[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

[hitmi]

Can you please explain me this question?. Becker explanation is muddy

On January 1, Year 1, Parker Inc. acquired 30% of Smith Inc.'s outstanding common stock for $400,000. During
Year 1, Smith had net income of $100,000 and paid dividends of $30,000. On January 1, Year 2, Parker acquired
an additional 45% interest on Smith for $1,012,500. The fair value of Smith on January 1, Year 2 was $2,250,000.
What amount of gain from this transaction will Parker record in Year 2?
a. $675,000
b. $275,000
C. $254,000
d. $0
Explanation
Choice “c” is correct.

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!

[Anonymous]

How are y'all getting through the FAR study material? I'm using Becker, and I'm almost done with F1, and I have no motivation at all. This material does not interest me on any level. I work in tax and studying for this section is literally torture. I don't know how to become motivated 🙁

[pyacpa49]

So Without the answer I would have gotten this wrong I think. But here's what I did:

First, We purchase 30% for 400,000. Using Equity method the value of this increases to 421,000 (30,000 Income x 30% Ownership LESS 9,000 Dividends x 30% Ownership)

Next, we purchased 45% more for 1,012,500. This means our total value of the investment is 421,000 + 1,012,500 = 1,433,500.

Next, we need to determine the Fair Value amount of the 75% investment based on the FV given 1/1/y2. This is 2,250,000 x 75% = 1,687,500.

Lastly, to compute the gain, subtract what we paid from the FV, so 1,687,500 – 1,433,500 = 254,000

Hope this helps.

[JSM]

@Aguspesci78 Thanks for the audio tip!! Yesterday afternoon I listened to half of them while taking notes, and I am going to do the same for the second half of the audio clips right now. I recommend it to everyone! It really helps drive home certain topics and teaches you what you know vs. topics you may want to go back and work on. GOOD LUCK on your exam feb 2!! Mine is tomorrow.. FAR forever scares me lol but I am feeling better about it than I did in the fall when I was scrambling to review random topics before the exam.

@hitmi when ownership climbs from equity method (over 20% to 50%) to majority ownership (over 50%), use the step-up method. This is basically just revaluing ownership to fair value, which allows you to see the difference (and recognize a gain) between the fair value of your total 75% ownership in comparison to FV of each individual ownership: the 30% and 45%.

Regarding the example you provided, Parker starts with 30% on Jan 1, Year 1 and acquires another 45% in Year 2, which totals to 75% ownership. The following may help:

1) Calculate Parker's FV of total 75% ownership in year 2: 2,250,000 x 75% = 1,687,500

2) Find carrying value of year 1 ownership: 400,000 + 30,000 (30% of Smith's income) – 9,000 (30% of dividends) = 421,000

3) Find gain by backing out each FV ownership of 30% and 45%:

1,687,500 – 421,000 (year 1) – 1,012,500 (given, year 2) = 254,000

I hope this helps. I am awful at trying to explain these things! Haha

FAR - 1/17 [67]
AUD - 76 (Feb, 2015)
REG - 78 [70, 74] (July, 2015)
BEC - 80 (May, 2015)

[Anonymous]

@ellasims
I think we all can agree that no one likes going through this process and also finds it hard to stay motivated! As for me, I have a lot at stake this time around (promotion at work, more $$$ and just getting back to my regular life – whatever that means. This is my last part – I MUST, I NEED and I WILL pass) 🙂

Find whatever motivates you to study – like Pete Olinto says, tape a $100 bill in front of your monitor to find that motivation – Whatever it takes!!!

I have one more week to for my exam. Doing one Becker lecture and questions a day. Today I'm working on F8, tomorrow F9 and Monday F10. After that, I plan to redo the MCQ that I flagged from Becker (F1-F10) and also MCQ from Ninja and SIMS.

#crunchtime
#itsnowornever

Hope this helps!!

[CPA50]

Hi all! I have a franchisEE question…
What amount does the franchisEE capitalize and amortize? I thought it was the initial franchise fee, but I saw a question where the answer was the down payment + the PV of note payable.
Help! Thanks!

AUD 88 (expired), 80 retake
FAR 64,69,67,73,67,73,73,73, August 3
REG 75 (expired) September 7
BEC 72, 77

The adventure continues...

[Anonymous]

@JSM, good luck tomorrow!!! I am praying for everybody taking the exam!!! I hope we all pass and I must pass! It is my last section and REG will expire!! Let us know how it goes
REG:77
BEC:73/74/81
AUD:58/76
FAR:74/ Feb 2

[JSM]

Thank you!!! I definitely will report back sometime by Monday night. Really pulling for all of us here and everyone beyond this forum too. @aguspesci78, I have faith you will pull it off!! I told myself tonight that what will be will be. Have faith, don't sell myself short before even walking into the test room, and do my best. There is no possible way for all of us to master every detail.. But it is a game of grabbing as many points as possible and leveraging our strengths. I hope there are no retakes in any of our futures. If there are, so be it- we will come out on top one way or the other. Let's make that a reality this testing period

Talk soon

FAR - 1/17 [67]
AUD - 76 (Feb, 2015)
REG - 78 [70, 74] (July, 2015)
BEC - 80 (May, 2015)

[Lidis]

Hello

At its date of incorporation, Glean, Inc., issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Glean acquired 30,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts?
A. A decrease in both retained earnings and additional paid-in capital
B. No effect on retained earnings and a decrease in additional paid-in capital
C. A decrease in retained earnings and no effect on additional paid-in capital
D. No effect on retained earnings or additional paid-in capital

Why the answer is C and not A
Decrease in APIC and RE

Cash 360,000
APIC 60,000
RE 60,000
TS 480,000

[MaLoTu]

Good luck, JSM! You got it!

[Hopeocean]

Hi, Revenue

In my opinion, the transactions will be recorded as followed:

– Acquiring 30,000 shares of its common stock at a price of $16 per share by the cost method:

Treasury stock (Debit): 480,000 (30,000 *16)
Cash (Credit): 480,000

– The re-issuance of at a price of $12 per share

Cash (Debit) 360,000 (30,000*12)
APIC or RE (Debit):120,000
Treasury stock (Credit): 480,000

APIC should be charged first, then remainder should be charged in Retained Earnings, however, APIC (TS) does not have balance yet, so Retained Earnings will be charged in this case

Therefore, Retained Earnings will be reduced 120,000 and no effect on APIC. So C will be the answer

[Lidis]

Hopeocean, thank you

I did not know that little detail, if there is not balance in the APIC/TS account and the balance should be charged to RE.

Lidis

[pyacpa49]

@CPA50 I would guess that the note would have been issued to help pay the franchise fee? Kind of hard to tell without seeing the question, but I believe you are right, only the initial fee is capitalized and amortized. This is what makes me think the not was issued to help pay the fee. Sorry I can't be any more help, perhaps someone else will be able to answer more thoroughly.

[Anonymous]

@Hopeocean regarding Revenue's question above and your explanation – just had a follow-up question, although I came to the same answer “C”. Why wouldn't you reduce the APIC – CS? (see my J/Es below) Thx!

1. Stock Issuance
DR – Cash $1,100,000
CR – CS $1,000,000
CR – APIC $100,000

2. Repurchase of stock
DR – T/S $480,000
CR – Cash $480,000

3. Re-issuance of stock
DR – Cash $360,000
DR – APIC $100,000
DR – RE $20,000
CR – T/S $480,000

[Hopeocean]

Hi, CPAMADMAN

In my opinion, additional Paid in capital (APIC) is categorized and presented separately on stockholder's equity – Balance sheet based on types of stocks. If resale/re-issuance amounts below cost, it should be charged first to relevant additional Paid in capital sources. The remainder is to be charged to retained earnings (common source)

In this case, because the stock is treasury and re-issuance amounts is below cost, it must be charged first to paid-in capital from treasury stock,not C/S.The remainder is to be charged to retained earnings.

[Author]

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