[jeff]

Welcome to the Q3 2016 CPA Exam Study Group for FAR.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

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

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

[thebigguy1992]

Tulip Co. owns 100% of Daisy Co.'s outstanding common stock. Tulip's cost of goods sold for the year totals $600,000 and Daisy's cost of goods sold totals $400,000. During the year, Tulip sold inventory costing $60,000 to Daisy for $100,000. By the end of the year, all transferred inventory was sold to third parties. What amount should be reported as cost of goods sold in the consolidated statement of income?
$900,000
$940,000
$960,000
$1,000,000

Is the answer 900,000 because combined COGS is 1,000,000 but you have to eliminate the 100k because it is inter-revenue profits? or is it eliminate it because it is intracompany COGS?

BEC - 79
FAR - 62,73,76
AUD - 70, 88
REG - 83

[jmc0434]

@Dlu

Good luck tomorrow!! You are going to do great!

BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16

[thebigguy1992]

anyone know the answer explanation and how they got the answer to #11?

https://www.another71.com/wp-content/files/2016_AICPA_FAR_Difficult_62132.pdf

thats the FAR difficult AICPA released 2016 questions

BEC - 79
FAR - 62,73,76
AUD - 70, 88
REG - 83

[KJ]

@ DLu

1. Dr Gain 21
Cr Accum Depr 8
Cr Equip 6
Cr Depr exp 7

3. Dr Bonds Payable 100K
Dr Discount on Bonds 9
Cr Gains 9
Cr Investment in bonds 100K

Good luck with your exam, you got this!!!

AUD - NINJA in Training
BEC - NINJA in Training
FAR - NINJA in Training
REG - NINJA in Training

"Everything should be made as simple as possible, but not simpler" - Albert Einstein

FAR - August 2016
AUD - September 2016
REG - October 2016
BEC - November 2016

Remember: "Everything should be made as simple as possible, but not simpler." - Albert Einstein

[jmc0434]

I keep spinning my wheels on this question and I can't get to the right answer. Can someone tell me how they got the answer?

On January 1, year 1, Boston Group issued $100,000 par value, 5% five-year bonds when the market
rate of interest was 8%. Interest is payable annually on December 31. The following present value
information is available:

Present value of $1 (n = 5) @ 5% = 0.78353
Present value of $1 (n = 5) @ 8% = 0.68058
Present value of an ordinary annuity (n = 5) @ 5% = 4.32948
Present value of an ordinary annuity (n = 5) @ 8% = 3.99271

What amount is the value of net bonds payable at the end of year 1?

$88,022
$90,064
$100,000
$110,638

Correct Answer: 90,064

BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16

[Titleistg0lfer]

@jmc0434, I think I can help you with this. So they are asking for the BP at the end of the year not the beginning of the year using “Effective Interest Method” since you know the Actual rate and Market Rate. You would calculate this as follows:

To first calculate initial debt, you always calculate as PV of Outstanding debt + PV of Interest Payments

100,000 x .68058 = 68,058 and (100,000 x .05 = 5,000) — 5,000 x 3.99271 = 19,964

68,058 + 19,964 = 88,022

This would be your answer if it was asking at the beginning of the year, but since it's asking for the end you have to add back the amortization on the discount as such:

100,000 x .05 = 5,000 vs 88,022 x .08 = 7,042 = 7,042 – 5,000 = 2,042

So your answer would be 88,022 + 2,042 = 90,064

In journal entry form it would look like this:

1/1
Cash 88,022
Discount on BP 11,978
Bonds Payable 100,000

12/31
Interest Expense 7,042
Amortization of Discount 2,042
Interest Payable/Cash 5,000

REG: 84 (10/5/15)
AUD: 83 (11/23/15)
BEC: 77 (2/27/16) - The bubble sucks
FAR: 90 (7/20/16) - AND DONE FOREVER!!!!!

[Anonymous]

jmc0434,

Price On Bond: PV of amount + PV of interest

Stated rate ONLY used to calculate Cash pay for interest per year = 5%, 100 * 5% = 5

Price (always use Market Rate) = (100 * 0.68058) + (5 * 3.99271) = 88022 on Jan.1

JE during Year 1:

Dr. Interest Expense (88022 * 8%) = 7042
Dr. Cash Paid (100 * 5%) 5000
Dr. Amortized Disc (Net) 2042

Balance at 12.31.x1
Short cut: 2042 + 88022 = 90064

Hope this help.

[Titleistg0lfer]

@DLu Good luck today! You will kill it!

REG: 84 (10/5/15)
AUD: 83 (11/23/15)
BEC: 77 (2/27/16) - The bubble sucks
FAR: 90 (7/20/16) - AND DONE FOREVER!!!!!

[jmc0434]

@Titleistg0lfer – Thank you!

Now I know what I was missing! Of course my error was in step one… I was only calculating the PV of Outstanding Debt and not including the PV of the payments.

BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16

[jmc0434]

@DLu – Thank you and good luck today!! Knock it out!! 🙂

BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16

[Anonymous]

thebigguy1992, this is what I got:

Taxable income for current year $120,000
Deferred income tax liability, beginning of year 50,000
Deferred income tax liability, end of year 55,000
Deferred income tax asset, beginning of year 10,000
Deferred income tax asset, end of year 16,000
Current and future years’ tax rate 35%

JE:
Dr. Tax Exp (net) 41
Dr. DTA 6
Cr. DTL 5
Cr. Tax Liab (Income * tax rate) 120 * .35 = 42

Thank you all, I will grab all the luck I can.

Let's do this.

[Oneday]

jmc0434

Thank you very much. Your explanation is amazing!

[KJ]

I always mess up on these first, second or three forward contracts. I thought the answer would be B. Can someone explain why it is C?

On December 12, 20X1, Imp Co. entered into three forward exchange contracts, each to purchase 100,000 francs in 90 days. The relevant exchange rates are as follows:

Forward Rate
Spot Rate (for March 12, 20X2)
——— ——————–
December 12, 20X1 $.88 $.90
December 31, 20X1 .98 .93

Imp entered into the second forward contract to hedge a commitment to purchase equipment being manufactured to Imp's specifications. At December 31, 20X1, what amount of net foreign currency transaction gain should Imp include in income from this forward contract?

A.
$0

B.
$3,000

$5,000

D.
$10,000

AUD - NINJA in Training
BEC - NINJA in Training
FAR - NINJA in Training
REG - NINJA in Training

"Everything should be made as simple as possible, but not simpler" - Albert Einstein

FAR - August 2016
AUD - September 2016
REG - October 2016
BEC - November 2016

Remember: "Everything should be made as simple as possible, but not simpler." - Albert Einstein

[KJ]

Sorry, the correct answer is A.

AUD - NINJA in Training
BEC - NINJA in Training
FAR - NINJA in Training
REG - NINJA in Training

"Everything should be made as simple as possible, but not simpler" - Albert Einstein

FAR - August 2016
AUD - September 2016
REG - October 2016
BEC - November 2016

Remember: "Everything should be made as simple as possible, but not simpler." - Albert Einstein

[jmc0434]

@kanwal78 –

Unrealized foreign currency transaction gain are recorded in OCI.

Since the question asked “what amount of net foreign currency transaction gain should Imp include in income from this forward contract?” the answer would be $0. The gain is an unrealized foreign currency transaction gain since the forward contracts were bought on Dec. 12, Year 1 and have the option to execute in 90 days (March of Year 2). As such, this gain will be recorded in OCI as of Dec 31, Year 1.

This is a tricky question!! Just ONE word changed the whole mentality of the question. If the question instead asked “what amount would be reported in OCI as of Dec 31, Year 1?” then you would have the dollar amount answer (B. 3,000)

Hope this helps! 🙂

BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16

[Author]

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