[jeff]

Welcome to the Q4 2017 CPA Exam Study Group for REG. 🙂

Introduce yourselves and let your fellow NINJAs know when you plan to take your REG exam.

The Five Steps (NINJA Framework): https://www.another71.com/pass-the-cpa-exam/

[Matt]

I chalk it up to the amount of capital they both had at the time representing how much value they currently have in the company.

We don't have information on how they all go they where they are capital wise, but it could be that smith has taken distribution before or that James contribution more or who knows what.

What we can tell is that after deducting the liabilities and loss and the receivables/P&E the company has 58,000 worth of cash and allocating the loss tells us how it can be distributed.

FAR 74

[Matt]

Hey does anyone have any examples or explanations of the difference between ordinary negligence and negligent misrepresentation and gross negligence I have psuedo definitions

Ordinary negligence- results from accountants act or failure to act in a given duty
Negligent misrepresentation- a false representation of a material fact not know to be false but intending to induce reliance
-Plaintiff reasonably relied on misrepresentations
Gross negligence- reckless disregard for the truth

At what point would something go from negligent misrepresentation to gross negligence?

FAR 74

[pcunniff]

Gross negligence is pretty much on the lines of fraud (not physically counting inventory). Negligence is more like “something was known or should have been known” and you didn't do anything about it. I think the key is understanding if it is more along the lines of fraud or not.

[pcunniff]

@Matt Why wouldnt the answer be D? I dont get that its just the capital account minus the loss. The 40000 cash just goes away? This doesnt make sense. Why wouldnt that get distributed?

[pcunniff]

Also – can someone answer the question i mentioned above about why the other expenses aren't included for an adoption of a child?

[Determined]

@ pcunniff the way I think about it is that the deduction for medical expenses goes in schedule A which is for itemized deductions.
While the other expenses are part of the adoption credit “reasonable expenses,cost and fees are used for the adoption credit (maximum adoption tax credit per child is $13,460) and medical expenses do not qualify as eligible expenses for this credit”.

[pharaoh]

I had to go look it up too. As @Determined said, you get credit for the adoption fees and then the child will be part of the family and medical expenses will be deducted as part of the family medical expenses in the itemized deductions

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[pcunniff]

Awesome – thanks guys!

Is anyone using CPA Wiley Excel? There is a DRS Sim that states what is Allison's tax liability possible penalty using the tax tables? For taxable income being 134,375, how is the tax liability 27,942 for head of household? I'm calculating using the 2016 tables and always get 28,018..

I wonder if its using 2017 tables or im just being an idiot. Can someone help me? This is a question in the simulations under Individual tax. If someone could help, that would be great.

[CoachEmUp]

@pcunniff I can go take a look at it, but just by reading your problem it wouldn't surprise me if it was a Wiley thing. What TBS Assessment was it or is it just a test bank TBS?

In general Wiley has been good (2 for 2 in passing so far), but the frustrating thing would be all they need to do is have ONE of their employees go through the courses and it would be easy to pick out the bugs/bad questions in their software. I remember one specifically from AUD that was “Which of the following is INCORRECT” and after choosing one the answer was “This is the ONLY answer that is CORRECT.”

[Andria – Another71]

BEC Test Your Might! Please answer in the thread to be eligible to win.

HiYa!

[Matt]

@pcunniff
Thanks for the response above.

For your question,keep in mind there are two partners not one.
The cash not going to the first partner is going to the second, you can calculate it the same way, just with a 40% allocation of the loss.

FAR 74

[pcunniff]

@coachemup .. cool

Yeah I couldn't agree more. There is nothing worse than going back and trying to figure out why your answer is wrong and wasting time like that.

[Matt]

Can anyone explain this one?

Soma Corp. had $600,000 in compensation expense for book purposes in Year 1. Included in this amount was a $50,000 accrual for Year 1 nonshareholder bonuses. Soma paid the actual Year 1 bonus of $60,000 on March 1, Year 2. In its Year 1 tax return, what amount should Soma deduct as compensation expense?

A. $540,000
B. $550,000
C. $610,000
D. $600,000

C is correct.
A deduction is allowed for all ordinary and necessary business expenses paid or incurred during the taxable year, including a reasonable allowance for salaries or other compensation for personal services actually rendered. Because the bonuses were compensation to unrelated parties, Soma accrues and deducts $50,000 of them in Year 1 and an additional $10,000 in Year 1 because the payment in Year 2 was attributable to the Year 1 tax year of an accrual-method taxpayer.

FAR 74

[pcunniff]

It was (tbs.REGDocrev003)

Allison's tax liability and possible penalty assuming taxable income is $134,375 and head of household filing status

Taxable Income $134,375
Tax Liability (HOH) $ 27,942
Less: Federal Tax Withheld (21,000)*
Less: Estimated Tax Paid (1,000)
Balance Due $ 5,942
Penalty $ 89**

*From Robin's Egg W-2 and IDOR 1099-MISC.

** Penalty is based on balance due × .5% × 3 months.

Tax liability is due on April 15.

[CoachEmUp]

@Matt that one got me too. My guess (and I don't think it'll be this unclear on exam day) is that since the taxes haven't been filed yet and the actual expense paid within 2.5 months upon the accrual is $10k higher we are allowed to add in that amount as an expense.

The only thing I can relate it to would be some of the “top-side” or “management” adjustments we would make in Financial accounting when it comes to year end. Especially since the tax system is mostly based on cash basis, we want to adjust to as close to that as we can.

[Author]

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