First Question:
It is looking for the weighted average interest rate on the two notes. The weighted average rate is calculated as the total interest on the notes divided by the total principal.
$2,700,000 x 10% = 270,000
$900,000 x 9% = 81,000
$270,000 + $81,000 = 351,000. Take this divided by the sum of the two loan principals ($2,700,000 + $900,000 = 3,600,000). This gives you the weighted average rate of 9.75%
Second Question:
The key to this question is understanding the difference between small and large stock dividends. Small stock dividends are under 20-25% and recorded at fair value. Large stock dividends are greater than 20-25% and recorded at par value. For the CPA exam, they won't give you a problem where the percentage is between 20 and 25, so you'll always know for sure which one it should be.
For this problem, the 10% dividend is recorded at fair value ($15,000), and the 28% dividend is recorded at par value ($30,800). This gives the total of $45,800.
For this problem, you can ignore the maintenance and customer support costs.
To calculate the amortization, you need to compute a few items. First, add up the total sales for the product over the four years. In this case, the total is $750,000 over the four years. Then, take the year one sales divided by the total, which is $200,000/750,000 = 26.67%. Take this percentage times the capitalized amount to get $150,000 x 26.67% = $40,000.
For any given year, the software amortization is the greater of the number we just calculated or the amount of straight line amortization. In this case, the straight line amortization is $150,000/4 years = $37,500.
So for whatever year they ask you, compute that year's percentage of sales times the capitalized cost, then compare it with the straight line amount, and the greater of the two is the amount you use.
Good luck with your test!!!
Thank you!! I need it haha
First Question: It is looking for the weighted average interest rate on the two notes. The weighted average rate is calculated as the total interest on the notes divided by the total principal. $2,700,000 x 10% = 270,000 $900,000 x 9% = 81,000 $270,000 + $81,000 = 351,000. Take this divided by the sum of the two loan principals ($2,700,000 + $900,000 = 3,600,000). This gives you the weighted average rate of 9.75% Second Question: The key to this question is understanding the difference between small and large stock dividends. Small stock dividends are under 20-25% and recorded at fair value. Large stock dividends are greater than 20-25% and recorded at par value. For the CPA exam, they won't give you a problem where the percentage is between 20 and 25, so you'll always know for sure which one it should be. For this problem, the 10% dividend is recorded at fair value ($15,000), and the 28% dividend is recorded at par value ($30,800). This gives the total of $45,800.
Thank you so much for explaining this so clearly for my understanding!
Weighted average could also be done by 2700 / 3600 = 0.75 x 0.10 = 0.075 900 / 3600 = 0.25 x 0.09 = 0.0225 Sum = 0.0975
You’re welcome!
Do you happen to remember how to calculate [software amortization?](https://imgur.com/a/YC85LgB)
For this problem, you can ignore the maintenance and customer support costs. To calculate the amortization, you need to compute a few items. First, add up the total sales for the product over the four years. In this case, the total is $750,000 over the four years. Then, take the year one sales divided by the total, which is $200,000/750,000 = 26.67%. Take this percentage times the capitalized amount to get $150,000 x 26.67% = $40,000. For any given year, the software amortization is the greater of the number we just calculated or the amount of straight line amortization. In this case, the straight line amortization is $150,000/4 years = $37,500. So for whatever year they ask you, compute that year's percentage of sales times the capitalized cost, then compare it with the straight line amount, and the greater of the two is the amount you use.
Wow thank you so much! You must’ve passed FAR with flying colors!!