[jeff]

Welcome to the Q1 2017 CPA Exam Study Group for FAR. 🙂

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

[A1lessio]

I use Becker, it's awesome! I don't really do Sims though, too discouraging.

I started my review and re-doing all F1 questions and I have a question regarding change in accounting estimate and change in accounting principal.

Why is a change from the FIFO method of inventory valuation to the weighted-average method Inventory a change in accounting principal? Can someone better explain this to me? I think I am confusing depreciation which is change in estimate with FIFO, LIFO, ETC.

AUD (08/02/2016)

[Stilgoin]

@mckan514w Yuck is right! Way too much time spent on this.

https://macabacus.com/accounting/equity-method

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[garciarb]

I'm having a bit of trouble understanding this answer:

Martin Co. had net income of $70,000 during the year. Depreciation expense was $10,000. The following information is available:

Accounts receivable increase $20,000
Equipment gain on sale increase 10,000
Nontrade notes payable increase 50,000
Prepaid insurance increase 40,000
Accounts payable increase 30,000

What amount should Martin report as net cash provided by operating activities in its statement of cash flows for the year?

ANSWER:

The most common method for presenting cash flows from operating activities is the indirect method, in which net income is adjusted for noncash items that have been included in its determination, as well as the change in current assets and current liabilities.

Martin should report $40,000 as net cash provided by operating activities, as follows:

Net income $70,000
+ Depreciation expense 10,000
– Accounts receivable increase (20,000)
– Equipment gain on sale increase (10,000)
– Prepaid insurance increase (40,000)
+ Accounts payable increase 30,000
$40,000

The nontrade N/P (notes payable) is a financing activity.

Why is the equipment gain on sale subtracted? Isn't it supposed to be in operating cash flows?

BEC - 81
AUD - 79
REG - June 2016 (Thanks Nasba!)
FAR - ugh

[mckan514w]

@stilgoin – I was breaking the JE's down to illustrate the flow of the items in question (one increases the investment account and the other decreases it) but yes I think your above JE would be the “technically correct one”- i.e. we saw it on a SIM that would be what we entered :-). Breaking it down helps me visualize the T accounts better so thought it might help in explaining the problem.

Yeah @A1lessio think you are confusing the two- LIFO, FIFO, etc.. are principles to value inventory- they are not estimates- you actually know the cost and how to value it whereas depreciation is subjective to a number of things including the method you choose to depreciate and what you estimate to be the useful life and salvage value of the equipment you are depreciating. There is nothing to say that the computer you bought is going to last 7 years or crap out after 3 so you have to use your best estimate.

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[mckan514w]

@garciarb you subtract out the Gain on sale of equipment because it is / will be accounted for in the investing portion when you recognize the sale of the item at the amount of cash received. Similarly a loss would be added back into operations.

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[Spartans92]

is 5 days enough to do a review? Im really stressed out over the limited time I have. currently on governmental Accounting and hope to start review by friday after work. I do plan on taking a week off so I will do as many mcq as possible.. Anyone ever been in a similar situation with limited review time and still passed on other sections? Thanks.

Part of me wanna just wanna give up and reschedule for a new NTS.. but I guess it doesn't hurt to give it a shot. My NTS expires on the 16th so I was lucky enough to even have that date.. if I had the option I would postpone for another 2 weeks ;/

BEC- PASS

[mckan514w]

LOL I did AUD in 15 days start to finish Spartan (yes it was insane, yes I am crazy BUT I had an expiring NTS and nothing to loose- figured either way I would have to repay for a new NTS) but that being said that was AUD and not FAR AND the exam was not changing the next quarter AND it was at the very end of the quarter window so I knew even if I failed I could retake it in a month or so when I was more prepared.

Personally I think you kind of have to weigh everything- if you honestly do not feel prepared I would think really hard about letting the NTS expire and rescheduling… otherwise you may be looking at a fail and having to sit for the new exam.

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[mtaylo24]

Man, I was on a roll, and then I went to work this morning smh! Haven't studied all day 🙁

@Spartans, You are going to have to dig deep. This section doesn't play nice at all. If your NTS is expiring what choice do you have?

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[Spartans92]

wait mckan, if I let my NTS expire I can reapply and sit in this quarter? I honestly think I only need a week or two additional to the time i have but again with the expiration its limiting my options. Thanks for the input.

BEC- PASS

[Stilgoin]

@Spartans I suggest calling your state board or NASBA tomorrow. Mine have been extremely helpful to me. I would make sure the details before I proceed with a plan. Mine is scheduled for the 18th, and my deadline is Jan 31. I may push mine. I was only going to have 3 days for review, so I get it.

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[NYaccountingstudent]

On October 1, Year 1, Park Co. purchased 200 of the $1,000 face value, 10% bonds of Ott, Inc., for $220,000, including accrued interest of $5,000. The bonds, which mature on January 1, Year 8, pay interest semiannually on January 1 and July 1. Park used the straight-line method of amortization under U.S. GAAP and appropriately recorded the bonds as a long-term investment. On Park's December 31, Year 2 balance sheet, the bonds should be reported at:
a. $212,000
b. $214,200
c. $214,400
d. $215,000

Explanation

Choice “a” is correct. $212,000 carrying value on the balance sheet at 12-31-Year 2.
Purchase price, including interest $ 220,000
Less accrued interest (5,000)
215,000
S/L amortization of bond premium ($15,000 x 15/75) (3,000)
Carrying value at 12-31-Year 2

Where did the 15/75 come from in this question????

[Spartans92]

NYaccounting, 75 is the number of months from Oct 1 year 1 – Jan 1 year 8. From year 2 – 7 that is 6 full years or 72 months plus Oct-Dec (3 months in year 1). Since it matures in jan 1 year 8 that doesn't count. so 72 +3 = 75 months. The 15 is basically from Oct year 1 to Dec year 2. This one is a little tricky because SL usually is years.. it would have been much quicker.

BEC- PASS

[Spartans92]

@stilgoin, thanks! so you're saying the state board may grant an extension, or no? Either way I will try to contact them and see what I can get out of it.

BEC- PASS

[NYaccountingstudent]

@spartans92 thanks!

[mckan514w]

working through discontinued operations in Gleim and I “get” that that any gain on disc. of op needs to be reported Net of Tax- but they are also showing that losses are reported Net of Tax…. I thought that if there were losses there were / are no taxes??? Can anyone help clarify?

example:
On January 1, Year 4, Dart, Inc., entered into an agreement to sell the assets and product line of its Jay Division, which met the criteria for classification as an operating segment. The sale was consummated on December 31, Year 4, and resulted in a gain on disposal of $400,000. The division’s operations resulted in losses before income tax of $225,000 in Year 4 and $125,000 in Year 3. For both years, Dart’s income tax rate is 30%, and the criteria for reporting a discontinued operation have been met. In a comparative statement of income for Year 4 and Year 3, under the caption discontinued operations, Dart should report a gain (loss) of:

Correct Answer Year 4: 122,500
Year 3 (87,500)
The gain from operations of the component for Year 4 is the net of the $225,000 operating loss for Year 4 and the $400,000 gain on disposal. The pretax gain is therefore $175,000 ($400,000 – $225,000), and the after-tax amount is $122,500 [$175,000 × (1.0 – .30)]. The $125,000 pretax loss for Year 3 should be reported in the comparative statements for Years 3 and 4 as an $87,500 [$125,000 × (1.0 – .30)] loss from discontinued operations.

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[Author]

Replies