[cpaswag]

I know Roger has a video of the DRS solution but does anybody know or can lead me to the rest of answers / explanation for AIPCA practice REG simulation answers?

Thanks

[jtvande]

Same I can not get the last answer to the second question

[CPAIN2K17]

@jtvande I hope I am not too late in answering your question, I was just looking at the AICPA practice questions tonight so I was going to answer your question on how they got the answer for the last part on question 2 (the basis before the asset was sold).

To calculate the basis, you just subtract the depreciation from years 1 and year 2 from the original purchase price.

Year 1 deprecation was 20,000*.20*75%(because vehicle was used only 75% for business) = 3000
Year 2 depreciation was 20,000*.16(32% is yr 2 amount and you have to divide by 2 since it was sold this year)*75% = 2400

Total depreciation taken in years 1 and 2 is 5,400

Original purchase price = 20,000
Less: Depreciation (5,400)
Basis = 14,600

Let me know if something doesn't make sense here!

[CPAIN2K17]

@cpabound24 I don't know of anywhere to find solutions but if you have a specific question I'd be happy to try and answer if I can.

[ssaetern]

@cpain2k17 can you help me solve sample question #3? The part where they ask for accumulated adjustment account (AAA) and Jennifer Sullivan’s tax basis at year end 4? The amounts are $484,000 for AAA and $252,000 for tax basis. I’m not sure how they came up with those amounts. Thanks.

[CPA so close, so far away]

AAA Calculation…

Beg. Balance in AAA 100,000
Ordinary Income Added + 440,000
Deductions Subtracted (26,000) Even though the fine is not deductible for tax, it reduces AAA
Distributions (30,000)

Ending Balance AAA 484,000

Sullivan's Basis…

Beg Basis 60,000
Additions 220,000 1/2 of the ordinary business income that will be reported on line 17 of 1040
Distribution (15,000) 1/2 of the distribution the S-corp made to the shareholders
Seperate Items (12,000)
Fine (1,000)

Ending Basis 252,000

[TCav12579]

Does anybody know how they got the answer for the last DRS sim #1 and #4? I am having trouble with those questions. Is it because it is an involuntary exchange and a like-kind exchange? Thanks in advance!

[sunshineandstudying]

@TCav12579 Yes, pretty sure that's why! Heres how i worked it out– #1 is an involuntary conversion. It's pretty tricky because you have to cross reference several of the documents. But basically, in an indirect involuntary conversion (where you get money instead of property), your basis for replacement property is replacement cost – gain not recognized. So first, to calculate the gain realized, you take the proceeds from the government (71,800) less the basis of the Parkway property (63,000). This gives you your realized gain of 8,800. Then you have to check what amount of the proceeds are reinvested (rule: no gain recognized to the extent proceeds are reinvested in similar property). If you go to the HUD-1 statement, you can see that the cost of the new property is $72,563. This means that all of our proceeds ($71,800) were reinvested, so there will be no gain recognized. Therefore, the basis of the new property is 72,563 (replacement cost) – 8,800 (gain not recognized) = 63,763.

[sunshineandstudying]

@tcav12579 and for #4, it is a like-kind exchange because it's a “trade-in.” There are a couple ways to calculate the basis of your new asset, but I did it this way:

Adjusted basis of assets transferred = 23,300 (cash) + 2,088 (adjusted basis of old van).

To get the adjusted basis of the old van, I referenced the depreciation worksheet and subtracted the beginning balance of 18,125 – beg A/D balance (14,993) – current year depreciation (1,044) = 2,088.

Normally, you'd also need to add any gain recognized and subtract the FMV of boot, but there wasn't any in this problem since Lina was the one paying the extra cash.

Another way to get the same answer is to take the FMV of like-kind property received (30,200, cost of the new van) – deferred gain (5,012). The 5,012 comes from sum of the cash and basis of the old van (25,388). This means we are getting a van worth $30,200 in exchange for property with a basis of $25,388.

Let me know if that doesn't make sense! I'm trying to work through all this too haha I take REG on Friday 🙂

[TCav12579]

thanks for the explanations! I am scheduled for Friday as well, sounds like you're better prepared than I am haha. Good luck!

[Author]

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