[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for FAR.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

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

[Kemi22]

@ MaLoTu: good luck when you take your exam!

2010:
BEC: 74, 71, 74, 75
AUD: 71, 74, 83
REG: 71, 76
FAR: (I quit) 34, 45

2015:
BEC: 79
AUD: 78
REG: 67, 76
FAR: 56 (trial run), 74, 74, 74, 80!
Thank God. Your prayers are always answered! Do not give up. Thank you St. Joseph Cupertino.

[nib]

lease question=

if 75% or 90% of Fmv criteria are met=lease depreciated using the life of the lease .
if If the lease transfers ownership or has a bargain purchase, the life of the asset is used to to determine depr
.
please explain the logical reason behind this .

[qfolmar]

@Bin,

If title to the leased asset passes to the lessee at the end of the lease term, or if the lease contains a bargain purchase option, the asset should be depreciated over the asset’s economic life because the asset should be depreciated in the manner used for OWNED assets because essentially the lessee will OWN the asset once the lease term expires. I hope this helps.

FAR-79
REG-82
AUD-83
BEC- August 31st

[nib]

@ qfolmar

thanks . now i understood and i will always remember this .

[stozzo88]

Hey all,

I was wondering if someone could shed some light on this for me. Why is the Interest payments (on debt) through October 1 of $30,000; and Principal payments of $10,000 incurred through December 31 but paid on January 2; excluded? I'm confused since we include the principle of $40k and interest of 7,500.

Question:

Bunson Township was incorporated on January 1, Year 1, and is preparing its government-wide financial statements for the year ended December 31, Year 1. The governmental funds displayed a combined change in fund balance of $500,000 for that year and also had the following balances, data, or transactions:

Capital outlay of $250,000 partially funded by long-term debt proceeds of $225,000;

Current year depreciation of $60,000 on a capital asset base of $1,200,000;

Principal payments (on debt) of $40,000;

Interest payments (on debt) through October 1 of $30,000;

Principal payments of $10,000 incurred through December 31 but paid on January 2;

Interest payments of $7,500 incurred through December 31 but paid on January 2;

Sales tax revenues of $30,000 associated with December 31, Year 1 sales remitted to the State in February and paid to the Township in March.

The government-wide changes in net position would be displayed as:
a. $527,500

FAR- 1-18-2016- 82
BEC- 2-22-2016- 81
REG- 4-11-2016- 84
AUD- 5-17-2016- 86

[MaLoTu]

@stozzo – I am working on Becker gov/nfp chapters over today and tomorrow … If that is a Becker question can you give me the question number? I will try to get back to you on it, if I understand it! lol.

[Anonymous]

Hi! I'm studying for FAR and I feel like I am dying in the process! I can't seem to retain or focus! Is it the study material? I am using Yaeger… Any tips to get this show on the road? Help!

[Anonymous]

@Stozzo88 we do not include on the adjustment the 30,000 of interest payments since under both modified accrual and accrual method they are an expense(an expenditure that decreases fund balance on modified accrual). The 10,000 of principal payments are not an expenditure bc there hasnt been a payment and under accrual is not an expense accrued bc they are from principal portion of debt so there is no need to include them on the adjustment. We have to add back the 40,000 of principal payment since that is not an expense on accruall (JE of payment would be debit payable and credit cash) and we have to substract the 7,500 since that is an expense incurred under accruall but not an expenditure under modified accruall since there hasnt been a payment.

[stozzo88]

MaLoTu, This is question 50 in the govt section. Thanks for the response Cortes, I wasn't thinking of the underlying accounts for the principle pmts which is causing diff in treatment.

FAR- 1-18-2016- 82
BEC- 2-22-2016- 81
REG- 4-11-2016- 84
AUD- 5-17-2016- 86

[hitmi]

why don't we add the $ 40,000 Equity in earnings of Cinn Co ? becker solution says the EE is already included. but isn't the dividends is already deducted as well ? and in another explantion becker states “The divoidends received reduce the investment account, but do not affect the income.”

Pear Co.'s income statement for the year ended December 31, Year 1, as prepared by Pear's controller, reported income before taxes of $125,000. The auditor questioned the following amounts that had been included in income before taxes:
Equity in earnings of Cinn Co. $ 40,000
Dividends received from Cinn 8,000
Adjustments to profits of prior years for arithmetical errors in depreciation (35,000)
Pear owns 40% of Cinn's common stock. Pear's December 31, Year 1, income statement should report income before taxes of:
a.
$117,000
b.
$152,000
c.
$85,000
d.
$120,000

Choice “c” is correct. The $40,000 equity in earnings of Cinn is properly included in income. Pear O'N11S 40% of
Cinn and uses the equity method. Thus, equity in earnings is included in the income statement while di\tidends
receiwd are not. The $35,000 is a prior period adjustment and should be reported as an adjustment to the opening
balance of retained earnings, not on the current period income.
Income as reported $ 125,000
Di\tidends receiwd (8, 000)
Prior period adjustment 35,000
Income before taxes $ 152,000

FAR 06/09/2016 | 2014 (42) Didn't Study for it | 2015 (54)
Audit (66) i was expecting (99)

will Ninja MCQs make the difference in 09 June, Lets wait!

[pyacpa49]

Looking for some help here.. My issue with the answer is that I think the dividends declared should decrease retained earnings and increase liabilities. That would make Liabilities= 110,000+3,000+10,000=123,000 and OE=750,000+82,000-64,000-3,000=765,000. Therefore, L+OE=888,000. The answer below only reduces RE for the dividend and does not increase Lia. Am I missing something here? Thanks in advance.

Mirr, Inc. was incorporated on January 1, year 1, with proceeds from the issuance of $750,000 in stock and borrowed funds of $110,000. During the first year of operations, revenues from sales and consulting amounted to $82,000, and operating costs and expenses totaled $64,000. On December 15, Mirr declared a $3,000 cash dividend, payable to stockholders on January 15, year 2. No additional activities affected owners’ equity in year 1. Mirr’s liabilities increased to $120,000 by December 31, year 1. On Mirr’s December 31, year 1 balance sheet, total assets should be reported at
$885,000
$882,000
$878,000
$875,000
This answer is correct. Mirr began operations on 1/1/Y1 with the following balance sheet elements:
Assets = Liabilities + Owners’ equity
$860,000 = $110,000 + $750,000

During year 1, liabilities increased to $120,000, and owners’ equity increased to $765,000 [$750,000 beginning balance + $18,000 net income ($82,000 revenues − 64,000 expenses) − $3,000 dividends declared]. Therefore, 12/31/Y1 assets must be $885,000.
Assets = Liabilities + Owners’ equity
$885,000 = $120,000 + $765,000

[Andyred04]

@pyacpa49 I am also interested to see if anyone has an explanation for this because, as of now, I am thinking the question is incorrect. Here is what my thought process for recording the dividends is:

Upon declaring the dividends:

Retained Earnings $xx (reduces equity like the answer states)
Dividends Payable xx (Increases liability like you and I are thinking)

Upon issuing dividends:

Dividends Payable $xx (Returns liability to $120,000 but would be after year end)
Cash xx

I did some research on it since it was driving me nuts. The following link agrees with us:

https://www.accountingcoach.com/stockholders-equity/explanation/6

The only thing that I can think of is the timing of the transactions. If the dividends are issued prior to the Financial Statements being issued would we want to restate the FS? Hopefully someone else gives a response to this too. Thanks for sharing!

FAR: 80 (Gleim, Ninja Notes, Ninja MCQs)
REG: 87 (Gleim, Ninja Notes, Ninja MCQs)
BEC: 87 (Gleim, Ninja Notes, Ninja MCQs)
AUD: 8/27/16

PA Candidate

[Anonymous]

@hitmi Is “B” the correct answer or “C”?

Why don't we add the $ 40,000 Equity in earnings of Cinn Co? It's already been added according to the question.

Becker solution says the EE is already included but isn't the dividends is already deducted as well? The div is added – not deducted to Pear's income.

The question says, “The auditor questioned the following amounts that had been included in income before taxes…”

[Anonymous]

@pyacpa49 I swear I just had this question yesterday. What number is it in Ninja?

[pyacpa49]

@AccidentalAccountant I don't have the Ninja questions, so I'm not sure. A friend gave me several questions that were printed from Wiley from a test she took and this was on it. All I have is this (copied and pasted from what she sent to me).

Also, how does one accidentally become an accountant.. lol

[Author]

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