[yankeeaccountant]

I encountered the following question which had me confused. When I read the question, I thought there was no commercial substance. Since the cash was received, I thought that a prorated amount of the $30,000 gain should be recognized. Can anybody tell me why they think the whole gain should be recognized? What am I missing???

Thanks in advance!!

Equipment is bought by a company on January 1, Year One for $500,000. After several years, the related accumulated depreciation balance is $220,000. However, the asset on that date is actually worth $310,000. It is traded for a similar asset with a fair value of $300,000. In order to even up the trade, the company also receives cash of $10,000. What gain should the company record as a result of this exchange?

A Zero

B $10,000

C $20,000

D $30,000

[tri2011]

When the FV of “both” assets in a nonmonetary exchange “is determinable, ” the transaction is treated as a monetary exchange

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it will be measured at fair value of the assets given up and any gain or loss is recognized immediately.

[yankeeaccountant]

@tri2011,

UGH……missed that. Thanks, I will go over that again. Appreciate the help.

[yankeeaccountant]

@tri2011,

UGH……missed that. Thanks, I will go over that again. Appreciate the help.

[Anonymous]

Hello,

i have a question from the wiley test bank cd with answers that I dont believe are correct..Heres the question..

Kent, Inc.'s reconciliation between financial statement and taxable income for 2010 follows:

Pretax financial income

$150,000

Permanent difference

(12,000)

138,000

Temporary difference—depreciation

(9,000)

Taxable income

$129,000

Additional information

Cumulative temporary difference (future taxable amounts)

At 12/31/08 $11,000 At 12/31/09 $20,000

The enacted tax rate was 34% for 2009, and 40% for 2010 and years thereafter. In its December 31, 2010 balance sheet, what amount should Kent report as deferred income tax liability?

Answers

A: $3,600

B: $6,800

C: $7,340

D: $8,000

wiley says the answer is A $3,600 but I thought that it would be the deferred tax liability as of 12/31/09 (20K) plus the year 2010 change of $9k for a total of $29k. then to calc the deferred tax liability you'd take the $29k and multiply by the 40% tax rate effective 2010 and on = $11,600

Do you know what I'm doing wrong? Thank you in advance!

[IwannaBaCPA]

The $11,600 you got was the Ending Balance required in the Deferred Tax Liability. You have to subtract the Beginning Balance to get the required adjustment:

20,000 temp diff at 2/31/09

* 40% rate for 2010

= 8,000

so then that gives you the Deferred Tax Liability adjustment of $3,600

BEC: 79 - April 2011
FAR: 78 - May 2011
AUD: 81 - May 2012
REG: 79 - October 2012
Ethics: Passed - March 2013
I am finally DONE!

[Anonymous]

You are absolutely right..I thought the cumulative temporary differences was already adjusted for taxes. Thank you so much for your time. I appreciate it.

[Anonymous]

Does anyone know the difference between a retroactive restatement approach and the retrospective application?

I'm so confused by the two terms. I know the terms are often used interchangeably,but there are references in Becker that differentiate the two approaches/applications. Thank you!

[wantmylifeback]

the term “retroactive” is used when correcting and error, while “retrospective” is used for change in acctg principle or change in reporting entity.

At least that's my understanding of it….

BEC - 83 (10/22/10)
REG - 87 (11/30/10)
AUD - 76 (02/26/11)
FAR - 79 (04/26/11)

[Anonymous]

so you think the actual method and rationale is the same?

[wantmylifeback]

Yep – I believe so.

BEC - 83 (10/22/10)
REG - 87 (11/30/10)
AUD - 76 (02/26/11)
FAR - 79 (04/26/11)

[Anonymous]

Thank you!

[Author]

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