[jeff]

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

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

[norseman88]

@Ginic That is exactly what I am doing and I agree with you. It is frustrating that you need to spend more time studying how they want questions answered, rather than answering them correctly. Wasted half my day on this crap.

[GiniC]

OK, the first thing that confused you – bonds issued with accrued interest: (sorry, started this before you posted the sample problem so I'll finish)

When a bond has interest due on July 1 and January 1, and delays make them issue the bond on September 1, they have to figure out how to deal with the interest payments. The way they do that is to figure out how much interest accrued since the last interest date (July 1) and the issue date (Sept 1) – two months' worth.
– The buyer adds that to the agreed-to purchase price, that's the “accrued interest”.
– On January 1 when the first actual interest payment is due, the seller/issuer will pay the whole six-month interest payment, even though the bond has only been “out there” for four months, because those first two months' interest were sort of refunded up-front as part of the purchase.

Now I'll go look at that problem, unless someone else answers it before I get there.

[mckan514w]

TO record Income
DR Income Statement 80
CR Appropriations account 80

To record Salary allowance
DR Appropriations Account 100
CR Partner account W 55
CR Partnership account R 45

To distribute Loss
DR Partner Account W 12
DR Partner Account R 8
CR Appropriations Account 20

This leaves your appropriations account with a zero balance and your Capital balances or W =43 and for R of 37

SO the net Debit / Credit (I agree it is a poor worded question but…) the Net Credit would be

DR Income Statement / Appropriations Account 80
CR Partnter Account W 43
CR Partner Account R 37

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]

@aatoural, You have to start with the carrying amount and keep in mind that is after recording the discount (after the issuance), and you know we always add a discount and subtract a premium when we amortize, so they want you to back that out. $363,600-3,600 =360,000.

For accrued interest, they usually tell you when you issued and what the bonds are DATED (which is before the issuance for accrued interest), you have to account for that interest. I.e. Issued july 1, dated apr 1, accrued int is apr 1 – jun 30

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)

[GiniC]

@aatoural, I think you're correct. When you set up your amortization table, you will start with a low carrying value and will add amortization each period to work the value UP to face. If your first amortization amount is $3600 and brings the carrying value UP to $363,600, then the carrying value at start is 363,600 – 3600 or 360,000. You're expecting it to be hard, and this one actually isn't.

[mtaylo24]

@ginic jinx 😎

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]

Thanks guys!!!

Yup it was correct. Now I am gonna try to read again about detachable warrants and see if I can do one on my own if not I keep asking. LOL

@Ginic – thanks for the explanation on the accrued interest that was helpful. Now when is bond issuance cost they stay as part of my beginning carrying amount?

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

[GiniC]

Among us, we'll give you enough approaches so you'll find the way that works for your brain. I hate memorizing and mix up whether to add or subtract, but I can always remember you amortize TOWARD the face value. So if you discounted the bond (just like a discount on cute shoes, that means you pay less for it than the manufacturer's price tag), you're going from the low price to the higher face value, so you have to add the amortization. If you paid a premium for those shoes at a fancy boutique in NYC, you are starting with a HIGH purchase price, and your amortization is going to bring the value DOWN toward the face value/price tag.

Hopefully shoes made you grin? I didn't discover a love of cute shoes until rather late in life…

[GiniC]

I think of bond issuance costs somewhat like the extra costs you pay to get a fixed asset ready to use – like installation costs for a machine – they become part of the cost of the bond, and you amortize them right in with the premium/discount.

There is argument at FASB about this (they think the issuance costs should be expensed) but the standard hasn't been changed, so that's the way to do it!

[GiniC]

keep asking! I will feel better when I go back to statements of cash flows (I successfully avoided them all day today) and have to ask you just as many questions back. They TOTALLY make no sense to me!

[mckan514w]

LOL- I was typing out a whole thing for @aa and was re-reading it thinking “MUCH TOO TECHNICAL”- so scrapped it and just read the shoe analogy- which was pure perfection! and made me laugh (I also didn't discover the love of cute shoes until later in life)- 🙂

Ask away on bonds AND cash-flow- if only I could get an exam with nothing but those two topics and I would be golden- instead I just know I will get nothing but Government, Cash to accrual and Treasury stock questions… ha ha ha ha…

time to EAT!!! Good luck to all studying tonight- back at it in the am my headache has returned.

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

[cdn]

Question: I get mixed up with R&D – when expense and what staff to expense vs what capitalize/amortize? Any help?

[FalconsDawgs33]

Does anyone have like a comprehensive sample problem/case that covers Governmental Fund Accounting? This stuff is going over my head and I learn best by working through example problems to see how everything ties together and there aren't any sims for F8 that I can work through

[Mscfisher]

During 20X1, Orca Corp. decided to change from the FIFO method of inventory valuation to the weighted-average method. Inventory balances under each method were as follows:

FIFO Weighted-Average
——- —————-
January 1, 20X1 $71,000 $77,000
December 31, 20X1 79,000 83,000
Orca's income tax rate is 30%.

In its 20X1 financial statements, what amount should Orca report as the cumulative effect of this accounting change to be included in 20X1 net income?
A. $2,800
B. $4,000
C. $0
D. $6,000

I DONT THINK I UNDERSTAND WHAT THEIS QUESTION IS ASKING

[aatoural]

Thanks @Ginic. I am gonna make a summary of my summary for d=the difference with bond issuance and accrued interest.

Chas flow comes more naturally ever since so much studying with taxes and the M-1 schedule I don't know why.

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

[Author]

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