[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

[MaLoTu]

@Spartans, I thought Stock Dividend also, but as I recall that requires only a memo entry?

[Just3Letters]

Thanks MaLoTu,

Just FYI, the AIPCA mini-practice test (if any of you did it) had 4 super easy sims and 5 super easy mcq. There was 1 sims about the new essay review or whatever it is called so I skipped it.

From the sounds of it, Sims are getting harder though

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

[Just3Letters]

MaLoTu,

Stock Split is the one which only requires a memo entry

Stock dividend is moving from R/E to Contributed Capital at FMV

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

[MaLoTu]

ok, stock split, memo entry — stock dividend is an RE adj

I am pretty certain I wrote the wrong thing in my notes =(

[MaLoTu]

Is a stock dividend a memo entry for the recipient? I think that is where I got mixed up.

[MaLoTu]

What is the JE for excess FV under the equity method?

I didn't count the amortization of the excess of FV against the income and got the question wrong … I had a feeling that I had to do depreciation because it gave me the useful life, but yeah …

Here is the problem if anyone is interested:

Puff Co. acquired 40% of Straw, Inc.'s voting common stock on January 2, Year 1 for $400,000. The carrying amount of Straw's net assets at the purchase date totaled $900,000. Fair values equaled carrying amounts for all items except equipment, for which fair values exceeded carrying amounts by $100,000. The equipment has a five-year life. During Year 1, Straw reported net income of $150,000. What amount of income from this investment should Puff report in its Year 1 income statement?
a. $40,000
b. $56,000
c. $60,000
d. $52,000

[ImCPA]

Folks- Can anyone help me understand how to determine if a transaction is a Cash Flow Hedge or a Fair value Hedge?

What differentiate one from another?

FAR - 85 (5/10/2016)
AUD - 89 (7/12/2016)
BEC - 9/07/2016
REG - TBD

[Just3Letters]

MaLoTu,

I'm not sure of the J/E you are talking about but excess fair values add to the carrying value (and thus, depreciation) of assets.

Therefore, if you own 40%:

Net Income attributable to you : 150,000 * .4 = 60,000

Excess Depreciation with 5 year life : 100,000 / 5 = 20,000

Income 60,000
-Expense 20,000
= Net Income from Investment 40,000

I may be wrong but I think I'm right. is A the correct answer?

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

[Just3Letters]

ImCPA,

Cash Flow hedges are usually just trading currency in the future. For example, I bought something today but will pay for it on November 1. I don't want to pay any more than the exchange rate today, so I hedge the transaction. Going forward, there will be no gain or loss in total. The hedge itself will just increase or decrease in value.

Cash Flow hedges are typically OCI items.

Fair Value hedges are usually for assets other than currency. I don't want some asset to lose significant value so I hedge the item to maintain the current fair value. Therefore, if fair value decreases in the future when I want to sell the asset, I get to sell it at a higher price than the market rate on date of sale. Also, you can lose if the market rate goes up of course.

Fair Value hedges are typically I/S items.

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

[MaLoTu]

@just3 – it was 52k … you didn't take 40% of the depreciation, you did 100%. 100000/5*.4=8k — 60k-8k=52k

I understand what they did, but I am just wondering what the JE is for accounting for the premium? I know all the other JE for Equity except this one. With all these methods it is essential to know the JE, makes solving so much easier.

[lolo]

@MaLoTu, what do you mean by JE? and Btw that's right its 52K

My Nick name is sunshine, but the fact is I have not been in touch with it since I started this CPA exam! IT HURTS

AUD - ✔ Passed Becker self study!
BEC - ✔ Passed Becker self study!
FAR - ✔ Passed Becker self study!
REG - TBD

[MaLoTu]

journal entry

[Just3Letters]

Ohhhh that's tricky! I hate when I forget little aspects of problems like that 🙁

Hmm… by premium do you mean the asset revaluation? I think the J/E just simply looks like this because you include the new value because of the “Implied value” of Investment 400,000/0.4=1,000,000

Dr. Investment in Straw 400,000
Cr. Cash 400,000

But I'm thinking if you include the revaluation in the equipment seperately it might look like this:

Dr. Investment in Straw 360,000
Dr. Investment – PPE Revaluation 40,000
Cr. Cash 400,000

Either way the investment account has to be 400,000.

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

[lolo]

It is: this has to occur 5 times!

Dr:income 8000
Cr:investment 8000

My Nick name is sunshine, but the fact is I have not been in touch with it since I started this CPA exam! IT HURTS

AUD - ✔ Passed Becker self study!
BEC - ✔ Passed Becker self study!
FAR - ✔ Passed Becker self study!
REG - TBD

[Just3Letters]

OK now we are debiting income. I am so out before I get confused lol

Have fun people!

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

[Author]

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