[jeff]

SO I know every test is different but does anyone have any insight on what has been heavily tested recently? I take the exam Monday and I need to narrow my focus….Thanks!

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

[Anonymous]

What is the JE for paying bonuses to top level executives?

DR Bonus Exp

CR Cash

?

[zkaraca2012]

@CPAHOPEFUL11:

Bonus to be paid/accrual:

DR: Bonus expense

CR: Accrued bonus payable (liability)

Bonus payment:

DR: Bonus payable

CR: Cash

AUD 78 Lost Credit, retake after FAR rematch
BEC 83 (Expires 2015-02-28)
FAR 71 Failed (2014-09-09), retake in Q4'14
REG 80 (Expires 2015-11-30)

[Rain_Maker112]

Hi all,

I know this problem has been discussed several times. But I still can't wrap my head around the answer.

---

AmeriGene Inc. reported net periodic pension cost of $400,000 in the current year, calculated as follows:

Service cost $ 300,000

+ Interest cost 175,000

+ Expected return on plan assets (100,000)

+ Amortization of prior service cost 40,000

+ Amortization of net gain (15,000)

= Net periodic pension cost $ 400,000 –TOTAL

AmeriGene has an overfunded pension plan. The company's effective tax rate is 30%. How will the amortization of the net gain affect the current year balance sheet under U.S. GAAP?

The correct answer is as follows: $15,000 decrease in accumulated other comprehensive income.

Explanation (given in problem once answered):

Choice “b” is correct. U.S. GAAP requires that net gains and losses be reported as a component of accumulated other comprehensive income until recognized in net periodic pension cost through amortization. The current year amortization of the net gain would be recorded as a reclassification adjustment from accumulated other comprehensive income with the following journal entry:

Debit (Dr) – Other comprehensive income $ 15,000

Credit (Cr) – Net periodic pension cost $ 15,000

Debit (Dr) – Deferred tax expense – net income 4,500

Credit (Cr) – Deferred tax expense – OCI 4,500

---

I already figured that Amortization of Pension Gains would reduce AOCI. However, wouldn't the amortized gain go into the P&L and flow into Retained Earnings and eventually find its way back to Shareholders' Equity section in the B/S as a credited amount, thus balancing the B/S? I thought that would mean there's no net effect on the B/S?

FAR 98 - 10/20/14
AUD 95 -2/23/15
REG 90 - November 15
BEC 93 - February 16

[zkaraca2012]

@RZHANG13, unfortunately this is one of the questions where I memorized the answer and if I see something similar, I will know that I should scope the previous period's cost out and consider the remainder as a deferred outflow. I also did some search on the internet for a better answer, but didn't come across one.

AUD 78 Lost Credit, retake after FAR rematch
BEC 83 (Expires 2015-02-28)
FAR 71 Failed (2014-09-09), retake in Q4'14
REG 80 (Expires 2015-11-30)

[Rain_Maker112]

@RZHANG13

---

The employer net pension liability for the Golf City Fire Department increased by $200,000 from Year 1 to Year 2 as a result of a change in the formula used to compute benefits for retiring firemen. The change includes $150,000 of cost attributable to prior service. As a result of this change, Golf City will display the following on their Year 2 government-wide financial statements:

a.Deferred outflows of resources of $50,000

b.Pension Expense of $200,000

c.Deferred outflows of resources of $150,000

d.Deferred inflows of resources of $50,000

Answer is A, but I chose C. Deferred outflow of resources of 150,000 because 150,000 attributes to prior service cost. And 50,000 should be expensed because that is for the current period. So could someone tell me why i was wrong? THANKS!

---

According to GASB 68, changes in pension liability can only be recorded as Deferred Inflows/Outflows when they are”

1. Changes in actuarial assumptions

2. Differences between actual and expected return

3. Some (the UNEARNED portion of) prior service cost. PSC earned by employees is expensed.

Total pension liability change due to changes in formula/actuarial assumptions = $200k

Prior service cost = $150 –> “attributable to prior service” means that the PSC was “earned”.

—> The deferred outflow = $200 – $150 = $50.

This one is really tricky because it's only mentioned once in Becker!

FAR 98 - 10/20/14
AUD 95 -2/23/15
REG 90 - November 15
BEC 93 - February 16

[RZHANG13]

@Rain_Maker112, This might sound silly, but i REALLY don't understand why $150 –> “attributable to prior service” means that the PSC was “earned”. Do you mind explaining it to me more specific? I'm sorry but gov acct really make me freak out and thank you so much!

[Anonymous]

[Rain_Maker112]

@@RZHANG13

So I dug up some old posts in the forum. And below is the response from Becker support. From what they said, it means that there could be “prior service costs” that haven't been “earned” by employees yet. What I can think of is – it probably has something to do with the accumulation/vesting period for postretirement benefits after amendment of a retirement plan:

---

The passage at the bottom of page F8-34 states that “some prior service costs are accounted for as deferred outflows and deferred inflows”

The key word there is “some”

The GASB accounting for pensions looks like IFRS. Prior service costs are expensed to the extent that they have already been earned by the employee. Prior service costs are only deferred to the extent that they have yet to be earned. So US GAAP for commercial accounting is the last place where prior service costs are uniformly deferred.

In your question, we have a plan amendment resulting in a $200,000 change to the liability. That plan amendment is a classic prior service cost transaction. Under US GAAP we would defer the whole thing.

But this is governmental accounting and the question goes on to say that that $150,000 of that $200,000 increase relates to prior service. Not prior service costs, prior service. What the question is stating is that $150,000 of that $200,000 has already been earned by employees with their prior service. So we will expense the $150,000 and defer the remaining $50,000.

That point is not crystal clear in the outline, so we try and make the point in the explanation to the question. The discussion of the notes to the pension financial statements beginning on page F8-74 touches on this issue, but does not specifically state what I have described above.

FAR 98 - 10/20/14
AUD 95 -2/23/15
REG 90 - November 15
BEC 93 - February 16

[Rain_Maker112]

@caakankshajain

The reconciliation of Financial Income and Taxable Income should be rewritten like this:

Financial Income: $250

Permanent Difference: -$25

---

Financial Income – Taxable: $225

Temp Difference -$75 –> Deferred Tax Liability = $75*40%= $30

Taxable Income: $150 –> Current Tax Expense = $150*30%=$45

JE:

Dr Tax Expense $75

Cr DTL $30

Cr Tax Payable $45

FAR 98 - 10/20/14
AUD 95 -2/23/15
REG 90 - November 15
BEC 93 - February 16

[Anonymous]

@Rain_Maker: Thanks for the help.. I got my mistake..

[Anonymous]

how much time should i study for far? Im thinking to take the exam on november 19 or something but i don't know if it is enough …

[moreinfo2013]

@cpatobepr

The general rule is study enough, but do not study too long. It always depends on how much time you plan to study per day/week (especially if you work full time) as well as how much knowledge you already have. You do not want to study too long either because you start forgetting the material. I think they say…around 120-200 hours for FAR…but there are individuals who take longer and individuals who take less. Happy studying!

[Anonymous]

I have read some people study for 300 hours for FAR — I think I will come in around 180. When I read 300 I was thinking I didn't study enough……….

[golfball7773]

^ I am shooting for 100 on my retake….

FAR: 63, 55, 62
REG: 65, 77*
AUD: Fail, 64, 71
BEC: 72, 74, 81

*expired

[23K]

This will be my 3rd time taking FAR.

Just going to cram out MC's

AUD--52,68,83, expired. Retake = 74 RETAKE - 7.24.26
FAR--73,70,68,75
BEC-- 79
REG-- 68,62,75

[Author]

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