[jeff]

Welcome to the Q4 2016 CPA Exam Study Group for FAR.

If this is your first post in the study group – please post your target exam date (just the time frame to preserve your anonymity), and your past history with this exam (optional, of course).

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

[Operation_CPA]

Functional expenses recorded in the general ledger of ABC, a non-governmental not-for-profit organization, are as follows:

Soliciting prospective members………….$45,000
Printing membership benefits brochures……30,000
Soliciting membership dues………………25,000
Maintaining donor list………………….10,000

What amount should ABC report as fund-raising expenses?

Answer is 10,000. Can someone explain why soliciting prospective members is not fund-raising? Possibly even give me an explanation of why some of the others are not included? Thanks.

[GeauxAwayCPA]

@Operation_CPA my understanding is that when memberships provide “significant” benefits, it is not fundraising. In this particular question the line item that refers to membership “benefits” is what is supposed to tip us off. Maintaining donor list is the only item that has nothing to do with members so that's why it is the only one included. Hope that helps!

[rebeccamaria]

Here is the question. I hope I am putting it in the right place. On January 1, 20X1, Owen Corp. purchased all of Sharp Corp.'s common stock for $1,200,000. On that date, the fair values of Sharp's assets and liabilities equaled their carrying amounts of $1,320,000 and $320,000, respectively. During 20X1, Sharp paid cash dividends of $20,000.

Selected information from the separate balance sheets and income statements of Owen and Sharp as of December 31, 20X1, and for the year then ended follows:

Owen Sharp
BALANCE SHEET ACCOUNTS
Investment in subsidiary $1,300,000 —
Retained earnings 1,240,000 560,000
Total stockholders' equity 2,620,000 1,120,000

INCOME STATEMENT ACCOUNTS
Operating income 420,000 200,000
Equity in earnings of Sharp 120,000 —
Net income 400,000 140,000
In Owen's December 31, 20X1, consolidated balance sheet, what amount should be reported as total retained earnings?

A.
$1,240,000

B.
$1,360,000

C.
$1,380,000

Incorrect D.
$1,800,000

The correct answer is A. What about the net income from both the parent and the sub? Shouldn't that eventually make its way to retained earnings, on the end of the year financial statements?

[onthewaytocpaMom]

@ramaa17; @roadwarrior, thanks for the explanations. I went back to look at notes from college and the way I had learned it then was the method @roadwarrior explained and that makes sense to me, to be honest I'm still confused by Becker's explanation in this example. I would take the first expenditure of $200,000 and capitalized that over the rest of the year, I really don't see why you would only capitalize that amount until April and then add on the May additional expenditure and capitalize that over the remaining months of the year.

[Josh]

on my way to AUD. I'll see you there, those of you who are studying AUD next while I wait for FAR results.

[Claudia408]

can someone please explain the reasoning why i add back the error for depreciation in this question?

Pear Co.'s income statement for the year ended December 31, 20X1, as prepared by Pear's controller, reported income before taxes of $125,000. The auditor questioned the following amounts that had been included in income before taxes:

Equity in earnings of Cinn Co. $40,000
Dividends received from Cinn 8,000
Adjustments to profits of prior years
for arithmetical errors in depreciation (35,000)
Pear owns 40% of Cinn's common stock. Pear's December 31, 20X1, income statement should report income before taxes of what amount?

Answer: 125,000+35,000-8000=152,000

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

[Need a 75!!]

Because it is a correction of an error (Retroactive adjustment)
– In this case a mathematical error
Financial statements for each period presented will reflect the correction of the effects of the error on the period's Financial Statement.

It is different than change in accounting principle and a change in estimate, such as change in the method for depreciating or amortizing an asset. When a change in accounting principle is inseparable from a change in accounting estimate, it accounted prospectively (No prior adjustment)

Hope this helps!

[Anonymous]

Becker question- question 33 and 34 in section F3- acquisition method. It is essentially the same question but in question 34 it does include the income as part of the total retained earnings calculation.

Could someone please explain why the income was not includded in #34?

[mperez102204]

When reviewing this question, I became a bit confused. Why are we taking the whole expense for the Sub that is 80%? Since it was an inter-company sale, shouldn't we remove that expenses based on the percentage owned and leave the expenses for the external sales? Or am I thinking to far into the question?

During 20X1, Pard Corp. sold goods to its 80%-owned subsidiary, Seed Corp. At December 31, 20X1, one-half of these goods were included in Seed's ending inventory. Reported 20X1 selling expenses were $1,100,000 and $400,000 for Pard and Seed, respectively. Pard's selling expenses included $50,000 in freight-out costs for goods sold to Seed. What amount of selling expenses should be reported in Pard's 20X1 consolidated income statement?

A.
$1,500,000

Incorrect B.
$1,480,000

C.
$1,475,000

D.
$1,450,000

You answered B. The correct answer is D.

Since freight-out costs are paid by the seller (Pard), they are not included in the value of inventory by the buyer (Seed). Also, since they were paid on an intercompany sale, these costs should be eliminated from Pard's consolidated income statement. Thus, consolidated selling expenses for 20X1 are:

Pard total – intercompany + Seed's total
($1,100,000 – $50,000) + $400,000
$1,050,000 + $400,000 = $1,450,000

[EfrainV24]

Hello all –

First time taking any CPA exam, finding it pretty difficult to find study time while working on our 10Q and having a family (wife and 1 year old daughter) at home. I've been sacrificing my weekday mornings and weekends getting up at 430AM to study so I don't miss too much time with them. I'm very reluctant to join online forums but I read through all the posts here and it seems very informative. I'm using Becker, taking FAR, and my exam date is 11/26.

Good luck to all!!

[Stilgoin]

@efrainv24 These forums are a great resource. I would suggest reading your notes into a voice memo on your phone and listening to them on your commute if you have one. FAR is a BEAST! Believe me- I have too much experience. Lol
Good luck on your journey. Just remember everyone’s path is different and stick with it. 😉

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[jonm857]

I want to make sure I'm understanding the 2nd JE in the book for “free rent” in a lease. This entry has to be made for every month after month 6? So it looks like every month the debit to rent payable of $100 is going to offset the credit to match the expense of $900.

B - 81
A - 87
R - 73
F - July 5th

[Andria – Another71]

New post from Stacey, studing for FAR: https://www.another71.com/four-weeks-left-far-sinking-finally/

HiYa!

[forevercpa]

Good evening everyone!

This is my first time here! I am taking my first exam, FAR, next week and am now wrapping up the review course.
I hope someone can help with this question:

The following expenses were among those incurred by Sayre Company during 20X5:

Accounting and legal fees $160,000
Interest $60,000
Loss on sale of office equipment $25,000
Rent for office space $200,000

One-quarter of the rented premises is occupied by the sales-department. How much of the expenses listed above should be included in Sayre's general and administrative expenses for 20X5?

A. $310,000
B. $335,000
C. $360,000
D. $370,000

The correct answer is D. Of the four types of expenses listed, only the loss on the sale of office equipment would not be considered as a “general or administrative” expense. In addition, since one-quarter of the rented premises is occupied by the sales department, we would allocate one-quarter of the rental charge (or $50,000) to the sales department and not include this amount in general and administrative expenses. we have as follows:
Accounting and legal fees $160,000
Interest $60,000
Rent for office space: 3/4 × $200,000 $150,000
Total general and administrative expenses $370,000

My understanding was that interest was reported separately from general and administrative expenses, but I must have missed something here. Any help will be much appreciated.

Thanks!

[mckan514w]

Popping in to say Hi… just took a horrible BEC retake and then a nice mini vacation- will be starting up for my FAR retake this week… hopefully it goes better than last time!

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

[Author]

Replies