[kaaCPA]

Hi guys – me again. How do you figure out time management when there are calculations in so many MC questions. If you only have 1-1.5 mins to come up with an answer and it takes 20-30 seconds to read the question, what do you do? Mark it and come back if there is time?

Take for example, this beauty –

Sage, Inc. bought 40% of Adams Corp.’s outstanding common stock on January 2, Year 1, for $400,000. The

carrying amount of Adams’ net assets at the purchase date totaled $900,000. Fair values and carrying amounts

were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts

by $90,000 and $10,000, respectively. The plant has an 18-year life. All inventory was sold during Year 1.

During Year 1, Adams reported net income of $120,000 and paid a $20,000 cash dividend. What amount should

Sage report in its income statement from its investment in Adams for the year ended December 31, Year 1?

a. $48,000

b. $42,000

c. $36,000

d. $32,000

Explanation

Choice “b” is correct, $42,000 should be reported in the income statement.

Investment in Adams Corp.

Carrying amount on Adams’ books $ 900,000

Increase in value for:

Plant 90,000

Inventory 10,000

Fair market value of Adams 1,000,000

Percent purchased 40%

FV of 40% purchased (no goodwill) $ 400,000

Income earned from investment

Net income for Year 1 $ 120,000

Percent owned 40%

Share of income before adjustment 48,000

Amortization of higher plant value ($90,000 x 40% ÷ 18 years) (2,000)

Write off extra value of inventory (10,000 x 40%) (4,000)

Equity in income of 40% investee $ 42,000

AUD | 85
REG | 77
FAR | 76
BEC | 83
========
ETH | 93
State Board Application pending!

[kaaCPA]

oops, posted to wrong forum and cannot figure out how to change it.

AUD | 85
REG | 77
FAR | 76
BEC | 83
========
ETH | 93
State Board Application pending!

[jeff]

moved 🙂

[Anonymous]

In this particular problem, I wouldn't even touch the investment account. Just say think of the sub transactions that hit the I/S

Our portions of NI, amortization/expenses. Dividends just give us cash and lower the investment in equity- just a good thing to always consider!

So right away we calculate our NI

Net Income = 120,000*.4 = 48,000

Amortization (90,000/18) *.4 = 2,000

Write off expenses 10,000*.4 = 4,000

Income Statement

4,000 48,000

2,000

42,000

I know the explanation may not be relevant to your question of time management but I just thought I'd throw in how I saw the question. I am studying for FAR too and I am just as concerned. If I have no idea and it is taking me 1-2 minutes just to catch my breath after reading the question, I'm gonna mark to come back and guess after I finish the rest of the testlet

[Joe36y]

You have to keep a running count in your head. Basically some questions you are going to have to solve will take you 2-3 minutes. Other times it will take you less than a minute. After every question i would look at the clock to make sure i was on pace to leave myself with 1:30 min for the Sims. But always read what the question is asking first. Look at the end of it and see what information you need. Your goal is to only read the question once! You do not want to waste time reading it again.

So i would read what amount should sage report as net income. Then read the question and while doing so pick out the information I need and write it down on a piece of paper. If i was stuck or it was taking to long I would mark the question and move on and came back if I had time. However, since I wrote all the relevant information down I had it available to me so I did not have to re-read the question.

Hope that tip helps

BEC: 82
FAR: 79
AUD: 85
REG: July 10th

[kaaCPA]

thanks for the tips, guys! i completely agree about reading the “call of the question” first and then looking back at the info provided. but sometimes i get bogged down when there are so many different issues going on with the info provided. your comments help a lot!

AUD | 85
REG | 77
FAR | 76
BEC | 83
========
ETH | 93
State Board Application pending!

[Anonymous]

I would say give yourself ~ 1 min 45 sec – 2 min for these while doing the hw. Don't skip it as you will only gain familiarity and speed the more you practice. Read the question (last sentence) first, so you know what info you need to pick-out for the calculation. For example, once you become familiar w/ these, you'll know to ignore the dividends and the 900k since you're only concerned w/ the I/S effects. Ignore the Investment carrying value and Goodwill as these are irrelevant for the calc (B/S effects). Just jump to…what's my portion of the investment income and what's my portion of depreciation – those are the only 2 things affecting the I/S which is what the question asks.

Keep in mind on the actual test, not every single MCQ will be some lengthy calc. Some questions take longer to solve and others not. So definitely treat the HW as practice so you can go into “attack mode” on the actual test 🙂 Good luck!

[Author]

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