CPA FAR - SE 1 Lessons Learned

Question 1

What is the current maturity amount on a lease?

Answer 1

The current maturity amount on a lease is next year’s amortization amount.

Question 2

What stock price value do you use when working with a “small” stock dividend (<25% of total shares)?

Answer 2

You use the share market value amount.

Question 3

What stock price value do you use when working with a “large” stock dividend (>25% of total shares)?

Answer 3

You use the share par value amount.

Question 4

What is stock dividend’s effect on Retained Earnings?

Answer 4

Stock dividends decrease Retained Earnings.

Question 5

How do you calculate combined Net Income in a consolidation?

Answer 5

(Parent’s Net Income) - (Equity in Sub’s NI) + (Sub’s Income * % Ownership)

AKA Parent’s income only + Parent’s share of sub NI

Question 6

How do you account for a change in accounting estimate?

Answer 6

A change in accounting estimate is accounted for in the current period and prospectively.

Question 7

What is the classification of money and NFP receives on top of the principal amount that is restricted from use?

Answer 7

The interest on top is also w/ donor restrictions.

Question 8

How are Asset Retirement Obligations (AROs) valued?

Answer 8

AROS are recorded at a discount rate/amount and “brought up” (similar to bond amortization) to the full amount.

The amount “amortized” is the accretion expense.

AROs have two associated expenses:
1. Accretion Expense (increase in ARO liability)
2. Depreciation Expense

Question 9

Are dividends (both cash and stock) included in ending Retained Earnings?

Answer 9

Cash and stock dividends are subtracted out to get ending Retained Earnings.

Question 10

What is the journal entry to write down a DTA when the money in the DTA is unlikely to be realized?

Answer 10

Dr. Income Tax Expense
Cr. Deferred Tax Valuation Allowance

Question 11

How do you record a donation as an NFP when there is uncertainty regarding both its value and use?

Answer 11

You do not record this as anything.

Question 12

As an NFP, how do you record a pledge that is unconditional but we do not get the money until a future date?

Answer 12

The NFP notes this as a donation w/ donor restrictions because time is the restriction.

Question 13

Are impairment losses included in loss from discontinued operations?

Answer 13

Yes, impairment losses are included in the loss from discounted operations amount.

Question 14

In the Statement of Cash Flows, what is included in Investing Activities?

Answer 14

Long-term assets and investments
Ex:
1. Purchasing long term assets & investments
2. Selling long term assets & investments

Question 15

In the Statement of Cash Flows, what is included in Financing Activities?

Answer 15

Long-term liabilities and equity
Ex:
1. Borrowing funds (i.e., taking out a loan, issuing debt)
2. Paying principal on debt
3. Issuing CS & PS FOR CASH
4. Paying CS & PS dividends

Question 16

In the Statement of Cash Flows, what areas result in no net cash flows?

Answer 16

1. Depreciation
2. Amortization
3. Depletion
4. Recording sub income via equity method

Question 17

Where does proceeds from AFS securities go on the Statement of Cash Flows?

Answer 17

Investing Activities

Question 18

Where does proceeds from Trading securities go on the Statement of Cash Flows?

Answer 18

Operating Activities

Question 19

Do you expense or capitalize “standard servicing” or standard maintenance?

Answer 19

Since it is standard, you expense it.

Question 20

Do you expense or capitalize maintenance that extends the life of the asset or increases its utility?

Answer 20

Since it extends the life and/or increases asset utility, you capitalize the amount.

Question 21

Where does foreign currency translation gain/loss go?

Answer 21

OCI

Question 22

Where does foreign currency transaction gain/loss go?

Answer 22

NI