[jeff]

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

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

[GiniC]

@mckan514w – I think I got the sales-type lease figured out!!! Using the values from that Becker link I posted…

At inception:
DR Lease Payments Receivable…….408,968.76
…CR Unearned Interest inc………………..108,968.76
…CR Sales Revenue……………………….300,000

Ignoring the CoGS/Inventory entry, we “get” that and it has no continuation;

Year 2 payment, you reduce the receivable and claim some of the interest:

DR Cash………………………51,121.08
…CR Lease Receivable…………………51,121.08

DR Unearned Interest Income…….24,887.89
…CR Interest Revenue…………………24,887.89

You tried to reverse Sales Revenue, which is an Income Statement account, it doesn't get reversed.
I kept getting tangled in the lease liability, but the lessor doesn't RECORD the liability, only the lessee carries that account.

Does that help?

[aatoural]

Dunne Co. sells equipment service contracts that cover a two-year period. The sales price of each contract is $600. Dunne's past experience is that, of the total dollars spent for repairs on service contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second contract year. Dunne sold 1,000 contracts evenly throughout the current year. In its December 31 balance sheet, what amount should Dunne report as deferred service contract revenue?
a.
$480,000
b.
$300,000
c.
$360,000
d.
$540,000
Explanation
Choice “a” is correct. When service contracts are sold, the entire proceeds are reported as deferred revenue. Revenue is recognized, and deferral reduced as the service is performed. Since repairs are made evenly (July 1 is average date), only ½ of the 40% of repairs will be in the current year.
Current year deferral ($600 x 1,000) $ 600,000
Earned in the current year (600,000 x 40% x 1/2) (120,000)
Deferral 12-31 $ 480,000

The book never talks about such assumption. How is it that Becker doe not explain this in the textbook and then we are supposed to assume we know it?

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

[mckan514w]

@ginic- BRILLIANT!!!! Thank you!!!!!

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

[Claudia408]

can someone please help with this journal entry? this is looking for the gain on disposal as opposed to restructuring right?

Debue has a 5%, $10,000 note due 12/31/x5, the current date. Interest is due annually on the note. Debue failed to pay the 20×5 interest payment. Debue and the creditor agree to restructure this troubled debt. The creditor agrees to accept a parcel of land worth $8,000 (cost, $5,000) in full payment of the note. What is the gain on the land?

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[AR]

@ Claudia408

Gain on land is $3000

DR Land 3000
CR Gain on transfer of asset 3000

The gain on settlement of debt will be $2500, but they haven't asked for it.

DR Note Payable 10000
DR Accrued Interest 500
CR Land 8000
CR Gain on settlement of Note Payable 2500

[AR]

@ aatoural

In general when the problem says sales were made…or expenses were incurred…evenly throughout the year, you can use averaging to arrive at the solution. In this case, for contracts sold on 1/1/Y1 the deferred part will be 60% of the contract price. And for contracts sold on 12/31/Y1 the deferred part will be 40%+60% which is 100% of the contract price collected. So for Y1 the average collections deferred is (60+100)/2 = 80% of collections. 80% of (600*1000) = $480000.

[Claudia408]

AR- thanks, i thought about that and it seemed to simple! lol. the way i was thinking of this is if the debtor gives the land, must also get rid of the note, so i thought there would more to the JE for debt settlement similar to the JE for the settlement? or am i over thinking?

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Claudia408]

i mean so i thought there would more to the JE for debt disposal similar to the JE for the restructure?

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[AR]

@ aatoural

The assumption you refer to in this problem, is not an assumption. It is merely saying we are going to use an average because the sales occurred evenly. The solution given by Becker is another way of using averaging to solve the problem, though a tad bit more confusion than the approach I used. (IMHO)

[AR]

Claudia : Overthinking 🙂

[aatoural]

@AR – Thanks!!!

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

[Holly]

I just logged into ninja mcq for the first time in a while. It says to start studying 2017 material. Where do I go to get to the 2016 material? Not testing after April.

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

[Holly]

On January 1, Year 2, Co. issued 400 of its 8%, $1,000 bonds at 97 plus accrued interest. The bonds are dated October 1, Year 1, and mature on October 1, Year 11. Interest is payable semiannually on April 1 and October 1. Accrued interest for the period October 1, Year 1 to January 1, Year 2, amounted to $8,000. On January 1, Year 2, what amount should Oak report as bonds payable, net of discount?
a. $380,300
b. $392,000
c. $388,300
d. $388,000

Anyone?

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

[nardo]

Component of a Lessee's minimum lease payments:

1) minimum rental payments are the periodic amounts owed by lessee minus any executory costs (insurance, maintenance, taxes) to be paid by the lessor

I'm having trouble understanding from a practical standpoint. Wouldn't the minimum payments by he lessee have to be higher to cover those costs that the lessor has to pay?

[Holly]

Quick Hit: 2017 CPA Exam Change Date Confusion (video in the forum, just didn't post link)
Just found this video saying the material hasn't so much changed, but the way we're tested changes. Different from what Becker says. When you open Becker it says to study 2016 version if testing before 3/10, and 2017 version if testing after 4/1. Confusing.

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

[Author]

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