[jeff]

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

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

[NYaccountingstudent]

If they give me a sim on converting govt fund balances to (any other govt statement) i am screwed. This is definitly my weakest topic and i cant seem to grasp it

[GiniC]

@norseman88 – I found the same question on Chegg with the solution, and MSCFisher is right. I'm surprised that the salary allowances go to the capital accounts, but that seems to be how salary allowances work. I found this link https://www.pearsoned.ca/highered/divisions/virtual_tours/lee/sample.pdf with samples of how different partnership distributions are handled.

[norseman88]

@mscfisher I don't understand. I think of the journal entries below when doing the question. The question asks what amount of the earnings should be credited to each partners capital account. The question does not ask what should be the NET credit balance in the partners capital account from the earnings. Also, if you were to factor the salary as paid, then you wouldnt even have a credit entry to capital. You would have a debit entry since the payment was greater than the earnings.

What am I missing here?

Dr. Earnings 80,000
Cr. Capital W 40,000
Cr. Capital R 40,000

Dr. Appropriations Salary W 55,000
Dr. Appropriations Salary R 45,000
Cr. Current Account W 55,000
Cr. Current Account R 45,000

Loss (Total appropriation 100,000 greater than profit 80,000)
Dr. Current Account W 12,000 (20,000 * 60%)
Dr. Current Account R 8,000 (20,000 * 40%)
Cr. Appropriations W 12,000
Cr. Appropriations R 8,000

[mckan514w]

@norseman- the question states that the partnership had earnings of 80,000 before any allowances. That means the salary allowances had not been taking out of earnings yet. Thus after you take out the earnings- there is actually a loss of 20,000 which is then divided at 60/40 ratio.

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

[norseman88]

@mckan514w so then shouldn't there be a debit to capital accounts of 12,000 and 8,000?

[GiniC]

@norseman88 first, you keep trying to split that $80,000 half to each partner, but they have a 60/40 agreement so it would NEVER be split 50/50.

Here is the solution as Chegg showed it:

Net income of $80,000 is allocated to R and W as follows:
_________________ |___R___ ____W_____ ___NI___
_ _ _ _ _ _ _ _ _ | _ _ _ _|_ _ _ _ |_ 80,000
Salary Allowances | 55,000 | 45,000 |(100,000)
Remainder _ _ _ _ | _ _ _ | _ _ _ | (20,000)
Allocation per
60/40 ratio _ _ _ |(12,000)| (8,000)|_ 20,000
Allocation
of Net Income _ _ | 43,000 | 37,000 | _ 0 _

As I am coming to understand, a salary ALLOWANCE is simply a way to distribute profits. It is not an expense of the business and doesn't get accounted for like compensation.

[aatoural]

I really need to vent. i feel like crying. It does not matter how many times I read and do book problems about bonds. I cannot do a freaking problem on my own. I have spent 30 minutes and have only done 2 questions and got only one right.

I don't know what else to do. Any advise other than learn the JEs. They have not helped at all.

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[GiniC]

@aatoural – first – go ahead and cry. Second {{{{{{HUG}}}}} Third – dark chocolate

[GiniC]

I've seen accounting make MARINES quake in their boots!

Now – what's tangling you up first? Is it what amount to start with, or how to decide if you have discount or premium, or which direction the amortization goes?

Maybe tell us the last problem you got wrong, we'll help you figure out how to attack it.

[mtaylo24]

@aatoural Start with the face/coupon, then the proceeds/yield and ALWAYS read the last line of the question first!

Edit: Oh yeah and watch your dates and also watch for the word “semi-annual” 😂

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)

[aatoural]

I do get when is a discount or a premium, but when they start saying that they issue the bonds that included accrued interest (which I have no idea why there is accrue interest on the bonds when they are just issued) or issuance cost I don't know to add it to start my amort schedule or to subtract. and then any problem that has the darn detachable warrants it is like i don't even know how to start to begin with.

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[norseman88]

@Ginic the question states that the partners share profits equally, so it could be split 50/50. They split profits equally, but split losses 60/40. I understand how they get to the portion of the earnings for each partner. What I don't understand is how they would ever credit the capital accounts 43,000 and 37,000. Capital accounts would be credited 55,000 and 45,000 from the salary allowance since the appropriations account would be debited. The total appropriations is greater than the residual profit (100 – 80) so an entry would be made debiting capital and crediting appropriations in the excess of residual profit at the loss sharing % (60/40). The debit capital account would then reduce the credit balance to 43,000 and 37,000.

Can someone please show me a journal entry crediting capital account 43,000 and 37,000?

[mckan514w]

@aa- first every thing that GiniC said– I cried yesterday over Govt…complete 5 year old melt-down– I feel the same way about it as you do about bonds.

Second- deep breath. Please ask questions on anything you don't understand- or even just ask- a general hey what do they mean by XYZ… and hang in there- you will get it.

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

[GiniC]

@norseman88 – I missed the “share profits equally” part – those things will be the reason I fail!!!

You may be getting yourself tangled “in the weeds” here. The question asks for the amounts, and you know how to get there. If you spend too much time trying to figure out a journal entry (that probably won't be asked) you could miss studying something you DO need. I do the same thing, and I'm working on controlling it!

[aatoural]

For example this problem

On January 2, Vole Co. issued bonds with a face value of $480,000 at a discount to yield 10%. The bonds pay interest semiannually. On June 30, Vole paid bond interest of $14,400. After Vole recorded amortization of the bond discount of $3,600, the bonds had a carrying amount of $363,600. What amount did Vole receive upon issuing the bonds?
a.$476,400
b.$367,200
c.$480,000
d.$360,000

I know that my amortization plus whatever my payment is should equal my interest expense if I understanding correctly. So my payment is 10,800. Since the carrying value is 363,600 and the amort is 3,600. My thought process is it is a discount so it has to go towards the face of 480,000, meaning I added the amort and my beginning carrying value should be 360,000. But something tells me that is wrong.

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[Author]

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