[red_rose]

Hello all-

I failed FAR yesterday (got results back). So today, I’m focusing on areas that i need work on before going through all topics again. Ok, so im looking at a problem in Wiley & need help:

*Income 60,000

*rent rec’d in advance in Y1 for work performance in Y2 10,000

*Prepaid rent for Y2 paid in Y1 12,000

*Cost depletion $8,000 recog, deduction allowed: 14,000

*Current tax rate 30%

*Year 2 tax rate 35%

I dont understand why the taxable income is $44,000. I understand why book income is $52,000. Here’s what they show before calc tax:

Income +60000, advance+10,000, prepaid rent -12,000 (i dont get this, i thought prepaids were taxed since we got the $ now, and created a DTA, Wiley called this a DTL), depletion -14000 =44,000 taxable income

Income +60000, Depletion -8,000 = $52,000 Book income.

Here’s the Y1 tax accrual entry:

Income tax expense (plug maybe?) 13,900

DTA (10,000 *.35) 3500

DTL (12000*.35) 4,200

Income tax pay (44,000*.30) 13,200

Can someone please explain this? Thanks!