[jeff]

Welcome to the Q3 2016 CPA Exam Study Group for FAR.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

AUD - 79
BEC - 80
FAR - 76
REG - 92

Jeff Elliott, CPA (KS)
NINJA CPA | NINJA CMA | NINJA CPE | Another71

[Claudia408]

hi all.

does anyone have a good tool/formula/methodology on intercompany transaction eliminations? i am stumped every time i see a question like this. i kinda don't know where to start.

During 20X3, Park Corp. recorded $500,000 in sales of inventory to Small Co., its wholly owned subsidiary, on the same terms as sales made to third parties. At December 31, 20X3, Small held one-fifth of these goods in its inventory. The following information pertains to Park and Small's sales for 20X3.

Park Small
Sales $2,000,000 $1,400,000
Cost of sales $800,000 $700,000
$1,200,000 $700,000

In its 20X3 consolidated income statement, what amount should Park report as cost of sales?

BEC 65, 71, 75
AUD 62, 70, 78
REG 67, 66, 65, 66, 64
FAR 68, 64, 73

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

[Bnots]

@Claudia408

I have a lot of trouble on this topic too.

I start by asking what the transaction — in this case the sale of the goods to customers — should look like from the outside.

Dr. Cash/AR 400,000
Cr. Sales 400,000

Dr. Cost of sales XXX,XXX
Cr. Inventory XXX,XXX

Where XXX,XXX should be the cost of the goods in question when held in Park's inventory, and not the $400,000 recorded by Small.

When solving for missing information in intra-company sales of inventory, using gross profit ratio often seems to be the trick.

In this case Park's gross profit ratio is $1,200,000 / $2,000,000 = 0.60.

From a cost of sales perspective, the cost of inventory sold is 40 percent of Park's sales.

Park sold goods to Small for $500,000, but the cost of sales information for that transaction isn't given. So instead we approximate it as 0.40 * $500,000 = $200,000.

We know from the problem that Small sold four-fifths of these goods, since one fifth is remaining. That allows us to determine what the cost of sales related to these goods should be: $200,000 * (4/5) = $160,000.

So, concerning the goods in question, Park and Small recorded cost of sales of $200,000 and $400,000 respectively when combined the cost of sales should only be $160,000. This is an overstatement of $440,000.

Putting it all together:

Park's total cost of sales + Small's total cost of sales – overstatement due to intra-company sales = actual cost of sales

$800,000 + $700,000 – $440,000 = $1,060,000

[nartycart18]

Hi, can someone explain this to me?
I thought it would be A because isnt it Assets – Liability? $20,000 – $40,000 = <20,000>

Green, a calendar-year taxpayer, is preparing a personal statement of financial condition as of April 30, Year 2. Green's Year 1 income tax liability was paid in full on April 15, Year 2. Green's tax on income earned between January and April Year 2 is estimated at $20,000. In addition, $40,000 is estimated for income tax on the differences between the estimated current values and current amounts of Green's assets and liabilities and their tax bases at April 30, Year 2. No withholdings or payments have been made towards the Year 2 income tax liability. In Green's April 30, Year 2, statement of financial condition, what amount should be reported, between liabilities and net worth, as estimated income taxes?
a.$20,000
b.$40,000
c.$60,000
d.$0
Explanation
Choice “b” is correct. On a personal statement of financial condition, estimated income taxes equals the difference between fair values and tax bases of assets and liabilities.

REG 8/18 -
BEC 75
FAR
AUD

[Claudia408]

bnots – thanks for that. but wowh, that line of thinking is something that doesn't occur to me. i understand the concept of eliminations but i just can't seem to get there.

BEC 65, 71, 75
AUD 62, 70, 78
REG 67, 66, 65, 66, 64
FAR 68, 64, 73

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

[Claudia408]

for this problem, i thought to myself that if AR goes down, that means i got cash so i would ADD to cash sales. but i got it backwards. WHY?

Reid Partners, Ltd., which began operations on January 1, 20X0, has elected to use cash-basis accounting for tax purposes and accrual-basis accounting for its financial statements. Reid reported sales of $175,000 and $80,000 in its tax returns for the years ended December 31, 20X1 and 20X0, respectively. Reid reported accounts receivable of $30,000 and $50,000 in its balance sheets as of December 31, 20X1 and 20X0, respectively. What amount should Reid report as sales in its income statement for the year ended December 31, 20X1?

Answer: 155,000

BEC 65, 71, 75
AUD 62, 70, 78
REG 67, 66, 65, 66, 64
FAR 68, 64, 73

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

[livealittle]

can anyone explain the difference in c and d?

The fair value for an asset or liability is measured as:

a. The appraised value of the asset or liability.
b. The cost of the asset less any accumulated depreciation or the carrying value of the liability on the date of the sale.
c. The price that would be paid to acquire the asset or received to assume the liability in an orderly transaction between market participants.
d. The price that would be received when selling an asset or paid when transferring a liability in an orderly transaction between market participants.

BEC - 8/8/16
REG - 66, 77
AUD - 81
FAR - 9/8/16

[Bnots]

@livealittle

I think the idea is to look at it from the perspective of how you would determine the fair value of the assets and liabilities you are responsible for. Take my grandfather's 40-year-old Cessna Cardinal, a plane that is no longer made, that has logged 8200 hours in the Upper Midwest United States and has a twice-rebuilt engine. It would be impossible to find another just like it to determine its fair value from the perspective of what one could buy it for today. Instead, one asks the much simpler question, “What can I sell it for?”

More to the point, the question is testing whether you know the FASB's definition of fair value, as presented in ASC 820, which is (d).

[livealittle]

thank you for answering @Bnots – but I still don't understand.

c and d appear to be the same thing worded from either the seller or the buyer's perspective when I read them.

c . The price that would be paid to acquire the asset or received to assume the liability in an orderly transaction between market participants.

in this wording, I'm the buyer and I think – what do I have to Pay to get that asset or what will I get in order to assume responsibility for that liability?

d. The price that would be received when selling an asset or paid when transferring a liability in an orderly transaction between market participants.

in this wording, I'm the seller and I think – what money will I Receive if I sell that asset or what will I have to pay to get rid of this liability?

I don't understand the difference between the 2 wordings. Can someone explain it a different way? for me this is saying “6 of these” instead of saying “a half dozen of them”. to me, they mean the same thing. how is D more correct than C?

BEC - 8/8/16
REG - 66, 77
AUD - 81
FAR - 9/8/16

[phhamilton]

I am confused about questions that ask for “Total Consolidated Net Income” for acquisition method questions in which you have control but not total 100% ownership (a non-controlling interest portion is there as well). For example on Becker's Final Exam 1 they present a question in which a company acquired 80% control of a subsidiary at the beginning for the year. The question further provides that separate year-end condensed income statements for the parent and subsidiary show net income of $240,000 for the parent and $75,000 for the subsidiary. Finally the question asks what “total consolidated net income should be for the consolidated financial statements”? From my understanding, the consolidated statement of net income should have Total consolidated net income of $315000 (parent's share plus non-controlling interest share) with income attributable to the parent of $240000 and income attributable to the non-controlling interest of $15000. However, in answering this question, Becker says that “total consolidated net income” would be equal to $240000 (the parents share). If this is the case, then what is the income attributable to the parent and non-controlling interest? I am hoping this question is just poorly worded. Could someone please clarify the calculation of “total consolidated net income”, “net income attributable to the parent” and “net income attributable to the non-controlling interest” when you have control but the subsidiary is not 100% wholly owned?

[Stephen Calvo]

Hi All,

I am having trouble understanding this problem. Please guide me through it.

Hudson Hotel Collects 15% in city sales taxes on room rentals, in addition to a $2 per room, per night, occupancy tax. Sales taxes for each month are due at the end of the following month, and occupancy taxes are due 15 days after the end of each calendar quarter. On January 3, Year 2, Hudson paid its November, Year 1 sales taxes and its forth quarter Year 1 occupancy taxes. Additional information pertaining to Hudson's operations is:

Year 1 Room Rentals Room Nights
October $100,000 1,100
November $110,000 1,200
December $150,000 1,800

What amounts should Hudson report as sales taxes payable and occupancy taxes payable in its December 31, Year 1, balance sheet?

Sales Taxes Occupancy Taxes
(a) $39,000 $6,000
(b) $39,000 $8,200
(c) $54,000 $8,200
(d) $54,000 $6,000

Answer is C. I would like to understand how you get to these numbers. Thanks!

[iputaspellonfar]

Quick clarification on this pension expense question. The question lists two plans (plan A and plan B) and gives you the fair value of the assets and the projected benefit obligation. The question asks about what about should the company report in its balance sheet related to the plans? I know how to calculate the liability and asset part (aka whether a plan is underfunded or overfunded). My problem really lies in determining whether we net the liabilities and assets (say for example if one is an asset and one is a liability). In this question, Its listed as an asset and a liability separately and not netted. I get that. I am just wondering if there are any situations when we can net them. I think I remember reading somewhere that we can net them but I can find it in my notes. Please help if you can. Thanks!

[Jsn3004]

I'm really having problems distinguishing between operating revenues and nonoperating revenues. I understand the definitions but everytime I get a question I seem to get it wrong.

The billings for transportation services provided to other governmental units are recorded by the internal service fund as:

A.
other financing sources.

B.
nonoperating revenues.

C.
transportation appropriations.

D.
operating revenues.

The answer is D. How can one tell that would be an operating revenue. I would think it would be Nonoperating. For what should be a simple question is getting to me.

FAR: Pass
BEC: Pass

[iputaspellonfar]

The internal service provides services to other governmental entities for charges whereas the enterprise fund would provides services to the public for charges. Since the question says it's a billing for services then it's an operating charge.

[Operation_CPA]

How are you all approaching your final reviews? I am finishing up Becker this week (I sit Oct 1) and purchased Wiley Test Bank to change it up / see different questions. Any input is appreciated!

FAR - 76 (Lost credit), 76
AUD - 80
BEC - 76
REG - 75

Truly I tell you, if you have faith as small as a mustard seed, you can say to this mountain, "Move from here to there," and it will move. Nothing will be impossible for you.

[Josh]

@Operation_CPA how are things going? That's a good topic; I'd search more places in another71 than just this group, and my answer is probably off topic, but I personally have had more success sticking to one review, and I've heard others say similar things. It's hard for me to go back to what I was doing then now that I'm pretty close to your target myself. I used Ninja to supplement Gleim. Now, I'm doing the opposite. I'm 40% into adaptive learning at 40 hours and starting to lose track of where I should be. I intend to use what I have. In my opinion, you should do well either way.

AUD - 75
BEC - 78
FAR - 76
REG - 80

Josh
“Focus on the future for 50%, on the present for 40%, and on the past for 10%." - Maasaki Hatsumi

[Author]

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