[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]

@Dab, thanks for that. I understand the relationships of transactions, like for operating increase in assets reduces net income and liabilities have a direct relationship and why that happens. I understand what categories belong to what activity, but it doesn't seem like that it helps with the questions they ask.

[MaLoTu]

I think I was getting financing and investing mixed up on some of the questions … I was super frustrated and it just translated to me missing more and more questions!

[Zyx]

It may help..the way I remember to differentiate financing and investing. Investing involves proceeds from sale or purchase of fixed assets and proceeds from the sale or purchase of “other companies” stocks and bonds.

Financing involves proceeds from the sale or purchase of “your own company stock” and proceeds from debt.

I'm working on Governmental account and really struggling. I got 1 out of 10 questions correct…

REG: 77 x2
BEC: 81 x3
FAR: 68 retake 10/1
AUD: 8/27

[KJ]

When I took FAR I was very confident about CFS because I knew when it increases/decrease under what method and where proceeds from fixed assets goes; knew O-I-F in and out but when I got the question on CFS in the exam, I was like WTF. But that's me, I know there are smarter people out there who can do better than what I did on the exam. Bottom line is yes sometimes the way question is worded can throw you off even on the topic you know in and out.

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

[JT]

These questions seem contradictory.. Here are the questions and the explanation behind it….. I'm confused on the part of bad debt….

Question 1)

Hospital, Inc., a not-for-profit entity with no governmental affiliation, reported the following in its accounts for the current year ended December 31:

Gross patient service revenue from all services provided at the established billing rates of the hospital (note that this figure includes charity care of $25,000)

$775,000

Provision for bad debts

15,000

Difference between established billing rates and fees negotiated with third-party payers (contractual adjustments)

70,000

What amount would the hospital report as net patient service revenue in its statement of operations for the current year ended December 31?

Answer is $665k

Explanation: Nongovernmental not-for-profit hospitals deduct charity services, bad debt, contractual adjustments, and policy discounts from gross patient service revenues to determine net patient service revenues.

$775,000 – $25,000 – $15,000 – $70,000 = $665,000

Question 2)

Terry, an auditor, is performing test work for a private not-for-profit hospital. Listed below are components of the statement of operations:

Revenue for charity care services

$100,000

Bad debt expense

70,000

Net assets released from restrictions used for operations

50,000

Other revenue

80,000

Net patient service revenue (includes revenue related to charity care)

500,000

What amount would be reported as total revenues, gains, and other support on the statement of operations?

Answer is $530k

Charity care does not qualify for recognition as revenues in the financial statements. These are services provided without expectation of payment. The bad debt expense would not affect the patient service revenue reported by a private not-for-profit hospital. In contrast, uncollectible patient accounts would reduce patient services revenues reported by governmental hospitals.

I might be looking too deep into the details to miss something that's standing out with these questions.

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

[MaLoTu]

@Dab – is your confusion why it is deducted from the first question and not from the second? I think it has to do with the statement classification. It seems the first question is asking for the grand total while the second one is asking for a program specific subtotal.

That would definitely trip me up on the exam.

[KJ]

Isn't bad debt expense and provision for bad debt the difference between 2 questions? Bad debt expense will be on income statement but provision will be a balance sheet account. Not too sure.

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

[Zyx]

Can someone please help? I'm confused by converting accrual to cash basic and cash to accrual like these questions below. The 1st question, whatever effect of cash from AR and AP, add/subtract to the amount given resulted in net cash pretax, is it correct? The accrual amount is not affected by this?

Savor Co. had $100,000 in cash-basis pretax income for 20X2. At December 31, 20X2, accounts receivable had increased by $10,000 and accounts payable had decreased by $6,000 from their December 31, 20X1, balances. Compared to the accrual basis method of accounting, Savor's cash pretax income is:

A.higher by $4,000.

B.lower by $4,000.

C.higher by $16,000.

D.lower by $16,000.

Sanni Co. had $150,000 in cash-basis pretax income for the year. At the current year-end, accounts receivable decreased by $20,000 and accounts payable increased by $16,000 from their previous year-end balances. Compared to the accrual-basis method of accounting, Sanni's cash-basis pretax income is:

A.higher by $4,000.
B.lower by $4,000.
C.higher by $36,000.
D.lower by $36,000.

REG: 77 x2
BEC: 81 x3
FAR: 68 retake 10/1
AUD: 8/27

[MaLoTu]

I suck at these too,zyx. I got A for the first one and D for the second …

[MaLoTu]

@kanwal – I have no idea … I do see the difference in terminology, but if you are right then I am confused because we are being asked about revenues (IS item). The first one says provision and it is deducted the second one says expense and we are ignoring it.

[KJ]

I think first one says net patient service revenue and second one total revenues, gains and other support, so maybe that could be reason. Definitely tricky man.

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

[So FAR So Good]

@zyx11

Receivables increase, cash not received, so income not recorded on cash basis I/S
Receivables decrease, cash received, recorded as income on the I/S, but you would have already recorded rev. in prior year
Payables increase, cash not paid, so expenses not recorded on cash basis I/S
Payable decrease, cash was paid, so expense is recorded on I/S even though you already recorded the exp in the prior year

So for number 1 I have “D” cash basis is 16k lower (they missed the 10k in income and booked an expense for the paid amount of 6 that would have already been captured in the prior year)

And for number 2 I have “C” cash basis is 36k higher (they booked income for the 20k receivable cash which would have been income in the prior year, and they failed to book an expense for 16k when the payable increased because cash wasn't paid).

Watch me be wrong after all of that, haha 🙂

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

[MaLoTu]

@So FAR – thanks for the explanation … I was struggling too. I am still trying to wrap my brain around it!

You are for sure right about the first one because I came across it in my studies right after answering here, lol.

[JT]

Im with @so far so good

D and C looks good to me.

Also, thanks kanwal and malotu for ur response. Ill look into that.

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

[KJ]

I found really good post about doing CFS. Wish I had found it before. It works great. Instead of memorizing formula, add, subtraction, you can do it with journal entry.

@ zyx, try this

Your 1st question:

Cash 100,000 (dr)
AR Incr 10,000 (dr)
A/P decr 6,00 (dr)
Sales (accrual) 116,000 (cr) – This will be a Plug

Second question:

Cash 150,000 (dr)
AR decr 20000 (cr)
AP incr 16000 (cr)
Sales (accrual) 114,000 (cr) – Plug

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

[Author]

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