[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

[CPAfit]

i am using becker as well. I am currently going through all the mcqs and SIMS again. From my first try I noticed that Becker MCQs are way harder than the original exam. So if you're doing good on becker you should be all set for the real thing

[Lilyana]

Arghh, need help on the basic concept stuffs- Accrual!

Question from WTB:

Savor Co. had $100,000 in cash-basis pretax income for year 2. At December 31, year 2, accounts receivable had in­creased by $10,000 and accounts payable had decreased by $6,000 from their December 31, year 2 balances. Compared to the accrual basis method of accounting, Savor’s cash pretax income is:

Why do we add back both the increase in AR and decrease in AP for accrual?

[jstay]

@lilyana, I know there is a reason why we do it but i find it easier just to know that when converting cash to accrual you need to add increase in current assets and decrease in current liabilities and subtract decrease in current assets and increase in current liabilities.

On another note, I just finished F6 with becker yesterday. Planning on taking FAR late august, hopefully last day possible or close to it for max study time. I wanna do F7 & F10 next week and F8 & F9(gov non profit) the week after. this way it gives me july and august for full on review. i can hopefully put in 30 to 40 hours each week.Anyone got any suggestions for study methods? I'm about to go and do a progress test. I do “ok” with the MCQ hw, average more than 50% and i know i need work there. Other than that i read the review book, make index cards for each chapter, along with the gasp vs firs appendix. and when i find time i open my wiley intermediate text and just read that on a topic. People rewrite the notes? So i should rewrite my index cards? Luckily, i have taken a govt and non profit class so I'm hoping that helps me out. however i have not taken an advanced course, so i need to really go hard with the consolidations and foreign currency transactions and VIEs. I have the acquisition method understood…i think. Anyways, happy studying!! and any studying ideas are appreciated!

[Tncincy]

@Lilyana,

We adjusted accounts receivable so the related accounts for sales (income statement account) would be accounts payable, purchases, prepaid rent, rent expense, these effect the sales account when we are converting. I hiope this helps.:-))

It begins with a 75
Been here too long as a cheerleader....ready to pass

[Lidis]

Deferred Taxes

Temporary Differences

1. One method used for the financial statements, another method used on the tax return

2. Type 1: Revenue & expense items that belong on income statement now / tax return later

Future Taxable Amount = FTA; or Future Deductible Amount = FDA

a. Normal accrual accounting / Installment sales method of accounting (FTA)

b. Percentage-of-completion method / Completed contract method (FTA)

c. Accrued warranty expense / Deductible when claims paid (FDA)

3. Type 2: Revenue & expense items that belong on tax return now / income statement later

a. Collections in advance (i.e., rental income) / Earned later (FDA)

b. Accelerated depreciation / Straight-line depreciation (FTA)

4. Temporary differences reverse themselves

If gains and losses are voluntary or involuntary; all go to the income statement

IRS Rule: If you replace the property within a certain period, you can defer the gain

[Lidis]

Deferred Taxes

B. Permanent Differences

1. Items on income statement that will never be on tax return; they never reverse themselves

a. Life insurance premiums when company is the beneficiary

b. Interest on municipal bonds

c. Dividends from domestic corporation (DRD is not taxed.)

d. Life insurance benefits

2. What really causes permanent differences is that GAAP and the IRS tax rules just don’t agree

[Lidis]

Deferred Taxes

What is the current federal tax liability? ( the credit amount in the journal entry)

What is the current portion of income tax expense? (the debit amount in the journal entry)

What is the current provision for taxes? (the debit amount in the journal entry

Your current federal tax liability is always based on taxable income, so

expense = payable

Income Tax Expense

Income Tax Payable

[Lidis]

Deferred Taxes

Deferred Tax Asset

Future Deductible Amount (FDA) * future tax rates = Deferred Tax Asset

Future tax rates are used if, they have been enacted into law

Deferred Tax Liability

Future Taxable Amount (FTA) * future tax rates = Deferred Tax Liability

Future tax rates are used if, they have been enacted into law

Valuation Allowance Account

1. May have to set up account if percentage of deferred tax asset is never going to be realized

2. For deferred tax assets only

3. It is a contra asset on the balance sheet

4. It is handled through the deferred portion of expense, never current

[Lidis]

For the year ended December 31, year 1, Mont. Co.’s books showed income of $600,000 before

provision for income tax expense. To compute taxable income for federal income tax purposes, the

following items should be noted:

Income from municipal bonds $ 60,000

Depreciation deducted for income tax purposes in excess of

depreciation recorded on the books 120,000

Proceeds received from life insurance on death of an officer 100,000

Estimated tax payments 0

Enacted corporate rate 30%

Ignoring the alternative minimum tax provisions, what amount should Mont report at December 31,

year 1, as its current federal income tax liability?

a. $ 96,000

b. $ 114,000

c. $ 150,000

d. $ 162,000

[Anonymous]

finishing up F1 for Becker. About to get a lot more challenging with F2, but going to keep rolling! Wish everything was as easy as F1!

[Lidis]

600,000

-60,000

-120,000

-100,000

320,000 taxable income

320,000*30%= 96,000

Income Tax Exp (current portion) 96,000

Income Tax Payable 96,000

[Tarheelgirl]

@Revenue – is that answer A?

Btw, thanks for that very detailed explanation on Deferred Taxes.

FAR - 46, 79 (7/8/14)
AUD - 56, 59, 2/23/15 3rd times a charm!
BEC - 69, 74 Really??
REG - April, I hope. Fingers crossed!

[Tarheelgirl]

@Revenue – your post just popped up. Yay, got one right! I am actually understanding Deferred taxes now.

FAR - 46, 79 (7/8/14)
AUD - 56, 59, 2/23/15 3rd times a charm!
BEC - 69, 74 Really??
REG - April, I hope. Fingers crossed!

[Anonymous]

I might be going crazy, but continue to get 165K as the cost. But the answer is 170.

My equation:

(Cost – 5000) * .15 = 24000

(Cost – 5000) = 160,000

Cost = 165,000

Can someone explain why this is 170K? Thanks 🙂

On January 2, year 1, Mogul Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years and an estimated salvage value of $5,000. The depreciation applicable to this equipment was $24,000 for year 3, computed under the sum-of-the-years’ digits method. What was the acquisition cost of the equipment?

$165,000

$170,000

$240,000

$245,000

[jstay]

just did my first progress test, after f-6. included questions on every topic up to f6. scored a 72%. selected 58 question, worked 54 and got 42 right. did this all in 61 minutes. ay feedback?

[Author]

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