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September 14, 2016 at 8:42 pm #836137
jeff
KeymasterWelcome 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).
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October 12, 2016 at 2:26 pm #1263142
jonm857
ParticipantSo 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 5thOctober 12, 2016 at 2:40 pm #1263151GeauxAwayCPA
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 🙂
October 12, 2016 at 2:43 pm #1263157jonm857
Participant@geaux
Makes sense to me. Thanks
B - 81
A - 87
R - 73
F - July 5thOctober 12, 2016 at 3:29 pm #1263183jpowell31
Participantfinally 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.
October 12, 2016 at 4:01 pm #1263192jonm857
Participant@jp
No napping allowed. This isnt REG.
B - 81
A - 87
R - 73
F - July 5thOctober 12, 2016 at 5:34 pm #1263247onthewaytocpaMom
Participant@jonm857
U or I stands for unusual or infrequentOctober 12, 2016 at 5:36 pm #1263252jonm857
Participant@ontheway
Thanks!!!
B - 81
A - 87
R - 73
F - July 5thOctober 12, 2016 at 5:43 pm #1263256jonm857
ParticipantWhy do you not record the liability for the bank overdraft here?? Is it because an overdraft is not considered AP?
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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 5thOctober 12, 2016 at 8:29 pm #1263379onthewaytocpaMom
ParticipantFor 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 72,500October 12, 2016 at 8:42 pm #1263387emichelle2321
ParticipantI have the EXACT same question on capitalized interest! Thought I was losing my mind. Please let me know if you can clearly explain this.
October 13, 2016 at 1:33 am #1263508ramaa17
ParticipantThis 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. $140,000Now, 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 625,000Capitalized Interest Expense:
Construction loan $500,000 × 12% = 60,000
Excess Expenditures $125,000 × 10% = 12,500
Total Capitalized interest = 72,500Does 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)
October 13, 2016 at 2:37 am #1263516RoadWarrior
ParticipantThis 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 WAAEThe 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 = 67.5KYes/no?
B - 85 (Aug '15)
A - ?? (Jan '16)
R - ?? (Oct '15)
F - ?? (If it fits I sits)Roger + Ninja MCQ
October 13, 2016 at 3:57 am #1263520letsrun4it
ParticipantIs 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?October 13, 2016 at 10:49 am #1263612thekyang
Participant@RoadWarrior This is how I approach that question too!
October 13, 2016 at 10:55 am #1263619 -
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