[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

[mckan514w]

Never mind my brain just woke up and figured it out myself 🙂 sorry for posting…

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

[Just3Letters]

Yeah Mckan,

A good way to think about these non-monetary exchanges (which I hate) is:

If the exchange HAS commercial substance: you record the new asset for the total FV of what you gave up including any boot

So, in this case,

Dr. New Asset 22,000
Cr. Old Asset 20,000
Cr. Cash 1,000
Cr. Gain 1,000

If the exchange DOES NOT have commercial substance OR if the exchange is to facilitate sales to customers: you have to record new asset for BV of asset given up

Dr. New Asset 21,000
Cr. Old Machine 20,000
Cr. Cash 1,000

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

[Spartans92]

Sucks to have Final Exams and the CPA exam coincide in the same week!

BEC- PASS

[Spartans92]

It can get so much more complicated too by including IFRS LOL

BEC- PASS

[ncjm304]

Can somebody possibly help me out? I am a little confused.

I am using Roger and am a bit confused on how to treat the sale of a Trading Security compared to how to treat a sale of an Available for Sale security. From my understanding, both the trading securities and AFS securities are recorded at FMV, with the key difference being that unrealized gains and losses on the trading securities go to the income statement, but the unrealized gains and losses for AFS hit OCI and then accumulated OCI on the statement of Stockholders Equity. Roger says that for a sale of an AFS security, it is cost in, cost out. So your journal entry for a sale of an AFS security would be to debit cash, credit investment for the original cost of the purchase, and the plug is the gain or loss.

I ran across a question on trading securities where the credit to the investment for a sale was for the amount of the FMV of the trading security. This makes more sense to me. My question is, why is the trading security sale treated this way (the credit to the investment is at FMV), while the credit to the investment account for a sale of an AFS security is for the original cost of purchase when both the Trading Securities and AFS are carried at FMV?

AUD- 71,79
BEC- 72,77
FAR- 83
REG- 63,71,83

DONE!

[mckan514w]

Just finished full length practice exam– UGH dismal– but 6 for 7 on the sims- now I'm wondering if I made a huge mistake trying to push everything through prior to 2017… clearly I'm much better at “doing” than actually answering multiple choice… GRRRRRRRRRRRRRRRRR……

Hang in there Spartan… and good luck today.

Michael in practice a trading security is rarely held long enough to even adjust the value to market like we have to do for CPA exam… they are usually held short-term (year or less) and thus when they are sold they are immediately realizeand recognized…. AFS can be held indefinitely so they have to be marked up / down to market but since you are not really realizing anything it goes to OCI — and then when you sell it you will recognize the gain / loss in the income statement and do an adjusting entry to OCI to back out the prior years unrealized recognition…

Hope this makes sense…

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

[marqzho]

Trading Security is easy and I think you understand most of it. You record “gain/loss” every period end.

For AFS, you don't record “Gain/Loss” every period. You don't have any gain/loss until you sell it.
Let say you brought AFS for $100 buck
1st year end, it skyrock to $1000. you don't record gain. you record a Unrealized gain in OCI.
2nd year end, it skyrock to $10000. you don't record gain. you record a Unrealized gain in OCI.

How much should the AFS be reported as of 2nd year end? It reported as FMV = $10,000. But have you recorded any gain? NO

Let say you sell the AFS at the end of 2nd year. This time you have a “real” gain. you will do the following entry
Dr. OCI 9900
Dr. Cash 10,000
Cr. AFS 10,000
Cr. Gain 9900

(edited. what am i thinking LOL)

Does that make sense?

REG 90
FAR 95
AUD 98
BEC 84

[Claudia408]

marqzho – for AFS you would be recording the unrealized G/L in OCI at the end of every period, correct? Then you would reverse that entry when you sell and record a gain on I/S?

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

[marqzho]

Correct and correct 🙂

REG 90
FAR 95
AUD 98
BEC 84

[Claudia408]

is this question misleading or is it just me? i answered $45000 (10000075000=25000+90000-70000), but the answer is $20,000 (difference between 25000 and 90000-70000=20000)

Payne, Inc. implemented a defined-benefit pension plan for its employees on January 2, 20X3. The following data are provided for 20X3, as of December 31, 20X3:

Projected benefit obligation $103,000
Plan assets at fair value 78,000
Net periodic pension cost 90,000
Employer's contribution 70,000

What amount should Payne record as additional minimum pension liability at December 31, 20X3?

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

[Claudia408]

how do you know when you have noncurrent or current deferred tax asset/liability?

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

[Claudia408]

This is why I hate this exam… wtf is $10,000 contingent consideration? What am I supposed to do with it!? I got 80,000 but the answer is 70,000 bc I didn't know what to do with the $10,000!!!

Damon Co. purchased 100% of the outstanding common stock of Smith Co. in an acquisition by issuing 20,000 shares of its $1 par common stock that had a fair value of $10 per share and providing contingent consideration that had a fair value of $10,000 on the acquisition date. Damon also incurred $15,000 in direct acquisition costs. On the acquisition date, Smith had assets with a book value of $200,000, a fair value of $350,000, and related liabilities with a book and fair value of $70,000. What amount of gain should Damon report related to this transaction?

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

[Just3Letters]

Claudia,

Don't hate the exam. Learn to Love it! Just kidding… it's stupid.

Anyways, a contingent consideration is some kind of payment (monetary or non-monetary) that you will pay the other party in the transaction IF a certain event occurs.

Contingent considerations are recorded at FV at date of transaction as a liability. There is no associated expense because the event has not occured yet. Therefore…

Dr. Investment 280,000
Cr. C/S 20,000
Cr. APIC 180,000
Cr. Contingent Consideration Liability 10,000
Cr. Gain 70,000

Contingent considerations are a great example of that conservatism idea we learned our sophomore years of college.

If there is a potential bad thing in the future and you can estimate the cost, record the cost as a contingent liability. In this case, potentially giving up more assets in the future is a bad thing for us.

In the other hand, if we were RECEIVING contingent consideration, I don't believe we would accrue for any receivable or other asset until we were assured that the asset would be transferred to us.

P.S. 5 years of accounting and I still never spell “receiving” correctly the first time

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

[Claudia408]

Just3 – thanks! you know I graduated college in 2001! I'm trying to learn how to learn and learn this CPA stuff at the same time.

Any help with the noncurrent/current deferred tax asset/liability?

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

[Just3Letters]

Learning how to learn is the toughest part of learning!

We'll all get through this together!

First off,

under GAAP:

ALL deferred tax assets are Long-term Assets.

deferred tax liabilities can be either current or non-current.

Deferred taxes are the result of temporary differences. These are differences that will reverse in the future.

An example of something that is NOT temporary, but rather a permenant difference:

Premiums on Key life Insurance Officers are never reversed…

Fines imposed by the government are never reversed…

These items are completely ignored when determining deferred taxes.

One common example for temporary differences is:

Depreciation is higher/lower for tax purposes than financial reporting

If depreciation is greater for tax purposes in the current year, you will have a deferred tax liability
If depreciation is less for tax purposes in the current year, you will have a deferred tax asset

Always think of deferred taxes as to when the deduction will occur…

If you have a higher financial depreciation in 2016 than tax depreciation,

that temporary depreciation difference may reverse in 2017 and result in lower taxable income because of the extra depreciation that you DID NOT use for tax purposes in 2016…

Therefore, because in that example the deduction occurs in the future, there is a deferred tax asset…

I'm just kind of rambling….sorry if this confuses you more. Any specific questions?

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

[Author]

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