[jeff]

Free Study Planner, Notes, Audio, Flashcards: https://www.another71.com/cpa-exam-study-plan/

Free CPA Exam Survival Guide: https://www.another71.com/cpa-exam-survival-guide/

Post by Another71.

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

[Anonymous]

can anyone clear something up for me. I read in the becker book that accumulated earnings tax rate is 20%. but when i did a simulation research question based on accumulated earnings tax, the IRC says that it is taxed at 15%. Which one is it?

Also….does anyone use the authoritative literature for other questions other than research questions and if so how/what does it help

[omalloy]

It is 20% https://www.law.cornell.edu/uscode/text/26/531

I used authoritative literature for AUD section to answer several non research questions, and it helped a lot. However, using AL for REG did not work out so well for me last time… I would love to hear from someone who knows how to maximize AL on REG test.

FAR 65, 70, 78
REG 64, 76
BEC 70, 80
AUD 81

Ethics 96

Péter un plomb

[omalloy]

@NJPRU Thank you!

FAR 65, 70, 78
REG 64, 76
BEC 70, 80
AUD 81

Ethics 96

Péter un plomb

[Anonymous]

thanks omalloy…i feel like it would have been useful for like depreciation related issues or questions regarding tax forms, but it seems like the sims already provide all the information that you need for each question without the AL

[Anonymous]

On December 31 of the current year, a building owned by Pine Corp. was totally destroyed by fire. The building had fire insurance coverage up to $500,000. Other pertinent information as of December 31 of the current year follows:

Building, carrying amount $ 520,000

Building, fair market value 550,000

Removal and cleanup cost 10,000

During January of the following year, before the current year financial statements were issued, Pine received insurance proceeds of $500,000. On what amount should Pine base the determination of its loss on involuntary conversion?

a.

$560,000

b.

$520,000

c.

$530,000

d.

$550,000

[s2sylvir]

^ is it 530k? Lower of basis before destruction or decrease in fma + cleanup costs.

BEC - PASS (79)
AUD - PASS (63, 71, 74, 74, 83)
REG - PASS (88)
FAR - PASS (58, 89)

Becker for all + FAR 10 Point Combo

[omalloy]

@gabe, found this on an old forum, adding it to my notes now

1. For corporations, contributed property by a shareholder is simply the basis of the contributor + any gain recognized by shareholder or boot received (lower of the two). Gain recognized by the shareholder is to the extent that liabilities assumed by the corporation exceed the basis in the assets contributed by the shareholder. Distribution of corporate property for shareholder: the amount distributed is the FMV less any liability assumed by the shareholder. Basis of that property to the shareholder is FMV. It is important to remember that whenever appreciated property is distributed by a corp, a gain must be recognized but not a loss. Distribution to the shareholder is treated as follows: 1. ordinary dividend to the extent of earnings and profits (remember that current year is treated separately from accumulated E&P. If no accumulated, still use current year earnings (don't net them), 2. tax free to the extent of basis in the stock 3. gain treated as capital gain.

2. For partnerships, the basis for the Partnership when a partner contributes property is the Partner's basis. Partnership distributed property for the Partner is the adjusted basis of the Partnership property right before distribution. Partner's basis is cash and property contributed (partner's basis) less: 100% of mortgage assumed by partnership + partner's portion of the mortgage based on ownership + partners's share of debt (recourse is only assumed by GPs while non-recourse is assumed by all partners) + value of services contributed +/- partner's share of income/loss from the Partnership – debt reduction of the partnership (partner's share) – Distributions to partner. For Partnerships, No gain can be recognized unless cash is also distributed. However, in a liquidating distribution, the property basis distributed is a plug since the ending basis must be zero (so, less any cash received in the distribution). Note that the capital account shown on the Partner's K-1 is NOT the same as basis. The accounts can differ.

FAR 65, 70, 78
REG 64, 76
BEC 70, 80
AUD 81

Ethics 96

Péter un plomb

[The_AmYam]

Just finished my test. Here's how it went:

Testlet 1: woot woot I know this

Testlet 2: damn damn damn. Damn. Ugh.

Testlet 3: looks like I sucked the last one, it got easier? Damn.

Sims: first one- yay I know this stuff!

Second one- I'm done wtf ! Damn I didn't study this. Can I curl up in the fetal position and cry? Can someone bring me wine and chocolate?

Won't be surprised if I failed. If I pass it'll be by the hair on my chinny-chin-chin.

REG - 81
FAR - 79
AUD - 94
BEC - OCT 15

[teamryan15]

For the current year, Maple Corp.'s book income, before federal income tax, was $100,000. Included in this $100,000 were the following:

Provision for state income tax $ 1,000

Interest earned on U.S. Treasury Bonds 6,000

Interest expense on bank loan to purchase U.S. Treasury Bonds 2,000

Maple's taxable income for the current year was:

A. 97,000

B. 96,000

C. 101,000

D. 100,000

Choice “d” is correct. Maple's taxable income for the year was $100,000.

No adjustments from book income are required:

State income taxes are a deductible corporate expense.

Interest earned on U.S. treasury bonds are taxable.

Interest expense on bank loans to purchase U.S. treasury bonds are deductible since the interest income earned on U.S. treasury bonds is taxable.

Note: Be careful, interest expense to carry municipal bonds is not deductible.

I dont understand. State income taxes are deductible so dont we want to subtract it? And since the other two are taxable dont we want to add them in? How would there be no adjustments at all?

[teamryan15]

For the current year, Maple Corp.'s book income, before federal income tax, was $100,000. Included in this $100,000 were the following:

Provision for state income tax $ 1,000

Interest earned on U.S. Treasury Bonds 6,000

Interest expense on bank loan to purchase U.S. Treasury Bonds 2,000

Maple's taxable income for the current year was:

A. 97,000

B. 96,000

C. 101,000

D. 100,000

Choice “d” is correct. Maple's taxable income for the year was $100,000.

No adjustments from book income are required:

State income taxes are a deductible corporate expense.

Interest earned on U.S. treasury bonds are taxable.

Interest expense on bank loans to purchase U.S. treasury bonds are deductible since the interest income earned on U.S. treasury bonds is taxable.

Note: Be careful, interest expense to carry municipal bonds is not deductible.

I dont understand. State income taxes are deductible so dont we want to subtract it? And since the other two are taxable dont we want to add them in? How would there be no adjustments at all?

[Gabe]

Can anyone explain this:

In March of the current year, Star Corporation, a calendar year corporation, purchased and placed into service a building costing $400,000 and land costing $150,000. Later that year, on November 15, the corporation purchased and placed into service office equipment costing $80,000. No other equipment or real estate was placed into service during the year. Under the MACRS depreciation system, what convention must Star Corporation use?

A. Half-year convention for the equipment and mid-month convention for the building.

B. Mid-quarter convention for the equipment and mid-month convention for the building.

C. Full-year convention for the equipment and half-year convention for the building.

D. Half-year convention for both the equipment and mid-quarter convention for the building

B is correct, but < 40% of equipment was purchased in Q4.

CPA, CFE
CISA- Experience will be completed by August 2016

[Gabe]

@team the two that are taxable are already included in that $100k amount, so they stay. The state income tax expense is an allowable expense, so it stays. If the items were NOT included in the $100k then you would need to +/-. So…if it said

Book income was $94k and the following were NOT included:

Interest earned on U.S. Treasury Bonds 6,000

What is taxable income?

$100k because you would need to ADD the $6k because it is taxable.

CPA, CFE
CISA- Experience will be completed by August 2016

[leglock]

@teamryan

you need no adjustments because it gives you book income of 100 and tells you that the following three items are already included in the calculation to arrive at the 100 of book. So you have to determine if any of those three items already included in the book income calculation should not have been included when calculating taxable income. State income taxes are allowed to be deducted when calculating taxable income, and they are deducted in the book income calculation in this problem so no adjustment needed. Interest earned on treasury bonds is included in book income and should be included in taxable income so no adjustment needed. interest expense on bank loan is deducted in calculating the book income in this problem and it is also allowed to be deducted when calculating taxable income so no adjustment needed.

Had the problem stated the 3 items were not included in the calculation that arrived at 100 book income you then would have had to make the adjustments you wanted to make

[WantThatCPA]

@gabe the equipment and building items are treated separately so the equipment is the only equipment/machinery placed in service during the year so it will use the midquarter convention. the building and land have no effect on this.

[Gabe]

Thanks @wantthatcpa I misread the question. I thought the building was also equipment. 🙂

CPA, CFE
CISA- Experience will be completed by August 2016

[Author]

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