[jeff]

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

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

[cdn]

So I found answer for those current classification that came from another question:

“Post-balance-sheet-date issuance of a long-term obligation or equity securities. After the date of an entity's balance sheet but before that balance sheet is issued or is available to be issued (as discussed in [FASB ASC] 855-10-25), a long-term obligation or equity securities have been issued for the purpose of refinancing the short-term obligation on a long-term basis. If equity securities have been issued, the short-term obligation, although excluded from current liabilities, shall not be included in owners' equity.”

[hira.balal]

What does DRS mean?

[cdn]

DRS – Document Review Simulation

[aatoural]

Is unamortized P/D the same as saying P/D on BP?

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

[mtaylo24]

Just flew through 58 error correction questions, now time to revisit the 59 eps questions, followed by construction contracts, installment method and fvo. I cant believe i havent hit this chapter in its entirety yet…hoping to hit NFP at some point tonight or tomorrow morning. Im really clueless on that one 🙁

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)

[norseman88]

@aa yes but keep in mind P/D will be reduced each time you amortize. So BP + D in year one will be more than BP + D in year two since part of the D has been reduced through amortization.

[aatoural]

@norseman88 – Yes Thanks!

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

[mtaylo24]

Why do we use convertible debt for the first question, but not the second? Both are lower than BEPS, so wouldn't they both be dilutive? Thanks

Fact Pattern: Peters Corp.’s capital structure was as follows:

December 31

Year 7 – Year 8

Outstanding shares of stock:
Common 100,000 -100,000
Convertible preferred 10,000 – 10,000
9% convertible bonds $1,000,000 – $1,000,000

During Year 8, Peters paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock, and the 9% bonds are convertible into 30,000 shares of common stock. Assume that the income tax rate is 30%.

If net income for Year 8 is $350,000, Peters should report DEPS as

A. $3.20
B. $2.95
C. $2.92
D. $2.75

If net income for Year 8 is $245,000, Peters should report DEPS as

A. $2.15
B. $2.14
C. $2.05
D. $2.04

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)

[mtaylo24]

For this one 1.) What do the year 3 stock split have to do with year 2? and 2.) Why don't we pro-rate the treasury distribution in Apr Y3. Answer is B. Thanks.

Strauch Co. has one class of common stock outstanding and no other securities that are potentially convertible into common stock. During Year 2, 100,000 shares of common stock were outstanding. In Year 3, two distributions of additional common shares occurred: On April 1, 20,000 shares of treasury stock were sold, and on July 1, a 2-for-1 stock split was issued. Net income was $410,000 in Year 3 and $350,000 in Year 2. What amounts should Strauch report as basic earnings per share in its Year 3 and Year 2 comparative income statements?

Year 3 Year 2
A. $1.78 – $3.50
B. $1.78 – $1.75

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)

[mckan514w]

@mtaylo in a comparative statement you treat the split as if it happened at the earliest shown period otherwise the comparison would not be “apples to apples” so to speak. so you must use the split number of shares in the year 2 calculation.

My brain is exhausted and will do the calc. on your other posted one in a bit- but is this that crazy one from gleim where in one year the Bond was dilutive compared to the preferred and thus was left out??? I have that one flagged to go back to…

I have way too many flagged to go back too 🙁

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]

Yup looked it up its that “screwy one from gleim”

So basically in the first one where the NI is 350 when you calculate DEPS using preferred alone you have an incremental EPS of 2.04. The bond is therefore anti-dilutive at 2.10 so it is left out

In the second one where your NI is 245 the incremental EPS is 2.91 and your bond is not anti-dilutive at 2.10 so it is included.

What I don't understand is why you do your increments on the preferred first and then the bond… and not vice versa because it seems to me if you came at it the other way doing bond first then pref… the answers would of course change….

Grrrrrrrrrrrrr

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]

Can anyone help me out with this one- regarding acquisitions..I understand that Fair Value becomes the basis for the acquiring company- however I am really confused on the difference between the Carry and the Fair Value being “added back in”????

Zeller Company buys 80 percent of the outstanding shares of Lyle Company on January 1, Year One. Zeller paid an amount that was in excess of the underlying fair value and recognized goodwill. On that date, Lyle had land worth $500,000 but with a book value of $300,000. Several years later, when Lyle still held this land as well as other parcels of land, Zeller reported a Land account of $1.1 million and Lyle reported a Land account of $700,000. Assume no asset impairments have taken place. What is the consolidated balance to be reported for land?

A. $1.66 million
B. $1.82 million
C. $1.96 million

D. $2.00 million

Correct answer D- At the time of the acquisition, Lyle's land was worth $200,000 more than its book value. That establishes the basis to Zeller; $200,000 of the acquisition is allocated to this land. Subsequently, until the land is sold, the $200,000 allocation is included each period for consolidation purposes. Here, Zeller reports $1.1 million while Lyle reports $700,000. Adding in the $200,000 allocation from the original acquisition brings the consolidated total to $2 million.

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]

@mtaylo24 – for the first one (2 questions about year 8)

I thought you had to test each potentially dilutive item SEPARATELY, then do a combined DEPS using only those that were dilutive. Somebody tell me if I'm wrong??

For Q1 I see BEPS at 3.20
if PS converted, 2.91, so dilutive
if bonds converted, 3.17 so dilutive
so, the combined DEPS (if I'm doing it right) is [350,000 + (90,000x.7)]/150,000 or 2.75

For Q2, BEPS is 2.15
if PS converted, 2.04 so dilutive
if bonds converted 2.37 so ANTIdilutive
so using only the PS, DEPS would be 2.04.

[mckan514w]

@GiniC– this is from Gleim…

Potential common stock is included in the calculation of DEPS if it is dilutive. When two or more issues of potential common stock are outstanding, each issue is considered separately in sequence from the most to the least dilutive. This procedure is necessary because a convertible security may be dilutive on its own but antidilutive when included with other potential common shares in the calculation of DEPS.

The incremental effect on EPS determines the degree of dilution. The lower the incremental effect, the more dilutive. The incremental effect of the convertible preferred stock is $1.50 [($3 preferred dividend × 10,000) ÷ 20,000 potential common shares]. The numerator effect of the conversion of the bonds is $63,000 [$1,000,000 × 9% × (1.0 – .30 tax rate)].

The incremental effect of the convertible debt is $2.10 ($63,000 ÷ 30,000 potential common shares). The $1.50 incremental effect of the convertible preferred stock is lower than BEPS, so it is dilutive and should be included in a trial calculation of DEPS. The result is $2.04 [($245,000 – $30,000 + $30,000) ÷ (100,000 + 20,000)]. Because the $2.10 incremental effect of the convertible debt is higher than $2.04, the convertible debt is antidilutive and should not be included in the DEPS calculation. Thus, DEPS should be reported as $2.04.

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]

Thank you both!

So in people who fail the exam all the time language (LOL), you have to do the incremental test for both, if they are both dilutive, you test the lower one with BEPS? If that test is lower than the remaining dilutive instrument, then the remaining instrument will just be anti-dilutive?

Switching gears, I still don't understand why we don't pro-rate the t-stock in the other question…

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)

[Author]

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