[jeff]

Free Study Planner, Notes, Audio, Flashcards: https://www.another71.com/cpa-exam-study-plan/

Free CPA Exam Survival Guide: https://www.another71.com/cpa-exam-survival-guide/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[jpowell31]

the effective interest rate is calculated taking the difference

take beginning carrying value ($65,267) x amort int rate (12%) = net carrying value, effective interest rate ($7,832)

then you take the difference between that amount and the face coupon (face/principal x stated rate = 70,000 x 8%=$5,600)

the difference = discount/premium = $2,232. you know if you need to add or subtract to the PV because you need to get in the direction of the original face amount ($70,000) so you would add the $2,232+ 65,267 = 67,499.

i'm having trouble remembering why you would discount using the original rather than the new interest rate….??

[jpowell31]

i realize i basically just said what the answer explained but this is how i calculate using the effective int rate method so not sure if there's a step you're missing?

[ahugemistake]

@jpowell I think the stress of the exam and work is getting to me, Ive been getting very little sleep all week so I think that might be getting factored in somewhere too. Thanks for the explanation though, I appreciate it.

I realize what they are doing now that I take a second look at it.

FAR - 78*
AUD - 66, 79
REG - 73, 76
BEC - 79

[jpowell31]

why do we use the old rate (12%) though? i don't have time to look at my notes now and don't want to forget – these kind of discussions help things stick!

[Anonymous]

On its December 31, 20X1, balance sheet, Shin Co. had income taxes payable of $13,000 and a current deferred tax asset of $20,000 before determining the need for a valuation account. Shin had reported a current deferred tax asset of $15,000 at December 31, 20X0. No estimated tax payments were made during 20X1. At December 31, 20X1, Shin determined that it was likely that 10% of the deferred tax asset would not be realized. In its 20X1 income statement, what amount should Shin report as total income tax expense?

A. $8,000

B. $8,500

Correct C. $10,000

D. $13,000

Income taxes payable $13,000

Less net deferred tax asset

((0.90 x $20,000) – $15,000) = (3,000)

Total income tax expense $10,000

I don't get it, why is 15000 being subtracted?

[jpowell31]

because you have a deferred tax asset (good thing) and the end of 2010 meaning it will reduce your taxes in the future (2011 – what you're trying to solve here) . you're ALSO reporting a current deferred tax of $20k (basically includes the 2010 amount so should be removed), 50% of which won't be realized. remember you're calculating the income tax expense (not the new deferred tax).

[Anonymous]

so 20000 is a current DTA and 15000 is DTA from the last yeah, shouldn't they be added (minus 2000 valuation)?

Wait why does 20000 include 15000? And if it is cumulative, why should 15000 be subtracted?

[Anonymous]

OK I looked at my excel table with DTL/DTA calculations and now see that the previous year should be subtracted

[jpowell31]

that's a good point…now i'm confused even if it is right

[Anonymous]

here is my table, maybe it will help. Formulas didn't get transferred from excel, not sure why

https://docs.google.com/spreadsheets/d/1olWzSPT2TcRLMZ2yJZ4cvZobO001nGFpt6jzjtxSdZA/edit?usp=sharing

[D C]

The current DTA/DTL is the NET change in deferred tax asset or liability. So the change in this case is +5k but this needs to be reduced due to the 10% that will not be used. The valuation account would reduce the 5k down to 3k, a reduction of 2k (20*.1). Leaving you with a current DTA of 3k.

Income Tax expense = Current Tax + DTL

or

Income Tax expense = Current Tax – DTA (as in this case)

….13k – 3k = 10k income tax expense.

B - 80
A - 71, 67, 77
R - 71, 77
F - 72, 77
DONE!!
Becker Self-study all the way! Did use Ninja Notes & Audio for FAR.

[jpowell31]

ok that's how i initially understood it, forgetting that it's the NET change. thanks.

[Anonymous]

this is what I don't understand. the initial entry is:

DR Income tax expense 100

CR DTL 50

CR Current tax liability 50

How does deferred tax liability become deferred tax expense and gets reported on income statement?

[HopefulCPA0601]

where did all of our signature go?

BEC: 65 - 79* - 84 DONE
AUD: 65 - 76 DONE
REG: 63 - 77 DONE
FAR: 65 - 63 - 67 - 69 - 73 - 71 - 83 DONE

Becker Notes & Flashcards, Wiley Test Bank, Ninja MCQ

[HopefulCPA0601]

@anjanja – normal entry to record DTL:

dr. deferred tax expense

cr. DTL

entry to record DTA:

dr. DTA

cr. defered tax benefit

BEC: 65 - 79* - 84 DONE
AUD: 65 - 76 DONE
REG: 63 - 77 DONE
FAR: 65 - 63 - 67 - 69 - 73 - 71 - 83 DONE

Becker Notes & Flashcards, Wiley Test Bank, Ninja MCQ

[Author]

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