[jeff]

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

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

[Taps731]

I got a fun one (Lease MCQ #934):
“A company enters into a 3-year operating lease agreement effective January 1, Year 1. The amounts due on the first day of each year are $25,000 in Year 1, $30,000 in Year 2, and $35,000 in Year 3. What amount, if any, is the related liability on the first day of Year 2?”
A. $0
B. $5,000
C. $60,000
D. $65,000

Per NINJA, the answer is B. I realize that leases of this kind are straight-lined, which is why they say the answer is $5,000. HOWEVER, the explanation provided by NINJA states:

“The Entry for the First Payment would be:
(DR) Rent Expense $30,000
(CR) Cash <$25,000>
(CR) Lease Liability <$5,000>

Is it me, or is this incorrect/contradictory of the expense recognition topics covered by FAR? To prove my point, lets say that two months later the company produces interim F/S. What is the rent expense they report on the 3-Month Interim FS? If I use the Journal Entry that NINJA provided above, my Interim F/S would show 12-months of lease expense, though only 3-months have passed.

Isn't the correct journal entry on day 1, year 2:
(DR) Prepaid Lease Expense
(DR) Rent Expense $2,500 ($30,000 Per Year/12-Months)
(DR) Lease Liability $5,000 (Apply to Prior Year Underpayment of $5,000 – or 2 months worth of Straight-Line Expense)
(CR) Cash <$30,000>

Thus, there is no liability on year 2, day 1. Instead, the Liability would be recorded during November & December of year-2.

Is my reasoning wayyyyyy off, or does the MCQ miss the fundamental expense recognition principal?

[A1lessio]

I don't get the question I posted below, why are we not adding depreciation expense and impairment of goodwill? It is because the question starts with cash provided from operating activities and we work our way up to net income? So if we started with Net income of $400,000 then I would add depreciation expense and the goodwill item?

Reed Co.'s statement of cash flows reported cash provided from operating activities of $400,000. Depreciation of equipment was $190,000, impairment of goodwill was $5,000, and dividends paid on common stock were $100,000. In Reed's statement of cash flows, what amount was reported as net income?
a.
$595,000
b.
$205,000
c.
$105,000
d.
$305,000
Explanation
Choice “b” is correct. Start with cash flows from operating activities and subtract depreciation and impairment expenses. Dividends paid are not included because dividends reduce retained earnings, not net income, and are included in cash flows from financing activities.
Cash flows from operating activities $ 400,000
Depreciation on equipment (190,000)
Impairment of goodwill (5,000)
Net Income $ 205,000

AUD (08/02/2016)

[kinji]

Can someone assist me with this problem? Please don't just provide the answer, but explain to me how you got there, it'd be appreciated, thanks! Again, thank you for your time!

You borrow $30,000 to buy a car. The loan is to be paid off in quarterly installments over
five years at 8 percent interest annually. The first payment is due one quarter from today.
What is the amount of each quarterly payment?
a) $1,739
b) $1,799
c) $1,835
d) $1,878

[reo]

From the problem below, how do you determine which one is the best choice and how is it calculated? Any help would be appreciated, thank you!

John Roberts is 41 years old and has been asked to accept early retirement from his
company. The company has offered John three alternative compensation packages to
induce John to retire.
1. $234,000 cash payment to be paid immediately.
2. A 21-year annuity of $22,000 beginning immediately.
3. A 10-year annuity of $73,000 beginning at age 51.
Which alternative should John choose, assuming that he is able to invest funds at an 8%
rate?

Reo

[mtaylo24]

@A1lessio I see it more as working backwards to figure out net income rather than net income +- adj to figure out cash flows for operating activities. If this were BEC they would use algebra lol.

Ni + adj = cf for op

@taps731, it depends on how you report. If it were interim, you probably would have ppd left, but its not. Year 1 is over so you would have expensed all of your prepaid from y1

90,000 / 3 = 30000 a year – 25000 = 5000

Dr rent 30
Cr cash 25
Cr liability 5.

Or even (i hope i dont butcher this 😂)

Dr ppd exp 30
Cr cash 25
Cr liab 5

Then a y/e ppd reclass

Dr rent exp 30
Cr ppd exp 30

Or you could release it by month for 12 months, same entry just 2500 a month.

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)

[Holly]

Has anyone tried scheduling a test beyond this first quarter? I just went to prometric and tried using the seat availability tool. Nothing was available.

BEC - 79
REG - 85
AUD - 5/27/16

[GiniC]

NASBA put out a notice a few weeks ago about delayed availability of testing appointments Click here for the page. . That says FAR and AUD should be available though.

[A1lessio]

Question regarding sims. I here people at work say just put 0 if you don't know. In some of the Becker Sims which should be left blank, If I put 0 I get it wrong.

AUD (08/02/2016)

[GiniC]

You will get it wrong most of the time – but the theory is that some of them WILL be zero, so you'll get more points by filling in SOMETHING than by leaving it blank. That's especially true for journal entries – if you've figured out all the accounts but not the dollar values, you can get the partial credit for the account names at least.

[A1lessio]

I did pretty well on the statement of cash flow & shareholders equity sims. I think as long as your able to put the categories in the proper place and you get a few of the numbers correct… you're golden!

AUD (08/02/2016)

[j3cpa]

@kinji:

PV Ordinary Annuity: use when payments are for arrears, such as end of year, end of month.
PV Annuity Due: use when payments are current, such as payments are like prepaid.
^ the way i remember these is I look at were the word Annuity is. ordinary ANNUITY (end of the word = end of year).

For this problem I looked up the PVAnnuity of 2% for 20 periods = 16.35143. I then rephrase the question: what amount each period should i be making so that it will equal $30,000.

16.35 x payments = $30,000. solve for payments and I get 1834.7 – in this case the answer is C.

I don't know if I solved this correctly but that is how i would approach it.

Can someone assist me with this problem? Please don’t just provide the answer, but explain to me how you got there, it’d be appreciated, thanks! Again, thank you for your time!

You borrow $30,000 to buy a car. The loan is to be paid off in quarterly installments over
five years at 8 percent interest annually. The first payment is due one quarter from today.
What is the amount of each quarterly payment?
a) $1,739
b) $1,799
c) $1,835
d) $1,878

Study Material:
GLEIM
BEC - FEB/2012
AUD - FEB/2012
FAR - JULY/2012
REG - JULY/2012

[Scared-cpa]

@Taps731 Well I have been studying for FAR since August so not sure how much time I will need for AUD lol. Granted, I had a major learning curve since it was my first exam. I had to learn how to properly study, allocate my time, etc. So I sat for my first exam in November, failed with 67, and am retaking on the 20th. I am also going to try my very best to pass all four sections before I start working. I am in graduate school full-time right now for my MBA. I will finish school in July. My plan is to sit for FAR the 20th, AUD on March 8th, another exam in Q2 and my last exam (hopefully) in Q3. Now, how that will actually go is a different story, but that's the plan!

@mtaylo24 It seems I am better with questions that don't involve calculations, so I hope I will be alright with AUD. I'm fine with calculations with homework for school, but when it comes to being timed and not being able to see my score for that question immediately afterwards like I can in practice, I often second guess myself. Good luck with both of your exams. I hope you knock them out of the park and finish this exam! I think I can speak for everyone when I say we are rooting for you 110%!!!

[yazoon81]

I can't get back to the studying mode sine 3 months till this moment. FAR is really killing me.

[waffle_house]

On F7 in Becker, this has to be the hardest chapter. I guess because I've never had real experience with stuff like this and a lot of it is just complicated. Anyone else having trouble on this section.

[Holly]

@scared_cpa I just took auditing a week ago. It wasn't the easiest thing for me because of no calculations. I really hope I passed! It sounds like you have a plan.

BEC - 79
REG - 85
AUD - 5/27/16

[Author]

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