FAR Study Group Q4 2016 - Page 9

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    Topic
  • #836137
    jeff
    Keymaster

    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

Viewing 15 replies - 121 through 135 (of 799 total)
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  • #1263142
    jonm857
    Participant

    So GAAP does not allow the restoration of previously recognized impairment losses. However, in the formula on pg. 56, Ch. 4, if an asset is held for disposal, then underneath it says “restoration is permitted”. Am I missing something? Haven't done a lot of MCQs on this section yet

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

    #1263151
    GeauxAwayCPA
    Participant

    @jonm857, I don't use Becker so I can't help you with your first question.

    Re: impairment losses and recovery, the way I look at the exception for assets held for sale/disposal is that if I am disposing it or selling it and the fair market is higher than the previous loss, I will have recovered the previous loss.

    For instance, if I write down an asset from 100 to 50 due to impairment, it's on the books at 50. Then I decide to sell it and the market value is 150. So now the asset is a “held for sale” asset instead of a “held for use” asset, and I “made up” or recovered the loss I had previously recorded through an arms-length transaction, right? I think the only reason assets held for use are not allowed to be recovered is because there is no transaction that would solidify that recovery. The recovery is “on paper” if that makes sense; hope that helps? I feel like I'm bad at explaining things, so I'm sorry if that confused you even more 🙂

    #1263157
    jonm857
    Participant

    @geaux

    Makes sense to me. Thanks

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

    #1263183
    jpowell31
    Participant

    finally got my ninja 10 point today so i'm ready to get started after work. how i'm going to pull off sitting on Nov 22 is beyond me though…just downloading and flipping through the chapters…. i already want a nap.

    #1263192
    jonm857
    Participant

    @jp

    No napping allowed. This isnt REG.

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

    #1263247
    onthewaytocpaMom
    Participant

    @jonm857
    U or I stands for unusual or infrequent

    #1263252
    jonm857
    Participant

    @ontheway

    Thanks!!!

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

    #1263256
    jonm857
    Participant

    Why do you not record the liability for the bank overdraft here?? Is it because an overdraft is not considered AP?


    Black Corp.'s accounts payable at December 31 Year 1, totaled $900,000 before any necessary year-end adjustments relating to the following transactions:

    •On December 27, Year 1, Black wrote and recorded checks to creditors totaling $400,000 causing an overdraft of $100,000 in Black's bank account at December 31, Year 1. The checks were mailed out on January 10, Year 2.

    •On December 28, Year 1, Black purchased and received goods for $153,061, terms 2/10, n/30. Black records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, Year 2.

    •Goods shipped F.O.B. destination on December 20, Year 1 from a vendor to Black were received January 2, Year 2. The invoice cost was $65,000.

    At December 31, Year 1, what amount should Black report as total accounts payable?

    a. $1,153,061

    b. $1,053,061

    c. $1,515,000

    d. $1,450,000

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

    #1263379
    onthewaytocpaMom
    Participant

    For capitalization of interest, can anyone clarify if when we calculate the weighted average of accumulated construction expenditures – the period that we use to determine the average is the remaining amount of months left (of construction). I'm using Becker and in one of their questions they seem to be using the remaining months in the year from when expenditures began to calculate the average, and that makes sense to me, but in the one listed below it seems they are only using 4 months until the new expenditure is added, so now I”m really confused!!! and I do get that the capitalization is only thru the duration of the construction.
    At the beginning of the year, Cann Co. started construction on a new $2 million addition to its plant. Total
    construction expenditures made during the year were $200,000 on January 2, $600,000 on May 1, and $300,000 on
    December 1. On January 2, the company borrowed $500,000 for the construction at 12%. The only other
    outstanding debt the company had was a 10% interest rate, longterm
    mortgage of $800,000, which had been
    outstanding the entire year. What amount of interest should Cann capitalize as part of the cost of the plant addition?
    a. $60,000
    b. $72,500
    c. $132,000
    d. $140,000Choice “b” is correct. Construction period interest is capitalized based on the weighted average of accumulated
    construction expenditures. The interest rate paid on borrowings specifically for asset construction is used first to
    determine the amount of interest cost capitalized. If the average accumulated expenditures outstanding exceed the
    amount of the specific new borrowing, interest on the excess is computed based on the interest rate for other
    borrowings of the company.
    Average expenditures:
    $200,000 4/12 (Jan−Apr) 66,667
    $800,000 7/12 (May−Nov) 466,667
    $1,100,000 1/12 (Dec) 91,666
    Average Expenditures 625,000
    Capitalized Interest Expense:
    Construction loan $500,000 × 12% 60,000
    Excess Expenditures $125,000 × 10% 12,500
    Capitalized interest 72,500

    #1263387
    emichelle2321
    Participant

    I have the EXACT same question on capitalized interest! Thought I was losing my mind. Please let me know if you can clearly explain this.

    #1263508
    ramaa17
    Participant

    Hey @onthewaytocpamom

    This would only make sense in the terms of calculations if they are looking the the expense from “cumulative” standpoint.

    For Interest – if the total amount of expense > then the construction loan, the excess amount is charged at the other rate mentioned i.e. interest on the excess is computed based on the interest rate for other
    borrowings of the company. Okay, lets break the question down.

    At the beginning of the year, Cann Co. started construction on a new $2 million addition to its plant. Total
    construction expenditures made during the year were $200,000 on January 2, $600,000 on May 1, and $300,000 on December 1. On January 2, the company borrowed $500,000 for the construction at 12%. The only other outstanding debt the company had was a 10% interest rate, longterm mortgage of $800,000, which had been
    outstanding the entire year. What amount of interest should Cann capitalize as part of the cost of the plant addition?
    a. $60,000
    b. $72,500
    c. $132,000
    d. $140,000

    Now, let us look at the expense incurred during the year:
    As of Jan – Borrowing – $200000 (expense should be calculated from jan to april, since we have a new value in may – hence 4/12)
    As of May – Additional – $600000 (total = $200000+ $600000 = $800000)(expense should be calculated from May to November, since we have a new value in December – hence 7/12)
    As of December – Additional – $300000 (total = $800000 + $300000 = $1100000)(expense should be calculated just for December, since we have a new value in December – hence 1/12)

    Average expenditures (capitalized interest costs for a particular period are determined by applying an interest rate to the average amount of accumulated expenditures for the qualifying asset during this period – known as unavoidable interest:
    $200,000 4/12 (Jan−Apr) 66,667
    $800,000 7/12 (May−Nov) 466,667
    $1,100,000 1/12 (Dec) 91,666
    Average Expenditures 625,000

    Capitalized Interest Expense:

    Construction loan $500,000 × 12% = 60,000
    Excess Expenditures $125,000 × 10% = 12,500
    Total Capitalized interest = 72,500

    Does that make sense ? It is a little confusing, we need to understand the concept of Actual interest cost and avoidable interest cost (pg F4-41 in Becker)

    #1263516
    RoadWarrior
    Participant

    This is different from how I learned it.. or is it a coincidence that this works as well? If any of the below is wrong, would someone please correct?

    Expense x Mts outstanding / 12
    200K x 12/12 = 200K
    600K x 8/12 = 400K
    300K x 1/12 = 25K
    Total: 625K WAAE

    The rule is you can capitalize WAAE up to the total amount of interest incurred on actual borrowings for the year, as a ceiling
    Actual borrowing interest = 500K x 12% + 800K x 10%
    = 140K (will circle back to this figure)

    500K was for construction related borrowing, so the first 500K of the 625K is capitalized at that given rate (12%). The remainder of the WAAE (625 – 500 = 125K) is capitalized at the borrowing rate of the other, non-construction related borrowing (10%). If there was more than one borrowing of that type, a weighted average would be calculated for it and applied to the 125K.

    500K x 12% + 125K x 10% = 72,500

    The remaining balance of annual interest is then expensed:
    140K – 72.5K = 67.5K

    Yes/no?

    B - 85 (Aug '15)
    A - ?? (Jan '16)
    R - ?? (Oct '15)
    F - ?? (If it fits I sits)

    Roger + Ninja MCQ

    #1263520
    letsrun4it
    Participant

    Is there any benefit to doing a practice exam on Ninja rather than just doing MCQ sets and Sims 1-5 at a time?

    BEC: 85
    REG: 74, 78
    AUD: 86
    FAR: October?

    #1263612
    thekyang
    Participant

    @RoadWarrior This is how I approach that question too!

    #1263619
    ramaa17
    Participant

    Looks like your way is much easier ! What I wrote was the becker way.

Viewing 15 replies - 121 through 135 (of 799 total)
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