REG Study Group July August 2013 - Page 56

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  • July 9, 2013 at 1:14 am #439586
    Anonymous
    Inactive

    Hey i was suppose to take my last test on july 18 before the end of the first test score release wave .. but family situation came up and haven't been able to study so now i need to push it off.. was wondering when the last day I could take it to be included in the second wave of test score release.. would it be aug 5th?

    July 9, 2013 at 1:28 am #439445
    Anonymous
    Inactive

    @heidi-O yes thank you so much!!

    July 9, 2013 at 1:28 am #439588
    Anonymous
    Inactive

    @heidi-O yes thank you so much!!

    July 9, 2013 at 2:28 am #439447
    Anonymous
    Inactive

    In Year 1, Starke Corp., an accrual-basis calendar year corporation, reported book income of $380,000. Included in that amount was $50,000 municipal bond interest income, $170,000 for federal income tax expense, and $2,000 interest expense on the debt incurred to carry the municipal bonds. What amount should Starke's taxable income be as reconciled on Starke's Schedule M-1 of Form 1120, U.S. Corporation Income Tax Return?

    a.

    $502,000

    b.

    $550,000

    c.

    $500,000

    d.

    $330,000

    Can someone explain why A is the correct answer?

    July 9, 2013 at 2:28 am #439590
    Anonymous
    Inactive

    In Year 1, Starke Corp., an accrual-basis calendar year corporation, reported book income of $380,000. Included in that amount was $50,000 municipal bond interest income, $170,000 for federal income tax expense, and $2,000 interest expense on the debt incurred to carry the municipal bonds. What amount should Starke's taxable income be as reconciled on Starke's Schedule M-1 of Form 1120, U.S. Corporation Income Tax Return?

    a.

    $502,000

    b.

    $550,000

    c.

    $500,000

    d.

    $330,000

    Can someone explain why A is the correct answer?

    July 9, 2013 at 3:52 am #439449
    Heidi-O
    Member

    Hey DSteele139!

    If we look at your financial statement according to GAAP, it would look like this:

    50,000 Interest Income on Municipal Bond

    (2,000) Interest Expense on Debt to Incur Municipal Bond

    (170,000) Federal Tax Expense

    380,000 Net Income After Taxes

    The Interest Income on the Municipal Bond is not taxable (never will be, it is a permanent difference) so we deduct it from our Net Income After Taxes

    The Interest Expense on Debt to incur the Municipal Bond is not a tax deductible item (never will be, it is a permanent difference) so we add it back to Net Income After Taxes

    Federal Tax Expense is not a deductible expense for income taxes (never will be, it is permanent – and if they did allow a deduction) so we add it back to Net Income after taxes

    The result is 380,000 – 50,000 + 2,000 + 170,000 = 502,000

    If you think about the debt expense incurred to get municipal bonds, the IRS thinks that if you are not going to Pay the taxes on the Income from the bond, you should not be able to deduct the expenses to acquire the funds on a non-taxable item. In essence, why should they help foot the bill for you to buy a non-taxable item? If they did, everyone would just use debt to purchase non-taxable income and have the IRS increase their return!! If I had 100,000 in interest expense for my muni bond and I am in a 35% tax bracket, the 100,000 deduction saves me having to pay $35,000 in taxes on my other income items! Thank you IRS!!

    Federal Income Taxes are not deductible – and if they were it would cause a never ending loop!! My income was 100,000 and my tax rate is 35% so my taxes are 35,000 and if I deduct them from my 100,000 – 35,000 = 65,000 Well, that makes my taxable income lower because of my federal income tax deduction. So, should I just pay 35% taxes on the 65,000? If I do, doesn't that make my taxable income even lower?? And if it does, should I just pay the 35% taxes on that amount? And so goes the loop.

    Going to bed, big day ahead of studying and listening to boring lectures. Must keep my chin up!!!

    FAR Aug 2012 79
    AUD Oct 2012 84
    REG Aug 2013 87
    BEC Jan 2013 80

    July 9, 2013 at 3:52 am #439592
    Heidi-O
    Member

    Hey DSteele139!

    If we look at your financial statement according to GAAP, it would look like this:

    50,000 Interest Income on Municipal Bond

    (2,000) Interest Expense on Debt to Incur Municipal Bond

    (170,000) Federal Tax Expense

    380,000 Net Income After Taxes

    The Interest Income on the Municipal Bond is not taxable (never will be, it is a permanent difference) so we deduct it from our Net Income After Taxes

    The Interest Expense on Debt to incur the Municipal Bond is not a tax deductible item (never will be, it is a permanent difference) so we add it back to Net Income After Taxes

    Federal Tax Expense is not a deductible expense for income taxes (never will be, it is permanent – and if they did allow a deduction) so we add it back to Net Income after taxes

    The result is 380,000 – 50,000 + 2,000 + 170,000 = 502,000

    If you think about the debt expense incurred to get municipal bonds, the IRS thinks that if you are not going to Pay the taxes on the Income from the bond, you should not be able to deduct the expenses to acquire the funds on a non-taxable item. In essence, why should they help foot the bill for you to buy a non-taxable item? If they did, everyone would just use debt to purchase non-taxable income and have the IRS increase their return!! If I had 100,000 in interest expense for my muni bond and I am in a 35% tax bracket, the 100,000 deduction saves me having to pay $35,000 in taxes on my other income items! Thank you IRS!!

    Federal Income Taxes are not deductible – and if they were it would cause a never ending loop!! My income was 100,000 and my tax rate is 35% so my taxes are 35,000 and if I deduct them from my 100,000 – 35,000 = 65,000 Well, that makes my taxable income lower because of my federal income tax deduction. So, should I just pay 35% taxes on the 65,000? If I do, doesn't that make my taxable income even lower?? And if it does, should I just pay the 35% taxes on that amount? And so goes the loop.

    Going to bed, big day ahead of studying and listening to boring lectures. Must keep my chin up!!!

    FAR Aug 2012 79
    AUD Oct 2012 84
    REG Aug 2013 87
    BEC Jan 2013 80

    July 9, 2013 at 4:09 am #439451
    Heidi-O
    Member

    @Icanhazcpa I'm sorry. I just looked completely at what you were asking and realized that you were looking for a way around using the MACR tables. Have you tried e-mailing your professor? They usually respond to those questions.

    Hope your studies are going well.

    FAR Aug 2012 79
    AUD Oct 2012 84
    REG Aug 2013 87
    BEC Jan 2013 80

    July 9, 2013 at 4:09 am #439594
    Heidi-O
    Member

    @Icanhazcpa I'm sorry. I just looked completely at what you were asking and realized that you were looking for a way around using the MACR tables. Have you tried e-mailing your professor? They usually respond to those questions.

    Hope your studies are going well.

    FAR Aug 2012 79
    AUD Oct 2012 84
    REG Aug 2013 87
    BEC Jan 2013 80

    July 9, 2013 at 1:25 pm #439453
    stokey45
    Participant

    Okay guys I took my REG exam yesterday. I believe I will need to have a rematch. I ran out of time and did not finish one simulation. It was on a subject that I was not that familiar with and felt that my review material did not really emphasize. Some of my answers I knew were correct and others I was making my best guess.

    One thing is for sure, I will be more prepared if I need to go thru the material again.

    Good Luck to all of you whose test is coming up!

    July 9, 2013 at 1:25 pm #439596
    stokey45
    Participant

    Okay guys I took my REG exam yesterday. I believe I will need to have a rematch. I ran out of time and did not finish one simulation. It was on a subject that I was not that familiar with and felt that my review material did not really emphasize. Some of my answers I knew were correct and others I was making my best guess.

    One thing is for sure, I will be more prepared if I need to go thru the material again.

    Good Luck to all of you whose test is coming up!

    July 9, 2013 at 2:10 pm #439455
    jeff
    Keymaster

    Daily BLITZ: REG – Corporate Taxation

    https://www.another71.com/ninja-blitz/

    HIYAAAAA

    July 9, 2013 at 2:10 pm #439598
    jeff
    Keymaster

    Daily BLITZ: REG – Corporate Taxation

    https://www.another71.com/ninja-blitz/

    HIYAAAAA

    July 9, 2013 at 2:43 pm #439457
    icanhazcpa
    Member

    OK for example: 7 year regular ol' property

    (1/7)(2 for DDB)(1/2 for half year) = .1428

    MACRS table? 14.28%

    It's just a faster way without having to even look at the table at all. I just was wondering if anyone else ever used this. It's not GAAP it gets you the same number as the table without having to bother with looking at the tables.

    BEC - 83
    FAR - 83
    REG - 74, 78
    AUD - 76

    Becker Self Study

    July 9, 2013 at 2:43 pm #439600
    icanhazcpa
    Member

    OK for example: 7 year regular ol' property

    (1/7)(2 for DDB)(1/2 for half year) = .1428

    MACRS table? 14.28%

    It's just a faster way without having to even look at the table at all. I just was wondering if anyone else ever used this. It's not GAAP it gets you the same number as the table without having to bother with looking at the tables.

    BEC - 83
    FAR - 83
    REG - 74, 78
    AUD - 76

    Becker Self Study

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