[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

[KJ]

Amar Farms produced 300,000 pounds of cotton during the Year 1 season. Amar sells all of its cotton to Brye Co., which has agreed to purchase Amar’s entire production at the prevailing market price. Recent legislation assures that the market price will not fall below $0.70 per pound during the next two years. Amar’s costs of selling and distributing the cotton are immaterial and can be reasonably estimated. Amar reports its inventory at expected exit value. During Year 1, Amar sold and delivered to Brye 200,000 pounds at the market price of $.70. Amar sold the remaining 100,000 pounds during Year 2 at the market price of $0.72. What amount of revenue should Amar recognize in Year 1?

A.
$140,000

B.
$144,000

C.
$210,000

D.
$216,000

Correct answer is C, I don't understand the explanation given. Can someone explain me why answer is C and not A?

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

[Oneday]

The question:

Forkin Manor, a nongovernmental not-for-profit, is interested in having its financial statements reformatted using terminology that is more readily associated with for-profit entities. The director believes that the term “operating profit” and the practice of segregating recurring and nonrecurring items more accurately depict the organization's activities. Under what condition will Forkin be allowed to use “operating profit” and to segregate its recurring items from its nonrecurring items in its statement of activities?

A.
The organization reports the change in unrestricted net assets for the period.

B.
A parenthetical disclosure in the notes implies that the not-for-profit organization is seeking for-profit entity status.

C.
Forkin receives special authorization from the Internal Revenue Service that this wording is appropriate.

D.
At a minimum, the organization reports the change in permanently restricted net assets for the period.

THE ANSWER: A

Explanation:

FASB ASC 958-225-45-9 allows a great deal of flexibility in presentation format for the statement of activities. Amounts required are changes in net assets for each of the three classes (unrestricted, temporarily restricted, and permanently restricted) and totals for revenues, expenses, gains, losses and the amounts of assets released from restriction (see FASB ASC 958-225-45-1 and 45-10).

I thought answer would be D since A states “unrestricted net assets” ONLY, instead of all other Temporary and Restricted… Explanation also doesn't seem to support this.. Help?

[Claudia408]

Incoming – here's the explanation: The proceeds of bonds issued with detachable warrants are allocated between the bonds and the warrants based upon their relative FMV at the time of issuance. Since the bonds had a fair value of $2,250,000 and the warrants a fair value of $305,000, the total of the fair values is $2,555,000. The bonds account for 2,250,000 / 2,555,000 or 88.0626% of the proceeds of $2,500,000 or $2,201,565 and will be recorded, at issuance, at face of $2,500,000 minus a discount of $298,435 for a net amount of $2,201,565. The warrants account for 305,000 / 2,555,000 or 11.9374% of the proceeds of $2,500,000 or $298,435. On the balance sheet date straight-line bond discount amortization of $14,922 would be recorded, for a resulting bond payable, net of unamortized discount, of $2,216,487.

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

[Spartans92]

Delete

BEC- PASS

[Incoming91]

@claudia

Thanks for sharing the explanation. Not sure if anyone answered your question but the amortization is for half the year. If you looked at it in terms of months it's 6/120 months of amortization at 12/31. If you took (6/120 * 298.434 = 14,922). It's 120 months since its a 10 year bond (10*12). Hopefully that helps. I was working the problem and couldn't seem to get the correct answer but it was from rounding and just realized my mistake……….

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

[Operation_CPA]

The first problem set in F2 is still super difficult in some areas and my exam is this Thursday. Everything else in the chapter I feel confident in (completed contract, % of completion, Impairments, R&D, non-monterey exchanges, etc).

Does anyone really master this first F2 problem set going into the exam? I don't want to spend too much time on it when I could be practicing Gov / NFP, cash flows, J/E's etc. Thoughts?

[Claudia408]

Incoming – Thanks! I was thinking about so much other stuff in that problem and the amortization was so simple!

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

[Just3Letters]

Kanwal,

Per you question yesterday. Brye Co. promised to purchase ALL of Amar's cotton at the prevailing market price during year 1. When you are certain that a sale will occur in the future, you accrue for the revenue in the current period because that is when you made the cotton. i.e. Your expenses for the cotton incurred during year 1.

In order to better match expenses against revenues while being conservative, you would accrue for the entire sale in the current period at the 0.70 because that is the lowest allowed market rate.

The year 2 increase to $0.72 is going to be a realized gain on sale.

Year 1:

Dr. Cash 140,000
Dr. Contract Receivable 70,000
Cr. Revenue 210,000

Year 2:

Dr. Cash 72,000
Cr. Gain on Market? 2,000
Cr. Contract Receivable 70,000

I believe this is correct anyways? Thanks for making me think! Love this group haha

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

[Just3Letters]

Operation,

THANK YOU so much for saying that problem set is difficult in F2!

You mean the timing issues one correct?

I was working on this (again) yesterday and I couldn't get out of the 60's! I wasn't going to bring it up because I feel like I should be able to match revenues and expenses and do cash to accrual stuff 🙁

I'm consistently in the 70's/80's for everything else! I'm sure you got the exam though! I would focus mostly on your weak areas up until the exam and maybe do an entire practice exam the day before!

You got this!

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

[Operation_CPA]

@Just3Letters

I appreciate the encouragement!! Good to know I am not the only one having some trouble with that problem set, ha!

[Spartans92]

Operations, you're not alone for sure! I am also having issues with F2 I pretty much put that part aside and focus on other areas since it probably isn't worth all that time to get stuck on some little details and neglect others. Best of Luck this week! You supplementing with Ninja?

I am starting my review today and I am still so lost on where to start.. reviewing Chapter 1 right now. I plan on just doing the optional problems as oppose to the regular homework since I have already seen those problems. This is so Stressful!

BEC- PASS

[Operation_CPA]

@Spartans92

I purchased NINJA MCQ mostly for extra Gov / NFP practice. Everything else I am sticking with Becker – simply because I am more used to it and did not want to change things up too much in my final week / few days. Doing Becker Progress tests / Becker finals for now.

That being said, everyone says Becker is much harder than the real exam. It's frustrating missing points on very specific questions so I am really hoping knowing a lot of the “big stuff” will get me a passing score! Keep the faith in your final review though, it is stressful but you'll be amazed how much comes full circle.

[Spartans92]

I agree with Becker being a little harder. But the SIMS are the ones that are unpredictable from experience with AUD. I am sure you will get that 75+. The SIMS are what freaks me out.

BEC- PASS

[Operation_CPA]

@Spartans92

I know! I am praying for a full Statement of Cash flows. Even if you slightly mess something up and have the format 100% correct you're fine. The way you have to look at SIMS is to obtain as many points as possible. So while you may not know something exactly, being able to get a few J/E's is better than nothing.

[Spartans92]

So true!

BEC- PASS

[Author]

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