[Anonymous]

Wiley Online Test Bank FAR Sim #0019

600,000 Pretax Income

4,100 Actual Warranty

5,000 Warranty Expense

3,400 Bad Debt Expense

2,900 Debts Written off

15,000 Depreciation in Excess of book

7,800 Interest on Muni Bonds

12,000 Life insurance premium on officer

36,000 Rent in Advance (For 3 years, $12,000 included in Pretax income)

30% Tax rate

Compute Taxable Income

Take Pretax Income (600,000); add the difference in Warranty Expense (900); add the difference in Bad Debts (500); subtract difference in depreciation (-15,000); subtract Muni Bond Interest (-7,800); add Life Ins premium (12,000); add Rent in Advance for two years (24,000) = taxable income of $614,600

The answer has everything that I have except it shows taxable income of $626,600. There is a $12,000 difference. Am I missing something or is this a typo that Wiley hasn’t found yet?

[Anonymous]

I think – no need to add back $12000.00 life insurance premium on officer because no where in the problem they mentioned that the Company is the beneficiary.

[Anonymous]

Sorry, I left that part out! The life insurance is on a key officer. The answer has the exact same numbers as I have except for Taxable Income. Maybe this is just a type and I'm wasting time.

[jomarie]

Advance Rent – you need to add back the whole $36,000 because $12,000 is already included in pretax income. Sounds like they paid $48,000

This is my way of thought of the original entry

Dr. Advance Rent $36,000

Dr. Rent Expense $12,000

Cr. Cash $48,000

Started sitting in May 2002, on and off. But since 2008 I've been nonstop and my scores are....
AUD - 39, 48, 56, 65, 68, 73, 76!!! (Finally passed in Oct 2011!!!) Becker, NINJA, & Wiley
REG - 75 (Lost Credit) 72, 68, 73, 75 (Passed again in Aug 2011) Becker, NINJA, & Wiley
FAR - 65, 68, 75 (Lost Credit) 68, 73, 73, 80 (Passed again in May 2012) Roger, NINJA, & Wiley
BEC - 65, 68, 71, 72, 72, 71, 76 (Lost Credit)- 70, 76!!!! I AM DONE!!! - Roger, NINJA, & Wiley
After 10 long years of studying, I AM DONE!!!! Finally a Licensed CPA in the State of New York!!

[Anonymous]

Sorry JoMarie, but no dice. The rent is unearned revenue. You have to add back the 24,000 to taxable income because you pay tax on what you received regardless of whether you are on accrual or cash. Then you would end up with a deferred tax asset relating to the rent. I'm thinking this is just a typo. It has to be. There is no other explanation. You start with pretax income and then add the difference between actual warranty and warranty expense because you can only deduct what you actually paid. Then you add the difference between bad debt expense and bad debt written off because you can only deduct the actual write off amount. You subtract the depreciation in excess of book. Subtract the muni bond interest because it's not taxable. Add back the Life Insurance because it's on a key employee. Add the rent income that you received in advance. And that should take you to $614,600. I'm moving on to REG and calling this one a typo. Wiley has a list of corrected questions on their website but this isn't one of them.

[jomarie]

Yeah you're right. I was looking to much into it.

I sat down for a good 10 minutes before I came up with that explanation.

Started sitting in May 2002, on and off. But since 2008 I've been nonstop and my scores are....
AUD - 39, 48, 56, 65, 68, 73, 76!!! (Finally passed in Oct 2011!!!) Becker, NINJA, & Wiley
REG - 75 (Lost Credit) 72, 68, 73, 75 (Passed again in Aug 2011) Becker, NINJA, & Wiley
FAR - 65, 68, 75 (Lost Credit) 68, 73, 73, 80 (Passed again in May 2012) Roger, NINJA, & Wiley
BEC - 65, 68, 71, 72, 72, 71, 76 (Lost Credit)- 70, 76!!!! I AM DONE!!! - Roger, NINJA, & Wiley
After 10 long years of studying, I AM DONE!!!! Finally a Licensed CPA in the State of New York!!

[Anonymous]

Kricket-Did you decide to leave this question for good?? Don't blame you. It's Saturday night. I came up with their $626,600 but it is almost like the solution is worked in the opposite direction:

Book Income-$600,000

Actual Warranty-4100

Warranty Expense-(5000)

Bad Debt Expense-3400

Bad Debt w/o-(2900)

Excess Depr-15000

Life ins premium-(12000)

Rent-24,000

=626,600

Have not clue where the 7800 comes into play.

[Anonymous]

This one is just all jacked up! I'm moving on.

[Author]

Replies