[jeff]

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Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Holly]

@Pass the formula – so you add liabilities assumed by the corporation and deduct liabilities transferred to the corporation?

I was actually going to use that example on page R3-6 which is why I asked if you have Becker.

Whew! good questions. I think the basis is $140,000 because they are actually getting a building that is “worth” $140,000 AND a liability “worth” $60,000, so both amounts would have to be booked. The mortgage doesn't reduce the value of the building.

Okay:

personal financial statement

Liability $60,000 (debit)

Asset $140,000 (credit)

Investment $80,000 (debit)

Gearty Corp

Asset $140,000 (debit)

Liability $60,000 (credit)

Gearty Stock $80,000 (credit)

Does this seem right?

BEC - 79
REG - 85
AUD - 5/27/16

[PasstheCPA7]

@ HR – Yeah it makes sense. The credit to Gearty stock should be made to Common Stock and APIC, right?

Gearty Corp

Dr: Asset 140,000

Cr: Liability 60,000

Cr: Common Stock

Cr: APIC 80,000

I think the sum of Common Stock and APIC should consist of $80,000.

So, this make sense. It looks like the C Corp would record the asset at $140,000. Perfect.

On the other hand, let's make up another example. Let's say the debt EXCEEDED the basis. So, let's say the debt was $250,000. The adjusted basis that the shareholder transferred was $150,000. What's the entry now for the C Corp?

[Holly]

So…the gain is added back to offset a negative basis – $100,000 recognized gain to Gearty.

Gearty

Asset $150,000 (credit)

Gain $100,000 (credit)

Liability $250,000 (debit)

Corp

Asset $250,000 (debit)

Liability $250,000 (credit)

BEC - 79
REG - 85
AUD - 5/27/16

[PasstheCPA7]

@ HR, in the entry below, where is the credit to Common Stock and APIC? Doesn't that get credited too? I mean we credited in the other journal entry before that, right? How come we are not crediting Common Stock and APIC here then?

Corp

Asset $250,000 (debit)

Liability $250,000 (credit)

[Anonymous]

Just got finished!!

Multiple choice from ninja and gliem prepared me for the multiple choice portion. The sims on the other hand I was not prepared for so I will have to see how I did. None were on blaw.

Hope every did or does good on the exam!

[Holly]

@Pass take a look at the example on R3-5. I think it would be similar to this question. Gearty's basis would be zero and have a taxable gain because of the greater of the liability over the NBV. We credited it in the other entry because that transaction created basis because the value of the asset transferred was greater than the liability; here, he received a taxable gain to correct a negative basis. What do you think?

BEC - 79
REG - 85
AUD - 5/27/16

[PasstheCPA7]

@ HR – I don't know it doesn't make sense.

Gearty Corp

Dr: Asset 140,000

Cr: Liability 60,000

Cr: Common Stock

Cr: APIC 80,000

Here, we credited C/S and APIC.

But, in the other example (see below) – you can see there is no Common Stock or APIC. That's what I don't seem to get.

Asset $250,000 (debit)

Liability $250,000 (credit)

[PasstheCPA7]

Hi guys,

I wanted to ask you guys a question on S corps. What is the difference between a “Direct Shareholder loan” versus a “Non-recourse loan? Becker is saying that a direct shareholder loan IS included as part of the Shareholder's basis in the S Corp. But, a non-recourse loan is NOT. Why is that?

My other question was – how about if we had a recourse loan? Would we add that as part of the Shareholder Basis in the S Corp?

[Holly]

@Pass I guess I'm looking at it like our APIC/Investment entries are our basis entries. Because the adjusted basis being the liability, the basis remains at zero so there are no basis entries. On the corp side the gain is built in the asset, and on the personal side the basis is zero because of the taxable gain adjustment.

BEC - 79
REG - 85
AUD - 5/27/16

[Anonymous]

Question for the Sims and using the Authoritative Literature:

Is there a way to pull up blank Tax Forms using the AL? For example, could I pull up a specific Schedule (like Schedule A)?

Thanks,

[PasstheCPA7]

Hi guys,

When we talk about Corporate tax, we have some special deductions. Two of them are “Dividends Received Deduction (DRD)” and the other one is “Net Operating loss deduction”.

My question is – how about the Charitable contributions? There seems to be some kind of contradiction here. I thought Charitable contributions WAS also considered to be a special deduction as well? Is it not? Can someone explain this in detail?

Thanks!

[BEACPA]

@PasstheCPA7,

A corporation my deduct for charitable contributions, but it is only up to 10 percent of a corporations AGI and they may carry any unused portion forward for up to 5 years. In contrast, an individual uses either 50% of AGI if it's cash to a tax exempt organization or 30% if it's a tangible asset (i.e., art work). Hope this answered your question.

FAR - 2/28/14 PASS Praise be to God!
AUD - 7/5/14 PASS Praise be to God!
BEC - 11/29/14PASS Praise be to God!
REG - 2/28/14 PASS Praise be to God!

[PasstheCPA7]

@ BEACPA – thank you!

[NJPRU]

@angel – i tried looking for that as well and unfortunately no there isn't a way to pull it up in the AL. What I would do, and what actually helped me find things in my SIM was become accustomed to the side bar where all the topics are and what is encompassed in them. When I couldn't use the search tool, I was able to use common sense if you will and locate it by merely knowing what section of the IRC it was in. Good luck in 2Q!

@PASS prior to taking the contributions remember the items that need to be deducted (muni income) and things that need to be added back (penalties, fed taxes), prior to taking that 10%.This is a must know for the exam. There are other things that should be added back and/or taken out that Becker does a really good job at going over. Pay attention that those and you'll be set.

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[PasstheCPA7]

@ NJPRU, thanks for that! Appreciate it.

I had another important question I wanted to ask that I don't seem to understand. I'm using Becker and I'm doing Simulation #1 on REG 3 and it's the 2nd direction. The question is about calculating Shareholder basis. I wanted to ask you specifically about the “Gain Realized”. The formula for Gain realized is: FMV of asset received – Adjusted basis = Realized Gain.

But, my question is this: How come we are COMPLETELY ignoring the fact that there is a $60,000 liability associated with that adjusted basis of $100,000? For example – in this Sim, Jones is contributing an asset to the C Corp at FMV of $120,000 and there's a liability with it of $60,000. SO, Becker is saying the realized gain is $20,000 (FMV 120,000 – Adjusted Basis 100,000).

But, the realized gain I came up with is $80,000 (FMV 120,000 + Liability gone of $60,000 – Adjusted basis of $100,000).

In other words, Becker is ignoring the liability contributed to the C Corp. But, if we think logically about this, isn't this liability that is contributed to the C Corp sort of like “cash received or boot received” by the shareholder (since he is no longer responsible for this $60,000 liability AND the C Corp now is)? Do you see my point and rationale?

If you can explain this – I would really appreciate it. Thanks a ton!

[Author]

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