[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]

I LOL reading Just3 comment.. I have never wanted a C so bad in my LIFE! DANG AICPA give me the C!!

BEC- PASS

[Just3Letters]

Kanwal,

I believe the answer is $175,000.

The compensation expense is the FV on the date of issuance (not on the vesting date or any other date)

You amortize the expense over the vesting period which is 4 years.

So, the 1/1/Year 1 issue= $20 * 10,000= 200,000
The 1/2/Year 2 issue= $25*20,000= 500,000

Amortization for Compensation Expense would be 50,000 in Year 1, 175,000 for years 2, 3, and 4 and then 125,000 for Year 5.

Definitely Tricky!

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

[Spartans92]

Kanwal, is it D… I know its probably wrong. LOL

Great explanation just3! Still little lost.. you just took 200k/4 =50k then add on to (500k/4) = 50+125=175? What is the reason for 125 at year 5?

BEC- PASS

[Just3Letters]

haha yeah I didn't explain very well…

the question is all about getting the years organized

Year 1 = 50,000 from the Year 1 Issue
Year 2 = 50,000 from the year 1 issue + 125,000 from the year 2 issue
Year 3 = 50,000 from the year 1 issue + 125,000 from the year 2 issue
Year 4 = 50,000 from the year 1 issue + 125,000 from the year 2 issue
*At this point 4 years have gone by and the year 1 issue is completely amortized and gone but you still have 1 more year from the year 2 issue*
Year 5 = 125,000 from the year 2 issue

Does that help?

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

[Spartans92]

YES! thanks that makes more sense and putting it that way makes the problem less confusing/intimidating
I thought they all vested in year 4 but it should have been treated separately.

BEC- PASS

[KJ]

Compensation must be vested evenly for all the years, in nutshell!

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

[JT]

@Just3Letters and SONA – *Sigh*, these dang things look so easy after you have the answer. I hate this exam! Thank you both!!! 😀

[Paras316]

How's depreciation on a special equipment a sunk cost? question is asking if product A should be dropped and there is a fixed cost (depreciation on a special equipment) associated with it. I assumed since product will be dropped, depreciation will go away. I guess I assumed product will be sold and therefore accumulated depreciation account will be debited/closed. Please advise. Thanks!

[Spartans92]

For the week ended June 30, Free Co. paid gross wages of $20,000, from which federal income taxes of $2,500 and FICA were withheld. All wages paid were subject to FICA tax rates of 7% each for employer and employee. Free makes all payroll-related disbursements from a special payroll checking account. What amount should Free have deposited in the payroll checking account to cover net payroll and related payroll taxes for the week ended June 30?

How do I ensure not to make the mistake of adding 2500 on 20,000. I got thrown off by the wording and added the 2500. Maybe I am overthinking but I can't seem to understand the 2500 is already included in the gross..

BEC- PASS

[Just3Letters]

Paras, I don't understand your question? Can you directly copy the question over for us?

Spartans, I think in these types of questions we have to pay special attention to whether it says “gross” or “net”wages. I think gross wages INCLUDES federal income taxes and FICA. Whereas, “net” wages only include the wages paid without any consideration of taxes.

I may or may not be correct. If I'm correct, I believe that the “net” wages should be 14,700 and gross wages of 20,000 should be included in the restricted checking account.

Anybody have other opinions?

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

[Spartans92]

its actually 21,400. They took 20,000 *.07 =1400 + gross(20,000). I get that part but I was more confused on whether or not to include the 2500. But since in the facts it stated which federal income taxes were withheld. I guess I can assume that is already included in gross. Thanks though. I know on exam day I still have a 50/50 shot if I can narrow to two answers. Just hope for the best.

BEC- PASS

[Just3Letters]

Shouldn't it be 1400*2 because each employee and employer have a 7% tax ??

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

[KJ]

2500 is included in the 20,000. Think of as if you earned 20k and out of that you pay 2500 (federal tax) – 1400 (7% FICA) = $16,100

Company has to deposit 16,100+2500+2800 = 21,400

dr. Wages Expense ………………………$21,400
cr. FICA taxes payable…………………………….2,800
cr. Income taxes withheld payable…………….2,500
cr. Net wages payable……………………………16,100

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

[Just3Letters]

Kanwal,

the J/E helps a bunch!

Thanks!

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

[Spartans92]

Wow Kanwal, that just made it a lot easier. Didnt thought of it that way especially with the JE.

BEC- PASS

[Author]

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