[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

[mckan514w]

@ emichelle2321 –I have this from my notes- mostly taken from Roger's review- hope it helps! I hate leases– actually I hate FAR 🙂

GAAP
Lessee reports as capital lease if there is:
• Transfer of Title
• Bargain Purchase Option
• 75% of useful life of asset
• 90% payments / 90% of the FMV of the property at inception

If none of these conditions are met then it is classified as an operating lease

Lessee recognizes initial direct costs as expenses when incurred

Lessor:
If BOTH collectability of lease payments are assured AND there are no significant uncertainties than lessor records as either:
• Sales Type Lease- seller usually a manufacturer or dear of assets and uses lease as way of selling asset on installment basis
• Direct Financing- Lessor finances the acquisition

If conditions are not met recognized as operating

If the fair value of the land at inception represent 25% or more of the total fair value, the lessee must consider components separately when evaluating the lease

IFRS
Lessee reports as a FINANCE lease if risk and rewards of ownership transferred

Otherwise Operating Lease
Lessee capitalizes initial direct cost for a finance lease
Lessor reports as finance lease if risk and rewards of ownership transferred

If risk and reward not transferred then operating
When land and buildings are leased elements of the lease are considered separately when evaluating the lease unless the amount for the land is immaterial

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

[mckan514w]

LOL claudia- perfect timing for some great Halloween Mojo!!! Hope its a treat and not a trick like my last BEC!!!

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

[accountingisfun]

@emichelle2321 –

https://postimg.org/image/pp6ju4j7l/

The above link is a screenshot of a decision tree I set up for leases – I admittedly need to clean it up a bit but maybe it'll help.

I also have the file in Excel if anyone wants it.

[mckan514w]

ooh that is AWESOME @accountingisforfun!!! Thanks so much 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

[FabCPA]

Hi could someone explain why the interest is being expensed over 12 months, when the loan terms for the second and third loan are 6 & 9 months?

Troop Co. frequently borrows from the bank to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity. Troop repaid each loan on its scheduled maturity date.
Date of Loan…….Amount…..Maturity Date…..Term of Loan
11/1/Year 1 …….$10,000….10/31/ Year 2…..1 year
2/1/ Year 2 ……. 30,000…. 7/31/ Year 2…..6 months
5/1/ Year 2 ……. 16,000…. 1/31/ Year 3…..9 months

Troop records interest expense when the loans are repaid. Accordingly, interest expense of $3,000 was recorded in Year 2. If no correction is made, by what amount would Year 2 interest expense be understated?

ANSWER:
Actual interest expense:
Date…………………Amount……..Rate ……. Time
11/1/ Year 1 Loan…$10,000…x….12% …x…10/12 mos = $1,000
2/1/ Year 2 Loan…. 30,000…x….12% …x… 6/12 mos = 1,800
5/1/ Year 2 Loan…. 16,000…x….12% …x… 8/12 mos = 1,280
…………………………………………………4,080
Stated interest expense on the cash basis…………….3,000
Understated interest expense……………………….$1,080

[GiniC]

@FabCPA

You might be misreading the 12% as 12 months? I do that when I'm tired…

Each of the loans shows the correct number of months just before the = sign – 10/12 for Year 1 loan, 6/12 for Year 2 loan, 8/12 for Year 3 loan.

This is the stuff that scares me the most on exam day – when I KNOW the material, will I blow it for missing details??

Gini

[mckan514w]

FabCPA- I thought that when you dealt with stated interest it was assumed to be annualized unless stated differently. Thus even though loans 2 and 3 were 6 and 9 month loans the interest is still stated at 12%… thus at maturity they will pay 12%*(6/12) and 12%*(9/12)… not the full 12%

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

[FabCPA]

What's throwing me off is specifically the Yr2 loan for $30,000 – the loan period is 2/1/Y2 – 7/31/Y2 (6 months), so since the full loan term was within Yr2, why isn't the full interest expense ($30,000×12%=3,600) expensed in year 2? I may be overthinking things……. 🙁

[FabCPA]

@mckan514w OMG you're right ughhh I keep mixing things up … need to go back and make sure I understand this before the exam :'( thanks so much!

[FabCPA]

@GiniC – I'm with you, every time I work the questions and I miss something I knew I'm like D'OH!!! 🙁

[Double-entry Deviant]

Hi all – I just took AUD (3rd time – hope I passed!) and I'm starting to study for FAR – my last one (fingers crossed), which is scheduled 11/29. I lose credit for REG if I don't pass – which I don't want to happen! Feeling nervous and want to get this done!

I've taken FAR before and I've never passed. Anyone have any helpful hints – so scared at the volume of info on this exam.

REG: 5/30/15 - 77
FAR: TBD
BEC: 8/31/15 - 70, 73, 1/8/16 - 77
AUD: 6/1/16- 73, 8/2/16

[GiniC]

@didato – I'm taking FAR the 26th – for the first time – and AUD two weeks later on Dec. 10. I'm just numbly stuffing information into my head and hoping enough sticks!

[Pokey]

Need help on explaining why the 2nd Year uses $300 for actual cost instead of $200.. thank you

Question: 23 A construction company reports the following:

Construction costs YR1 $100 YR2 $200
Estcost to complete YR1 300 YR2 0
The contract price is $1,000. Under IFRS, what is the profit recognized in Year 2?
C. $550
Answer (C) is correct.
At the end of Year 1, total cost was expected to be $400 ($100 incurred + $300 estimated cost to complete), and estimated total profit was $600 ($1,000 price – $400 estimated total cost). Hence, the amount of profit recognized in Year 1 was $150 [$600 × ($100 cost incurred ÷ $400 estimated total cost)]. The project was completed in Year 2 at an additional cost of $200. Actual profit was therefore $700 ($1,000 – $300 actual total cost). Profit recognized in Year 2 is $550 ($700 total – $150 recognized in Year 1).

AUD - 74 (3x), TBD
BEC - Sept16
FAR - TBD
REG - TBD

[GiniC]

@Pokey – Apparently the Construction Costs row provides the costs IN EACH YEAR, not the cumulative costs incurred to date. That should have been made clear somehow in the question. You might want to send this question to the test bank administrators in case they are willing to clarify/correct it for future candidates.

[sweazy]

For non-profit accounting, when an endowment fund (perm restricted) states that investment returns can be used for [insert] activity, does that get categorized as “released from restriction” when those returns get used like temp-restricted funds would be?

BEC: 77
AUD: 67, 85, 87
FAR: 74, 74, 79
REG: ___

[Author]

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