[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

[Spartans92]

@just is that a SIM question?

BEC- PASS

[Just3Letters]

hey Kanwal, thanks for helping!

I was using the effective interest method. I guess I still don't fully understand when you would choose to use the 8% vs. 12% rates. Normally I would do:

1. Stated rate * Face Value = Payment
2. Market yield * CV = Interest expense
1-2= Amortization of disc/prem

That doesn't apply in this situation…

Spartans, it's actually a MCQ from Wiley Test Bank. Just really long one haha

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[Spartans92]

Thanks! Kanwal can you kinda explain when to use the single sum? I guess WTB is much harder than Becker. have not seen anything like that before.

BEC- PASS

[Claudia408]

I am having serious problems differentiating between investing and financing activities for Stmt of Cash Flows. I have a list of examples for both but I'm not getting it! Am I making it harder than it is?? Can someone please provide the basics of what I should be thinking about to differentiate?

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Just3Letters]

Claudia,

Investing activities are usually captial asset related

Purchase 100,000 bldg = (100,000)
Sell 50,000 tractor = +50,000
Purchase of painting for HQ = (5000)
Net cash from investing activites = (55000)

Financing activities are exactly that. Financing stuff.

Sell 100,000 Bond at 102 = +102000
Purchase Treasury Stock (buy back stock) (750000)
Sell 10000 C/S at par = +10000
Stock dividend (Trick, no effect)
Net cash from financing = (638000)

I just picked random numbers. One theory question you should know is that negative investing activities is not necessarily a bad thing. That typically means you are investing in your company through purchasing assets, etc. Postivin investing CAN actually be interpreted poorly. You have to be careful to look at what's happening. Why is Claudia selling off all her assets? Oh, her operating cash flow is bad. No offense 🙂

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[Claudia408]

For this cash flow question… it's asking for operating activities so I'm only looking at depreciation, AR & AP, but you actually need to subtract gain on AFS from net income… but isn't gain on AFS an investing activity? What am I missing?

Liberty Corporation had net income of $120,000 during the year. Depreciation expense was $6,000. The following information is available:

Held- to-Maturity Bonds purchased
25,000 increase
Common Stock issued
70,000 increase
Accounts Receivable
10,000 decrease
Accounts Payable
15,000 increase
Gain on sale of AFS Investment
5,000 increase

What amount should Liberty report as net cash provided by operating activities in its statement of cash flows for the year?

Answer: 146,000

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Spartans92]

To go off Just3letters financing is mainly issuing stocks or bonds, dividends etc. But when it comes to government accounting the cash flow is different than commercial accounting. Investing income generally is an operating activity but under government (and IFRS) is investing I believe and interest expense is also NOT operating but Financing.

BEC- PASS

[Just3Letters]

Claudia, I like the way this states the treatment of gains/losses in SCF:

“The amount that exceeds the asset's net value gets subtracted out in the operating section because that section will have already reflected the gain in net income from the income statement.”

I just randomly found that through the Googs but it's very true

Net income is the first line in operating activities and gains/losses are already in net income. But gains/losses are not cash so we have to reverse them. Add back losses and subtract gains. This is the same kind of thing as depreciation. It's already been expenses in I/S so we have to add it back to take it out.

I don't know if my rambling is making sense. It's dark outside. Sorry haha

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[Spartans92]

Got this from Googling lol
“because any gain or loss on the sale of an asset is also included in the company's net income which is reported in the first section—operating activities. To avoid double counting, each gain is deducted from net income and each loss is added to net income in the operating activities section of the cash flow statement.”

One way to make things easier we back out the good stuff and add back in the BAD stuff. I know that is a dumb way of learning 🙂

BEC- PASS

[mckan514w]

I'm with Just3Letters- Kanwal can you explain why you use the single sum PV in the Bond sim? I used the one for ordinary annuity because the pmts were/are due at the end of the term… and am confused on this…. thanks!!!

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[mckan514w]

okay can someone help me understand this one- I literally did an “enney-meeney” because I thought both A and C were the correct answers – the explanation leaves me even more confused….

Which of the following assets or transactions is an element of comprehensive income?

A. Investments by owners
B. Sales revenue
C. Distributions to owners
D. Deferred revenue

Correct Answer A

Comprehensive income is the change in equity of a business during the period from transactions and other events and circumstances from nonowner sources (i.e., all changes except those resulting from investments by and distributions to owners). 

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[Claudia408]

Just3/Spartans – Thanks guys, makes more sense now. I'm confusing gains with proceeds. You guys seem to be ready!

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Just3Letters]

Claudia,

I am SO not ready yet but I am going to work my butt off until I am. I refuse to take this test twice. But thanks for the vote of confidence 🙂

mckan514w,

I have no idea how that question makes sense. OCI=PUFER

P=Pension adjustments
U= Unrealized gais and losses on AFS
F= Foreign Currency Items
E= Effective portion cash flow hedges
R= Revaluation surplus (only IFRS)

Net Income + PUFER = Comprehensive Income

I Believe the correct answer would have to be “B” because sales revenue is obviously part of Net Income.

Investments/Distributions are the main talking point when you say “What is NOT part of OCI”

Deferred revenue is a liability and is not part of income yet

Anybody want to help here? Maybe the question is wrong (I love saying that haha)

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[Spartans92]

I thought it said OCI… just realized they are two separate statements. Ill take back my explanation.

And Claudia, I am shaking here because I can't even answer some of the Q's others post. Good Luck to All! I'll post more Q's as well when come review phase!

Y'all got me all confused now too HAHA. Waiting for someone to explain. 🙂

BEC- PASS

[Just3Letters]

The FASB's technical definition of comprehensive income is “the change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.”

Hmmm now we have me second guessing my understanding of OCI THANKS A LOT HAHA

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[Author]

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