January 30, 2019 at 10:29 am #2188687
Question # 587 | Blueprint Area: 2 D : Property, Plant and Equipment
On January 1 ten years ago, Andrew Co. created a subsidiary for the purpose of buying an oil tanker depot at a cost of $1,500,000. Andrew expected to operate the depot for 10 years, at which time it is legally required to dismantle the depot and remove underground storage tanks. It was estimated that it would cost $150,000 to dismantle the depot and remove the tanks at the end of the depot's useful life. However, the actual cost to demolish and dismantle the depot and remove the tanks in the tenth year is $155,000. What amount of expense should Andrew recognize in its financial statements in year 10?
A. None, recognized in prior years
B. $5,000 expense
C. $150,000 expense
D. $155,000 expense
You answered D. The correct answer is B.
Obligations for dismantlement, restoration, and abandonment costs are accounted for as asset retirement obligations. Upon initial recognition of a liability for an asset retirement obligation, an entity capitalizes an asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount as the liability. An entity subsequently allocates that asset retirement cost to expense using a systematic and rational method over its useful life. Application of a systematic and rational allocation does not preclude an entity from capitalizing an amount of asset retirement cost and allocating an equal amount to expense in the same accounting period. The company increased the carrying amount of the depot the $150,000 cost to dismantle and amortized it over the 10 years. In this case, only the extra $5,000 ($155,000 actual cost – $150,000 estimate) would be expensed in year 10.
Editor's Note: The AICPA provided item (b) as the unofficial solution. The editors believe the company could have, and perhaps should have, chosen to expense the $150,000 evenly over 10 years in what is termed an accretion expense. If it had done so, the expense in year 10 would have been $20,000 (the $15,000 original allocation plus the additional $5,000 in actual cost). Given thaqt $20,000 was not an answer option, one must assume that the company did not do so. Candidates need to prepare to answer questions with the best solution choice possible.
-The above is a question from Ninja MCQ's, Why is the depreciation of $150,000 + the $15,000 accretion expense amortized + the $5,000 cost over what was estimated no all included. In the AICPA note and the Editor note (Ninja editor) both ignore depreciation expense (and this is classified as a PPE problem not a AR)/liability problem) so I would think depreciation would at least be considered. How are problems released that have such discrepancies?January 30, 2019 at 11:26 am #2188750
Question #1298, Blueprint Area: Statement of Cash Flows
The following information was taken from the current year finanical statements of Planet Corp.:
Accounts receivable, January 1 $ 21,600
Accounts receivable, December 31 30,400
Sales on account and cash sales 438,000
Uncollectible accounts 1,000
No accounts receivable were written off or recovered during the year. If the direct method is used in the current year cash flows, Planet should report cash collected from customers as
You answered: C The correct answer is: D
Planet corp., should report cash collected at $428,200, which is sales for the year reduced by the total increase in accounts receivables (i.e. $438,000 – $9,800).
a. Accounts receivable, net, Dec 31, $30,400
b. Accounts receivable, net, Jan 1, $21,600
c. Net increase in accounts receivable (a-b), $8,800
d. Uncollectible accounts, $1,000
e. Total increase in accounts receivable (c+d), $9,800
The accounts receivables are given at their net amounts. The uncollectible accounts($1,000) is added back to the change in net accounts receivable to bring it to the gross amount. No accounts receivable was written-off during the year allowance for uncollectible accounts will be added back to the account’s receivables, to arrive at total increase in accounts receivable at $9,800.
Dr: Cash (plug) $428,200
Dr: A/R (change) $9,800
Cr: Sales $438,000
Option (a) is incorrect because increase in accounts receivable is added instead of deducting $9,800 (i.e.$447,800 = $438,000 + $9,800). Option (b) is incorrect because net increase in accounts receivable $8,800 is added and uncollectible accounts for $1,000 is not considered (i.e. $446,800 = $438,000 +$8,800). Option (c) is incorrect because this does not consider the provision for uncollectible (i.e. $429,200 = $438,000 – $8,800).
-Here is another Ninja MCQ, how would we know the A/R is reported net in what it is given to us? I have see this questioned listed in other places as well as posted on ninja back in 2016 where the answer was in fact C and not D, with no mention of net A/R or uncollectible accounts. Any help on this or the above would be appreciated.
-On another note, I have both Wiley and Ninja MCQ's and I find many more questions on Ninja with questionable answer than I do on Wiley, I also find many outdated questions asking about extraordinary gains, older net asset classifications for NFP, installment sales, other reveunue methods other than ASC 606, etc. Does anyone else have similar experiences?January 30, 2019 at 12:15 pm #2188780
Hi guys! I'm studying for FAR. Probably will take it mid-April or early May. Hope I pass it on my first try (finger crossed)January 30, 2019 at 7:11 pm #2189347
Would it be more efficient to practice the MC cumulatively or section by section? I am worried about forgetting information.
ThanksFebruary 1, 2019 at 8:31 am #2192416
Question # 62 | Blueprint Area: 3 K : Fair Value Measurements
On January 1, year 1, Peabody Co. purchased an investment for $400,000 that represented 30% of Newman Corp.’s outstanding voting stock. For year 1, Newman reported net income of $60,000 and paid dividends of $20,000. At year end, the fair value of Peabody’s investment in Newman was $410,000. Peabody elected the fair value option for this investment. What amount should Peabody recognize in net income for year 1 attributable to the investment?
You are correct, the answer is C.
Entities may choose to measure eligible items at fair value (the “fair value option”) that are not currently required to be measured at fair value. The decision to elect the fair value option is applied instrument by instrument, is irrevocable, and is applied only to an entire instrument. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The Investment in Newman would be increased by 30% of the net income and decreased by 30% of the dividends, resulting in a year end carrying amount of $412,000 ($400,000 + 18,000 – 6,000). Since the fair value was $410,000, Peabody had an unrealized loss of $2,000. This loss is netted against the investment income previously recognized of $18,000 for a $16,000 net income impact. Dividends do not affect net income (they reduce the Investment account).
-The above is accounting for an investment with the equity method, but then subsequently revalues it to fair value. Is this correct treatment, if it was valued at fair value why would we apply the equity method (the gain from the income) then revalue to fair value and not just value at fair value for a loss of $2,000 and not a gain for $16,000?February 3, 2019 at 3:25 pm #2197948
Does anyone else encounter great difficulty understanding/figuring out business consolidations in FAR? I'm about to cry over the MCQs as I very often just make best guesses. Any good way to enhance understanding of this topic? I'm using Becker but I don't think it does gj explaining and connecting dots for me.February 3, 2019 at 4:08 pm #2198050
I've had the best success by doing the multiple choice questions after I study each section and then going back and doing all of the multiple choice questions together (when I've finished the entire textbook) to see what areas I am still weakest at and then I go back and study that section again. It gives me a good idea of what stuck and what did not. That's just what works for me though.February 3, 2019 at 4:13 pm #2198059
Do you have a sample question that illustrates what you are struggling with for consolidations?February 11, 2019 at 1:51 pm #2211556
Puppykoala, I was using Becker for consolidations also, and didn't get the whole thing. For my second try, I added Ninja book and MCQs, and had a breakthrough. It was Becker and Ninja together that did it for me. The thing that was hanging me up was that until Ninja I didn't realize that the worksheet was not something that was going into the ledgers. It was completely separate and just helped you figure out what to put on the reports.February 17, 2019 at 8:50 am #2220139
Would it be progressively productive to rehearse the MC in total or area by segment? I am stressed over overlooking data.
Much obligedFebruary 18, 2019 at 12:08 pm #2222266
I am taking FAR in early March, and I have just completed the Becker modules, and am now in review/study mode. I was just wondering if anyone who has taken it can chime in on what is heavily tested? I heard Government and Pensions are tested quite a bit. Also wondering if the FASB ASC 40-01-53-01 thing is going to be actually tested? Like do we have to know those numbers, or are they just a part of Becker? Any information would be awesome!
Thanks, and good luck to everyone, WE CAN DO IT!!February 19, 2019 at 1:45 pm #2224096
Typically there isn't MCQs asking what is the ASC section for lets say… leases? At least, I have never seen any. Where I have seen them is in research questions, but you use the authoritative guidance to find a code section based on a given scenario.
As I am nearing my test date, what do y'all do to prepare just before the exam (i.e. the final review, work MCQs, SIMs, etc.)?February 20, 2019 at 1:07 pm #2225448
Are there any live study groups in the north NJ or NYC area? I'm studying for FAR now and planning to take it in the beginning of April.
Also, what's the minimum of time that's reasonable to study for FAR? Right now, I've scheduled myself 5 weeks but I don't work yet (I just moved) so I have more time to study than most people.
BEC: waiting for score
FAR:February 20, 2019 at 8:53 pm #2226186
Please help me here if possible.
Zeta Co. reported sales revenue of $4,600,000 in its Income Statement for the year ended December 31, 20X1. Additional information is as follows:
Accounts receivable $1,000,000 $1,300,000
Allowance for uncollectible accounts (60,000) (110,000)
Zeta wrote off uncollectible accounts totaling $20,000 during 20X1. Under the cash basis of accounting, Zeta would have reported 20X1 sales of:
Question – why should we subtract $20,000? Bad debt increases expense, so decreases net income (accrual basis). In my opinion, to convert accrual net income to cash net income, we have to add 20,000.
Thank you for all your help.February 21, 2019 at 7:32 am #2226582
I can't help you with study groups but as for budgeting time… I only work part time so I'm kind of in the same boat as you. I think 5 weeks is doable IF you set yourself to a strict schedule. You're gonna have to complete about 3 modules every day (Becker) because there's like 85 modules in all plus simulations and those practice tests. So I would say take 6 weeks just to be safe. 5-6 weeks, yeah. Or you can push it to like 4 modules a day #beastmodeFebruary 21, 2019 at 6:25 pm #2227362
I am currently studying for FAR (using GLEIM). I work FullTime , but typically study about 2-3 hours on weekday and about 5-6 hours on weekends. Gleim is 20 chapters in total and I have been studying since mid Jan. I had my test shed. for april 13th but recently moved it to april 27 because I feel like I will not accomplish all 20 chapters in that time frame. Any one else having the same issuing w/ Gleim (or any other review system ) . I been doing a chapter a week, Gleim's chapters are very bulky and detailed. As I review each chapter I always do about 20-25 MC for each sub unit.. still feel like this is not sufficient and I will not be prepared for my april 27 test date. ( FAR IS TRULY A PAIN) Any advice is appreciated in advance. Thanks all, and good luck to all.
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