[jeff]

Free Study Planner, Notes, Audio, Flashcards: https://www.another71.com/cpa-exam-study-plan/

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

[rossk]

Can someone explain why do we add the un-guaranteed residual amount in sales type lease and direct finance lease?

[Determined CPA]

Thank you so much, Skillet and CTM! I must have read right past the second part of that sentence!

A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!

Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.

[Determined CPA]

Bensol Co. and Sable Co. exchanged similar trucks with fair values in excess of carrying amounts. In addition, Bensol paid Sable to compensate for the difference in truck values. As a consequence of the exchange, Sable recognizes:

answer: a gain equal to the difference between the fair value and carrying amount of the truck given up

explanation: FASB ASC 845-10-30-4 specifies that the entity's future cash flows are expected to change significantly if either of the following criteria is met:

1.The configuration (risk, timing, and amount) of the future cash flows of the asset(s) received differs significantly from the configurations of the future cash flows of the asset(s) transferred.

2.The entity-specific value of the asset(s) received differs from the entity-specific value of the asset(s) transferred, and the difference is significant in relation to the fair values of the assets exchanged.

Explanation: In Sable's case, criterion (1) likely is met because the configuration of the future cash flows associated with the asset received differs from the future cash flows of the asset surrendered. Note, for example, that Sable had a cash inflow at the time of the exchange that would not have occurred at that time without the exchange. Therefore, the exchange has commercial substance and must be accounted for based on fair value. Accordingly, Sable would recognize a gain equal to the difference between the fair value and the carrying amount of the truck given up.

I answered this question as if it lacked commercial substance bc I didn't see any proof that cash flow changed significantly. Does anyone know why this would have commercial substance??

A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!

Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.

[Anonymous]

I just got this same question and answered the same thing. I don't see where it is implied that there is commercial substance on the exchange.

[Satchman]

@Determined CPA

I guess there has been an error in your question. The Real question looks like the following; and it states that it has commercial substance. There is an omission of the commercial substance part in your question, and I would have assumed the same that the exchange lacks commercial substance, which would be right. btw which test bank are you using ?

Bensol Co. and Sable Co. exchanged similar trucks with fair values in excess of carrying amounts. In addition, Bensol paid Sable to compensate for the difference in truck values.

The exchange has commercial substance.

As a consequence of the exchange, Sable recognizes

A. A gain equal to the difference between the fair value and carrying amount of the truck given up.

B. A gain determined by the proportion of cash received to the total consideration.

C. A loss determined by the proportion of cash received to the total consideration.

D. Neither a gain nor a loss.

[Satchman]

@rossk – Your question is unclear (lesse or lessor) and wrong, I am assuming you are talking about the lesse.

From the lesse's point of view you are not obliged to cover the residual value since it is unguaranteed, so you do not add it back, but rather subtract it from the FMV of the leased asset to get the Present value.

you add the residual value back when it is guaranteed.

From the lessor's point of view, the accounting for the lease will be treated the same regardless of whether the residual value is guaranteed or unguaranteed. Conceptually, Residual value is an estimate and in this case even if the lessor does not receive a guarantee from the lesse, there is high probability that he will still be able to realize the residual value so we leave it as it is.

The only difference would arrive when using Sales type or Direct Fiunance type lease for the lessor, in which case we will have to recognize the gain in the first journal entry for a Sales type lease.

[CP]

I purchased the FAR package about 2 weeks ago and I have a question. Do you suggested I review the material for all the sections and then do MCQ's afterwards?

[Determined CPA]

lilpe5512 – I think it's very hard to do mcq's if you don't have an understanding of the material. You will either be guessing or memorizing based on the answers.

A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!

Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.

[Determined CPA]

Satchman – ok Thank you!! That was a ninja question, actually. It was driving me nuts! Leaving out that sentence makes it a totally different answer. I appreciate you posting the correct version for me.

A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!

Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.

[CP]

@determinedCPA…..That's what I was thinking. I just wanted to know what everyone was/gonna do. Thanks!

[stephaniem1221]

Can someone explain the difference between when a company elects the fair value option for reporting financial assets and liabilities and when they don't elect the fair value option? does this effect other comprehensive income components and valuation of securities and how?

Thanks!

[rossk]

The Astor Community Mental Health Center, a not-for-profit corporation, received a $3,000,000 capital grant from the State to construct a clinic in its service area during Year 1. The terms and conditions of the grant include a reversionary interest in the event the facility is no longer used to deliver mental health services. The building was completed on December 31, Year 2 at a cost of $4,000,000 and was partially financed with a 25 year note. The building has an estimated useful life of 30 years and was placed into service on December 31, Year 2. Ignoring the impact of accumulated depreciation, Astor would display which of the following at and for the year-ended December 31, Year 3, as a result of the transaction above? Astor has an accounting policy implying a time restriction on donated long-term assets.

.

Can someone please explain this question

[Lidis]

If the fair value option is elected, any unrealized gains and losses are reported in earnings for the period. Unrealized gains and losses on a AFS securities would be reported in the income statement rather than OCI.

[rapk314]

Took FAR this morning on a retake, finished with lots of time to spare. Hopefully it went well

BEC 76 (11/2014)
FAR 83 (01/2015)
AUD 86 (02/2015)
REG 86(04/2015)

[Determined CPA]

A company has the following liabilities at year-end:

Mortgage note payable; $16,000 due within 12 months $355,000

Short-term debt that the company is refinancing

with long-term debt 175,000

Deferred tax liability arising from depreciation 25,000

What amount should the company include in the current liability section of the balance sheet (statement of financial position)?

answer: 16,000

can someone please explain why the DTL from depreciation isn't a current liability?

A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!

Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.

[Author]

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