[jeff]

Post by Another71.

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

[Determined CPA]

I saw that question earlier today and couldn't agree more! No idea what the question is even asking for!!

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.

[JS867_5309]

That's what was confusing me about the question I posted on the last page (recopied below); I don't feel like the answer addressed the question. I'm sorry if it got addressed earlier in the forum, I've just really started the MCQs recently.

Q: A combination is accounted for as an acquisition (initiated in a fiscal year beginning after December 15, 2008). Which of the following would be considered part of the acquisition cost of an acquired entity in a business combination?

I. Costs incurred by the acquiring entity that are directly related to the acquisition

II. Costs incurred by the acquired entity that are directly related to the acquisition

III. Indirect acquisition costs incurred by the acquiring entity

I answered One only, but the answer says “None of these items would be part of the requisition cost.” The justification is:

“FASB ASC 805-10-25-21 requires that acquisition-related costs be charged to expense. All of these costs are acquisition-related costs and should be expensed in the period incurred.Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP.”

So I guess I'm confused. The question wasn't asking about expensed vs amortized, just about what was considered acquisition cost. The items described in the answer sound like Answer I – Costs incurred by the acquiring entity directly related to the acquisition. What am I missing?

Exam:I'm done 🙂 🙂 🙂
REG - 71 (2/22/14); 67 (4/3/14); 74 (8/29/15); 83 (2/29/16)!!!
BEC - 72 (5/24/14); 85 (1/3/15)!!!!
AUD - 72 (8/23/14); 76 (10/15/14)!!!
FAR - 77 (5/26/15)!!!

Started in 2013 using Kaplan and failed REG, REG, BEC, AUD. Switched to NINJA suite in Sept 2014 and passed AUD...then BEC...then FAR!
REG took 2 tries but I finally got it in too!
I'm a hard convert - Using NINJA method with NINJA video/book/notes/MCQ

Education: Check
Experience: 3 months left! I hit 4 years on May 30 🙂

[plotikkk85]

to JS867_5309

Hey!

I could be wrong..but I think it is A and C. Becker F3 – 27.

[Determined CPA]

I think its just A?

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]

JS, that one really got me too. Then I finally realized that the question asks which would be considered acquisition costs by the ACQUIRED, not acquiring entity. The FASB states those costs are considered acquisition costs by the acquiring entity. One word makes the whole question, and the explanation does a decidedly poor job of explaining the answer.

[Anonymous]

Part of the acquisition cost of an acquired entity = What you paid for the acquisition

To me the question is referring to the costs involved when you acquire an investment or capital asset. To me it sounds like its testing your knowledge on how each cost should be accounted for. So I instantly thought the question was asking what would be expensed as incurred and what would be capitalized. The word acquisition tipped me off here because when you acquire something for cash (just keeping it basic here) you'll have an inventoriable item, an investment, or some sort of capitalized asset.

The phrase acquisition cost is to me not meant to be confused with the acquisition costs examples listed. Its a tricky question for sure but overall it doesnt appear to be asking for an expense amount.

Now I didn't know the topic so take my response with a grain of salt but I'm usually a really good test taker and this is how I understood the question.

[Determined CPA]

On June 2, 20X1, Tory, Inc., issued $500,000 of 10%, 15-year bonds at par. Interest is payable semi-annually on June 1 and December 1. Bond issue costs were $6,000. On June 2, 20X6, Tory retired half of the bonds at 98. What is the net amount that Tory should use in computing the gain or loss on retirement of debt?

Answer $248,000

Can someone please explain how to get this answer? Thank you!

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.

[excel monkey]

Your original net bond payable, on 6/2/20X1 was 494,000 (500,000 bond at par – 6,000 issue costs that will be amortized using the straight-line method). 6,000/30 = $200 bond issue costs amortized semi-annually. On 6/2/20X5, 10 payment periods had passed, so 2,000 of the 6,000 had been expensed. Therefore, on 6/2/20X5 the total net bond liability was 496,000 (500,000 – 4,000 remaining bond issue costs). You retired half the bond, so half of 496,000 is 248,000.

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

[Determined CPA]

you're the best, thank you!

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.

[JS867_5309]

@DGS – Thank you. I can see how the awkward phrasing really meant to view the question as from the perspective of the ACQUIRED entity, not from the ACQUIRING entity seeking to acquire. I feel like the grammar here could leave that open to interpretation, but hopefully that's why this question is retired!

@CPA Chasing 1 – Thanks for your help. This was how I initially approached the question, but the answer didn't seem to jive with this logic. It's not about acquisition and expense vs. capital (which is how the answer implies), but about which entity's statements you're looking at.

Exam:I'm done 🙂 🙂 🙂
REG - 71 (2/22/14); 67 (4/3/14); 74 (8/29/15); 83 (2/29/16)!!!
BEC - 72 (5/24/14); 85 (1/3/15)!!!!
AUD - 72 (8/23/14); 76 (10/15/14)!!!
FAR - 77 (5/26/15)!!!

Started in 2013 using Kaplan and failed REG, REG, BEC, AUD. Switched to NINJA suite in Sept 2014 and passed AUD...then BEC...then FAR!
REG took 2 tries but I finally got it in too!
I'm a hard convert - Using NINJA method with NINJA video/book/notes/MCQ

Education: Check
Experience: 3 months left! I hit 4 years on May 30 🙂

[want2pass]

I'm a little confused with this example. Does anyone understand?

Weir Co. uses straight-line depreciation for its property, plant, and equipment, which, stated at cost, consists of the following:

Current Year Prior Year

Land

$ 25,000 $ 25,000

Buildings

195,000 195,000

Machinery & Equipment

695,000 650,000

915,000 870,000

Less accumulated depr.

(400,000) (370,000)

$ 515,000 $ 500,000

Weir's depreciation expense for the current year and the prior year was $55,000 and $50,000, respectively. What amount was debited to accumulated depreciation during the current year because of property, plant, and equipment retirements?

$30,000

$25,000

$15,000

$20,000

the answer is $25,000

[excel monkey]

@want2pass – Setting up a T-account might help you visualize this problem and squeeze into the debit. The prior periods ending balance is this years beginning balance, so accumulated depreciation (A/D) begins with a 370,000 credit balance. Depreciation Expense for the year was 55,000 (the prior years 50,000 is unnecessary information), so A/D increased to 425,000 after the journal entry posted. However, we are told the ending balance in A/D is only 400,000, so the company must have retired property, plant, and equipment that had 25,000 of associated A/D.

370,000 Beginning balance

+55,000 Expense for the current period

-400,000 Ending Balance

=25,000 Debit to A/D

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

[greg422]

This seems like a very easy question but I don't get part of it:

At June 30, Almond Co.'s cash balance was $10,012 before adjustments, while its ending bank statement balance was $10,772. Check number 101 was issued June 2 in the amount of $95, but was erroneously recorded in Almond's general ledger balance as $59. The check was correctly listed in the bank statement at $95. The bank statement also included a credit memo for interest earned in the amount of $35, and a debit memo for monthly service charges in the amount of $50. What was Almond's adjusted cash balance at June 30?

A.

$9,598

B.

$9,961 CORRECT ANSWER

C.

$10,048

D.

$10,462

**THE SOLUTION SAYS YOU SUBTRACT $36 (the difference between $95-59.) Why wouldn't you ADD $36 back? You recorded the check at an amount LOWER than it actually was, so you have to make up $36 you forgot in your cash balance. Why would you take the $36 out of your cash balance? That seems backwards to me…

REG - 82
AUD - 97
BEC - 81
FAR - 84
DONE!

[excel monkey]

@greg422 – When the check was originally recorded the journal entry was:

dr. Some Account……………………………….59

cr. Cash…………………………………………………59

The correcting entry would require an additional $36 credit to cash to get to the correct amount that should have been recorded in the first transaction ($95).

dr. Some Account……………………………….36

cr. Cash………………………………………………..36

Therefore, you should subtract $36 from the Cash balance reported in the general ledger.

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

[greg422]

Makes sense…I was looking at it all backwards…thanks for the explanation!

REG - 82
AUD - 97
BEC - 81
FAR - 84
DONE!

[Author]

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