[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

[nib]

hello friends

simulation of 1040 form

The couple received a stock dividend from the Ace Corporation. The couple had the option to receive cash or the stock. They chose the stock, which had a fair market value of $900 on the date of distribution. The par value of the stock was $500.in

In my answer = I did not included 900 stock dividend in 1040 because stock dividend are not taxable .
I am not understanding just because couple decided to chose stock dividend out of options of cash or stock dividend . their choice made stock dividend taxable .

please help

But answer shows Line 21: The $900 is the stock dividend amount

explanation = couple had a choice of receiving as cash or a stock dividend, making the dividend taxable.
–

[fruitsyrup]

@bin The correct answer should be 95,000. Per my understanding, dividends from other taxable domestic corporations are reported fully in gross income subject to a DRD. So, you would include the actual dividend amount in the calculation. I think you were referring to individuals. Not completely sure though. Can someone please clarify?

FAR - 71, 78
AUD - 71, 72, 78
BEC - 75
REG - 48, 60, 67, 76

[fruitsyrup]

Andi Corp. issued $1,000,000 face amount of bonds in Year 1 and established a sinking fund to pay the debt at maturity. The bondholders appointed an independent trustee to invest the sinking fund contributions and to administer the trust. In Year 6, the sinking fund earned $60,000 in interest on bank deposits and $8,000 in net long-term capital gains. All of the trust income is accumulated with Andi’s periodic contributions so that the aggregate amount will be sufficient to pay the bonds when they mature. What amount of trust income was taxable to Andi in Year 6?

A.
$0

B.
$8,000

C.
$60,000

Correct D.
$68,000

Hi, does anyone know why we include the 8000 net long term capital gain as part of trust income? Is it because it's related to the earnings of the sinking fund? Thanks!

FAR - 71, 78
AUD - 71, 72, 78
BEC - 75
REG - 48, 60, 67, 76

[CPA2B_NJ]

@fruitsyrup – I'd think it's part of taxable income because it's not tax free municipal bond interest, so it's subject to be taxed.

FAR - 50, 78
BEC - 67, 72, 75
AUD - 72, 80
REG - 70, 85

To God be the glory! Forever, amen!

NJ License

[Mole351]

are we expected to know MACRS multiples? At least for the first year of depreciation? I would think the tables would be provided but there are a bunch of NINJA MCQ's where a calc is required without it being provided.

Here is an example: Sally Markey, who owns a heavy construction company, decided to spend some of her $2,000,000 2014 profit on five heavy-duty diesel truck costing $555,000 for her business. In order to lower her income taxes for the year, she decided to take the maximum Section 179 deduction plus the MACRS depreciation for 7-year property. The ceiling for Section 179 in 2014 is $500,000. No other capital assets were purchased during 2014. What is the total deduction for the truck in 2014?

I know everything needed for this answer except the actual multiple….

FAR - 87 (5/15)
AUD - 93 (8/15)
REG - 86 (2/16)
BEC - 87 (5/16)

[pracap]

Guys,
Please clarify me on this –
An S corporation –
Distributions by S corporations with no accumulated E&P are tax-free up to the adjusted basis of the stock with any excess
taxable as capital gains.

What if they have Acc. E&P
What if distribution is less than Acc E&P

[nib]

@fruitsyrup

sinking Trust income with separate trustee , Hmmm , If i would compare it with bank account ,where interest income is taxable to account holder .

Similarly trust interest income taxed to holder of trust .Because at the end sinking trust income ( all contribution+ interest esarned + capital gain ) will revert to holder of trust .

[nib]

@EyeFahs

i guess amod D ‘S calculation is correct . answer is 100000 .g. + 250000 ordinary income

[nib]

@ pracap

1))corporation first distribute from current earning and profit (CEP )

2)Now CEP=0 ,corporation distribute from Accumulated earning and profit ( AEP )

3) Distribution from CEP and AEP , is taxed as as dividend

4)Distribution > CEP and AEP , is treated as return of capital
return of capital reduced its shareholders' adjusted bases.

5) Distribution received > basis in capital , is treated as capital gain .

6) Eg .
A corp that has both preferred and common stock has a deficit in accumulated earnings and profits at the beginning of the year. The current earnings and profits are $25,000. The corp makes a div distribution of $20,000 to the preferred s/hs and $10,000 to the common s/hs. How will the preferred and common s/hs report these distributions?

Ans= Preferred, $20,000 div income; Common, $5,000 div income, $5,000 return of capital .

[pracap]

@ bin thanks.

But have you made any comparison between c corp, s corp and partnership with regard to –
1. G/L on formation & distribution
2. Basis calculation on formation and distribution.

[pracap]

Guys,

I have doubt on the below –

Generally, no gain or loss is recognized by the partnership on a distribution of money or other property to a
partner. A partner realizes a gain only if the cash received exceeds the basis of the partnership interest.

My question is, if a partner receive Hot assets (unrealized receivables or inventory) not cash, then what is the result?

[nib]

@ Mole351,

Let me try to answer . But I am not sure .

555,000-500,000 = 55,000

55,000 * 2/7 = 15,714.28571 + 500,000 = 515,714.29

55,000 * 1/7 = 7,857.142857 + 500,000 = 507,857.14 , In case mid year convention used

[fruitsyrup]

Hi, this question confuses me. How come we use the half-year convention instead of the mid quarter convention? It said no other capital assets were purchased during 2015. That is the only asset. How do we know when this was purchased though? Do we just use half year convention when the purchase date isn't stated?

Sally Markey, who owns a heavy construction company, decided to spend some of her $2,000,000 2015 profit on a heavy-duty diesel truck costing $111,000 for her business. In order to lower her income taxes for the year, she decided to take the maximum Section 179 deduction plus the MACRS depreciation for 7-year property. The ceiling for Section 179 in 2015 is $25,000. No other capital assets were purchased during 2015. What is the total deduction for the truck in 2015?

A.
$25,000

Correct B.
$37,289

C.
$15,862

D.
$40,862

FAR - 71, 78
AUD - 71, 72, 78
BEC - 75
REG - 48, 60, 67, 76

[nib]

hello fruity
Following is my understanding and conclusion
1) if mcq is not mentioning the use of mid or quarter convention , I am using half yearly convention .
2) In above mcq when i use half year , my answer is

111000-25000= 86000

86000 / 7 = 12286

25000 + 12286 = 37286 = 37289

[nib]

@ pracap

when partner sells his interest /ownership in the partnership to other partner = C.G. recognized

exception : this sale includes his % share of partnerships appreciated inventory and unrealized receivables is treated as ordinary gain. these are so called “hot assets”

[Author]

Replies