FAR Study Group October November 2013 - Page 83

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  • October 9, 2013 at 3:39 pm #477160
    jeff
    Keymaster

    Free Financial Reporting BLITZ: https://www.another71.com/ninja-blitz/

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

    October 9, 2013 at 3:39 pm #477231
    jeff
    Keymaster

    Free Financial Reporting BLITZ: https://www.another71.com/ninja-blitz/

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

    October 9, 2013 at 4:58 pm #477162
    Anonymous
    Inactive

    Eliabraham…haha I'm sorry! I don't think they'd really ask something like this one the exam (but what do I know…) but it was just bothering me because I couldn't understand it.

    iwantmylifeback_…thanks! I think I get it. So because you can't capitalize the asset in the govt funds, you have the expense account right away instead of the leased asset account. So when the first payment is made, there is no lease liability to debit, so you have to debit expenditures? Kinda, sorta?

    October 9, 2013 at 4:58 pm #477233
    Anonymous
    Inactive

    Eliabraham…haha I'm sorry! I don't think they'd really ask something like this one the exam (but what do I know…) but it was just bothering me because I couldn't understand it.

    iwantmylifeback_…thanks! I think I get it. So because you can't capitalize the asset in the govt funds, you have the expense account right away instead of the leased asset account. So when the first payment is made, there is no lease liability to debit, so you have to debit expenditures? Kinda, sorta?

    October 9, 2013 at 4:59 pm #477164
    ndpendentbw
    Member

    Hi Everyone,

    I have browsed this site from time to time and it's so great to have this forum to see I am not suffering alone. It is true what they say “misery loves company”. Studying for this exam has been the most daunting experinece of my life. I will not disclose how many times I have sat for this one section and continue to score 71 – out of fear I might loose my rights to access this forum… however it's more than 2x.

    You all give me the strength and confidence to not allow this thing to defeat… THANK YOU ALL!!!!

    With that said I am hoping someone could help explain the answer to the following Tax question that has me puzzled from WTB:

    North Inc. uses the equity method of accounting for it's 50% investment in Mill Corp's common stock. During year 3, Mill reported earnings of $600,000 and paid dividends of $200,000. Assume

    October 9, 2013 at 4:59 pm #477235
    ndpendentbw
    Member

    Hi Everyone,

    I have browsed this site from time to time and it's so great to have this forum to see I am not suffering alone. It is true what they say “misery loves company”. Studying for this exam has been the most daunting experinece of my life. I will not disclose how many times I have sat for this one section and continue to score 71 – out of fear I might loose my rights to access this forum… however it's more than 2x.

    You all give me the strength and confidence to not allow this thing to defeat… THANK YOU ALL!!!!

    With that said I am hoping someone could help explain the answer to the following Tax question that has me puzzled from WTB:

    North Inc. uses the equity method of accounting for it's 50% investment in Mill Corp's common stock. During year 3, Mill reported earnings of $600,000 and paid dividends of $200,000. Assume

    October 9, 2013 at 5:05 pm #477166
    ndpendentbw
    Member

    sorry…

    Assume that 1) all undistributed earnings of Mill will be distributed as dividends in future periods, 2) the dividends received from Mill are eligible for the 80% dividends received deduction, and 3) North's income tax rate is 30%. The charge in the amount of deferred income tax to be reported by North for Year 3 is

    60,000

    12,000

    0

    24,000

    This answer is 12, 000?

    I thought the 12k would be current income tax?

    October 9, 2013 at 5:05 pm #477238
    ndpendentbw
    Member

    sorry…

    Assume that 1) all undistributed earnings of Mill will be distributed as dividends in future periods, 2) the dividends received from Mill are eligible for the 80% dividends received deduction, and 3) North's income tax rate is 30%. The charge in the amount of deferred income tax to be reported by North for Year 3 is

    60,000

    12,000

    0

    24,000

    This answer is 12, 000?

    I thought the 12k would be current income tax?

    October 9, 2013 at 5:15 pm #477168
    Anonymous
    Inactive

    @dante042104, yep you have it. When you think govermental funds think current resources meaning you won't have any non-current assets only expenditures. Then when you consolidate to the higher being (a.k.a. Government-wide) becomes a non current liability/asset. Because it uses accrual basis.

    October 9, 2013 at 5:15 pm #477240
    Anonymous
    Inactive

    @dante042104, yep you have it. When you think govermental funds think current resources meaning you won't have any non-current assets only expenditures. Then when you consolidate to the higher being (a.k.a. Government-wide) becomes a non current liability/asset. Because it uses accrual basis.

    October 9, 2013 at 5:22 pm #477170
    iwantmylifeback_
    Member

    @ndpendentbw – There isn't enough information to calculate current income tax.

    You take the ownership % times earnings – dividends to get 200,000.

    From here, 20% is a temporary difference, the 80%DRD is a permanent difference which will never be taxable

    So 20% X 200,000 = 40,000 times the tax rate of 30% = 12,000 DTL

    BEC 85
    AUD 99
    REG 88
    FAR 93

    October 9, 2013 at 5:22 pm #477242
    iwantmylifeback_
    Member

    @ndpendentbw – There isn't enough information to calculate current income tax.

    You take the ownership % times earnings – dividends to get 200,000.

    From here, 20% is a temporary difference, the 80%DRD is a permanent difference which will never be taxable

    So 20% X 200,000 = 40,000 times the tax rate of 30% = 12,000 DTL

    BEC 85
    AUD 99
    REG 88
    FAR 93

    October 10, 2013 at 1:15 am #477172
    Anonymous
    Inactive

    I swear, maybe it is just me but the way they explain things has me like wtf!!! Can someone explain this explanation, and why are they using 200%?

    A machine with a 4-year estimated useful life and an estimated 15% salvage value was acquired on January 1, year 1. The increase in accumulated depreciation for year 2 using the double-declining balance method would be:

    Original cost × 85% × 50% × 50%.

    Original cost × 50% × 50%.

    Original cost × 50%.

    Original cost × 85% × 50%.

    Original cost × 50% × 50%. This answer is correct. The increase in accumulated depreciation for year 2 is the depreciation expense recorded in year 2. The equation for calculating DDB depreciation is:

    Book value × 200% / Useful Life

    The percentage used for DDB is always twice the straight-line rate. Note that salvage value is not used in determining depreciation expense under this method.

    In year 1: Original cost × 50% (200%/4 = 50%)

    In year 2: (Original cost × 50%) × 50%

    October 10, 2013 at 1:15 am #477244
    Anonymous
    Inactive

    I swear, maybe it is just me but the way they explain things has me like wtf!!! Can someone explain this explanation, and why are they using 200%?

    A machine with a 4-year estimated useful life and an estimated 15% salvage value was acquired on January 1, year 1. The increase in accumulated depreciation for year 2 using the double-declining balance method would be:

    Original cost × 85% × 50% × 50%.

    Original cost × 50% × 50%.

    Original cost × 50%.

    Original cost × 85% × 50%.

    Original cost × 50% × 50%. This answer is correct. The increase in accumulated depreciation for year 2 is the depreciation expense recorded in year 2. The equation for calculating DDB depreciation is:

    Book value × 200% / Useful Life

    The percentage used for DDB is always twice the straight-line rate. Note that salvage value is not used in determining depreciation expense under this method.

    In year 1: Original cost × 50% (200%/4 = 50%)

    In year 2: (Original cost × 50%) × 50%

    October 10, 2013 at 1:27 am #477174
    iwantmylifeback_
    Member

    I've found the best way to tackle the depreciation problems is to make up some numbers. Just take regular straight-line depreciation and replace the numerator with a 2 for double declining balance or 1.5 for 150% declining balance.

    100,000 X (2/4) = 50,000 (Or 100,000 X 50%)

    <50,000> prior year depreciation

    = 50,000 remaining base X (2/4) = 25,000

    Therefore, the year 2 depreciation would be 25,000 or [X(50%)(50%)]

    BEC 85
    AUD 99
    REG 88
    FAR 93

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