[jeff]

Welcome to the Q1 2017 CPA Exam Study Group for FAR. 🙂

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

[Anonymous]

Taft Corp. uses the equity method to account for its 25% investment in Flame, Inc. During 20X1, Taft received dividends of $30,000 from Flame and recorded $180,000 as its equity in the earnings of Flame. Additional information follows:

•All the undistributed earnings of Flame will be distributed as dividends in future periods.
•The dividends received from Flame are eligible for the 80% dividends received deduction.
•There are no other temporary differences.
•Enacted income tax rates are 30% for 20X1 and thereafter.

In its December 31, 20X1, balance sheet, what amount should Taft report for deferred income tax liability?

A. $9,000

B. $10,800

C. $45,000

D. $54,000

[mtaylo24]

Thanks @Stilgoin and @Spartans92…very helpful. I guess that I'm confusing the two methods.

For example, AP decreased and inventory increased in my question posted above and they are adding both (direct). AP increased so they add, and inventory increased so they subtract in the example from my book below (Indirect). I'm so confused!

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[Stilgoin]

That example is the indirect method. For your question, you are actually subtracting A/P- A/P is a negative number.

Jeff had a pretty good mneumonic for this.

CRAP-I
Cash Remitted (i.e. paid)
+ Accounts Payable
-Inventory
= COGS on an Accrual Basis

For your question, the equation would be the opposite.
COGS
+Inventory
-A/P
=Cash paid

270,000 + 15,000 – (-13000)= 298,000

I really like Spartans J/E solution, though. 😉

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[Scared-cpa]

I have another question I was hoping someone could answer from Ninja MCQs again. Question #: 1495 Category: 2D Property, Plant, and Equipment

Pine City owned a vacant plot of land zoned for industrial use. Pine gave this land to Medi Corp. solely as an incentive for Medi to build a factory on the site. The land had a fair value of $300,000 at the date of the gift. This nonmonetary transaction should be reported by Medi as:
A. extraordinary income.
B. additional paid-in capital.
C. a credit to retained earnings.
D. a memorandum entry.

Answer: B
Only additional paid-in capital is an acceptable way to account for this donated land. The land has to be added to the assets, so a memo entry is not sufficient. Note that the concept of “extraordinary” items has been eliminated from GAAP; the presentation for items that are unusual in nature or occur infrequently will be expanded to include items that are both unusual in nature and infrequently occurring.

I picked C because I thought the JE would be Dr. Land Cr. RE but I'm obviously wrong. I don't understand how it is APIC though? Because it is in excess of what they paid for the land ($0)?

[Anonymous]

@scared. I think the notion is that the donated land is a “contribution to capital” rather than a transaction that would affect retained earnings. Retained earnings is an accumulation of the company's annual net income/losses minus any dividends to owners.

Also, the company did not pay anything for the land as your post indicated.

[Leanne]

Hi,
Can anyone help me explain this question? I got confused by the contradictory answers provided by Becker and Ninja..
So, the question is:
Hospital Inc, a NFP organization with no governmental affiliation, reported the following in its accounts for the current year ended 12/31:
Gross patient service revenue (this figure includes charity care of 25,000) 775,000
Provision for bad debts 15,000
difference between established billing rates and
fees negotiated with 3rd party mayors (contractual adjustments) 70,000

what amount would the hospital report as net patient service revenue in its stmt of operations for the current year ended 12/31 ?

A. 735,000
B. 690,000
C. 680,000
D. 705,000

So, my solution was 775,000-25,000-70,000= 680,000, exactly as Becker's solution.

But when i did the same question in Ninja, the answer showed me like: 775,000-25,000-15,000-70,000=665,000.

I don't know which one is the correct answer. Should I deduct the bad debt expense to get the net patient revenue?

[Cjsr]

@Bondvillain, B? The equity won't be taxed until it's received, then only 20% will be taxed. .2 x .3 x 180000 equals 10800. Very similar problem in Becker F6. Had to look it up. How to remember all this without having to look it up ….

BEC. 83. 9 Jan 2016
REG. 83. 30 Jan 2016
AUD. 92. 27 May 2016

Becker FastPass with in-class videos

[Stilgoin]

@bondvillain I think it is A. $9000 The 30,000 dividends received would not be part of a DTL.

(180,000-30,000) * .20 * .30 = $9,000

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[yazoon81]

@Lian Chen

I think NINJA is the right answer as bad debt expenses is resulted from operation and should be deducted when calculating net patient revenue.

[Stilgoin]

https://www.another71.com/cpa-exam-forum/topic/is-ninja-or-becker-correct-ninja-far-question-1352/

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[Mscfisher]

Is anyone using becker? I just started on the ninja mcq and they seem a lot easier than becker but then again i just started. I think I'm going to take some time off work to put in the extra hours. Shooting or feb 10…which now seems too close.

[garciarb]

@Mscfisher – I haven't used Becker, but I've used Ninja MCQs on all tests with 3 of 4 passed and have found that the Ninja questions are much harder that what is on the test. You'll be well prepared if you get through the question bank.

BEC - 81
AUD - 79
REG - June 2016 (Thanks Nasba!)
FAR - ugh

[Anonymous]

Here is the question and explanation:

Taft Corp. uses the equity method to account for its 25% investment in Flame, Inc. During 20X1, Taft received dividends of $30,000 from Flame and recorded $180,000 as its equity in the earnings of Flame. Additional information follows:

•All the undistributed earnings of Flame will be distributed as dividends in future periods.
•The dividends received from Flame are eligible for the 80% dividends received deduction.
•There are no other temporary differences.
•Enacted income tax rates are 30% for 20X1 and thereafter.

In its December 31, 20X1, balance sheet, what amount should Taft report for deferred income tax liability?

A. $9,000

B. $10,800

C. $45,000

D. $54,000

Correct answer: A

Explanation:

The recognized but as yet unreceived income will generate a future tax consequence, a future tax liability. However, dividends received by a corporation are eligible for a dividends-received deduction, and thus only a smaller taxable amount (multiplied by the tax rate) will eventually be paid.

Taft’s recorded equity in Flame earnings $180,000
Less dividends received in 20X1 30,000
Equals temporary difference before dividend deduction 150,000
Less dividends received deduction (80% x $150,000) 120,000
Equals net amount of temporary difference $ 30,000
Times tax rate x 30%
Deferred income tax liability $ 9,000

[mckan514w]

YUCK! Bondvillan I spent a ton of time last go round studying this particular question / concept what helped me with a question like this were remembering the JE's and what you are and are not currently paying taxes on. I don't know where you are getting tripped up but for me it was understanding the flow of the accounting. You are paying taxes now on the 30k but will not pay on the 180 until they are distributed as dividends at a later date

They are applying the equity method so the 30K dividend reduces the investment account and is recognized as a gain on the income statement
DR Cash 30
DR Investment Account 30

Meanwhile they are recognizing 180 as equity in earnings which will increase the Investment Account as well as give you Gain on the Income Statement-

DR Investment Account 180
CR Gain on Investment 180

But since all of this will be subject to dividend distribution at a later date you will not pay taxes on it until that time. So your Tax Income and your Financial Income is going to be different by 150K (180 not distributed less your 30 that was distributed that you will pay taxes on this year).

80% of the 150K will not be taxed thanks to the dividend deduction leaving with you a future tax liability of 30K that you will pay 30% on when it is distributed (which will probably be over several years and in reality several different tax rates but I digress 🙂 ). So eventually you will owe 9k in taxes on these earnings (30K * 30%)

Hope this helps!

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[Stilgoin]

Would the JEs not be this because dividends distributed reduce the investment account?

Dr Cash 30
Dr Inv Acct 150
Cr Gain on Inv 180

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[Author]

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