[jeff]

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

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

[Kala]

Well I am pretty sure of the four times I have taken FAR that today's TBS's were the hardest – lots of journal entries for a variety of subjects. I thought the MCQ's were pretty straight forward. I didn't have a good feeling when I walked out….now I wait until 3/21.

[GiniC]

@cdn – I keep telling myself that each one I get wrong is something I learned that will help me on the test.

[GiniC]

@kala –

The rest of us will be there with you on the 21st! I envy you the time to not study for a bit!

FYI, you're not the only Mom to mess up the kindergarten registration. I can tell you for sure that they won't keep him out because you get there Monday, they always have methods for getting kids in after “the date” – like kids who move into the district during the year.

[cdn]

@Ginic thanks – I keep saying that to myself – new staff to learn that can safe with one extra point on test

[norseman88]

XX Co. sells subscriptions to a specialized directory that is published semiannually and shipped to subscribers on April 15 and October 15. Subscriptions received after the March 31 and September 30 cutoff dates are held for the next publication. Cash from subscribers is received evenly during the year and is credited to deferred subscription revenue. Data relating to Year 2 are as follows:

Deferred subscription revenue, 1/1/Year 2 $ 750,000
Cash receipts from subscribers: 3,600,000

In its December 31, Year 2, balance sheet, XX should report deferred subscription revenue of:

a. $2,700,000
b. $1,800,000
c. $900,000
d. $1,650,000

So the answer is C

I don't understand why it's not B. Subscriptions are received evenly during the year. Which means 25% of cash receipts will be before March 31. These receipts will receive both publications so all of that revenue should be recognized. 50% of receipts will be received between April 1 and September 30. This means that 50% of the receipts will only receive 1 publication during the year, so half of those receipts need to be deferred. The 25% of receipts from Oct – Dec won't receive any publications so all receipts should be deferred.

3,600,000 * 25% = 900,000
Jan – March = 900,000 recognized (Receive 2 publications in year 2)
April – Sept = 1,800,000 * 50% = 900,000 Recognized and 900,000 Deferred (These subscribers will only receive 1 publication in year 2)
Oct – December = 900,000 Deferred (Receive 2 publications in year 3)

To me seems like 1,800,000 should be recognized and 1,800,000 deferred.

Any thoughts are appreciated.

[norseman88]

salaried employees are paid biweekly. Advances made to employees are paid back by payroll deductions. Information relating to salaries follows:
12/31/Year 1 12/31/Year 2
Employee Advances $ 24,000 $ 36,000
Accrued Salaries Payable 40,000 ?
Salaries Expense During the Year 420,000
Salaries Paid During the Year (Gross) 390,000

In Rice's December 31, Year 2, balance sheet, accrued salaries payable was:
a. $94,000
b. $30,000
c. $82,000
d. $70,000 (Correct)

Are we to assume that Employee advances are not included in the Gross Salaries Paid during year? If the advances are included in paid then the answer should be 82,000.

[Namstut]

@norseman88,

Only $900,000 is deferred in year 2 is because payments received after September 30th are held for next publication, which is March 31, of year 3, so they will be recorded to prepaid income and not deferred revenue.

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[Namstut]

@norseman88

Advances to employees would not be recorded together with Salaries. They would be recorded on the B/S as a receivable (probably Advances to Employees AR account). Deductions from payroll would reduce the receivable.

$390,000 salaries paid included the accrual of $40,000 from prior period so CY payroll paid was $350,000. Expense for the year was $420,000, which means they accrued $70,000.

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[allstr921]

i take it mar 8th, pretty much going to be a practice exam as its my first exam and taking it 1.5 months sooner than originally planned cuz of the long wait on test scores. only trending 48% in my first 250 mcq but plan to have all ninja plus vids done by monday, ninja blitz on tue and wed morning and try to complete 1000 mcq by mid day wednesday and take 1 practice exam. big power weekend ahead

[norseman88]

@Namstut – The payments from April – September will be held as well since they miss the March 31 cutoff, and will only receive one publication during year 2. The question states cash from subscribers is received evenly during the year and is credited to DEFERRED SUBSCRIPTION REVENUE. Wouldn't Prepaid Income and Deferred Revenue be the same thing?

See the solution below. It is reducing 1,800 from Apr to Sept so that means the 900 from Oct to Dec is included as deferred revenue…..

Begin balance, 1/1/Year 2 $ 750
Add: Cash receipts from subscribers 3,600
Sub Total 4,350
Less: Revenues earned from 10-1-Year 1 to 9-30-Year 2
Oct., Nov., Dec. Year 1 collection (3 mos) (750)
Jan., Feb., Mar. Year 2 (3 mos) (900)
Apr. to Sept. Year 2 (6 mos) (1,800)
Ending balance, 12-31-Year 2 $ 900

I still don't understand why 1,800 would be recognized from Apr to Sept when those subscribers only receive 1 publication. They are recognizing all of the revenue yet they still have 1 publication in year 3 to deliver to these subscribers.

[Namstut]

@norseman88, you are right, a complete brain-dead induced brain fart!! Deferred and Prepaid are the same thing, it's UNEARNED. I swear, this exam is making me stupider!!!

Maybe I should go to bed… or stare at this problem a little longer.

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[Namstut]

Published semiannually and shipped to subscribers on April 15 and October 15.
Subscriptions received after the March 31 and September 30 cutoff dates are held for the next publication.
Cash from subscribers is received evenly during the year and is credited to deferred subscription revenue

Wait, I think I got it! I think we are looking at it from the prospective of one subscriber, and are assuming that if they paid before 3/31 they will automatically “sign up” to receive 2 publications a year. Subscribers sending cash in March could be paying for the 9/30 subscription. I think this is where the “received evenly” comes into play.

So any of these subscribers, who paid 75% of the total $3,600,000 made payments for EITHER March 31st OR September 30th publication, but not both.

Does this make sense or did I just tangle myself up in the loop of stupid again? 🙂

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[Namstut]

I just typed up another hypothesis and it disappeared!

I think I got it!

I think our problem here is that we are looking from the perspective of one single subscriber and are assuming that if they paid before 3/31 they are signing up to receive both, 3/31 and 9/30 subscriptions. This is where “received evenly” comes into play, so payments received prior to 3/31 are for EITHER 3/31 or 9/30 production, therefore, anyone who paid before 9/30 will receive the subscription for that year, those who paid after will receive 3/31/next year subscription.

Does this make sense?

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[norseman88]

So subscribers sign up evenly throughout the year, meaning that 25% of the subscription revenue will be allocated to each quarter in the year. So see my breakdown below:

1st quarter = 25% of the revenue, these subscribers will receive both publications in year 1 so 100% rev recognized
2nd quarter = 25% of the revenue, these subscribers only receive the September publication, so 50% of rev recognized, 50% deferred
3rd quarter = 25% of the revenue, these subscribers only receive the September publication, so 50% of rev recognized, 50% deferred
4th quarter = 25% of the revenue, will not receive a publication in year 1, 100 rev deferred.

[norseman88]

Ah, are you saying that the subscription is for one single publication and not two? So they recognize revenue in full after 1 publication has been received? If that's the case, this question is just awful. How the hell can you call it subscription revenue if its for a one time service!?!? If that's the case, they need to call it a purchase order.

[Author]

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