[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for REG.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

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

[Anonymous]

Okay, I found the S Corp rule (stupid rule).
“Distributions to S Corp SHs cannot reduce stock basis below zero.”
“Distributions in excess of basis are taxable.”

[valorx28]

I have a question about the penalty for understatement of tax payments. Let's say we have an AGI in excess of $150,000 last year. That means that we will have to multiply last year tax liabilities by 110%. We also multiply current year tax liabilities by 90%. I get that whichever is lower we will compare that amount to our current year withholding. If our current year withholding is less than the lesser amount (90% x CY or 110% x PY) by $1000 or less, does that mean there is no penalty on any of that amount? What if the withholding is less than the lesser amount by more than $1000 (for example $1350). Does that whole $1350 become subject to the penalty or just up to $1000 of that amount? Thanks.

[Anonymous]

Yes, the answer is C – $1,300.

[ahugemistake]

I am in full panic mode, 12 days until my exam, working full time in busy season, need to finish 1800~ questions in Ninja by this weekend so I can have enough time to go back look at things I got wrong. Idk if I'll make it.

FAR - 78*
AUD - 66, 79
REG - 73, 76
BEC - 79

[nib]

@ amor D

Ur explanation about warranties was so wonderful.thanks a lot.

listed on Schedule K, Form 1120S, as a separately stated item goes to individual shareholder in schedule K-1 as a proportionate share which is then taxed in individual tax 1040 form .
1)Rental activities income + royalty income is passive income , passed to K-1 to offset passive loss in 1040 form of individual income tax .
2)The rental loss passed to K-1 , may be deducted up to a maximum of $25,000 for a single taxpayer in 1040
3)Interest expense related to portfolio income deducted by individual in portfolio loss.
—————–
Not listed on Schedule K, Form 1120S, as a separately stated item
1)Pension expense =it is contribution by employer towards employee retirement plan . so it is business expense for s corporation .
It is deducted in 1120S form line 17=as business expense .

[nib]

@ ahugemistake

Just relax. try your level best .You never know , you might passed at border .It depends on your understanding , luck some time .you might have only those topics or questions which you r good at .
so just cross your fingers ..Keep studying .

[nib]

@ valorx28

Given below is my understanding of estimated tax and penalty .please correct me if I am wrong .

1) penalty for underpayment of estimated taxes is imposed for making inadequate tax payments during the year.

2) No penalty if unpaid tax amt =< 1,000
There is penalty if unpaid tax amt >1,000

3)To avoid a penalty for underpayment of estimated tax, a taxpayer must make tax payments throughout the year either by withholding or estimated tax payments. There are several safe harbors for computing the minimum amt to pay during the year to avoid the penalty.

(A) Under the annualization method, the safe harbor amt is computed based on the actual income and exp of the current year. There are no income limitations on the use of the annualization method.
Select Lower of below amount as safe harbour amount and paid as estimated tax .
• If at least 90% of the current-year tax
• If at least 100% of prior-year tax (if AGI > 150,000—110% of the prior-year tax)

(B) There is no safe harbor method called the seasonal method.

[rosecpa]

But bin, what amount of the underpayment is subject to penalties?

[Anonymous]

@Rosecpa, would be the entire underpayment subject to penalties?

[Anonymous]

For the sample question below, what would be the weight of the phrase “SHARP, THE PURCHASER DID NOT READ IT”?
Can the CPA use it as a defense against the purchaser/plaintiff?

Ocean and Associates, CPAs, audited the financial statements of Drain Corp. As a result of Ocean's negligence in conducting the audit, the financial statements included material misstatements. Ocean was unaware of this fact. The financial statements and Ocean's unmodified opinion were included in a registration statement and prospectus for an original public offering of stock by Drain. Sharp purchased shares in the offering. Sharp received a copy of the prospectus prior to the purchase but did not read it. The shares declined in value as a result of the misstatements in Drain's financial statements becoming known. Under which of the following Acts is Sharp most likely to prevail in a lawsuit against Ocean?

A.
Securities Exchange Act of 1934 (Section 10(b), Rule 10b-5)

B.
Securities Act of 1933 (Section 11)

C.
Both the Securities Exchange Act of 1934 (Section 10(b), Rule 10b-5) and the Securities Act of 1933 (Section 11)

D.
Neither the Securities Exchange Act of 1934 nor the Securities Act of 1933

Correct answer is B.
Explanation: The Securities Act of 1933 imposes liability on a CPA who prepares materially misleading financial statements issued in conjunction with the initial offering of securities. This liability can be avoided if the CPA is able to demonstrate “due diligence.” In the case given the CPA was negligent; hence, due diligence cannot be shown and the CPA is liable. The Securities Exchange Act of 1934 deals primarily with annual reports and is not applicable to this case. Even if it were, liability under this act is based not on mere negligence but rather on “scienter” (actual fraud).

[marqzho]

For Securities Act of 1933, reliance is irrelevant. purchase doesn't need to prove they rely on it. And CPA can't use the fact that purchaser didn't read as a legal defense. One exception t is that purchaser can't sue CPA for negligence if purchaser knew the error and therefore didn't rely on the F/S. The right defense for CPA would be they acted with due diligence by following GAAS.

REG 90
FAR 95
AUD 98
BEC 84

[Anonymous]

It just contracts what is included in the defenses (of a CPA) under S.A. 1933.

The plaintiff purchased securities after issuance of generally available earnings statement and did not rely on registration statement (usually a generally available earnings statement is published 12 months after effective date of registration).

[Anonymous]

I am comparing the different rules of C Corp, S Corp, and partnership in computing for the basis of property of the contributing SH/partner upon formation.
Is my computation correct?

Lind and Post organized Ace Company, which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:
………….. Property …………..Adjusted Basis………….FMV………….% of Stock Acquired
Lind………Bldg…………………40,000………………..82,000…………60%
Post…….Land………………….5,000…………………48,000………….40%
The building was subject to a $10,000 mortgage that was assumed by Ace.
What was Lind’s basis in Ace stock?

A) If the company is a C Corp:
AB ……………………………………….40,000
-Liab assumed by Ace………………….(10,000)
………………………………………..… ———-
=AB of Stock Received by Lind ………… 30,000

B) If the company is an S Corp:
AB of Stock Received by Lind 40,000

C) If the company is a partnership:
AB ………………………………………………….40,000
-Liab assumed by Ace………………….…………(10,000)
+Contributing Partner’s Share of Liab……………6,0000
………………………………………………….… ———-
=AB of Lind’s Share in Partnership Stock ……. 36,000

[Theodore]

FAR: 66, 76!
REG: 76!
AUD: 72, 9/7/2016
BEC: TBA

Don't Stop When You Are Tired, Stop When You Are Done.

[Theodore]

FAR: 66, 76!
REG: 76!
AUD: 72, 9/7/2016
BEC: TBA

Don't Stop When You Are Tired, Stop When You Are Done.

[Author]

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