FAR Study Group Q2 2016 - Page 31

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  • April 12, 2016 at 8:29 pm #764121
    Spartans92
    Participant

    To add on to Just3, AR and AP changes go the same direction due to the matching principle. All the Q's if add one the other is also an add. Think about the Accrual method in general I think it is crucial to understand that then things will click rather than memorizing a way. Recognized revenue when earned and match expense with it. But that is a great example ^^

    BEC- PASS

    April 12, 2016 at 8:36 pm #764122
    mckan514w
    Participant

    I swear Bonds are going to be the death of me- I am totally getting myself confused on “issued with accrued interest”- I get that you added it in to the cash payment but when does it come out? does that make sense? I feel so lost….

    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

    April 12, 2016 at 8:42 pm #764123
    Spartans92
    Participant

    McKan, do you have a particular problem you can post? I feel lost on my review too! LOL and I have an exam coming up next tuesday for my class WTF.

    BEC- PASS

    April 12, 2016 at 9:02 pm #764124
    mckan514w
    Participant

    @Spartan seriously right there with you– My final is Monday…

    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

    April 12, 2016 at 9:04 pm #764125
    mckan514w
    Participant

    Can't find the exact problem but the explanation was “If an investor buys a bond for a discount between interest dates the investor will pay more for already accrued interest which will be paid out later. The carry value will be less than the total the investor pays to acquire both the discount and the interest”

    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

    April 12, 2016 at 9:18 pm #764126
    Just3Letters
    Participant

    McKan… accrued intest is paid on the interest payment date

    So if the interest dates are 1/1 and 7/1 and you acquired the bond on 4/1, you have 1/1-4/1 accrued interest when you purchase the bond.

    Carrying Value= PV of Principal + PV of Interest Payment Annuity + 1/1-4/1 accrued interest

    Therefore, you will have a higher interest expense on the interst payment date

    Date Coupon PMT Int Exp Amort CV
    7/1 10,000 8,000 2,000 Prev. CV +- 2000

    On the amortization table above, I just created random values. But, the Int. Exp. will be higher with accrued interest because the int. exp is yield/market rate * Carrying value. Per the formula above, the carrying value is higher because of this accrued interest. Therefore, the int exp. will be higher. This is how the accrued interest “comes out”. Through a higher interest expense.

    That was probably very confusing. My mind works in weird ways. Hope that helps a little!

    P.S. I just edited this

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

    April 12, 2016 at 9:25 pm #764127
    mckan514w
    Participant

    Nope not confusing totally helps 3letters- thanks! just not thinking it all the way through…

    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

    April 12, 2016 at 9:35 pm #764128
    Just3Letters
    Participant

    Glad to Help!

    During Year 1, Brad Co. Issued 5,000 shares of $100 Par convertible preferred stock for $110 per share. One PS share can be converted into 3 shares of Brad's $25 par common stock. On December 31, when the market value of common stock was $40 per share, all of the PS was converted. What amount should Brad credit to C/S and C/S-APIC as a result of this transaction?

    Answer: C/S: 375,000 C/S APIC: 175,000

    I must have missed some rule in the lecture because APIC must be a “plug” in order to get the correct answer.

    I did the J/E as follows:

    dr. PS 500,000
    dr. APIC-PS 50,000
    Cr. C/S 375,000
    Cr. APIC 225,000 (Because of the market value of the common stock, I guess you just ignore the market value?)

    Can anybody better explain the C/S APIC amount in this question? Thanks!

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

    April 12, 2016 at 9:47 pm #764129
    mckan514w
    Participant

    Your looking right at it 3letters
    When the investor converts the stock to common from preferred they no longer own the preferred so you need to reverse the entries which will end up giving you an APIC of 225 (common) -(50) pref or APIC of 175

    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

    April 12, 2016 at 9:57 pm #764130
    Just3Letters
    Participant

    Oh, I get it. You subtract the PS-APIC from the CS-APIC to get a net amount.

    Are C/S-APIC and P/S-APIC always netted like that? I thought they were reported seperately

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

    April 12, 2016 at 10:15 pm #764131
    marqzho
    Participant

    I know something's off here

    Your J/E doesn't balance.

    dr. PS 500,000
    dr. APIC-PS 50,000
    Cr. C/S 375,000
    Cr. APIC 225,000

    Yes, Mkt value is ignored and correct JE should be:

    dr. PS 500,000
    dr. APIC-PS 50,000
    Cr. C/S 375,000
    Cr. APIC 175,000 (PLUG)

    REG 90
    FAR 95
    AUD 98
    BEC 84

    April 12, 2016 at 10:20 pm #764132
    Claudia408
    Participant

    can someone please clear up when to depreciate an asset over useful life or lease term? getting confused…

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

    April 12, 2016 at 10:27 pm #764133
    mckan514w
    Participant

    The shorter off useful life or lease…. Claudia- so if landscaping has a useful life of 8 years but the lease is for 10 you depreciate 8… if the machine you bough is 20 though you depreciate that one 10…

    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

    April 12, 2016 at 10:28 pm #764134
    marqzho
    Participant

    TT BPO <- useful life
    75 90 <-lease term

    Think about this, I lease you a car under 75 / 90 terms. At the end of the lease, you need to return the car to me. To you, it doesn't matter my car has 100 year of useful life. Only the lease term matters to you 🙂

    REG 90
    FAR 95
    AUD 98
    BEC 84

    April 12, 2016 at 10:30 pm #764135
    Just3Letters
    Participant

    Thanks Marqzho! I figured that had to be it!

    Claudia, as Gearty loves to say… for LEASES you take the LESSOR of useful life or lease term

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

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