CPAnet Forum: Marketable securities

Active Topics

Memberlist

Help

FAR STUDY GROUP
CPAnet Forum : FAR STUDY GROUP

Topic: Marketable securities - Equity Method (

Topic Closed)

Author

Message

<< Prev Topic | Next Topic >>

Tajik4CPA
Regular
Regular

Joined: 15 Oct 2009
Online Status: Offline
Posts: 238

Posted: 10 Jul 2010 at 00:25 \| IP Logged

Futurepasser wrote:

Tajik,

You took your exam six days ago. Why do you remember that stuff?

:)

I love FAR :) Audit on the other which I am studying right now is like a foreign language to me :(

__________________
FAR - 92
AUD - 82
REG - 83
BEC - 90

Becker 2009 and Gleim 2010, Wiley 13.0

ryrob
Regular
Regular

Joined: 28 Jun 2010
Location: United States
Online Status: Offline
Posts: 101

Posted: 10 Jul 2010 at 02:20 \| IP Logged

yashikaahluwali wrote:

Hello,

I am able to under the logic behind a becker question as mentioned below.

Puff Co. acquired 40% of Straw, Inc.'s voting common stock on January 2, 2001 for $400,000. The
carrying amount of Straw's net assets at the purchase date totaled $900,000. Fair values equaled
carrying amounts for all items except equipment, for which fair values exceeded carrying amounts by
$100,000. The equipment has a five-year life. During 2001, Straw reported net income of $150,000.
What amount of income from this investment should Puff report in its 2001 income statement?
a. $40,000
b. $52,000
c. $56,000
d. $60,000

The answer is b.

Should it not be d?

Please help.

I figured it out the following way, using the building block technique they give you in the Becker lecture. Might be a bit longer, but it applies to all problems if they don't give you the excess in FMV for the equipment:

They paid $400,000 for their share.
BV of Assets is $900,000
40% * 900,000 = 360,000

That means they paid 40,000 excess which is then amortized over 5 years, or 8,000 for this year.

Normal Net income before amort. expense is 40% * 150,000 = 60,000

60,000 - 8.000 amort expense = 52,000

__________________
REG 7/3/10 (94)
FAR 7/30/10 (89)
BEC 8/14/10 (92)
AUD 8/30/10 (99)

Becker 2010 Self Study

yashikaahluwali
Newbie
Newbie

Joined: 24 Apr 2010
Location: United States
Online Status: Offline
Posts: 23

Posted: 10 Jul 2010 at 03:46 \| IP Logged

Thanks Ryrob.

I am also planning FAR on 7/30. All the best to you.

REG 5/21/10 - 79
FAR 7/30/10
BEC 8/31/10
AUD 5/26/10 - 79

Search for other posts by yashikaahluwali

yashikaahluwali
Newbie
Newbie

Joined: 24 Apr 2010
Location: United States
Online Status: Offline
Posts: 23

Posted: 10 Jul 2010 at 03:49 \| IP Logged

Thanks Tajik4CPA. All the best for Audit.

Tajik4CPA wrote:

Do not get confused with trading securities. That's a different story :) When using equity method, you bought securities and FV of equipment was higher than book value. Since the Sub depreciates equipment based on historical cost, you need to reduce your income by the difference of FV and BV of equipment. You measure that excess when you bought the equity investments, not every year. Hope this makes sense.

Kookie
Contributor

Joined: 26 Dec 2008
Location: United States
Online Status: Offline
Posts: 93

Posted: 18 Oct 2010 at 09:46 \| IP Logged

ryrob wrote:

I figured it out the following way, using the building block technique they give you in the Becker lecture. Might be a bit longer, but it applies to all problems if they don't give you the excess in FMV for the equipment:

They paid $400,000 for their share.
BV of Assets is $900,000
40% * 900,000 = 360,000

That means they paid 40,000 excess which is then amortized over 5 years, or 8,000 for this year.

Normal Net income before amort. expense is 40% * 150,000 = 60,000

60,000 - 8.000 amort expense = 52,000

Thanks for suggesting the building block approach to solving this problem!! I was stuck on how they/instructors solved this one in the class questions...since they didn't make use of the building blocks (as they had in the lecture). Both ways make sense to me now! :-)

__________________
AUD 79, 80
BEC 77
REG 73, 67, 80
FAR 63, 71, 67, 70, 80
PRAISE GOD--I'M DONE!!! :-)

Sorry, you can NOT post a reply.
This topic is closed.

<< Prev Page of 2

Printable version

You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum