[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

[Spartan15]

@Just3Letters

On the exam they will be totally independent of each other. Someone correct me if I'm wrong but I have never experienced such a situation or heard of anyone who has.

AUD - 99
BEC - 96
REG - 92
FAR -

[Operation_CPA]

@Just3Letters

I am almost positive they are independent from each other. I have never heard of a continuous problem.

[Incoming91]

I agree with Spartan15 – independent.

REG: 80
FAR: 78 (x2)
AUD: 6/10
BEC: 7/20

[Just3Letters]

Great,

thanks friends!

Ward, a consultant, keeps her accounting records on a cash basis. During year 2, Ward collected $200,000 in service fees from her clients. At December 31, Year 1, Ward had AR of $40,000. At December 31, Year 2, Ward at AR of 60,000, and unearned fees of $5000. On an accrual basis, what was ward's service revenue for year 2?

I HATE these questions. They would be so easy if I could just figure out “how to apply” the squeeze formula. I can never figure out whether to do a formula for “revenues” or “AR” or any other possibility. How do you guys think about this kind of stuff? I resorted to a T-account which gave me the incorrect answer.

I did: Start with Debit of 40,000 + 200,000 – Credit of 5000 = Debit of 60,000. The plug for that was 175,000 which is incorrect. SO FRUSTRATING. Sorry, just venting haha

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

[Spartan15]

I think you need to think more about the substance of the transaction instead of just applying it to a formula, which is what I've been trying to do.

1. So we know that A/R is related to revenue that is earned, but cash has not been collected on, right? So if A/R is increasing, that means that we have increased the amount earned for accrual purposes that haven't been recognized for cash purposes. So in this case we would add the $20,000 increase in A/R

2. The reason that Unearned Revenue is a decrease is because it is income that we have recognized for the cash basis, but will not for accrual. Anytime you are receiving cash under the cash basis, you recognize the income, regardless of it would be earned under the accrual method, which explains the ($5,000) decrease.

So by adding it up we get $200,000 + 20,000 increase in A/R – 5,000 unearned revenue = $215,000

I tried doing the T-Account method you were explaining, but couldn't get it to work. Sorry If this doesn't make sense but I thought I would just throw out how I think about it

AUD - 99
BEC - 96
REG - 92
FAR -

[Claudia408]

Does anyone know how the discount/premium was amortized? I got to the total that should be amortized but not the number of months…

On June 30, 20X14, Ariadne, Inc. issued 2,500 of its 6%, ten-year, $1,000 face value bonds with detachable stock warrants at par. Each bond carried a detachable warrant for one share of Ariadne’s common stock at a specified option price of $24 per share. Immediately after issuance, the market value of the bonds without the warrants was $2,250,000 and the market value of the warrants was $305,000. In its December 31, 20X14 balance sheet, what amount should Ariadne report as bonds payable, net of discount or premium? Assume straight-line amortization.

ANSWER:
$2,216,487

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

[KJ]

@ Just3letters…the other way I look at that question is in Statement of Cash Flow method; converting from cash basis to accrual.

Revenue – 200,000
Increase in AR = add 20,000
Decrease is revenue (unearned) = subtract 5,000
Cash effect = 200,000+20,000-5,000 = $215,000

How I remember cash flow on cash basis: Dr balance accounts are added and Cr. balance accounts are subtracted.
On the other hand if it was accrual it will be opposite (Dr balance accounts will be subtracted and Cr. balance will be added).

Hope you don't hate cash flows like I did : -)

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

[Spartans92]

On January 2, Smith purchased the net assets of Jones' Cleaning, a sole proprietorship, for $350,000, and commenced operations of Spiffy Cleaning, a sole proprietorship. The assets had a carrying amount of $375,000 and a market value of $360,000. In Spiffy's cash-basis financial statements for the year ended December 31, Spiffy reported revenues in excess of expenses of $60,000. Smith's drawings during the year were $20,000. In Spiffy's financial statements, what amount should be reported as Capital-Smith?

Answer is 390k.
Why do we use the Cost of 350k and not FMV? This is F-10 btw for partnerships.

BEC- PASS

[Spartan15]

At the end of the year, Ian Co. determined its inventory to be $258,000 on a FIFO (first in, first out) basis. The current replacement cost of this inventory was $230,000. Ian estimates that it could sell the inventory for $275,000 at a disposal cost of $14,000. If Ian's normal profit margin for its inventory was $10,000, what would be its net carrying value under U.S. GAAP?
a.
$261,000
b.
$258,000
c.
$244,000
d.
$251,000

Does anyone know why this example uses Lower of Cost or Market for FIFO. I thought with the new ASU (Which Becker said is testable in April), all methods that are not LIFO or Retail should use the Lower of Cost or NRV?

AUD - 99
BEC - 96
REG - 92
FAR -

[KJ]

@Spartans92….I think the CV and FMV is for Jones' Cleaning not Smith. Smith's basis will be his contribution which is the $350K.

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

[Spartans92]

Thanks Kanwal… Def. need to reread every Q. Eyes are so darn tired from reading already and am behind schedule

BEC- PASS

[Claudia408]

Just scored my very first ever 75% on MCQs not seen… and it was on Deferred Taxes! lol. There's hope!

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

[sagittarian]

I'm not clear about when foreign exchange gains/losses are shown in income statement and when it's shown in other comprehensive income. Could someone please explain?

Thanks!

[Just3Letters]

Sagittarian,,

The difference here is translation adjustments versus re-measurements.

Translations adjustments are “Normal” which hit the I/S which is “Normal” for Gains or Losses

-Translation adjustments occur when the foreign currency is the local currency.

Re-measurements are “weird” or “abnormal” and Hit AOCI first which is “Abnormal” for Gains or Losses

-Re-measurements occur when the foreign currency is not that of the local currency.

That's how I remember it anyways

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

[Incoming91]

@ Claudia408

You posted a question about bond amortization straight line method. Do you have the explanation to the answer you provided? Could you please provide if you do?

REG: 80
FAR: 78 (x2)
AUD: 6/10
BEC: 7/20

[Author]

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