[Anonymous]

Ajax Corp has an effective tax rate of 30%. On January 1, year 2, Ajax purchased equipment for $100,000. The equipment has a useful life of 10 years. What amount of current tax benefit will Ajax realize during year 2 by using the 150% decling balance method of depreciation for tax purposes instead of the straight-line method?

A: 1500

B: 3000

C: 5000

D: 4500

Answer: straight-line depreciation is 100,000/10=10,000

So, 150% declining balance is 10,000*1.5=15,000

So, current tax benefit is 15,000*0.3=4500, which should be the right answer

BUT, Wiley says 1500 is the right answer. I understand Wiley’s explanation, but if that’s the answer they want, they should’ve worded the question to, “What ADDITIONAL amount of current tax benefit will Ajax realize…” At least, something to indicate that the question is asking for the difference between the 150% balance and straight line. Am I the only one having issues with Wiley?

 

 

[jeff]

I see your point – but I also see the *instead* in there.

I don't know if this specific one is from the AICPA, but many of the TB questions are licensed from the AICPA – so be ready.

On the real exam – during FAR – the instructions in the SIM didn't make sense. I stared at it for 10 minutes. I knew the topic left and right, but I didn't understand WHAT they wanted me to put. It didn't matter – it was go time and I needed to adapt.

Be prepared for anything – even head-scratchers like this.

AUD - 79
BEC - 80
FAR - 76
REG - 92

Jeff Elliott, CPA (KS)
NINJA CPA | NINJA CMA | NINJA CPE | Another71

[Allergic2CPA]

@CPA_Romantic…I think you take the $5,000 and multiply it by 30% and that equals the $1500. The logic is that your not paying taxes on $5,000 due to additional depreciation taken use 150% Declining balance vs Straigh line. Therefore, the tax benefit is $5000 * 30% (or whatever the tax rate is).

FAR 46*, 77
AUD 70, 79
BEC 67, 82
REG 75

Texas License July 2013

Used Yaeger lectures based on Wiley textbooks

*Studied less than two weeks, forgot I had purchased NTS.

[FTZ]

I'm conflicted: “instead” does imply the excess over a baseline (1,500 more than the baseline 3,000) but the “current” benefit of 150% is 4,500 and the standard benefit is 3,000 – where you would choose 4.5k not 3k.

One can hope on the real test that they would configure the math and available responses so that when you interpret the question the “wrong” way, your calculation won't be one of the available responses – assuming interpretation isn't what they're testing, like in this one.

B: 77 (LC), 75
A: 63,74,88
R: 60,67,80
F: 71,74,74 again, and 86 - DONE!

Ethics and application - done.

Licensed in VA - 07/03/2014

[MCLKT]

I think it's more probable that on exam day any logical interpretation of the question will be an answer choice.

They most definitely test interpretation, assumptions, and not only choosing the right answer, but the best answer.

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[FTZ]

MCLKT- your point is very well taken, hope for the best but prepare for the worst. I hated this one because it at first seemed to test “test-taking” more than accounting knowledge, but after a little bit of thought I can see the point that you would always take 100%, the choice is to take 50 more. If the exam will do this, then Wiley should too.

To steer this in a slightly different direction, I have seen questions from many sources with a lot of information, and I knew how to apply most of it for certain, but i was not sure about one or two less emphasized pieces – and there turned out to be only one way to get to an available response.

B: 77 (LC), 75
A: 63,74,88
R: 60,67,80
F: 71,74,74 again, and 86 - DONE!

Ethics and application - done.

Licensed in VA - 07/03/2014

[Anonymous]

The inclusion of the word ‘instead' means that this question is about the difference in the two calculations. This question encourages you to read each question carefully. Some question answers can be either right or wrong just based on little words like – difference, instead, lessor, true, false, greater, more, less, etc. Every word counts in each question. For the CPA exam you have to prepare for all types of questions.

[Author]

Replies