[Tootsie]

So I thought it could be fun to have a game where we post FAR questions to help us study and if you know the answer, post it and ask another question. I did this for AUD and BEC as well. 🙂 I’ll go first.

True/False

Interim financial reporting is required under US GAAP and IFRS.

FAR - 76
AUD - 88!!! DONE!!!!!!!!
BEC - 76
REG - 77

never, never, never give up

[Anonymous]

$500,000 x 108% = $540,000

$540,000 x 10% = $54,000 x 6/12 = $27,000

$540,000 – $27,000 = $513,000

[Anonymous]

ABC Co. is currently using the equity method to account for its 30% investment with XYZ Co. In the acquisition last year of XYZ common stock, ABC calculated $200,000 goodwill. This goodwill is not amortized, but is tested for impairment at least annually.

True or false? And why?

[Anonymous]

ABC Co. is currently using the equity method to account for its 30% investment with XYZ Co. In the acquisition last year of XYZ common stock, ABC calculated $200,000 goodwill. This goodwill is not amortized, but is tested for impairment at least annually.

True or false? And why?

[Tootsie]

@Amor, I think that's false. The $200,000 of goodwill is not amortized and is also not tested for impairment in the equity method.

Sanni Co. had $150,000 in cash-basis pretax income for the year. At the current year end, accounts receivable decreased by $20,000 and accounts payable increased by $16,000 from their previous year-end balances. Compared to the accrual-basis method of accounting, Sanni's cash-basis pretax income is:

a. Lower by $36,000.

b. Lower by $4,000.

c. Higher by $36,000.

d. Higher by $4,000.

I am struggling with these types of questions… Cash basis vs. accrual basis. Can someone please provide any tips?

FAR - 76
AUD - 88!!! DONE!!!!!!!!
BEC - 76
REG - 77

never, never, never give up

[Tootsie]

@Amor, I think that's false. The $200,000 of goodwill is not amortized and is also not tested for impairment in the equity method.

Sanni Co. had $150,000 in cash-basis pretax income for the year. At the current year end, accounts receivable decreased by $20,000 and accounts payable increased by $16,000 from their previous year-end balances. Compared to the accrual-basis method of accounting, Sanni's cash-basis pretax income is:

a. Lower by $36,000.

b. Lower by $4,000.

c. Higher by $36,000.

d. Higher by $4,000.

I am struggling with these types of questions… Cash basis vs. accrual basis. Can someone please provide any tips?

FAR - 76
AUD - 88!!! DONE!!!!!!!!
BEC - 76
REG - 77

never, never, never give up

[Anonymous]

@Tootsie – I thought goodwill needs to be tested for impairment. Correct me if I am wrong. Also, to your question, is the answer A?

[Anonymous]

@Tootsie – I thought goodwill needs to be tested for impairment. Correct me if I am wrong. Also, to your question, is the answer A?

[Anonymous]

@Tootsie–The Q1 and Q2 study groups had a good explanation by NYC accountant on cash to accrual. You could try going there and doing a search on the page until you find his post. Also–why isn't all of this questioning happening in the study group? That thread is seriously lacking some questions and these could help everyone there too. Just a thought…

[Anonymous]

@Tootsie–The Q1 and Q2 study groups had a good explanation by NYC accountant on cash to accrual. You could try going there and doing a search on the page until you find his post. Also–why isn't all of this questioning happening in the study group? That thread is seriously lacking some questions and these could help everyone there too. Just a thought…

[Tootsie]

Thanks CPAmommyof3!

@Cracked, i looked at the becker book and saw that goodwill is not tested for impairment when using the equity method. It is tested for impairment otherwise.

The answer is C.

FAR - 76
AUD - 88!!! DONE!!!!!!!!
BEC - 76
REG - 77

never, never, never give up

[Tootsie]

Thanks CPAmommyof3!

@Cracked, i looked at the becker book and saw that goodwill is not tested for impairment when using the equity method. It is tested for impairment otherwise.

The answer is C.

FAR - 76
AUD - 88!!! DONE!!!!!!!!
BEC - 76
REG - 77

never, never, never give up

[NYCaccountant]

@ Tootsie Just break it down. They say accounts receivable went down by 20,000, which means you received more cash than you had earnings. Accounts payable increasing means that you acccrued more expenses than you paid out.

From a cash basis, that 20,000 would have been income, but from accrual perspective it would not have been because it was receivable from a prior period, which means it was earned in the prior year. Cash basis recognized an event when you either receive or pay the cash.

From a cash basis, that 16,000 accrual would not have been counted because you did not pay the cash, but it would be counted for accrual purposes because the event occured.

So automatically your cash basis is overstated by 20,000 from an revenue perspective and understated by 16,000 from an expense perspective. Accrual income is 114,000, cash basis is 150,000, so difference is 36,000

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

@ Tootsie Just break it down. They say accounts receivable went down by 20,000, which means you received more cash than you had earnings. Accounts payable increasing means that you acccrued more expenses than you paid out.

From a cash basis, that 20,000 would have been income, but from accrual perspective it would not have been because it was receivable from a prior period, which means it was earned in the prior year. Cash basis recognized an event when you either receive or pay the cash.

From a cash basis, that 16,000 accrual would not have been counted because you did not pay the cash, but it would be counted for accrual purposes because the event occured.

So automatically your cash basis is overstated by 20,000 from an revenue perspective and understated by 16,000 from an expense perspective. Accrual income is 114,000, cash basis is 150,000, so difference is 36,000

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Tootsie]

Thanks NYCaccountant. That helps me a lot!

FAR - 76
AUD - 88!!! DONE!!!!!!!!
BEC - 76
REG - 77

never, never, never give up

[Tootsie]

Thanks NYCaccountant. That helps me a lot!

FAR - 76
AUD - 88!!! DONE!!!!!!!!
BEC - 76
REG - 77

never, never, never give up

[Author]

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