[jeff]

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

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

[norseman88]

That dude is joking 100%. No way he would be dumb enough to mention the center, date and time if he actually had an appointment.

[cmrn89]

norseman88 – ehhhh he very well could be..

[GiniC]

There are SOOOOOO many ways to “weed out” people who don't belong in this profession! Folks in here clearly have the dedication and perseverence to be a credit!

Now to go back over (ugh) interperiod tax allocation. 🙁

[norseman88]

@CMRN89 LOL! He's a business man!

[mckan514w]

Screw selling / paying for your seat- If I am going to do something unethical it would be more along the lines of paying the dude who “didn't study” for FAR and passed to take the exam for me…. 🙂

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

[GiniC]

@mckan514w I figure they have our fingerprints on file from every time we've been to Prometric, so they'll KNOW if the candidate appearing is different from the one who tested under that ID before.

[GiniC]

PLEASE somebody help me understand this???

Given:
Tax rate 40% for all years
Taxable income 40,000
Year end Future deductible amount 5,000
Beginning of year balance in deferred tax asset 1000

Determine the income tax expense for the year

I see
DR Tax expense Current 16,000
……CR Deferred tax benefit 2,000
……CR Income Tax Payable 14,000

Answer is 15,000 – why did they add back the deferred tax asset sitting in balance at the beginning of the year?

[FalconsDawgs33]

@GiniC Is that all there is to the question? If not, could you provide a little more detail or the exact question as it is? I haven't seen a question presented in that way on Becker, so I'm a bit confused by reading it haha. But I just did Accounting for Income Taxes last night, so I may be able to help.

[mckan514w]

I worked on this yesterday GiniC– bear with me while I try to explain 🙂

The question is asking for you total tax expense for the year.
Your current portion of tax expense is equal to 16
In addition you have a future deductible amount of 5- which will give rise to a DTA- of 5X.40= 2
Your current DTA account holds an asset of 1. Your end balance should be equal to this years DTA of 2- thus you will recognize a deferred tax expense of 1

16 current portion less the Asset that will be deductible in the future is equal to Total tax expense for the year of 15.

Deferred Tax expense (or benefit) is the net change during the year in the deferred tax assets and liabilities- so your Balance sheet account totals are computed and adjustments are made to move each previous year total to the newly computed amount with the “balancing number” recognized as the expense… kind of like Bad Debt Expense under the aging method

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

[GiniC]

@FalconsDawgs33 – that's pretty much the whole question, except the problem showed two independent situations and I only typed out one of them.

@mckan514w – why is the ending DTA balance supposed to equal the “year end” future deductible amounts? Are we to assume that the “future deductible amounts” include everything accrued to date, not just temporary differences from the current year, as I was reading it?

[FalconsDawgs33]

@GiniC I can answer this one. They give you a beginning of the year DTA of 1,000. This amount represents a future deductible amount of $2,500 (1/40%). The end of the year future deductible amount is now $5,000, which affects the DTA by $5,000 * 40% tax rate = 2,000. The change of 1,000 now must be recorded on the books. The journal entry for the income tax in total is therefore:
Tax Expense…………15,000
DTA…………………1,000
…………Income Taxes Payable…………16,000

[mckan514w]

@GiniC- I can't explain it any better than what @falcon just did 🙂 at this point I am trying not to dwell on the why but the how… 🙂 have in my notes that its called the “balance sheet approach” so you might want to google-

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

[GiniC]

Thanks everyone – my brain functions on logical processes and I stink at memorizing, so if I don't puzzle out the “why” I'll be stumped on the 9th. I found a few sites that are starting to make sense… I used to know this!!!

[norseman88]

R&W formed partnership in Year 1. The partnership agreement provides for annual salary allowances of $55,000 for R and $45,000 for W. The partners share profits equally and losses in a 60/40 ratio. The partnership had earnings of $80,000 for year 2 before any allowance to partners. What amount of these earnings should be credited to each partners capital account?

R W
43,000 37,000
40,000 40,000
45,000 35,000
44,000 36,000

Answer is A. I don't understand why the answer isnt B. Wouldn't the earnings be credited to each partners capital account 50/50 at 40,000 and the amount of the loss (salary allowances over earnings) debited to each partners capital account at 60/40 when made?

[Mscfisher]

@norseman88

I think the salary has to come out of the earnings first. So there is actually a loss of 20k for the year. That has to be split 60/40

So reduce 55 by the 12k share of loss and 45 by the 8k share of loss

[Author]

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