FAR Study Group Q1 2017 - Page 60

Viewing 15 replies - 886 through 900 (of 2,502 total)
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  • #1451937
    aatoural
    Participant

    On January 1, Year 1, Pacific Corporation acquired 75% of Sand Corporation's 200,000 outstanding common shares for $2,850,000. On January 1, the book value of Sand's net assets was $3,000,000. Book value equaled fair value for all of Sand's assets and liabilities except land, which had a fair value $200,000 greater than book value, and equipment, which had a fair value $150,000 greater than book value. On January 1, Year 1, Sand had a non-compete agreement with a fair value of $300,000. What is the goodwill to be reported on Pacific Corporation's December 31, Year 1 balance sheet under U.S. GAAP?
    a.$450,00
    b.$312,500
    c.$362,500
    d.$150,000 CORRECT

    Becker's JE:
    C
    A
    R 3,000
    I 2,850
    N 950
    B 350
    I 300
    G 150

    I understand how to get the goodwill and the entire process. My question is why the increase in FV over BV of the equipment is put as part of BS adjustment and not as APIC as in other problems?

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

    #1451942
    GiniC
    Participant

    @HRSexton – I'm trying to wrap up F6 today. My ex got in a car accident last night so has taken too much of my day with related needs for rides and stuff. Now work wants me for a couple of hours. AAARRRGGGHH! How are you doing? I test March 9, so we are on a similar timeline.

    #1451955
    r_f_94
    Participant

    When amortizing a gain/loss in pension expense, is it only a gain/loss that was as of the beginning of the year or do you include any that may have arose throughout the year?

    #1451970
    monicasanta
    Participant

    PLEASE HELP

    I think becker changed the answer again this time… for the last question I posted, gain from sale of trading securities are NOT subtracted from net income under the indirect method. Does anyone know why??

    From becker “The $6,000 gain on the sale of trading securities does not need to be subtracted from net income because the cash flow from the sale of the trading security should be included in operating cash flows.”

    Twin House Inc. reported net income of $753,000 for the current year-ended December 31. Twin House’s financial statements reflected the following information:
    Depreciation expense $ 150,000
    Gain on sale of trading securities 6,000
    Goodwill impairment 75,000
    Decrease in accounts receivable 48,000
    Increase in inventory 33,000
    Decrease in trading securities 50,000
    Increase in available-for-sale securities 62,000
    Increase in accounts payable 70,000
    Decrease in taxes payable 15,000
    Dividend paid 200,000
    Dividend received 27,000
    What should Twin House report as net cash provided by operating activities on the statement of cash flows, assuming that Twin House classifies the proceeds from the sale of the trading securities as an operating cash inflow?

    a. $1,125,000

    b. $1,036,000

    c. $898,000

    d. $1,098,000

    Net income $ 753,000
    Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation expense $ 150,000
    Goodwill impairment 75,000
    Changes in current assets and liabilities:
    Decrease in accounts receivable 48,000
    Increase in inventory (33,000)
    Decrease in trading securities 50,000
    Increase in accounts payable 70,000
    Decrease in taxes payable (15,000)
    Total Adjustments 345,000
    Net cash provided by operating activities $ 1,098,000

    #1451987
    AR
    Participant

    @santamonica

    The reason given by Becker explains it. The proceeds from sale of trading securities have to be included in operating cash flow. Total proceeds from sale are are 560000. Of this the gain 6000 is already in the income, but the reduction in book value 50000 is not. So that is added back so the cash flow from operating activity has a total of 56000 included from this transaction.
    If however the gain on trading securities Is unrealized then it will have to be deducted in the indirect method.

    #1451988
    AR
    Participant

    @rf94 existing as of the beginning of the year

    #1452054
    Sticky Nicky
    Participant

    would u say the questions on this section are mostly conceptual or computational? or a balanced mix of both?

    #1452080
    Holly
    Participant

    @ginic I am in the middle of chapter 7. I'm trying to be in chapter 8 at the end of the weekend so I'm really pushing right now. It's so much material and I don't know how in the world I'll remember all of it! I'm pushing for a three week review so I can answer a bunch of questions.

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

    #1452137
    greenolive
    Participant

    Which of the following is reported as interest expense?

    A.
    Pension cost interest

    B.
    Amortization of discount of a note

    C.
    Deferred compensation plan interest

    D.
    Interest incurred to finance software development for internal use

    Answer is B. Why is amortization of discount of a note reported as interest expense? This is how I always do the journal entry so isn't it separate from interest?

    D. Interest expense
    C. Amortization of discount on note
    C. Cash

    #1452140
    Anonymous
    Inactive

    @aatoural I don't understand the calculation and journal entry you posted for the goodwill. Can you (or anyone else) explain?

    Thanks

    #1452219
    aatoural
    Participant

    @Bondvllain – this is acquisition method. You dr. Sub's RE at BV = 3,000. Cr. investment in sub for 2,850 (given). Since the parent does not own a 100% of the sub, you need to also credit NCI for the non controlling % which is (2,850/0.75)*0.25 = 950. The rest are B/S adjustments for the subs change in FV compared to BV of net assets and another debit for intangible. Since your credits are greater than your debits your plug is goodwill of 150 (dr) to balance.

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

    #1452237
    mo3athn
    Participant

    @monicasanta any gain or loss comes from current assets “usually trading securities” you dont need to subtract from net income in indirect method because any way you will adjust it later on in changes from operating assets, so gain on trading securities in current assets means assets is up so cash is out then you will subtract it as changes in current assets. hope that's help.

    #1452305
    Anonymous
    Inactive

    Can someone please help me with this question? I don't understand it – here is the question, answer and explanation. Even with the explanation – I still don't understand how the company with the higher cash to noncash ratio would result in a lower cash balance when cash is increased due to increase in operations. Why wouldn't it be higher?

    Companies A and B begin with identical account balances, and their revenues and expenses for the year are identical in amount except that Company A has a higher ratio of cash to noncash expenses. If the cash balances of both companies increase as a result of operations (no financing or dividends), the ending cash balance of Company A as compared to that of Company B will be:

    A. Lower.
    Answer (A) is correct.
    A and B began with identical cash balances, and all revenues and expenses are identical except that A has a higher ratio of cash to noncash expenses. Thus, A must have a lower cash balance at the end of the year because more of A’s expenses required a credit to cash. More of B’s expenses would have been accrued (i.e., credited to liability accounts). This question assumes no financing, no cash dividends, and identical amounts of cash and credit sales for A and B. If A and B had the same amount of revenue but different proportions of cash and credit sales, it would not be possible to determine which had the higher cash balance from the facts given.

    #1452306
    Holly
    Participant

    @Parker the amortization of the discount adds to the interest expense until you get to the face value of the bond.

    DR Bond Interest Expense 125,000
    CR Discount on B/P 25,000 – This amount is added to the cash paid to get total interest expense reported
    CR Cash 100,000

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

    #1452309
    Holly
    Participant

    @cpacontender I've never heard of this ratio! My thoughts are that given the same amount of cash and expenses, the company with the cash paid expenses would have a lower cash balance. The company that didn't pay the expenses until the following year, but accrued the expenses, would take the expense on the income statement and show a higher cash balance.

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

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