[jeff]

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

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

[Cjsr]

@Spartans92, I'd say you got it right for the right reason – you knew it had to be more than 202,000. That's how we play divide and conquer with mcqs.

BEC. 83. 9 Jan 2016
REG. 83. 30 Jan 2016
AUD. 92. 27 May 2016

Becker FastPass with in-class videos

[A1lessio]

anyone here have a simple approach to bank reconciliations. I feel like that could easily be a sim or a few easy mcqs we shouldn't get wrong.

so bank balance + deposits – outstanding checks

or check book balance + interest earned – service charge – nsf +/- errors.

My problem is the questions are never that straight forward and I get everything mixed up. Aren't these two suppose to tie somehow?

AUD (08/02/2016)

[Spartans92]

hmm, A1lessio, do you have any specific questions? I think those questions r somewhat logical but I agree it would suck if we lose minor points on those. I should prob review them too.. and cash to accrual as well! So little time yet so much material to look over still.

I remember theres always one with checks written but not yet mailed. That is deducted off book balance but should be added back as well.

BEC- PASS

[Anonymous]

ONLY COSTS TO TERMINATE AN OPERATING LEASE ARE INCLUDED IN THE G/L FROM DISCONTINUED OPERATIONS, BUT NOT THE COSTS TO TERMINATE CAPITAL LEASE?

On March 1 of the current year, the board of directors of Lockwood Inc. voted to discontinue the operations of its fresh produce division, a reportable segment of the entity's operations. The sale of the division, which was finalized on December 15, resulted in a gain of $150,000. The division had operating losses of $500,000 during the current year and also paid employee termination benefits of $200,000 and $20,000 to terminate an operating lease. Ignoring income taxes, what is the loss from discontinued operations that Lockwood should recognize on its current year income statement?

a.
$550,000.

b.
$720,000.

c.
$570,000.

d.
$350,000.

Explanation

Choice “c” is correct. The net loss from discontinued operations will include the gain from the sale of the division, the operating loss, the employee termination benefits and the cost to terminate the operating lease. Exit and disposal costs related to discontinued operations are reported in discontinued operations on the income statement:

Gain on sale $ 150,000

Operating loss (500,000)

Termination benefits (200,000)

Cost to terminate the lease (20,000)

Loss on discontinued operations $ (570,000)

Choice “d” is incorrect. The employee termination benefits and the cost to terminate the operating lease are exit and disposal costs related to discontinued operations that must be reported in discontinued operations on the income statement.

Choice “a” is incorrect. Both the employee termination benefits and the cost to terminate the operating lease are exit and disposal costs related to discontinued operations that must be reported in discontinued operations on the income statement.

Choice “b” is incorrect. The gain on the sale of the division must be reported in discontinued operations. The gain will offset the losses of the discontinued operation.

[mtaylo24]

^^^^??? Do you have a comparable capital lease question or did you see that rule somewhere? The question above seems straight forward since everything is related to a discontinued operation.

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]

@A1lessio, I had the worst DRS on that back in q2. All I can say is follow the flow per books and per bank and compare your outages (I do these all of the time at work)…

I still need to find help for inventory reconciliation. I still have yet to see it mentioned in any of my reviews, but got blindsided by it last quarter.

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]

OMG the DRS's are just so so horrible and take so long… 🙁

@Amor D- agree with Mtaylo ???? I don't ever recall reading that capital lease would have a different treatment than an operating lease when you discontinue operations. You would (I assume, recognize any impairment on the lease immediately and any loss / gain on getting out of the lease when that occurred).

@waffle_house- hmmmm I am searching way back in my brain here but I **think** an artificial loss occurs on a capital lease when the sales price is lower than the carry amount- but the FV is higher… because essentially the carry amount on the lease is the PV of future cash flows- so it is “artificially created”- if that makes sense…. maybe someone else can chime in- i don't remember it from last quarter but do remember studying it the first go round.

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]

@A1lessio – For bank reconciliations, I try to look at it logically, rather than with a formula. Then when they hit you with something a little off-standard, you have a way to think about it. Each item presented goes on one side of the tally or is excluded (they do that sometimes!) – nothing ever goes on both sides!

For the side that starts with Balance per Books – what does the bank know that my books don't?
. Service charges, for example – until they “invoice” me on the statement, I haven't entered it into my books
. Interest earned on my balance – not entered on my books until I see it on the statement

For the side that starts with Balance per Bank – what do I know about that the bank doesn't?
. Checks I've written (and entered in my books) that have not yet been presented to the bank for payment
. Deposits I tallied up, recorded, and put in the night deposit box (or the mail) near the statement date that didn't get processed for the statement

In the end, both should come out equal (for a sim) or match an answer (for an mcq). if they don't match, find the difference and divide by two – that's the item (or sum of items) that you put on the wrong side.

[A1lessio]

@Ginic- very helpful thank you

AUD (08/02/2016)

[GiniC]

@A1lessio – with all that, they just wasted ten minutes of my precious study time with a reconciliation that didn't balance, because they only gave me part of the information! They gave me the information to adjust the Balance per Books, but nothing for the Balance per Bank. I got hung up on the difference, which didn't matter – matching the two balances is a confirmation, but you can do one without the other. I finally clicked in the number I had calculated and it ws fine. Grrr. I often think too much!!!

[rafiv900]

Please anyone give me the numbers to go to the $5,000

Question CPA-00213
During Year 6, Fuqua Steel Co. had the following unusual financial events occur:
Bonds payable were retired five years before their scheduled maturity, resulting in a $260,000 gain. Fuqua has
frequently retired bonds early when interest rates declined significantly.
A steel forming segment suffered $255,000 in losses due to hurricane damage. This was the fourth similar loss
sustained in a 5-year period at that location.
A component of Fuqua's operations, steel transportation, was sold at a net loss of $350,000. This was Fuqua's
first divestiture of one of its operating segments.
Before income taxes, what amount of gain (loss) should be reported separately as a component of income from
continuing operations in Year 6?
a. $(255,000)
b. $5,000
c. $(350,000)
d. $260,000
Explanation
Choice “b” is correct. $5,000.
The steel forming segment's hurricane damage (4th in 5 years) of $255,000 is “unusual in nature” and should be
reported separately as a component of “income from continuing operations.” Items that are unusual in nature and/or
infrequently occurring are reported separately as a component of income from continuing operations.
The retirement of debt is unusual but not infrequent. It should be reported separately in income from continuing
operations.
The loss on the steel transportation operation is reported under discontinued operations, net of tax.

Journey Started - June 2015
FAR - TBD
AUD - January 20, 2016
BEC - TBD
REG - TBD

[mcohen1993]

+260-255 should give you the amount. The -350 is mot likely a discontinued operation which is still apart from continued operations (as opposed to the old unusual and infrequent category which has disappeared).

One thing I have notices is a lot of the NINJA questions DO NOT use the updated Q1 2017 rules for Inventory (LCM only for LIFO and Retail), Deferred Taxes (all noncurrent), or prospective treatment for switching to equity method from cost. Be aware of these changes. Becker has updated their questions.

REG: 91!!
BEC: 80!!
AUD: TBA
FAR: TBA

In the order I plan to take the exams.

[Scared-cpa]

A company exchanged land with an appraised value of $50,000 and an original cost of $20,000 for machinery with a fair value of $55,000. Assuming that the transaction has commercial substance, what is the gain on the exchange?
A. $0
B. $5,000
C. $30,000
D. $35,000

Ans is C (50-20).

Does anyone have tips so I can keep these types of questions straight? I can never remember how to figure these out. They seem so simple with minimal calculations so I want to make sure I nail them on the actual exam.

I understand that since the exchange has commercial substance, it is measured at FV. I assumed the JE would be Dr. Machine 55,000 Cr. Land 20,000 Cr. Gain 35,000. But the gain is 30,000, the difference between original cost and appraised value. So where does the extra 5,000 go between appraised value of land and machinery? Do we value the machinery at 50,000 instead of 55,000 even though the FV of the machinery seems more clearly evident to me than the actual value of the land? Does it mean the actual JE is Dr. Machinery 50,000 Cr. Land 50,000 and a separate entry for the gain on adjustment of land of Dr. Land 30,000 Cr. Realized gain 30,000? Ugh I hate these!

[Anonymous]

@scared_cpa – per ASC 845-10-30-1:

In general, the accounting for nonmonetary transactions should be based on the fair values of the assets (or services) involved, which is the same basis as that used in monetary transactions. Thus, the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered to obtain it, and a gain or loss shall be recognized on the exchange. The fair value of the asset received shall be used to measure the cost if it is more clearly evident than the fair value of the asset surrendered. Similarly, a nonmonetary asset received in a nonreciprocal transfer shall be recorded at the fair value of the asset received. A transfer of a nonmonetary asset to a stockholder or to another entity in a nonreciprocal transfer shall be recorded at the fair value of the asset transferred and a gain or loss shall be recognized on the disposition of the asset.
845

So there's two criteria: the first is use the fair value of the asset surrendered; second, use the fair value of the asset received if the fair value is more clearly evident. In your problem the land was appraised so the approximated it's fair value.

The entry:

New asset 50,000 debit
land 20,000 credit
gain 30,000 credit

[mcohen1993]

@Sacred_cpa

I assume the appraised value would be 50 for the new.

Dr: New 50
Cr: Old: 20
Cr: Gain: 30

I think the reasoning is you recognize the least gain possible if you have both FMV. If you had only the FMV of the new, then yes the gain would be 35. If it lacked CS: It would be 0 as no boot (not same as tax boot, still not sure how this works) was received.

REG: 91!!
BEC: 80!!
AUD: TBA
FAR: TBA

In the order I plan to take the exams.

[Author]

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