[jeff]

Post by Another71.

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

[jinjuujii]

Seven, I think this is the reason:

Mill reported Bad Debt Expense of $16,000. When a company report bad debt expense, it also credit allowance for bad debts. The entry would be – debit bad debt credit allowance for collectible. The allowance for collectible is a contra asset account so it adds to the beginning balance of $90,000. So during the year of 2010, the Allowance for bad debt had $106,000 but the question gave the ending balance of $100,000.

The entry to adjust our account to have the balance of $100,000 is to Debit Allowance for bad debt $6000 and to Credit A/R of $6000.

My explanation might be unclear but if you google the allowance method, you'll see how it works. Hope it helps.

FAR: 2-27-2015

[jinjuujii]

took me 7 minutes to type that explanation. I see Excel Monkey already provided you with a better explanation. hope you understand it by now.

FAR: 2-27-2015

[Determined CPA]

Seven, I think this link will help:

https://smallbusiness.chron.com/bad-debt-expense-vs-write-offs-58505.html

The way you were describing how you came up with your answer makes me think you were treating the bad debt expense as a written off amount. That link will explain that when you write off a receivable, you will debit that amount, but when you have a bad debt expense, you will credit that amount. Basically, a bad debt expense will add to your uncollectible amount.

Hope this helps as well.

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.

[Gaucho2010]

Chape Co had the following information related to common and preferred shares during the year:

Common shares outstanding, 1/1 700,000

Common shares repurchased, 3/31 20,000

Conversion of preferred shares, 6/30 40,000

Common shares repurchased, 12/1 36,000

Chape reported net income of $2,000,000 at December 31. What amount of shares should Chape use as the denominator in the computation of basic earnings per share?

a. 702,000

b. 740,000

c. 684,000

d. 700,000

The answer is A. Why did they factor preferred shares in basic EPS??

[Determined CPA]

They converted the preferred shares into common shares; therefore, common shares increased and needs to be included in the weighted average of all the common shares.

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]

Gaucho2010 – heres another question I just got which is a conceptual question to the one you asked above:

Securities of a subsidiary that are convertible into parent company's stock shall be considered:

A.

potential common shares of the parent for consolidated diluted EPS.

B.

potential common shares of the parent to the extent that they are converted.

C.

potential common shares of the parent to the extent that they are likely to be converted.

D.

not parent company shares for purposes of diluted EPS.

Answer is A. Securities of a subsidiary that are convertible into parent company's common stock are potential common shares for diluted EPS.

Hope this helps with the understanding.

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.

[Gaucho2010]

@Determined, that helps. Thanks!

[se7en.14]

excel monkey, Determined CPA

Thanks i got it now~

[Future Ninja]

Passed FAR with 76 on my second try. I'll take it. Thank you A71 Q4 and Q1 study group. Halfway there. BEC on Feb 9th.

AUD - 79 (expired) retaking July 28,2016
FAR - 76 expiring July 31, 2016
BEC - 85
REG - 74,74,74,74,59,70,

[Satchman]

Passed FAR with 82 – First try.. On to Audit now

[Future Ninja]

Congrats Satchman. best of luck to all those who will take it soon!

AUD - 79 (expired) retaking July 28,2016
FAR - 76 expiring July 31, 2016
BEC - 85
REG - 74,74,74,74,59,70,

[Satchman]

Congrats !! @Future Ninja.. Good to see u. All the best to the folks who will be taking it soon. Feel free to ask any questions reg the exam.. and Thanks to Mod @Determined CPA

[Anonymous]

Hey all, have a question on personal statement of financial condition. Info in the answer given below. Pretty straight forward, except I don't understand why the reduction in liabilities is taxed? I got the increase in assets being taxed, but the liability?

Thanks!

Estimated value of assets $900,000

Estimated amount of liabilities (80,000)

Tax on difference between estimated

values and tax basis:

Assets ($900,000 – $500,000) $400,000

Liabilities ($100,000 – $80,000) 20,000

---

$420,000

Tax rate 30%

---

Tax (126,000)

---

Net worth $694,000

=========

224

[se7en.14]

June 1, of current year, Oren Co entered into 5 year nonrenewable lease, commencing on that ddate, for office space & made followin payments to landlord:

Bonus to obtain lease $30k

first month rent $10k

last month's rent $10k

In it's I/S for current year ended june 30, what amount should oren report as rent expense?

a.$10k

b. $50k

c.40k

d. $10.5k

answer d- Rent expense should include first month's rent & allocated portion of the bonus. last months rent should be shown as prepaid expense.

Why is last month's rent prepaid exp? and hasnt only 1 month passed since between when they starting leasing and the I/S of June 30? why would there be 2 month's rent payments?

confused! thanks!

[excel monkey]

DGS147, I'll take a stab at it, but the personal statement of financial condition didn't get a lot of coverage in Becker. From the information you gave, the liabilities have a decrease (tax basis of 100,000 but current value of 80,000) of 20,000. I think of it like this, say your in collections and you owe your credit card company 100,000 (effectively your basis). If you reach a settlement to pay them 80,000 to settle the debt (becomes the current or estimated value), the 20,000 in forgiven debt would count as income to you, you should get a 1099 from the credit card company, and would report and pay taxes on that amount, excluding some of the funky tax rules that have come and gone dealing with the financial crisis. Basically, you actually owe (and got) 100,000, but could settle today for 80,000, so the difference is income to you.

Hope this helps.

FAR - 91
AUD - 88
BEC - 86
REG - 79

[Author]

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