[Anonymous]

Hi everyone,

I sit for REG tomorrow and I wanted to make I was clear on the SIMS in the AICPA Sample Exam so I will post my explanations in this thread to help anyone interested and see if I’m on point.

I’m going to skip the first SIM, the Research SIM, and the DRS. The first SIM is straightforward, the research SIM is clear from the answer, and there is a really good Roger video explaining the DRS online. Also, Gleim has the DRS in their REG SIM bank in SU 11 I believe.

[Anonymous]

SIM 2 (Vehicle Expense)

1. Standard Mileage Rate * Business miles
24,000 *.585 = $14,040

2. Actual Expense * Business % Use
$13,000 * 75% = $9,750

3. Depreciation Allowed (Year 2) * Business % Use
(6400 * 50%) * 75% = $2400

4. Cost Basis – (Total Depreciation Allowed (Year 1 & 2) * 75%)
Year 1 Allowed – $4000 (half year)
Year 2 Allowed – $3200 (half year – b/c sold)
$20,000 – ($7200 *75%) = $14,600

[Anonymous]

SIM 3 – S Corp

Income
$700,000 – Gross profit
(170,000) – Salaries
(10,000) – Repairs
($20,000) – Depreciation
(15,000) – Payroll
(9,000) – Insurance
(36,000) – Rent Expense

$440,000

Separately Stated:
($5,000) Charitable Contr.
1,000 Interest Income
(20,000) Sec. 1231 loss

(24,000)

Nondeductible:
($2,000) Fines

(2,000)

AAA
$100,000 – Starting balance
440,000 – Ordinary Income
(24,000) – Sep. Stated items
(2,000) – Nondeductible items
(30,000) – Distributions

484,000

Stock basis
$60,000 – Beginning basis
$220,000 – Share of Ordinary Income
(12,000) – Share of Sep. Stated items
(1,000) – Share of Non-deductible Items
(15,000) – Share of Distribution

$252,000

[cpaswag]

thanks for these!! can u help with the MCQ on the AICPA sample exam?

[Anonymous]

halo

[Anonymous]

anyone can help with other question? Distribution land to S corp shareholder?

[Joetse]

I'm also having trouble with the distribution of land to S corp shareholders – The distribution seems like it's an ordinary distribution of appreciated property, which would mean the entire FMV is taxable to the extent of current year E&P. If it were an ordinary dividend of appreciated property, the gain of $100,000 would increase AAA by that much, and then the entire $700,000 would reduce the AAA by $700,000. But the question is treating the distribution like a liquidating sale, where the gain to the shareholder is only the FMV minus the basis of the land, 700,000 – 600,000 = 100,000. The weird thing is, the other 50% shareholder Melissa also gets a matching amount of the value of the distribution, so they are both getting 100,000. However, title only went to Fred Patel, so to me it seemed like a disproportional type of distribution, reducing his basis only. I'm not sure how land can be sold to him only and then both are entitled to the distribution. Also, I'm not sure how to arrive at Fred Patel's Jan 1 year 2 basis. The SIM seems to be missing some information or doesn't seem complete. Any help here?

[Anonymous]

Hi Guys so I did the practice exam yesterday and the only thing I questioned on the sims was the Vehicle depreciation amount shown below. This explanation was really helpful, but I am still confused about where the 75% is coming from?

So I used the MACRS Half year table for 5 year property and the percentage was 32% for the second year which the question is asking for. The cost of the vehicle is 20,000. So 20,000 * .32 = 6,400. It is the second year so why is 6,400 multiplied by 50% and why is that amount then multiplied by 75%?

An explanation would be great.

SIM 2 (Vehicle Expense)

1. Standard Mileage Rate * Business miles
24,000 *.585 = $14,040

2. Actual Expense * Business % Use
$13,000 * 75% = $9,750

3. Depreciation Allowed (Year 2) * Business % Use
(6400 * 50%) * 75% = $2400

4. Cost Basis – (Total Depreciation Allowed (Year 1 & 2) * 75%)
Year 1 Allowed – $4000 (half year)
Year 2 Allowed – $3200 (half year – b/c sold)
$20,000 – ($7200 *75%) = $14,600

[Kimberly]

I can't see the question you are asking, but in problems where the item is being used for both personal and business use, you have to look at what % was business use versus personal use because depreciation is available for business use, but not in the case of if you used your car for personal use. Is that part of the problem where they say the person used the vehicle for 75% business needs?

Good luck on your exam!

[Anonymous]

@Kimberly thank you, thank you, thank you!! I don't know why I forgot about the business use percentage with the depreciation calculation! The vehicle was used 75% for business use. As far as the Half year convention table for MACRS, do you always multiply by 50% even if it's asking for depreciation in years between the year of acquisition and the year of disposal?

[Kimberly]

It's kind of fuzzy to me at this point bc I haven't reviewed it recently but from reading the explanation here:
https://taxmap.irs.gov/taxmap2014/pubs/p946-026.htm

It seems you divide by two in the year of acquisition and disposal. See below.

Hope that helps. Again, good luck! You got this!

<<Half-year convention.(p43)
rule
If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. You deduct a full year of depreciation for any other year during the recovery period.
Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property.>>

[Anonymous]

@kimberly ah yes, I just remembered the problem did say she sold the car the 2nd year so that explains the 50% in year of disposal. Thanks for your help!

[NinaElva]

For the S-Corp question, how did you get $170,000 for salaries and $15,000 for payroll?

[felixsphone]

As I approach exam day, my strategy is less about why the answers are the way they are, but more about utilizing whatever is available in the IRC to justify the answer. If I don't understand it that's fine but I'd like to at least get into the IRC language and focusing the rest of my time on MCQ and review.

[CPA]

Hi everyone!

I will be sitting for REG in about a week and I was having a hard time solving one the sims of testlet 4- Smith & Company CPAs of the AICPA sample exam.

1.L How do we come up with the basis of land of $63,763.
3. Manufacturing equipment– Why are we not considering the $3500 of extended two year warranty when we calculate the basis?

Thank you very much for your assistance!

[CHUQIAO WANG]

For the last one, the first year dep pct is 20%. Isnt the half year be 20,000 * 20% * 50% = 2,000? Why it been include the full amount?

[Author]

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