[jeff]

Welcome to the Q2 2017 CPA Exam Study Group for REG. 🙂

[famh110]

@Teal…staying positive is the best thing you can do!! good luck on your test!! do let us know about your experience.

[thelatebloomer]

@Teal: Good luck! Looking forward to your report.

[Matt]

Good Luck @Teal

FAR 74

[CPA788]

Good luck @teal – you're a brave one out there on the front lines! Report back. Sending good vibes.

BEC - 74, 77
FAR - 72, 71 (retake 7/29)
REG - 69
AUD - Q4 '16

CA Candidate

[wng1885]

Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, Year 1, and an additional 100 shares for $13,000 on December 30, Year 1. On January 3, Year 2, Smith sold the shares purchased on December 15, Year 1, for $13,000. What amount of loss from the sale of Core's stock is deductible on Smith's Year 1 and Year 2 income tax returns?

A.
$0 in Year 1 and $0 in Year 2

Incorrect B.
$0 in Year 1 and $2,000 in Year 2

C.
$1,000 in Year 1 and $1,000 in Year 2

D.
$2,000 in Year 1 and $0 in Year 2

You answered B. The correct answer is A.

Since Smith bought and sold (at a loss) 100 shares of Core Co. common stock within 30 days, the wash sale rules apply. This means the loss is not allowed in Year 1 or Year 2. A loss sustained when stock or securities are sold is not allowed if, within a period beginning 30 days before the date of the sale and ending 30 days after the date of the sale, the taxpayer acquires substantially identical stock or securities. The “wash sale rules” do not apply to gains—only losses.

The basis of the stock that Smith acquired on December 30, Year 1, needs to be addressed: Since Smith sold the stock on January 3, Year 2, (for $13,000) which was acquired December 15, Year 1, (for $15,000) and the $2,000 loss was not allowed, the basis of the stock which he acquired on December 30, Year 1, is calculated as follows:

Cost on 12/30/Yr. 1 $13,000
Loss not allowed 2,000
Basis of stock $15,000

Why would the basis of the 12/30 purchased stock be increased by the amount of the loss (2000)?

[thelatebloomer]

@wei ng: The second purchase was identical stock in that 30 days, so it's treated the same as the first purchase. It's treated the same as if all 200 shares were purchased at once and 100 of it was sold at a loss. And because that loss was disallowed and the remainder was never sold again, they still can't recognize a loss.

[Matt]

Because he bought and sold essentially identical securities 30 within a 30 day period, the loss is not allowed.

I think the big thing to get from that is if e sold it at a gain lets say 17,000 with nothing else changing, the gain would be recognized.

FAR 74

[Matt]

Also If anyone can help me make sense of this one.

Which of the following is a false statement about priority under UCC Article 9?
A. A security interest in fixtures has priority over any earlier recorded real estate interest if it is a purchase money security interest perfected by fixture filing within 20 days after the goods become fixtures.
B. A purchase money security interest in inventory has priority over a security interest in the same collateral perfected after the debtor took possession if (1) the PMSI is perfected when the debtor receives possession and (2) the secured party sends an authenticated notice to any prior secured party before the debtor receives the inventory.
C. A purchase money security interest in collateral other than inventory or livestock prevails over a prior perfected security interest if the PMSI is perfected when the debtor takes possession or within 20 days afterward.
D. A lien arising by operation of law subsequent to the perfection of any security interest will be subordinate to the earlier perfected security interest because of the first-in-time, first-in-priority rule.

Answer (D) is correct.
A person who in the ordinary course of business furnishes services or materials with respect to goods may receive a common law or statutory lien to secure payment if the goods are in the person’s possession. The UCC describes this lien as a possessory lien. Such a person has priority over a security interest in the goods (whether or not perfected) unless the lien is statutory and the statute expressly provides otherwise.

FAR 74

[thelatebloomer]

@cpamatt: I think this question really just hits the concept that liens generally have priority even after a secured interest is established previously. I don't know if we really need to know why, but I noticed that this concept was highlighted in the Ninja audio as well, so as long as you remember that you are probably good. They could hit one of these statutory exceptions, but it seems unlikely that you need to go that deep.

On that note, does anyone find it funny how high the percentage of b-law questions is for the review materials? I skipped most of it doing Ninja MCQ because certain sections were not removed. The good news is that now that I'm going back to CPAExcel's test bank, I'm averaging 75-80% on them with the b-law included. I'm more worried about forgetting random individual tax rules or getting a tax sim that I'm not familiar with.

[Matt]

Thank you @thelatebloomer, that will definitely save me some time as I get deeper into this.

FAR 74

[CPA788]

Howdy ya'll – working on partnership taxation and a DRS SIM in Wiley is killing me.

1) LLC – if the facts of the question state 3 friends created an LLC, aren't the rules for calculating ordinary income/separately stated items the same as a partnership?
– Extended question – shouldn't liabilities be treated the same in respect to partner basis for LLCs and partnerhships? S corps are the only ones where a partner basis is only increased if that partner themselves brought the liability to the S corp.

2) Guaranteed payment – is deductible to the LLC to arrive at ordinary income but also reported on the K-1 of that respective partner. Doesn't the guaranteed payment flow to schedule E of the partner/shareholer, then to line 17 on the 1040? This SIM says the guaranteed payment is subject to self employment tax. Wtf.

Thanks guys. Long question, sorry :/

BEC - 74, 77
FAR - 72, 71 (retake 7/29)
REG - 69
AUD - Q4 '16

CA Candidate

[thelatebloomer]

What do you guys think about practicing the sims without going to the research literature unless it's actually a research question? It seems like that way you really test your knowledge, and then come test time you want to make sure you allocate enough time to sims so if you have to go to the literature, you can. Because right now I miss big pieces of the sims from knowledge, but with enough time I can pretty much always find the answer and there's no way I'll have that much time on the exam.

[thelatebloomer]

@CPA788: 1) Unless they are electing to be taxed as a corporation, that would be true. The fact that it's an LLC doesn't solely determine how it will be treated for tax purposes, so the way liabilities are treated will also depend on that. Shareholder contributions for S corps are done the same as for C corps. The liability is used in calculating the basis when property is contributed, but the shareholder no longer possesses an interest in the liability after the transaction like a partnership.

2) Guaranteed payments and distributive shares of partnership income both flow to Schedule E from the K-1, but guaranteed payments are considered compensation for services. Income for providing services is considered self-employment income. I think you would also need to fill out Schedule SE in this case. Definitely confusing.

[CPA788]

thanks @thelatebloomer. Idk the guaranteed payment for services never clicked for me as SE income. That SIM seemed so straight forward then totally caught me off guard when I got everything wrong.

Regarding your other question above – I never practice SIMS using the AL. I rarely use the AL in SIMS as it is (except for research like you said). I will get lost in the AL and most likely not gain too much from it. I know other people here feel differently, but that has been my experience. Practice SIMS like the AL isn't there.

BEC - 74, 77
FAR - 72, 71 (retake 7/29)
REG - 69
AUD - Q4 '16

CA Candidate

[sharpy]

Hi Everyone!

I'm back to try to attack the CPA exam like a NINJA after being away since 2011. I had passed FAR, AUD, and BEC, and failed REG twice with a 73 and a 74. Then I lost credit on FAR and was about to lose credit on AUD. By this time I had left public accounting and was enjoying my time as a Controller for a small company. Fast forward several years, I have my Masters and Accounting/Finance. It now seems that I won't be able to get much farther in my career without the CPA, so here I am.

I've scheduled REG for 5/22 to tackle my worst subject first and hope that I can just be done with it! Wish you all the best of luck this window, the new exam seems like it will be painful, and most painful is waiting for those scores. I had hoped to find out my score and then retake REG until I passed but I don't think that will work out as planned.

Allison

Change of pace...CMA here I come

[Author]

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