[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

[MaLoTu]

Oh, hitmi, that makes sense.

[So FAR So Good]

@thebigguy1992

I know this is going to be a silly example, but think of it like a movie store (RIP Blockbuster).

A movie store has enough square footage to carry a collection of (insert number here) movies. However, they have elected to stock their shelves with only enough movies to fill about 1 in 5 shelves, maybe because being fully stocked simply doesn't correspond with theirs and their customer's needs (how many copies of AirBud do they really need?). At any given time, the movies that are available for circulation at the store are either checked in or checked out, but they will always add up to the total number that is in circulation, not the total number that can fit in the store.

In that example, the store has capacity to hold a collection of 500,000 movies, but they only have 110,000 movies available for circulation in their collection. 100,000 of them are currently checked out by customers and the store has the other 10,000 on their shelves for customers to check out (these may have already been checked out in the past, but that is irrelevant – they are simply now available to be checked out). At that point, they decide they want to stock their shelves with an additional 15,000 movies, but they are checked out by customers immediately (who knew Space Jam was so in demand?). They now have 125,000 movies in circulation, but only 115,000 checked out. On top of that, customers come in to check out an additional 2,500 movies on a rainy weekend, which dips into the 10,000 that the store still had on their shelves. They now have a total of 125,000 movies in circulation, with 117,500 checked out by customers and 7,500 on their shelves available to be checked out.

Now, let's make this example even more silly and unrealistic… imagine that every movie in the bookstore was originally catalogued as ONE movie, but in reality, every single movie in the store's catalogue had a sequel paired with it. For whatever reason, the store always had them coupled together and rented out as “one” movie, but they are really two movies in one. The store now wants to change its methodology and properly classify the movies independently, which doubles the available movies. It doesn't matter if they're currently rented by customers or on the shelves, nor does it matter how long they've been rented or sitting on the shelves. There are now simply TWICE the number of movies. Per this example, that would mean there are now 235,000 movies out with customers (117,500 x 2), and 15,000 movies on the store's shelves (7,500 x 2). In total, the movie store's library went from 125,000 available movies to 250,000 available movies.

Silly, I know… but the whole “check out/check in” thought process should hopefully help a little.

235,000 movies checked out by one store… maybe if Netflix hadn't come along! 🙂

F - 91 (6/5/2016)
A - 7/30/2016
R - 10/8/2016
B - 12/10/2016

[JT]

@thebigguy

My bad for not answering that question,…l completely didn't see it.

You start the year with the 100k “out”standing (think “out”side the company in other peoples hand and not the company's hands). (100k outstanding)
March 1, add the extra 15k (115k)
June 1, you sold (add) 2.5k shares of treasury stock (a good memory tool is that basically the treasure of the corporation was holding these then sold them to people outside) (117.5k)
September 1, the split basically multiplies everything by 2. (235k)

And that's it.

The question is not asking about the “weighted average number of shares for the year” so there is no back-dating of shares when there is a dividend or stock split. The question is only asking for the number of total shares outstanding as of 12/31. So if you had 1mill shares the whole year and throughout the year there were a ton of stock splits, stock dividens, repurchase of t stock, selling of t stock, but on 12/30, the company purchased ALL OF THEM BACK, the answer to this question would be 0 because there would be anything outstanding on 12/31.

To answer some of your other questions, if you sell your treasury stock, yes, that increases the number of common stock outstanding. If you issue/sell shares outstanding, yes, that increases the number of common stock outstanding.
If you purchase you own common stock outstanding (basically the term is t-stock) that will decrease the total shares outstanding.

Hope that helps.

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

[hitmi]

@Dab Thank You so much

FAR 06/09/2016 | 2014 (42) Didn't Study for it | 2015 (54)
Audit (66) i was expecting (99)

will Ninja MCQs make the difference in 09 June, Lets wait!

[hitmi]

Frame Construction Company's contract requires the construction of a bridge in 3 years. The expected total cost of the bridge is $2,000,000, and Frame will receive $2,500,000 for the project. The actual costs incurred to complete the project were $500,000, $900,000, and $600,000, respectively, during each of the 3 years. Progress payments received by Frame were $600,000, $1,200,000, and $700,000, respectively. Assuming that the percentage-of-completion method is used, what amount of gross profit would Frame report during the last year of the project?
A.
$120,000
B.
$125,000
C.
$140,000
D.
$150,000

expected gross profit = 500,000 (2.5 m – 2m)
Actual project costs = (500k+900k+600k)= 2 m
Y1 % completion = 500k/2m = 25% –> cumulative profit = 25% * 500K = $ 125 k
Y2 % complettion = (500k+900k)/2m = 70%–> cumulative profit = 70% * 500k = 350 K
Y3 % completion = 100%-70% = 30% –> cumulative profit =30% * 500K = 150 K

why don't you deduct the previous income from year 2 & 3 ????????

FAR 06/09/2016 | 2014 (42) Didn't Study for it | 2015 (54)
Audit (66) i was expecting (99)

will Ninja MCQs make the difference in 09 June, Lets wait!

[JT]

I don't understand your question.

For these questions, I basically calculate the year by year.

Your calculations look right.

Year 1 500/2000=25%… 25%X 500=gp 125k
Year 2 900/2000=45%…45%X 500=gp 225k
Year 3 600/2000=30%…30%X 500=gp 150k

If you add all gp=500k

The question is asking only about gp for yr 3.

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

[Anonymous]

According to the answer explanation, the $5,000 loan was outstanding for 10 out of 12 months. Is that a typo, or am I missing something? It appears to me that it was outstanding for 12 out of 12 months.

Here is the question and the accompanying answer…

Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity. Loeb repaid each loan on its scheduled maturity date.

Date of Loan Amount Maturity Date Term of Loan
———— ——- ————- ————
11/01/X1 $ 5,000 10/31/X2 1 Year
02/01/X2 15,000 07/31/X2 6 Months
05/01/X2 8,000 01/31/X3 9 Months
Loeb records interest expense when the loans are repaid. As a result, interest expense of $1,500 was recorded in 20X2. If no correction is made, by what amount would 20X2 interest expense be understated?

Correct 20X2 Interest:

Loan 1 $ 5,000 x 12% x 10/12 = $500
Loan 2 $15,000 x 12% x 6/12 = 900
Loan 3 $ 8,000 x 12% x 8/12 = 640
——
Total interest expense $2,040
Recorded to date 1,500
——
Understatement $ 540

[Anonymous]

^ NVM, figured it out!

[hitmi]

@ Dab thanks. i meant When a company uses the “percentage-of-completion” method of accounting for a 3-year
construction contract(our case), don't we e use income previously recognized (deduct) to calculate the income recognized in the 2nd & 3rd Yr

Year 1 500/2000=25%… 25%X 500=gp 125k
Year 2 900/2000=45%…45%X 500=gp 225k
yr 2 income – yr 1 income 125-225 = 100
Year 3 600/2000=30%…30%X 500=gp 150k
year 3 income – yr 2 income150 – 100 = 50

FAR 06/09/2016 | 2014 (42) Didn't Study for it | 2015 (54)
Audit (66) i was expecting (99)

will Ninja MCQs make the difference in 09 June, Lets wait!

[MaLoTu]

Texas A&M University, a publicly held institution, is required to report under the standards of which of the following bodies?

A. Primarily FASB

B. Primarily GASB

C. Primarily APB

This is primarily a rant … I chose FASB because it doesn't specify that it is governmental, BUT even more so, it says publicly held … this is absolutely the wrong wording for this question. If you google publicly held institutions it comes up with for-profit colleges. If it said a public institution then I would have been more inclined to choose GASB. I have a short fuse and things like this upset me, lol. I cannot wait for this to be over.

[William Dukes]

A company reported net income available to common stockholders of $2,000,000 for the year ended December 31, year 2. The company had 1,500,000 shares of common stock outstanding as of January 1, year 2, and issued 500,000 additional shares of common stock on May 1, year 2. What amount is the company's basic earnings per share for the year ended December 31, year 2?

A. $1.00
B. $1.09
C. $1.20
D. $1.33

Why isn't the answer B? Based on the weighted Average Number of Common Shares Outstanding being 1,500,000 + 333,333 (8/12*500,000).

[JT]

@William

That question came up before and we werent sure how they came up with that answer either.

It seems like your right. It should be B.

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

[JT]

The following information was taken from the current year financial statements of Planet Corp.:

A/R, January 1 $ 21,600
A/R, December 31 30,400
Sales on account and cash sales 438,000
Uncollectible accounts 1,000

No accounts receivable were written off or recovered during the year. If the direct method is used in the current-year statement of cash flows, Planet should report cash collected from customers as:

A. $447,800.

B. $446,800.

C. $429,200.

D. $428,200.

Answer is C.

Why don't we net the 1000 out to arrive at D?

I'm pretty bad with bad debt/write offs/uncollectible accounts.

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

[So FAR So Good]

@Dab – If you look at it from a revenue perspective, your $438k would already include the effect of the uncollectable accounts, or at least I would assume so. In that case, you can work solely off of the AR accounts and revenue number.

Originally entry would be:

Dr. A/R $439,000
Cr. Allowance $1,000
Cr. Revenue $438,000

So $438,000 less the increase in AR of $8,800 would be $429,200.

Or, if you want to look at it from a different angle and calculate from the balance sheet side, using that same journal entry as your basis:

AR Reconciliation:
21,600 (original AR)
+439,000 (addition to AR, but remember this would now include an uncollectable amount)
-????? (amount that must have been paid)
-1,000 (remove the uncollectible amount)
———-
30,400 (Ending AR)
=====

variable is the same $429,200 received from customers in current year.

F - 91 (6/5/2016)
A - 7/30/2016
R - 10/8/2016
B - 12/10/2016

[So FAR So Good]

I'm coming down the home stretch and starting to feel a slight case of burnout. I took the entire week off to study before my test on the 5th, and I'm just not feeling the motivation. Between working 60-70 hours a week and studying for the past two months, my mind keeps telling me “relax this week.”

Just finished up ALL of the Becker lectures and homework/SIMS. If I were to spend about 8 hours each day between Tuesday and Saturday doing Ninja MCQ and reviewing materials, would that be enough of a review period? I'm getting so paranoid that I fell too far behind to catch up.

F - 91 (6/5/2016)
A - 7/30/2016
R - 10/8/2016
B - 12/10/2016

[Author]

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