[jeff]

Welcome to the Q2 2016 CPA Exam Study Group for FAR.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

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

[JT]

A fundamental question I'm trying to make sure I understand is…

The current liability portion of a note payable (ie long term loan) is the 1) principal liability expected to be paid within the next year AND 2) the ACCRUED interest portion at year end not yet paid. Correct?

I get accrued interest and interest expensed confused a lot but if I'm reading my notes correctly, it's the accrued portion at year end that's a current liability, NOT the portion of interest that will be expensed or is expected to be paid the next year.

I noticed this is a subtle phrase that is used so I'm not sure if I heard/read it correctly or if there was an error in the material I read.

REG-80-1X
BEC-80-1X
FAR-73-1X
FAR-75-2X
AUD-September 2016

[patelhj1]

Wow going thru these Becker SIMS is really hard. Took me almost all of today to get through F1 & F2 (SIM1 only)… tomorrow's gonna be a long day 🙁

BEC 78 08/2015
REG 71 11/2015, RETAKE 83 01/2016
FAR 75! 5/2016
AUD ? 8/2016

Becker with Nonstop NINJA MCQ
Google most difficult professional exam

[patelhj1]

On January 1, Year 1, West Co. entered into a 10-year lease for a manufacturing plant. The annual mini­mum lease payments are $100,000. In the notes to the December 31, Year 2, financial statements, what amounts of subsequent years’ lease payments should be disclosed?

A. Amount for required period, $100,000; Aggregate amount for period thereafter, $0

B. Amount for required period, $300,000; Aggregate amount for period thereafter, $500,000

C. Amount for required period, $500,000; Aggregate amount for period thereafter, $300,000

D. Amount for required period, $500,000; Aggregate amount for period thereafter, $0

The lessee in a lease context must make disclosures as to future required payments under the lease. One must disclose the payments required under the lease for the next 5 years (here that is 5 × $100,000, or $500,000), as well as disclosing the total amounts to be paid thereafter or $300,000 (the 3 remaining years' obligations at $100,000 a year).

My answer was B.. but the correct answer is C.

Someone help me understand this…

BEC 78 08/2015
REG 71 11/2015, RETAKE 83 01/2016
FAR 75! 5/2016
AUD ? 8/2016

Becker with Nonstop NINJA MCQ
Google most difficult professional exam

[ineeda75please]

BEC - 71, 76 PASSED! Becker
FAR - 70, 08/2016 Becker and Ninja Notes (2nd)
REG - 7/2/2016 Becker and Ninja Notes
AUD - 7/27/2016 Becker and Ninja Notes

[se7en.14]

On April 30, 20X1, Algee, Belger, and Ceda formed a partnership by combining their separate business proprietorships. Algee contributed cash of $50,000. Belger contributed property with a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value. The partnership accepted responsibility for the $35,000 mortgage attached to the property. Ceda contributed equipment with a $30,000 carrying amount, a $75,000 original cost, and $55,000 fair value. The partnership agreement specifies that profits and losses are to be shared equally but is silent regarding capital contributions. Which partner has the largest April 30, 20X1, capital account balance?

Answer : Ceda

How do we know that the $35k liability is Ceda's? The wording made me think it was for all 3 of them.

[Anonymous]

Hi! I am hoping someone can help me understand how the answers are computed for the following two questions. These two questions come from the 2015 AICPA released exam questions, difficult! I appreciate your help and thank you!! I take FAR tomorrow, and it could be my last exam. EEEEEKKKKKK!

On January 1, year 1, a company capitalized $100,000 of costs for
software that is to be sold. The company amortizes the software costs on a
straight-line basis over five years. The carrying value of the software costs
on January 1, year 3, was $60,000.
As of December 31, year 3, the estimated future gross revenue to be
generated from the sale of the software is $23,000, and the estimated
future cost of disposing of the software is $8,000. What amount should the
company expense related to the software costs for the year ended
December 31, year 3? Answer D.
$18,400
$20,000
$37,000
$45,000

A company issues $1,500,000 of par bonds at 98 on January 1, year 1,
with a maturity date of December 31, year 30. Bond issue costs are
$90,000, and the stated interest rate of the bonds is 6%. Interest is paid
semiannually on January 1 and July 1. Ten years after the issue date, the
entire issue was called at 102 and canceled.
The company uses the straight-line method of amortization for bond
discounts and issue costs, and the result of this method is not materially
different from the effective interest method. The company should classify
what amount as the loss on extinguishment of debt at the time the bonds
are called? Answer D.
$ 30,000
$ 50,000
$ 90,000
$110,000

[ineeda75please]

@se7en.14

It says the 35k mortgage is attached to the property since Belger contributed the property the amount Belger contributed is the FV -mortgage which is 80k-35k=45k making Ceda's contribution the largest with 55k. 🙂
Algee = 50k
Belger = 45k
Ceda = 55k

So the liability isn't Ceda's at all.

BEC - 71, 76 PASSED! Becker
FAR - 70, 08/2016 Becker and Ninja Notes (2nd)
REG - 7/2/2016 Becker and Ninja Notes
AUD - 7/27/2016 Becker and Ninja Notes

[KJ]

Patel, those options looks wrong. The answer is C but it will be $800,000 aggregate payments because as of 12/31/Y2 there are 8 payments not paid and $500,000 for required period. I found similar question in Wiley:

45. On January 1, year 1, West Co. entered into a ten-year
lease for a manufacturing plant. The annual minimum lease
payments are $100,000. In the notes to the December 31, year
2 financial statements, what amounts of subsequent years’
lease payments should be disclosed?

Amount for appropriate
required period
Aggregate amount for
the lease term
a. $100,000 $0
b. $300,000 $500,000
c. $500,000 $800,000
d. $500,000 $0

FAR - August 2016
AUD - September 2016
REG - October 2016
BEC - November 2016

Remember: "Everything should be made as simple as possible, but not simpler." - Albert Einstein

[KJ]

@boating

For your 1st question:

Software costs are reported at lower of unamortized cost or NRV. Carrying amount of software cost is 60,000 (which is unamortized) and NRV in this case will be estimated revenue-disposable cost (23,000-8,000 = $15,000). The remaining will be 60,000-15,000 = 45,000 which should be written down to NRV of $15,000.

For your 2nd question:

Initially bonds were issued @ 1,470,000 (1,500,00 x .98) + $30,000 (bond discount).

After 10 years bonds were called at 102, 1,500,000 x 1.02 = $1,530,000

Bond costs and bond discount amortized at S-L basis.

Bond costs will be calculated as $90,000 x 20/30 = $60,000
Bond discount $30,000 x 20/30 = $20,000

Book value is 1,500,000 – 80,000 = $1,420,000

Book value – call price, 1,420,000 – 1,530,000 = $110,000 loss

FAR - August 2016
AUD - September 2016
REG - October 2016
BEC - November 2016

Remember: "Everything should be made as simple as possible, but not simpler." - Albert Einstein

[Anonymous]

Thank you kanwal78!!! Looks like you're ready for FAR this week! Best of luck to you:)

[KJ]

@ boating..Don't know about ready but let's see how it goes. I am still struggling at couple of topics but I am trying to pound MCQ's until my exam, if I get a question wrong, read why it was wrong and try to re-read the topic for little better understanding. The software question took me 1-2 minutes to make it sense, so much stuff to remember. FAR is a killer!

FAR - August 2016
AUD - September 2016
REG - October 2016
BEC - November 2016

Remember: "Everything should be made as simple as possible, but not simpler." - Albert Einstein

[se7en.14]

@ineeda75please

sorry, I meant to say how do we know the liability is Belger's.
Thanks, I guess I need to analyze it better.

[KJ]

@boating….you have done good on other exams so I am sure you will nail FAR….Good luck!! Do share your experience here after your exam.

FAR - August 2016
AUD - September 2016
REG - October 2016
BEC - November 2016

Remember: "Everything should be made as simple as possible, but not simpler." - Albert Einstein

[MaLoTu]

Sorry to dredge this up … but was there ever affirmation on how to account for bond issuance costs?

Becker F5-37
Bond Issuance costs for GAAP and IFRS
1. Presented on BS as a reduction to bond (like a discount)
2. Proceeds are recorded net of issuance costs
3. issuance costs are amortized as interest expense over life of bond using effective interest method

[MaLoTu]

Just a little question … if computing straight-line amortization on a bond premium, do we net the issuance costs if any? or do those have to be calculated separate? The text lumps disc. and issuance costs together.

[Author]

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