details.
Started this process August 30th. Over 190 hours so far.

[Lentilcounter]

Drill into the weak areas and keep your date. Find out why that last set of 30 was a 67.

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

[Recked]

Thanks for the advice. To answer you question from the other thread, without junking up another one, favorite car at this point in my life, anything with heat and a/c that gets me reliably to prometric on time, lol. Dream car would probably be the GT3 porsche. I really enjoyed this video on the 911 launch feature as well. https://www.youtube.com/watch?v=A5DRCTW-Q7o

The 67% was due to 4 of 4 missed on segment reporting, forgot the 10% rule applies to total sales.
Also missed 4 of 7 on installment sales and cost recovery.

Review and repeat. Here we go!!

[Anonymous]

@danamilagros

This is my guess at the answer:

1.) Calculate total profit to be recognized using gross margin percentage on sales: $180,000 and $360,000 (respectively)
2.) Calculate amount already recognized: (collections + write offs)/total sales = 83.33% and 38.89% (respectively)
3.) Remaining portion to be recognized: 1-.8333=16.67% and 1-.3889=61.11%
4.) Remaining portion calculated: $180,000*16.67% = $30,000 and $360,000*61.11% = $220,000
5.) Total deferral $250,000

[Ana]

@lentil good luck on Thursday. I know you have what it takes to pass this time. Keep calm throughout the test and slow down on the sims. YOU CAN AND WILL DO THIS!

[Lentilcounter]

@Ana Thank you! Good luck to you on Friday!

I will try to share my testing experiences at some point on Thursday after my 12:30 ET test.

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

[Wannafree]

@Lentil , don't get overwhelmed by size or volume of the SIMs,keep filling the fields and go till end.This is from same webinar and it's my goal this time.BTW your score of 3 attempts are very close to mine.It seems we will able to cross the SIMs hump due to your SIM thread.

[IwannabeaCPA2017]

On January 1, Year1, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually, beginning December 31, Year1, and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1,Year1, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh’s December 31, Year1, balance sheet, the capital lease liability should be:

Answer is 111,500. My question is why are we not paying 10k as all principal for the first payment? I thought all initial payment goes to principal? My math was 112,500-10,000 = 102,500 capital lease liability. Little confuse. Thanks for clarification in advance.

[Author]

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