[jeff]

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AUD - 79
BEC - 80
FAR - 76
REG - 92

Jeff Elliott, CPA (KS)
NINJA CPA | NINJA CMA | NINJA CPE | Another71

[Anonymous]

Does anyone know why we use the lease term and not the useful life of the asset if this is a capital lease and assets transfer to lessee at end of lease? I thought that if it transfers, you use the Useful life?? Help!

Hines Company leased a new machine from Ashwood Company on December 31, year 1, under a lease with the following pertinent information:

Lease term

8 years

Annual rental payable at the beginning of each lease year

$ 50,000

Useful life of the machine

10 years

Present value of the 8 lease payments at 12/31/Y1

$258,000

The machine reverts to Ashwood at lease expiration date and has a fair value of $280,000 at the inception of the lease. Hines uses the straight-line method of depreciation. For the year ended December 31, year 2, how much depreciation (amortization) should Hines record for the capitalized leased machine?

$35,000

$32,250

$28,000

$25,800

[Wanna_B_TXCPA2014]

@dcflcpa because Hines will only have use of the asset for the lease term of 8 yrs. I looking for something in B/W that specifically gives the reason, but just looking at this it does not make sense to depreciate an asset for longer than you will have use of it.

[jess3]

i dont think my studying method is working. I have becker and ninja notes. I just read the a section of F2 becker book and tired doing the MCQ. It seems like nothing i read is on the MCQ!!!! i'm so frustrated and lost all my motivation for today… my exam is only a month away too………. what is everyone else doing??

[Tarheelgirl]

Isn't for captial lease, if lease term is 75% or more of the useful/economic life than the lease term is used?

FAR - 46, 79 (7/8/14)
AUD - 56, 59, 2/23/15 3rd times a charm!
BEC - 69, 74 Really??
REG - April, I hope. Fingers crossed!

[Anonymous]

@Wanna_B, I think you're right.

Just as Tim Gearty would always rhyme, pensions are GREATTTT, while on lease, which should be LESSSSER….

Though I would also confuse this Asset Life following the mnemonic of ‘OWNS'.

O > Asset Life

W > Asset Life

N > Lease Life

S > Lease Life

[Tarheelgirl]

Mine is less than a month away 🙁 I have started rewriting the NINJA notes, suprisingly the two sections I have wrote so far I am remembering much easier. Also just purchased NINJA MCQ, so much better than the other test banks I have.

FAR - 46, 79 (7/8/14)
AUD - 56, 59, 2/23/15 3rd times a charm!
BEC - 69, 74 Really??
REG - April, I hope. Fingers crossed!

[Anonymous]

Wanna_B_TXCPA2014

Thanks!!!! I had to post it on here to see that I misread the question wrong!! :T

[Lidis]

Where does the (5/12) come from?

Bonds are dated Nov 1, 20X1

Bonds issued April 1, 20X 2

From Nov 1 to March 31= 5 months

[Anonymous]

Dunne Co. sells equipment service contracts that cover a two-year period. The sales price of each contract is $600. Dunne's past experience is that, of the total dollars spend for repairs on service contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second contract year. Dunne sold 1,000 contracts evenly throughout the current year. In its December 31 balance sheet, what amount should Dunne report as deferred service contract revenue?

A) $540,000

B) $300,000

C) $360,000

D) $480,000

Anyone help me out with explanation? Answer is D BTW.

[EYNewHire]

Because the contracts were sold evenly throughout the year you can't just take 40% of the revenue for Year 1. You would sell some contracts in December that would recognize no revenue and some in January that would recognize the full 40%. Instead you have to take an average. In this case you would take the 40% divided by 2 to get 20%. This 20% is revenue recognized for Year 1 and the left over is deferred.

[Anonymous]

Does anyone understand the logic behind this question/ answer?

On October 1, year 1, Fleur Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that date, there was no direct method of pricing the merchandise, and the note’s market rate of interest was 11%. Fleur recorded the purchase at the note’s face amount. All of the merchandise was sold by December 1, year 1. Fleur’s year 1 financial statements reported interest payable and interest expense on the note for 3 months at 16%. All amounts due on the note were paid February 1, year 2. Fleur’s year 1 cost of goods sold for the holiday merchandise was

a. Overstated by the difference between the note’s face amount and the note’s October 1, year 1 present value.

b. Overstated by the difference between the note’s face amount and the note’s October 1, year 1 present value plus 11% interest for 2 months.

c. Understated by the difference between the note’s face amount and the note’s October 1, year 1 present value.

d. Understated by the difference between the note’s face amount and the note’s October 1, year 1 present value plus 16% interest for 2 months.

Answer is C.

[EYNewHire]

I really don't like this question but here is the answer:

The market rate for the note is 11% and it's stated rate is 16% which means it sold for a premium. The note was recorded at face value (amount received at the end of it's life) when it should have been recorded at it's value on the date bought. We know that the only way to have the face value equal to market value is if the stated rate is equal to the market rate. This is not the case. Therefore COGS is understated by the difference between the face value and market value on 10/1 (PV).

[Tootsie]

Can someone please explain why we are recognizing a gain? Boot is paid and it is an exchange that lacks commercial substance, so I thought we do not recognize a gain. This is from Becker F2 #12 on m.c.

On January 2, Elbert's Delivery Company and Wanda's Exporters exchanged similar delivery trucks in an exchange that lacks commercial substance. Data relative to the trucks follow:

Elbert's truck

Original cost

$10,000

Accumulated depreciation as of January 2

8,000

Fair market value

3,000

Wanda's truck

Book value

$15,000

In the exchange, Elbert paid Wanda cash of $10,000. Elbert's Delivery Company should record the new truck at:

a.$10,000

b.$8,000

c.$12,000

d.$13,000

Explanation

Choice “d” is correct. The new truck is recorded at $13,000 on Elbert's books. In this case, the transaction is considered to be a monetary exchange, because the boot ($10,000) exceeds 25% of the total consideration ($10,000 plus $3,000 fair value of the old truck transferred to Wanda). Therefore, both parties to the exchange recognize all gains and losses on the transaction. The journal entry prepared by Elbert follows:

Debit (Dr)

Truck-New $ 13,000

Accum. Depre. 8,000

Credit (Cr)

Cash $ 10,000

Truck-Old 10,000

Gain 1,000

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

never, never, never give up

[Anonymous]

Looking for a big weekend to get off to a good start with my test and end of august! lets do this!

[Tootsie]

Regarding my question, I received an answer: if boot > 25% of total consideration, gains/losses are recognized for both parties. I was thinking this just applied to boot received. This is a monetary exchange.. Becker's example shows boot being received only, and I thought boot had to be received and only applied to 1 party.

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

never, never, never give up

[Author]

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