[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

[lolo]

@MaLoTu, lol yea it is somehow tricky! we don't recognize revenue for an expense we always do the opposite! for example we match the expense of accountant salary with the period the sales revenue occurred but we don't match the accountant salary expense with sales revenue occurred which is something like independent and dependent variables, sales revenue is independent and the expense is dependent not visa versa!

My Nick name is sunshine, but the fact is I have not been in touch with it since I started this CPA exam! IT HURTS

AUD - ✔ Passed Becker self study!
BEC - ✔ Passed Becker self study!
FAR - ✔ Passed Becker self study!
REG - TBD

[MaLoTu]

I thought that if you had a capital lease and it fell under the transfers ownership or bargain purchase that you were suppose to depreciate over the lease term … am I backwards? Is it 90% present value or 75% of economic life that is the lease term?

A lease is classified as a capital lease because it contains a bargain purchase option. Over what period of time should the lessee amortize the leased property?

A.
The term of the lease

B.
The economic life of the asset

C.
The lease term or the economic life of the asset, whichever is shorter

D.
The economic life of the asset, not to exceed 40 years

[Zyx]

Is it A?
I thought so, depreciate it over the lease term but if the lease is expected to transfer the ownership it depreciates over the economic term. Is it correct?

This question below; why not consider unsold merchandise?

The following information pertains to shipments of merchandise from Home Office to Branch during 20X1:

Home Office's cost of merchandise $160,000
Intracompany billing 200,000
Sales by Branch 250,000
Unsold merchandise at Branch on December 31, 20X1 20,000
In the combined income statement of Home Office and Branch for the year ended December 31, 20X1, what amount of the above transactions should be included in sales?

A.$250,000

B.$230,000

C.$200,000

D.$180,000

Answer is A.

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

[KJ]

Its lease term in capital lease with BPO/transfer of ownership. For Operating lease its lesser of lease term or life.

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]

That is what I thought … but the answer to the one above was b economic life … any thoughts to why? The explanation didn't make too much sense.

It was a NINJA question and now I cant go back

[KJ]

75% test = Lease term > 75% of useful life (BPO/transfer of ownership). So I guess the answer will be B MaLoTu.

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]

zyx11, I think because unsold merchandise will be part of ending inventory and is still in possession of Branch so will not be included in the sales. I am not 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

[MaLoTu]

When I am finished with the set I am working on I will post the explanation. I just don't recall that from Becker. I am really off-put by this because this is an area of leases I actually felt comfortable with ….

[MaLoTu]

That lease depreciation question was NINJA 1437 … here is the explanation: With a capital lease, the lessee records the asset at the lower of the present value of minimum lease payments or fair value of the asset. The asset is then amortized or depreciated over the life of the asset.

This is claiming that if it is a capital lease then it is over the useful life, but I am pretty sure there are a subset of classifying rules. Argh.

[KJ]

Here is the explanation I got:

1] If the lease transfers ownership or contains a BPO, the asset will be amortized
over its estimated useful life (since the asset actually becomes the property of the lessee at the
end of the lease term and will be used for the remainder of its useful life).

2] If the 75% of useful life or the 90% test is met, the leased asset is amortized
over the lease term only (since the property will revert to the lessor at the end of the lease term
and will be used for the remainder of its useful life).

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]

So, MaLoTu, B is correct, it will be amortized over the useful life of the asset. Term is only if it meets 75% and 90% test which in this case you cannot calculate because it is not given.

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]

ok, so I had them backwards …. I vaguely remember someone (I think it was my instructor) saying that if there is a bargain purchase you are more than likely going to take it (IRL these are sometimes like $1) and transfers ownership is pretty obvious.

Thanks, Kanwal.

[MaLoTu]

Why does an increase in uncollectible accounts increase operating CF? I understand that liabilities have a direct relationship and so by that memorization I should have know to add it to the NI if the allowance account increased, but I cannot conceptualize the reason in my mind.

[KJ]

I guess when company creates an uncollectible account in their ledger, its the money they set aside for bad receivables so it does not impact cash because company already has cash that was set aside for uncollectible. Hence, add to the net income.

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]

^yes, that has to be it … thank you. I couldn't get that piece. It is money that is being held, so it is not an outflow.

[Author]

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