[jeff]

Welcome to the Q2 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]

Alice Lewis received $3,000 in unemployment benefits in 2015. In addition, her employer made a $200 contribution to the unemployment insurance fund on her behalf during the year. How much should Alice include in gross income in 2015 as a result of the unemployment benefit payments?

A.
$3,000

B.
$1,800

C.
$2,000

Incorrect D.
$3,200

You answered D. The correct answer is A.

For 2015, all unemployment compensation received by a taxpayer is taxable. Unemployment compensation is taxable in the year received by a taxpayer. Contributions to the unemployment insurance fund on the behalf of an employee by an employer do not affect the taxable compensation amount of the employee.

please anyone explain me why the Contributions to the unemployment insurance fund on the behalf of an employee by an employer do not affect the taxable compensation amount of the employee.

[monikernc]

Because employer contributions are paid into the unemployment insurance trust fund and not directly to the claimant. Only benefits paid as unemployment compensation are received by the individual and taxable income for that person only.

The amount paid by the employer “on her behalf” is the amount the employer is required to pay into the fund based on the wages she earned. Those are paid in even though she may never file for or be paid unemployment compensation benefits. Those contributions are the payroll taxes paid on her wages.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Anonymous]

Thanks @ monikernc
for the detail explanation,
please also look at 12-month rule , which I posted above.

[monikernc]

Ano, cash basis recognizes when paid or received. The benefit you mention applies when accrual method is used. I am not sure what 12 month rule you are referring to. Do you mean a calendar year, cash basis taxpayer? Cash basis is cash basis.

This page describes both methods:
https://www.irs.gov/publications/p334/ch02.html

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[mckan514w]

Thanks!! @Ano

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[mckan514w]

@Ano- the way I understand it from my notes is that if the money is “available” to the cash basis taxpayer and not “substantially tied up or encumbered” then the taxpayer needs to report it- so for example if his year ran Feb 1- Jan 31 and he completed a contract on Jan 28 2016 and the client called on Jan 30th 2016 and said your check is ready but he didn't pick it up until Feb 2017 he would need to report it as income on his 2016 taxes because it was free and available to him within his tax year.

As for the expenses- certain items need to be amortized over the length of the pre-payment such as interest expense, rent expense and lease expense then it is amortized over the length of the pay period so for example your client pre-pays rent of $ 3,000 for 3 years of rent expense then they would report 1,000 in X1 and then amortize the rest over the next two years-

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[SaveBandit]

Fox, the sole shareholder in Fall, a C corporation, has a tax basis of $60,000. Fall has $40,000 of accumulated positive earnings and profits at the beginning of the year and $10,000 of current positive earnings and profits for the current year. At year end, Fall distributed land with an adjusted basis of $30,000 and a fair market value (FMV) of $38,000 to Fox. The land has an outstanding mortgage of $3,000 that Fox must assume. What is Fox's tax basis in the land?

a. $27,000

b. $38,000

c. $35,000

d. $30,000

Explanation

Choice “b” is correct. Absent information to the contrary, we should assume this distribution is in the form of a dividend (especially because Fox is the sole shareholder). If the shareholder is an individual, the taxable amount of a property dividend from a corporation's earnings and profits is the fair market value of the property received (and the property's basis then becomes that fair market value). In this case, the shareholder is also taking on the responsibility for the mortgage on the property, but this affects only the amount of taxable income, as the debt is reported as a separate line item and does not affect the basis of the land. The tax journal entry follows and indicates that the basis of the land is $38,000

Question: What happens if the debt exceeds the FMV of the land? Would the shareholder still use FMV for its basis?

4 for 4

FAR 85
AUD 94
BEC 86
REG 90

[csvirk]

Under the Negotiable Instruments Article of the U.C.C., which of the following defenses generally may be used against all holders of negotiable instruments?

A.
Breach of warranty

B.
Fraud in the inducement

C.
Minority of the maker

D.
Lack of consideration

I chose B but correct answer is C. Any good explanation? Thank you!

FAR: 71, 77!
AUD: 69, 80
BEC: 72
REG: 84

[Anonymous]

Life insurance benefit is paid for the reason of death is exclude from the income only up to face amount or if received more than the face amount then what?

[lonestar]

Taxpayer rents his condominium for 129 days for $2,000 and uses it himself for 60 days. The rest of the year it is vacant. His expenses are

Mortgage interest $1,800
Real estate taxes 600
Utilities 300
Maintenance 300
Depreciation 2,000
Total 5,000

Taxpayer may deduct the following expense:

Rental expense Itemized deduction
Mortgage interest $1,200 $600
Real estate taxes 400 200
Utilities 200 —
Maintenance 200 —
Depreciation — —
Total $2,000 $800

I understand that since personal use exceeds 14 days or 10% of rental use, therefore deduction is further limited to rental income less otherwise deductible interest, tax, and casualty loss.

Then, shouldn't the deduction be Rental income of $2,000 less ($1,200+400), which is the “otherwise deductible interest, tax, since there is no casulaty loss”? Therefore, the deduction is $400, instead of $800?

Where am I wrong? Please telll me. Thanks much!

[lolo]

@lonestar, its been too long since we saw posts from you! good to have you around 🙂

My Nick name is sunshine, but the fact is I have not been in touch with it since I started this CPA exam! IT HURTS

AUD - ✔ Passed Becker self study!
BEC - ✔ Passed Becker self study!
FAR - ✔ Passed Becker self study!
REG - TBD

[mckan514w]

@csvirk- C is the best answer because a minor can not enter into a contract– since you don't know anything about the specific contract any other others theoretically could or could not be used depending on the specifics of the contract– however any contract regardless of the terms can't be entered into as a minor thus that would be the best defense…

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[lonestar]

@.Sunshine.

Thank you, Sunshine. Trying to knock REG over now. Could you help with me on this?

[csvirk]

On June 15, Peters orally offered to sell a used lawn mower to Mason for $125. Peters specified that Mason had until June 20 to accept the offer. On June 16, Peters received an offer to purchase the lawn mower for $150 from Bronson, Mason’s neighbor. Peters accepted Bronson’s offer. On June 17, Mason saw Bronson using the lawn mower and was told the mower had been sold to Bronson. Mason immediately wrote to Peters to accept the June 15 offer. Which of the following statements is correct?

A.
Mason’s acceptance would be effective when received by Peters.

B.
Mason’s acceptance would be effective when mailed.

Correct C.
Peters’s offer had been revoked and Mason’s acceptance was ineffective.

D.
Peters was obligated to keep the June 15 offer open until June 20.

If Peter sent a written offer to Mason, Would C still be the right answer?

FAR: 71, 77!
AUD: 69, 80
BEC: 72
REG: 84

[Anonymous]

@blithesherry .@ Save Bandit
13. Dawson, Inc.'s warehouse (with an adjusted tax basis of $75,000) was destroyed by fire. The following

year, Dawson received insurance proceeds of $195,000 and acquired a new warehouse for $167,000.

Dawson elected to recognize the minimum gain possible. What is Dawson's basis in the new warehouse?

$47,000

$75,000

$139,000

$167,000

This question is simple 1033 exchange question (Involuntary conversion)
gain realized is amount received – basis of the old property
ie 195000-75000=120000
gain recognized amount received in excess of replacement cost
195000-167000=28000
the basis of new property is cost of new property – gain not recognized
unrecognized gain is 120000-28000=92000
basis is 167000-92000=75000.

That day I don't know how came to $139000 and made myself look on the internet for all that new rules please forget that rules ,
this is simple , I am sorry about that day.

[Author]

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