AICPA REG Sample Test – Sim Question 5

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  • #200055
    Anonymous
    Inactive

    Has anyone taken the sample test on the AICPA website? Is so, would you be able to walk me through Simulation Question 5? This is a question where you have a letter and have to determine if the underlined portions are correct. Other than the last line which deals with like-kind exchanges, I am at a complete loss on how the correct answers are arrived out with the information at hand.

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  • #757959
    Anonymous
    Inactive

    Ha – never mind. Completely overlooked additional tabs WITHIN the exhibit tab.

    Derp….

    #1331027
    Anonymous
    Inactive

    Hi eschierm,

    Did you do SIM #5, Question #5 of AICPA's REG sample test? That's the question of the tax basis in the new delivery van. I can’t figure why the answer is $25,388. Any chance you remember how they arrived at this number?

    Thanks

    #1370642
    Namstut
    Participant

    @EApursuingCPA, I have been struggling with this one as well.

    Based on the depreciation schedule, the adjusted basis of the old van is $2,088 (18,125 cost – 16,037 A/D).

    Total due on the invoice $23,300, add $2,088 adjusted basis of the old truck gets you to $25,388.

    This was an accidental discovery and I am sure that there is boot paid involved since the adjusted basis is $2,088 and the credit given for the new truck is $9,000. I am trying to figure out of sales taxes play any role in the calculation so I am going to fight this one a little bit longer.

    When the going gets tough, the tough get going.

    All Done!!!

    AUD 7/6/16 Passed
    BEC 9/3/16
    FAR TBD
    REG TBD

    #1371365
    demarcon
    Participant

    Try doing the Journal entry for it and it will make more sense. The new basis is a plug in number

    New basis xx <– Plug
    Cash Received xx
    Accumulated depreciation xx
    Liability given up xx
    Property given up (the original basis) xx
    Gain Recognized xx
    New Liability xx

    You can also net the accumulated depreciation and get your current basis in the property as a credit. I like doing a full fledged JE when I do the problems though.

    Roger & Ninja

    AUD - 98 - 8/17/16

    BEC - 89 - 10/3/16

    REG - 97 - 12/7/16

    FAR - 97 - 2/17/17

    #1372427
    Namstut
    Participant

    @demarcon, the Ninja genius! Ha! Thanks!

    What tripped me is the sales tax on the invoice. I might tackle this SIM again before my exam on the 8th just to get a piece of mind.

    When the going gets tough, the tough get going.

    All Done!!!

    AUD 7/6/16 Passed
    BEC 9/3/16
    FAR TBD
    REG TBD

    #1373175
    jayjack25
    Participant

    Thanks for solving this.

    I was also tripped by the sales tax on the invoice, but looks like it's not the key to solving this.

    So, in conclusion, i think the boot paid to buy the Year 9 delivery van is $23,300. The trade-in allowance of $9,000 Michael received for trading in the Year 5 Van isn't considered a boot. Thus, his Realized Amount equals $0 since he received a Year 9 Van worth $23,300 and paid boot for it of $23,000. As such, no gain was even realized.

    The Year 9 Van basis equals:

    AB in Year 5 Van surrendered (Cost Basis-A/D) $2,088
    + Boot Michael gave to get Year 9 Van $23,300
    – Boot Michael received in the transaction $0
    + Gain Recognized $0
    Total $25,388

    J.

    FAR- 61, 67, 85
    REG- 82
    BEC- 81
    AUD- 67, 84

    Using Gleim

     

     

     

    #1937227
    Anonymous
    Inactive

    Would anyone be able to walkthrought me to how to get the answer for the parcel of land at wayside street and greensburg and the manufacturing equipment as well in the same question as well?

    #1937290
    Anonymous
    Inactive

    I am stuck on this sim, why won't aicpa include explanation in the answer key.

    #1937446
    Anonymous
    Inactive

    Currydon –
    For the land parcel – the government paid $71,800 for a property which had a basis of 63,000 on their books. This is technically a gain of $8,800 – HOWEVER – since this is considered an involuntary conversion (IRC 1033) the gain is deferred until the new property is sold. So since the gain is deferred, the new property that the company bought for $72,563, will not be on their books for that much. They will reduce the new basis of the new property by the GAIN which was DEFERRED on the old property. This comes out to $63,763 [$72,563 – $8,800]. Since the basis is lower than what they paid, think of it as, when they sell the new property sometime in the future, they will have more gain to recognize (the gain which was deferred).

    For the Manufacturing equipment – this is a good example of knowing what is and is not included in capitalizing an asset. Everything on the invoice is included besides the extended warranty. An extended warranty is never included in the cost of an asset, it will be separate period expense during the year when the warranty is “used”. So if the warranty is 2 years, they will expense half of it each year on its own as warranty expense. Think of prepaid assets until being expensed.

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