[Anonymous]

Has anyone taken the sample test on the AICPA website? Is so, would you be able to walk me through Simulation Question 5? This is a question where you have a letter and have to determine if the underlined portions are correct. Other than the last line which deals with like-kind exchanges, I am at a complete loss on how the correct answers are arrived out with the information at hand.

[Anonymous]

Ha – never mind. Completely overlooked additional tabs WITHIN the exhibit tab.

Derp….

[Anonymous]

Hi eschierm,

Did you do SIM #5, Question #5 of AICPA's REG sample test? That's the question of the tax basis in the new delivery van. I can’t figure why the answer is $25,388. Any chance you remember how they arrived at this number?

Thanks

[Namstut]

@EApursuingCPA, I have been struggling with this one as well.

Based on the depreciation schedule, the adjusted basis of the old van is $2,088 (18,125 cost – 16,037 A/D).

Total due on the invoice $23,300, add $2,088 adjusted basis of the old truck gets you to $25,388.

This was an accidental discovery and I am sure that there is boot paid involved since the adjusted basis is $2,088 and the credit given for the new truck is $9,000. I am trying to figure out of sales taxes play any role in the calculation so I am going to fight this one a little bit longer.

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[demarcon]

Try doing the Journal entry for it and it will make more sense. The new basis is a plug in number

New basis xx <– Plug
Cash Received xx
Accumulated depreciation xx
Liability given up xx
Property given up (the original basis) xx
Gain Recognized xx
New Liability xx

You can also net the accumulated depreciation and get your current basis in the property as a credit. I like doing a full fledged JE when I do the problems though.

[Namstut]

@demarcon, the Ninja genius! Ha! Thanks!

What tripped me is the sales tax on the invoice. I might tackle this SIM again before my exam on the 8th just to get a piece of mind.

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[jayjack25]

Thanks for solving this.

I was also tripped by the sales tax on the invoice, but looks like it's not the key to solving this.

So, in conclusion, i think the boot paid to buy the Year 9 delivery van is $23,300. The trade-in allowance of $9,000 Michael received for trading in the Year 5 Van isn't considered a boot. Thus, his Realized Amount equals $0 since he received a Year 9 Van worth $23,300 and paid boot for it of $23,000. As such, no gain was even realized.

The Year 9 Van basis equals:

AB in Year 5 Van surrendered (Cost Basis-A/D) $2,088
+ Boot Michael gave to get Year 9 Van $23,300
– Boot Michael received in the transaction $0
+ Gain Recognized $0
Total $25,388

[Anonymous]

Would anyone be able to walkthrought me to how to get the answer for the parcel of land at wayside street and greensburg and the manufacturing equipment as well in the same question as well?

[Anonymous]

I am stuck on this sim, why won't aicpa include explanation in the answer key.

[Anonymous]

Currydon –
For the land parcel – the government paid $71,800 for a property which had a basis of 63,000 on their books. This is technically a gain of $8,800 – HOWEVER – since this is considered an involuntary conversion (IRC 1033) the gain is deferred until the new property is sold. So since the gain is deferred, the new property that the company bought for $72,563, will not be on their books for that much. They will reduce the new basis of the new property by the GAIN which was DEFERRED on the old property. This comes out to $63,763 [$72,563 – $8,800]. Since the basis is lower than what they paid, think of it as, when they sell the new property sometime in the future, they will have more gain to recognize (the gain which was deferred).

For the Manufacturing equipment – this is a good example of knowing what is and is not included in capitalizing an asset. Everything on the invoice is included besides the extended warranty. An extended warranty is never included in the cost of an asset, it will be separate period expense during the year when the warranty is “used”. So if the warranty is 2 years, they will expense half of it each year on its own as warranty expense. Think of prepaid assets until being expensed.

[Author]

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