[Peanut]

Wiley Question –

I just sat for 3 hours straight doing 99 MCQ’s for Corp tax. I think I killed my brain. Anyway, I can not figure out this below question.

Boone Corporation, which is not exempt from the alternative minimum tax, reported adjusted current earnings (ACE) of $500,000 for 2010. Its alternative minimum taxable income (before the alternative minimum tax NOL deduction and ACE adjustment) was $200,000. Boone Corporation’s alternative minimum taxable income (after exemption) for 2010 was

A. $237,500

B. $372,500

C. $425,000

D. $500,000

Answer C is correct. Boone’s pre-ACE AMTI of $200,000 would be increased by an ACE adjustment of [($500,000 – $200,000) x 75%] = $225,000, resulting in an alternative minimum taxable income of $425,000. No AMT exemption would be available because Boone’s $40,000 exemption would be reduced (to zero) by 25% of AMTI in excess of $150,000.

I’m really not sure how they came up with this? Maybe I’ve done too many Corp. Tax questions today! Any help is MUCH appreciated!

AUD 81 (X4) Previous scores 59, 72, 72
REG 80 (X3) Previous scores 59, 60
FAR 75 (X2) Previous score 67
BEC 79 (X2) Previous score 58

[yankeeaccountant]

@Peanut

Great question. BTW kudos on 99 corp tax mcq's! Basically, I would go back and look at the Wiley book page 582. I am not strong in AMTI, and ACE. I am working on that today. But basically it looks like the question is asking you to use the figures given to back into the AMTI figure. If you take the figure they give you of $200,000 and as the pre ace amti, you can calculate the ace adjustment and add that to the pre ace amti to get the AMTI b4 ACE adjustment and nol deduction.

It makes more sense when you have the page open and look at the formula. In short, you are working backwards to figure out the first item listed: amti b4 ace and nol…….

Hope that helps. I had trouble with that one too. I wrote in the book 500,000 – 200,000….so I knew I was trying to figure out the same problem.

gl

[Peanut]

Crap I don't use the Wiley book I use Becker! Maybe I'll just pray I don't get a question like this on the exam.. lol. Thanks for clarifying that they are asking for the pre-ace amount to get to AMTI, that helps! Thanks! Will be thinking of you tomorrow! Hopefully today you're just wrapping everything up?

AUD 81 (X4) Previous scores 59, 72, 72
REG 80 (X3) Previous scores 59, 60
FAR 75 (X2) Previous score 67
BEC 79 (X2) Previous score 58

[yankeeaccountant]

@Peanut,

I wish my scanner was working, because I would send it to you. Basically,

AMTI b4 ace adjustment and nol deduction

Add: adjustments

Deduct: adjustments

---

adjusted current earnings (ace)

– Pre ACE AMTI

---

Balance (positive or negative)

x 75%

---

ace adjustment (positive or negative)

so, the $425,000 that was calculated is the number on the top of this calculation. They gave you figures from the middle of the calc and you had to work back up. Does that make sense?

[Anonymous]

Ouch! This is a difficult question. Yaeger never covered much on this nor did they assign any questions like this. So, my advice would be to not fuss over this question. But if you really want to know the answer, I've figured it out for you because well, I can use the practice too, lol….

The AMTI formula is…..

AMTI before ACE Adj & NOL Deduction

+/- ACE Adjustments

==================

AMTI after ACE Adj

-Exemption (max $40,000 & gets phased out once AMTI reaches $310,000)

==================

AMTI

To calculate your ACE adjustment, the ACE Adj formula is….

ACE

-AMTI before ACE Adj & NOL Deduction

=============================

Balance

x 75%

===================

ACE Adjustment

Let's calculate it now…

ACE Adj Formula….

500,000 (ACE)

-200,000 (AMTI before ACE Adj & NOL Deduction)

=====================

300,000 (Balance)

x 75%

=====================

225,000 (ACE Adj)

Now, apply the $225,000 to the AMTI formula…

200,000 (AMTI before ACE Adj & NOL Deduction)

+225,000 (ACE Adjustments)

==================

425,000 (AMTI after ACE Adj)

– 0 (no exemption since AMTI is over $310,000)

==================

425,000 (AMTI)

[yankeeaccountant]

Cpaman is right. I was confusing which number was which. I knew the 200 plus 225 was the $425 but was getting the formula turned around.

Peanut–look at Cpaman's explanation. Basically though, it is a formula that you are trying to calculate through. He is right, Yaeger and Becker didn't go through this that much. I worked thru it and moved on. Guess I shouldn't be cramming and posting…….gl.

[Peanut]

Thanks guys! Awesome explanations. You know how it is sometimes, when you get those questions late in your review that you really want to dominate! At the beginning of my review I bi-pass certain questions I don't understand. However, at the end of my review (REG in 2 weeks) I just want to make sure I know everything! Thanks again.. Good luck!

AUD 81 (X4) Previous scores 59, 72, 72
REG 80 (X3) Previous scores 59, 60
FAR 75 (X2) Previous score 67
BEC 79 (X2) Previous score 58

[Author]

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