FAR Study Group Q2 2016 - Page 155

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  • #765981
    Anonymous
    Inactive

    Claudia408,

    I got a 73, and I felt good during the test and though I had it too. Score told me I was weak in Ind tax and prop trx.

    Oh well, how depressing just thinking of re-studying and taking it again.

    My dilema is that I made the mistake of registering for both Bec and Aug expiring by early Sept, so now do I hit REG after I take FAR or study BEC or AUD before the Sept expiring.

    #765982
    Oneday
    Participant

    Please see the answer explanation, as Im confused why the explanation would ADD amortization back into the discounted amount to find Carrying amount. Such as 850,000 + 25,000 = 875,000. I thought it would be subtraction, not addition.

    On January 2, 20X1, Nast Co. issued 8% bonds with a face amount of $1,000,000 that mature on January 2, 20X7. The bonds were issued to yield 12%, resulting in a discount of $150,000. Nast incorrectly used the straight-line method instead of the effective interest method to amortize the discount. How is the carrying amount of the bonds affected by the error?

    A.
    December 31, 20X1: Overstated; January 2, 20X7: Understated

    B. correct**
    December 31, 20X1: Overstated; January 2, 20X7: No effect

    C.
    December 31, 20X1: Understated; January 2, 20X7: Overstated

    D.
    December 31, 20X1: Understated; January 2, 20X7: No effect

    Explanation
    When the bond’s yield requires a discount, the bond’s interest expense is based (early on) on a lower principal, and thus the expense applying straight-line would be higher (it is an average expense for the term). The discount amortization would be too high for the first year (overstating bond carrying value), but under both methods at the end of the term, the carrying amounts will be the bond face amount.

    Carrying amount on 1/2/X1 = $1,000,000 – $150,000 = $850,000

    Amortization of discount:

    Using straight-line = $150,000 / 6 yrs
    = $25,000 / yr.
    Using effective interest = (0.12 x $850,000) – (.08 x $1,000,000)
    = $22,000

    Carrying amount on 12/31/X1:

    Using straight-line = $850,000 + $25,000
    = $875,000
    Using effective interest = $850,000 + $22,000
    = $872,000

    Overstatement of carrying
    value when using straight-line = $875,000 – $872,000
    = $3,000

    Over the 6-year life of the bonds, the same total discount amortization will occur under each method. The bond carrying amount on January 2, 20X7, will be the maturity value regardless of the amortization method.

    Thus, on December 31, 20X1, the bond carrying value will be overstated if straight-line amortization of discount is used but on January 2, 20X7, there will be no effect from its use.

    #765983
    Anonymous
    Inactive

    ThisIsTheYear,

    I hope this help.

    Any time a bond is sold at a discount, it will be less than par and will mature over time to be PAR, right?

    Ex. Sold at 90 and will be maturing to 100 in couple years.

    So, 90 will always be adding the amortized discount annually to the carrying amount till maturity
    Yr 1. 90 + 1 = 91, Yr 10 = 99 + 1 = 100 when it matures.

    Therefore, Discount or Premium will always = PAR at maturity date.

    The question in this problem is finding which amortization method and how it affect current year.

    #765984
    Oneday
    Participant

    DLu.. Facepalm… I forgot that. Thank you.

    #765985
    Zyx
    Participant

    Have you guys look up the document review, the new test starting in 3rd window? My CPA review course said it will be added in AUD, FAR and REG. Is it for real? It's kinda freaking me out.

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

    #765986
    Anonymous
    Inactive

    Need some advice please!

    Is 6-5 weeks enough time to study for FAR?

    #765987
    Zyx
    Participant

    I think if you study full time, it's enought.

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

    #765988
    Anonymous
    Inactive

    Thanks @zyx11. I currently work so I'm only able to devote 2-3 hours a day M-Th and then more on the weekends. I want to make sure I am giving myself ample time. I'm taking AUD again (hopefully 7/25) and would then plan to take FAR on 8/1. Just wondering if I should push FAR into the next window or leave it as is.

    #765989
    Zyx
    Participant

    I work full time and have study schedule pretty much like you. I pull 2-3 hrs Mon-Fri, 6-8 hrs on Sat and 4-5 hrs on Sun. I am a slow reader, so I probably take longer time than average people. I'm taking 12 weeks to study and I feel it's too long. 10 weeks is enough for me. So 5-6 weeks will be real tough for me but everyone studies differently. FAR has so much details, you might need to reconsider. However, I have seen some people passed it with 5-6 weeks study and I have no idea how they did that.

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

    #765990
    KJ
    Participant

    What effect would the sale of a company's trading securities at their carrying amounts for cash have on each of the following ratios?

    A.
    An increase in both current ratio and quick ratio

    B.
    An increase in current ratio and no effect on quick ratio

    C.
    No effect on current ratio and an increase in quick ratio

    D.
    No effect on current ratio or quick ratio

    The answer is D.

    I want to know if I am thinking this right. The reason it will not have affect on either ratio is because T/S will be reported at FV on Balance Sheet and the question is asking that sale is at carrying amount for cash.

    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

    #765991
    Zyx
    Participant

    I think it's because TS just changes to cash which decreases in TS and increases in cash at carrying amount, the same amount and both are current asset. The increase amount in cash and decrease amount in TS offset each other. So it does not affect the ratios. I have seen this question but I'm not so sure if my answer is correct.

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

    #765992
    KJ
    Participant

    Thanks zyx11.

    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

    #765993
    Jess774
    Participant

    @KING What study material are you using? I'm using Becker for FAR. Becker FAR is made up of 10 sections. If you studied for 6 weeks, that would mean 2 sections per week with one week for review which would be tough (I think). FAR is a beast. I would suggest 8 weeks, but it takes me a while to retain things.

    REG - 75
    BEC - 70, 64, 81!!!!
    FAR - 67, 69, retake: Oct 2016
    AUD - 8/25/16

    #765994
    lolo
    Member

    Guys are lower cost or market for lifo and retail and lower cost or NRV for inventory if its not lifo or retail GAAP new rules effective rules for testing now???

    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

    #765995
    lolo
    Member

    ??

    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

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