[JT]

On the very first page of the far ninja book it states that prepaid taxes are a current asset, but on the next page, there is an question regarding calculating current assets and prepaid taxes are exclude. Why?

The only thing mentioned in the question is that “during the year, estimated tax payments of $300k were charged to prepaid taxes and income tax expense has not been recorded.”

This makes no sense.

REG-80-1X
BEC-80-1X
FAR-73-1X
FAR-75-2X
AUD-September 2016

[EuroAddict]

Not following. Post the whole thing.

-----------------------------
BEC - 77, 03/2015 (first try)
FAR - 79, 05/2015 (second try)
REG - 83, 12/2015 (first try)
AUD - 84, 03/2015 (first try)

I got 99 problems but the CPA ain't one.

[JT]

All debit balances

Cash 550k
Accounts receivable (net). 1650k
Prepaid taxes 300k


 During 20X1, estimated tax payments of $300,000 were charged to prepaid taxes. Trey has not yet recorded income tax expense. There were no differences between financial statement and income tax income. Trey's tax rate is 30%. Included in accounts receivable is $500,000 due from a customer. Special terms granted to this customer require payment in equal semiannual installments of $125,000 every April 1 and October 1.

Answer is 1950k

REG-80-1X
BEC-80-1X
FAR-73-1X
FAR-75-2X
AUD-September 2016

[Bear-Bear]

I'm guessing the prepaid tax balance must have been fully expensed by year end.

[JT]

Thank you bear-bear.

I'm not being sarcastic…. Am I suppose to be making that kind of assumption for a question like this? Or was it a trick question? or something?

REG-80-1X
BEC-80-1X
FAR-73-1X
FAR-75-2X
AUD-September 2016

[Bear-Bear]

@Dab – No worries! I remember getting almost the exact question in Wiley, and getting tripped up on it. When they give you the bit about “There were no differences between financial statement and income tax income”, I think you're supposed to assume that the estimated payments we made throughout the year of 300k are exactly the right amount that will actually be charged for tax, so it's time to move that sucker out of prepaids and into the tax expense account.

Edit: I skimmed the post the first time without reading it, it was only after re-reading it that I remembered having the exact same question. Didn't mean to sound like I was being snippy or a smart@%%, haha.

[JT]

Yeah. After your first post, I re-read the question in detail about the “no difference between book/tax” part and was trying to connect the dots.

Thanks for your help!

REG-80-1X
BEC-80-1X
FAR-73-1X
FAR-75-2X
AUD-September 2016

[Author]

Replies