[Anonymous]

Am I being too much of a nitpick? Am I the only one who has noticed the Becker review questions don’t make grammatical sense and sometimes require you to make assumptions? Are these actual retired FAR questions I am seeing or Becker generated?

For exmaple: CPA-00597

Dana Co.’s compensation expense account had a balance of $224,000 at December 31, Year 1, before any appropriate year-end adjustment relating to the following:

1) No salary accrual was made for December 30-31, year 1. Salaries for the two-day period totaled $3,500.

2) Year 1 officers’ bonuses of $62,500 were paid on January 31, Year 2.

OK, so #1 makes sense to me… $224,000 + $3,500 = $227,500 (Choice D). But now look at #2. The way I interpreted the second event was that officers’ bonuses were PAID on January 31, Year 2. The fact that the salaries were PAID in year 2 would have no bearing on my year end expenses. This leads me to believe expenses have been recorded and the exam question is trying to trick me into adding more expense.

However, the answer is not choice D. The answer is choice A. $290,000 ($227,500 + $62,500). Nowhere in event 2 does it say officers compensation went un-accrued as it tells you in event #1. In order to get choice A, one has to assume that the officers compensation expense was never recorded properly.

I find that quite a few questions seem to rely on making assumptions like above. At the same time there are also quite a few trick questions. This to me is conflicting for how to approach questions. Is the actual exam really like this? I feel like I am playing a guessing game on what is being asked of me! Anyone have some insight they can share?

Also, I am currently in Chapter 2 of Becker FAR review and I plan to sit on 11/3/15! Do you complete the sims and final review when you finish each chapter? Or, do you complete them after you finish all chapters using them as a capstone?

[Anonymous]

Yeah I'm also confused by this question. Anybody has any idea? I apprecaite it.

[Anonymous]

Yes, hopefully my explanation can help!

The compensation expense had a balance of $224,000 prior to any year-end adjustments. The information they give you is additional information for compensation at year-end. So, obviously you add in the extra salary (as you already know), but you also need to add in the bonuses of the officers' because the bonuses were earned after their full service in Year 1. If this were the cash method, you would book it in year 2, but since this is the accrual method, you would add it to the compensation expense at the end of the year when the officers finished earning the bonuses. Does this help?

[Anonymous]

Thank you for your reply azfrench! I do get your points and agree on how they use accrual method and should recognize expense in Year 1. However, I don't see any information indicating they didn't recognize the bonus in Year 1. The additional information only says the bonus was paid (cash outflow) in Year 2…

[Namstut]

@banks334 this question frustrated me too! I have been working in the accounting field for the last 20+ years and not one single company reported accrued bonuses in the same line as accrued compensation. Every company I worked for had separate accounts for compensation and bonus accruals. I made the correct assumption that bonuses were not accrued in year 1 but I thought the question was tricky in a sense that it would be reported on a separate line of the Balance Sheet so I did not include it in my calculation.

When the going gets tough, the tough get going.

All Done!!!

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[fragchild]

The question at the start states that the balance was $224k prior to year-end adjustment. As both point #1 and #2 are year-end adjustments, it can be assumed that #2 has not been accrued since the $224k value is prior to year-end adjustments.

[Author]

Replies