FAR Study Group Q1 2017
January 9, 2017 at 5:38 pm #1428357
AmeriGene Inc. reported net periodic pension cost of $400,000 in the current year, calculated as follows:
Service cost $ 300,000
Interest cost 175,000
Expected return on plan assets (100,000)
Amortization of prior service cost 40,000
Amortization of net gain (15,000)
Net periodic pension cost $ 400,000
AmeriGene has an overfunded pension plan. The company's effective tax rate is 30%. How will the service cost component of the current year net periodic pension cost affect the current year balance sheet?
a. $300,000 increase in noncurrent pension benefit asset.
b. $90,000 increase in deferred tax asset.
c. $300,000 decrease in retained earnings.
d. $90,000 increase in accumulated other comprehensive income.
Why is the answer B $90,000 increase in deferred tax asset and not $120,000???? Wouldnt 30% of the $400,000 net periodic pension cost be $120,000?
I just started F6 today so maybe im missing something that is very easyJanuary 9, 2017 at 7:16 pm #1428542
Time to bang out 4 hrs of studying after a solid 10 hour workday!January 9, 2017 at 7:47 pm #1428569
@NYaccounting. That's a tough one. I think maybe there are some permanent differences that decrease the allowable future deduction to 300K.January 9, 2017 at 8:46 pm #1428635
State University received two contributions during the year that must be used to provide scholarships. Contribution A for $10,000 was collected during the year, and $8,000 was spent on scholarships. Contribution B is a pledge for $30,000 to be received next fiscal year. What amount of contribution revenue should the university report in its statement of activities?
The answer is $40,000.
My question: Contribution A is a cash collection so that can be considered revenue because it is received. However, the $30,000 – isn't that a conditional pledge that cannot be recorded as revenue until it is earned? My only guess would be the fact that the question stem asks for contribution revenue. Whether the pledge has a condition is irrelevant possibly?January 9, 2017 at 8:56 pm #1428695
Actually, it doesn't look like its a conditional pledge according to the question. It doesn't say anything specifically that “this must be done” in order to receive the contribution.
Therefore, unconditional pledges are recognized in current year as contribution revenue.
I hope that helps!!January 9, 2017 at 10:21 pm #1428834
@NYaccounting – The question just asks about the service cost component, which is 300k, so tax effect is 90k. Isn't it kind of strange to phrase a question this way? Instead of just asking a question about temporary tax differences? So this becomes a question where you have to think about tax differences AND about where the various parts of pension-related accounts end up on the balance sheet, two completely separate topics in my head.January 9, 2017 at 10:35 pm #1428855
Finally made my ninja purchase for FAR! Not too many days left but let's go!!!January 9, 2017 at 11:20 pm #1428995
Hey guys, are CD's considered as Cash or cash equivalent? I thought I remember in becker somewhere that CD doesn't fall under the category. ThanksJanuary 10, 2017 at 4:24 am #1429164
Anyone doing warly morning study sessions? I'm scheduled for feb 25 though i really want to puah it earlier to i can celebrate my sons bday stress free the weekend of the 20th. I was insanely sick for a week so not onlt couldnt i go to work but i was so drugged up i couldnt atudy either! Anyway back at it. I'm using flashcards to help me. Redoing wach chapter. Becker mcqs and ninja.January 10, 2017 at 5:39 am #1431777
good morning @mscfisher I am almost always an early morning studier.. my brain seems to work best at this hour. Hope you are feeling better. I am living in fear of either getting sick or being snowed in at test date. I just pushed my back to the 24th but like you ideally I would love to be able to move it forward again. GOOD LUCK!
@spartan CD's that mature within 3 months are considered cash / cash equivalents- so watch your dates! (and I believe it is from purchase to maturity- so if it is December 31 balance sheet and you have one bought 1/1/x1 maturing 1/1/x2 for 200 and one bought 11/1/x1 maturing 1/1/x2 for 300- only the one for 300 would be considered cash / cash equivalent because its maturity is within 3 months thus “highly liquid” )January 10, 2017 at 7:29 am #1434123
I study in the mornings but not as early as mscfisher and mckan514 – usually around 7 AMJanuary 10, 2017 at 8:47 am #1434150
Another caveat with cash and cash equivalents. For-profit and not-for-profit entities can classify equivalents with an original maturity date of three month or less. For example if the reporting date is 12/31/16 and the cash equivalent was for a 6 month CD maturity in January 2017 – it would not be considered a cash equivalent. It has to have original 3 maturity date or less.
For governmental accounting, cash equivalents can have maturities longer than 3 months so long at they mature 3 months after the reporting balance sheet date.January 10, 2017 at 12:48 pm #1434581
Thanks guys. heres another question Im not really understanding because of the wording.
Lano Corp.'s forestland was condemned for use as a national park. Compensation for the condemnation exceeded the forestland's carrying amount. Lano purchased similar, but larger, replacement forest land for an amount greater than the condemnation award. As a result of the condemnation and replacement, what is the net effect on the carrying amount of forestland reported in Lano's balance sheet?
The amount is increased by the excess of the replacement forestland's cost over the condemned forestland's carrying amount.
The amount is increased by the excess of the replacement forestland's cost over the condemnation award.
The amount is increased by the excess of the condemnation award over the condemned forestland's carrying amount.
No effect, because the condemned forestland's carrying amount is used as the replacement forestland's carrying amount.
I thought B was the answer because we look at the gain or loss based on how much we got vs the carrying amount. So I thought the proceed is the award and the Carrying is how much we replacing for.. But that's incorrect. The answer is A. Appreciate the help.January 10, 2017 at 1:03 pm #1434599
The best way to approach these questions is to assign values based on the facts, as follows:
Replacement cost of new property 1,200,000
Condemnation award 1,000,000
Carrying amount of old property 800,000
A gain would have been recognized on the condemnation and would not have affected the basis in the new property. It's an entirely separate transaction.January 10, 2017 at 1:03 pm #1434602
Oh I am so horrible at these condemnation questions- but I think it essentially should be recorded as two separate transactions so making up numbers
thus the condemnation would be
DR Cash 200
CR Land 100- Carry amount
CR Gain on Condemnation 100
Then your new purchase would be
DR Land @ Purchase Price 300
CR Cash 350
So essentially netted together your land account has increased by the amount you paid for the new land less the carry amount of the old land. Or 300 – 100.January 10, 2017 at 1:13 pm #1434612
Okay Gelim is seriously kicking my A$$!!! Sorry just needed to rant 🙂January 10, 2017 at 1:22 pm #1434617
ohh. I see. Thanks! I hate F2! 🙂January 10, 2017 at 1:28 pm #1434624
@McKan, you are making better progress that me. I just finished PPE yesterday LOL, and then was greeted by Inventory (I'm going backwards). I thought all of the hard stuff was supposed to be at the end of the book smh!January 10, 2017 at 1:32 pm #1434627
On differences between GAAP and IFRS, Becker has a summary section with 71 items. Ninja book presents this differently, but I count roughly 25 items covered. These differences seem arbitrary to me. For most FAR concepts, I try to make up a story where a procedure makes sense. I know I can't just memorize 71 items that are different, I need brain space for nonmonetary transactions and sale leasebacks and such. Any hints on mastering IFRS?January 10, 2017 at 1:32 pm #1434630
LOL don't know about that Mtaylo- am stuck on receivables today and man I used to think I understood this stuff until I hit these questions- ha…January 10, 2017 at 1:37 pm #1434633
I'm sorry if this has been asked already but does anyone have tips on acing research sims? I have never been good at them and usually only get them right in studying on the 2nd attempt. I can't remember if the “search within” option is available with highlighted terms like it is in ninja mcq and I NEED to get the research question right. All points count and I am weak in the sims.January 10, 2017 at 1:48 pm #1434644
@cjsr, W/ Gleim, we can select IFRS only questions and then we are given an 8 page appendix that breaks down the differences by the chapter. I think there are only 90 questions in the entire TB, but I planned to do a thorough session on those towards the end. Does Becker allow you to weed out the IFRS questions?January 10, 2017 at 1:51 pm #1434651
Also cpareviewforfree.com has an entire section of nothing but IFRS questions that I found very helpful last go round.January 10, 2017 at 2:08 pm #1434671
Thank you, mtaylo and mckan! My access to Becker expired in October, and I decided instead of paying for that whole section again I would go with the Ninja 10-point Combo instead. But I don't think Becker had an option to isolate the IFRS questions. I'm rereading the Becker book along with Ninja. I think it will be good to have the Ninja mcqs as a fresh test bank.
I'm also making my own flash cards on 5 x 7 cards, not really flash cards because I put all the info on one side only because it annoys me to have to flip cards. So maybe just my way of taking notes of the things especially that need to be memorized.January 10, 2017 at 2:21 pm #1434681January 10, 2017 at 2:53 pm #1434710
For the research SIMS i always use the advanced search tool and add the wording that's in the question so it narrows down my results. I've learned that when they all for examples its usually referencing the appendix. Keep practicing you will get it!January 10, 2017 at 2:58 pm #1434716
IFRS is much more simple than GAAP in my opinion lol. Becker section on IFRS vs GAAP is ALL IFRS questions. I guess all of us are hitting a road block. Sitting here reviewing Ch 2 Revenue recognition and completed contracts etc.. These topics are the worst!January 10, 2017 at 3:46 pm #1434762
Test Your Might.
To keep the answers all in one place, please post in the FB thread to enter.January 10, 2017 at 3:51 pm #1434767
I also recommend getting access to codification via Fasb.org. You can sign up for a basic membership that's free.January 10, 2017 at 4:18 pm #1434795
@mscfisher Thanks for the tip! I will try that out on my next research sim!
I also have a question about including interest receivable in notes. I am working sim #4 in Ninja MCQ and notice that interest is included in a LT receivable on a noninterest bearing note but is not included in another note. Why is interest part of some receivables and not others? Here are the examples. You're to find LT receivable on 2013 BS:
The $750,000 note receivable is dated May 1, 20X2, bears interest at 9%, and represents the balance of the consideration Kern received from the sale of its idle building to Able Co. Principal payments of $250,000 plus interest are due annually beginning May 1, 20X3. Able made its first principal and interest payment on May 1, 20X3. Collection of the remaining note installments is reasonably assured.
~~The answer is 250,000. I understand this because it is 750,000 less the 2013 payment and current receivable for 2014.
The $200,000 note receivable is dated December 31, 20X0, bears interest at 8%, and is due on December 31, 20X5. The note is due from Frank Black, president of Kern, Inc., and is collateralized by 5,000 shares of Kern's common stock. Interest is payable annually on December 31, 20X3. The quoted market price of Kern's common stock was $45 per share on December 31, 20X3.
~~The answer is 200,000 because payment is not due until 2015 even though interest payments are due.
On April 1, 20X3, Kern sold a patent to Frey Corp. in exchange for a $100,000 noninterest-bearing note due on April 1, 20X5. There was no established exchange price for the patent, and the note had no ready market. The prevailing interest rate for this type of note was 10% on April 1, 20X3. The present value of $1 for two periods at 10% is 0.8264. The patent had a carrying amount of $40,000 on January 1, 20X3, and the amortization for the year ending December 31, 20X3, would have been $8,000. Kern is reasonably assured of collecting the note receivable from Frey.
~~The answer is 100,000 x .8264 = 82,640 + (82,640 x 10% x (9/12)) = 88,838. I understand discounting the note and I can understand why the interest is added back to it to reach face value by the time it is due. But I don't understand why the interest is added to the LT receivable in this case but not the two examples listed above?
I'm obviously confused about this so I'm hoping someone can help me understand. I apologize for asking so many questions on here!!!
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