[jeff]

FAR Resources:

Free FAR Notes & Audio – https://www.another71.com/cpa-exam-study-plan

FAR 10 Point Combo: https://www.another71.com/products-page/ten-point-combo

FAR Score Release: https://www.another71.com/cpa-exam-scores-results-release

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

[ZSRizvi]

Had a question here but I answered it already. Never mind.

@Dedication

Glad you liked the video, LOL. Sometimes, in the midst of all this depressing studying, it's small things like that video that get you going again. 🙂

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[ZSRizvi]

Had a question here but I answered it already. Never mind.

@Dedication

Glad you liked the video, LOL. Sometimes, in the midst of all this depressing studying, it's small things like that video that get you going again. 🙂

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[ZSRizvi]

For those of you using Becker, I'm trying to do the simulations but it won't allow me to enter text or choose from a drop-down menu for the journal entries.

Is that normal?

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[ZSRizvi]

For those of you using Becker, I'm trying to do the simulations but it won't allow me to enter text or choose from a drop-down menu for the journal entries.

Is that normal?

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[ZSRizvi]

How would extraordinary gains/losses factor into temporary differences that could lead to deferred tax assets/liabilities?

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[ZSRizvi]

How would extraordinary gains/losses factor into temporary differences that could lead to deferred tax assets/liabilities?

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[ZSRizvi]

I am just bombarding this thread with questions…finally have gotten to deferred tax assets/liabilities review and it's blowing my mind.

Miro Co. began business on January 2, Year 1. Miro used the double-declining balance method of depreciation for financial statement purposes for its building, and the straight-line method for income taxes. This was the only difference between tax and financial statement accounting. On January 16, Year 3, Miro elected to switch to the straight-line method for both financial statement and tax purposes. The building, which cost $240,000 in Year 1, had a useful life of 15 years and no salvage value. Data related to the building is as follows:

Double-declining depreciation………………..Straight-line depreciation

Year 1…………………………….$30,000……………………………………$16,000

Year 2……………………………..$20,000…………………………………..$16,000

Miro's tax rate is 40%.

Which of the following statements is correct?

a. There should be no reduction in Miro's deferred tax liability.

b. Miro's deferred tax asset should be increased by $7,200 in Year 3.

c. There should be no increase in Miro's deferred tax asset.

d. Miro's deferred tax asset should be reduced by $7,200 in Year 3.

Why is the answer C? I can't comprehend it.

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[ZSRizvi]

I am just bombarding this thread with questions…finally have gotten to deferred tax assets/liabilities review and it's blowing my mind.

Miro Co. began business on January 2, Year 1. Miro used the double-declining balance method of depreciation for financial statement purposes for its building, and the straight-line method for income taxes. This was the only difference between tax and financial statement accounting. On January 16, Year 3, Miro elected to switch to the straight-line method for both financial statement and tax purposes. The building, which cost $240,000 in Year 1, had a useful life of 15 years and no salvage value. Data related to the building is as follows:

Double-declining depreciation………………..Straight-line depreciation

Year 1…………………………….$30,000……………………………………$16,000

Year 2……………………………..$20,000…………………………………..$16,000

Miro's tax rate is 40%.

Which of the following statements is correct?

a. There should be no reduction in Miro's deferred tax liability.

b. Miro's deferred tax asset should be increased by $7,200 in Year 3.

c. There should be no increase in Miro's deferred tax asset.

d. Miro's deferred tax asset should be reduced by $7,200 in Year 3.

Why is the answer C? I can't comprehend it.

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[NYCaccountant]

Extraordinary gains or losses are shown net of either the income tax benefit, or income tax expense. Basically it would create a deferred tax asset if it there is a loss, or create a deferred tax expense if it is a gain. Keep in mind that this is assuming that the Extraordinary item is a temporary difference (unrealized ). Either way, the item should be included in net income, so when working from to income per books to taxable income, this would be accounted for.

Now you second question. Let's go! lol.

So they tell us that depreciation per books is more than depreciation per tax, which is kinda weird, but ok whatever.

Depreciation in year 1 per books = 30,000

Depreciation in year 1 per income tax return = 16,000

Temporary difference= 14,000 (30,000-16,000=14,000)

Let's use net income of 100,000 before depreciation.

Net income after deducting book depreciation = 70,000 (100,000-30,000=70,000)

Net Income after deducting tax depreciation = 84,000 (100,000-16,000=84,000)

So for income statement purposes you say your income tax expense is 28,000 (70,000*40%)

And then you say for tax return purposes your income tax expense is 33,600 (84,000*40%)

So you show more of a tax expense on your return than books. So this creates a deferred tax asset.

Deferred portion calc

Income tax expense – current portion Dr. 33,600 Income statement

Income tax benefit – Deferred portion Cr.5,600 Income statement

Deferred tax asset Dr. 5,600 Balance sheet

Income tax payable Cr. 33,600 Balance sheet

So for income statement purposes the 33,600 and 5,600 net out to equal 28,000, which is what we had above, and you show on your balance sheet liability of 33,600 that you owe the tax man. The 5,600 tax asset you can think of as prepaid tax, which you will use to reduce future taxes payable.

Now in the second you have similar situation, which means your tax asset balance increases.

In year 3, the depreciation per tax is more than depreciation per books, which is the opposite of year 1 and year 2, so this creates a deferred tax liability, except you don't record the liability, you just reduce the asset. so long story short, C is correct.

Sorry for the long explanation, deferred taxes are very hard to explain because of all the moving parts involved.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

Extraordinary gains or losses are shown net of either the income tax benefit, or income tax expense. Basically it would create a deferred tax asset if it there is a loss, or create a deferred tax expense if it is a gain. Keep in mind that this is assuming that the Extraordinary item is a temporary difference (unrealized ). Either way, the item should be included in net income, so when working from to income per books to taxable income, this would be accounted for.

Now you second question. Let's go! lol.

So they tell us that depreciation per books is more than depreciation per tax, which is kinda weird, but ok whatever.

Depreciation in year 1 per books = 30,000

Depreciation in year 1 per income tax return = 16,000

Temporary difference= 14,000 (30,000-16,000=14,000)

Let's use net income of 100,000 before depreciation.

Net income after deducting book depreciation = 70,000 (100,000-30,000=70,000)

Net Income after deducting tax depreciation = 84,000 (100,000-16,000=84,000)

So for income statement purposes you say your income tax expense is 28,000 (70,000*40%)

And then you say for tax return purposes your income tax expense is 33,600 (84,000*40%)

So you show more of a tax expense on your return than books. So this creates a deferred tax asset.

Deferred portion calc

Income tax expense – current portion Dr. 33,600 Income statement

Income tax benefit – Deferred portion Cr.5,600 Income statement

Deferred tax asset Dr. 5,600 Balance sheet

Income tax payable Cr. 33,600 Balance sheet

So for income statement purposes the 33,600 and 5,600 net out to equal 28,000, which is what we had above, and you show on your balance sheet liability of 33,600 that you owe the tax man. The 5,600 tax asset you can think of as prepaid tax, which you will use to reduce future taxes payable.

Now in the second you have similar situation, which means your tax asset balance increases.

In year 3, the depreciation per tax is more than depreciation per books, which is the opposite of year 1 and year 2, so this creates a deferred tax liability, except you don't record the liability, you just reduce the asset. so long story short, C is correct.

Sorry for the long explanation, deferred taxes are very hard to explain because of all the moving parts involved.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Anonymous]

@ZSRizvi are you using the web browser or downloadable software?

For the HW TBS questions interspersed with the lectures it won't let me do any actions either since it's just an image. But it seems to be ok during the SIMs at the end of the chapter.

As for Deferred Taxes, I'm still trying to wrap my head around that one too.

[Anonymous]

@ZSRizvi are you using the web browser or downloadable software?

For the HW TBS questions interspersed with the lectures it won't let me do any actions either since it's just an image. But it seems to be ok during the SIMs at the end of the chapter.

As for Deferred Taxes, I'm still trying to wrap my head around that one too.

[NYCaccountant]

Just to clean up a couple of points. The deferred tax asset increases to 7,200 at the end of the second year.In the third year, the deferred asset begins to reverse. The third year, your book depreciation expense will be $14,615 (240,000 Original cost-50,000 accumulated dep=190,000/13 years left in assets useful life). For tax purposes, you record the same depreciation as in year 1 and year 2 (16,000). Now this creates a deferred liability except we will not record the liability, just reduce the asset. Journal entry below: Assuming net income before depreciation of 100,000 again.

Net Income after deducting book depreciation=85,385 (100,000-14,615)

Net Income after deducting tax depreciation= 84,000 (100,000-16,000)

Now income tax per book will be higher than income tax per tax return.

Journal entry below

Income tax expense – Current Dr. 33,600

Income tax expense Deferred Dr. 554 (Temporary difference * tax rate (1,385*40%)

Income tax payable Cr. 33,600

Deferred tax asset Cr. 554

Basically you show an income tax expense of 34,154 (33,600+554), but you owe only the tax man 33,600 because remember you prepaid for the taxes in the prior two periods. So instead of me paying cash, I just offset it with my deferred tax asset.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

Just to clean up a couple of points. The deferred tax asset increases to 7,200 at the end of the second year.In the third year, the deferred asset begins to reverse. The third year, your book depreciation expense will be $14,615 (240,000 Original cost-50,000 accumulated dep=190,000/13 years left in assets useful life). For tax purposes, you record the same depreciation as in year 1 and year 2 (16,000). Now this creates a deferred liability except we will not record the liability, just reduce the asset. Journal entry below: Assuming net income before depreciation of 100,000 again.

Net Income after deducting book depreciation=85,385 (100,000-14,615)

Net Income after deducting tax depreciation= 84,000 (100,000-16,000)

Now income tax per book will be higher than income tax per tax return.

Journal entry below

Income tax expense – Current Dr. 33,600

Income tax expense Deferred Dr. 554 (Temporary difference * tax rate (1,385*40%)

Income tax payable Cr. 33,600

Deferred tax asset Cr. 554

Basically you show an income tax expense of 34,154 (33,600+554), but you owe only the tax man 33,600 because remember you prepaid for the taxes in the prior two periods. So instead of me paying cash, I just offset it with my deferred tax asset.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Anonymous]

Hi everyone! Anybody there who can shed light about available for sale securities? What I've learned is that when AVS is sold, normally you ignore the Unrealized Holding Gains and Losses(OCI) if the securities sold are not the only investment you have. Does this rule apply to sale of a portion of the only type of AVS you have? For example you have AVS worth $1,000 (this is the only AVS you have) and you sell $300 of those. Should we ignore the Unrealized Holding G/L here? Anyone pls. help I'm so confused. Thank you!

[Author]

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