[kukuna2008]

Need help!! cannot figure it out 🙁 I felt so stupid

From Ninja,

The following trial balance of Trey Co. at Dec 31, 20×1, has been adjusted except for income tax expense:

Cash : Dr. 550K

AR (net ): Dr. 1650k

Prepaid taxes: Dr 300k

AP: Cr. 120K

Common Stock: Cr. 500k

Add’l paid-in Capital: Cr. 680K

Retained earnings: Cr. 630K

Foreign Currency translation adjust: Dr. 430K

Revenues : Cr. 3600K

Exps : Dr. 2600K

Trial Balance Dr. $5530K = Cr. $5530K

Add’l info:

1. During 20×1, estimated tax pmts of $300k were charged to prepaid taxes. They has not yet recorded income tax expense. There were no differneces between finacial statment and income tax income, and Trey’s tax rate is 30%.

2. Include in A/R is $500k due from a customer. Special terms granted to this customer require pmt in equal semiannual installments of $125k every April 1 and Oct 1.

In Trey’s Dec 31, 20X1, balance sheet, what amt should be reported as total current Assets?

The answer is 1,950K.

Can anyone explain to me how to get the answer? Thank you so much!

FAR - 83, 04/2015
AUD - 73, 86, 08/2015
REG - 75
BEC - 71, rematch in 04/2016

[omalloy]

Total current Assets:

Cash : Dr. 550K Note(2) pay $125 2x -> reduce cash

AR (net ): Dr. 1650k

Prepaid taxes: Dr 300k Note (1) reverse prepaid account -> 0

Solution: 550-125-125+1650+0=1950

FAR 65, 70, 78
REG 64, 76
BEC 70, 80
AUD 81

Ethics 96

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[kukuna2008]

omalloy, first thank you for your reply.

second, may I ask you why don't you add prepaid Exp of tax, 300k? I thought prepaid exp. should be Current asset too.

FAR - 83, 04/2015
AUD - 73, 86, 08/2015
REG - 75
BEC - 71, rematch in 04/2016

[nika_cpa]

there is no such a thing as prepaid federal taxes. It should be recorded as tax expense. The only time you record deferred tax asset is when IRS owes you money (you overpaid your taxes). I hope this helps.

Becker self-study, Wiley Test Bank and books, Becker final review. NINJA MCQ bank and NINJA notes for BEC only!

AUD - PASSED!
FAR - PASSED!
REG - PASSED!
BEC - PASSED!

[JessF]

There is a Tax Expense of $300k on the year, so there's no “Prepaid Taxes” in the Current Assets.

BBA Accounting 12/2013
FAR - July 2015
BEC - Aug 2015
REG
AUD

Gleim

[omalloy]

@kukuna2008: This is what I hate the most about FAR questions, you have to read every word: “at Dec 31, 20×1, has been adjusted EXCEPT for income tax expense” = you need to adjust income tax expense using information from note 1.

FAR 65, 70, 78
REG 64, 76
BEC 70, 80
AUD 81

Ethics 96

Péter un plomb

[kukuna2008]

Hey, Ninjas, thank you so much for all your reply. It's really helpful and I realize I am still far away from being ready for this test! eh~~~

FAR - 83, 04/2015
AUD - 73, 86, 08/2015
REG - 75
BEC - 71, rematch in 04/2016

[sillyapplepie]

Why do you need to decrease (125*2) from CA? The question said that the TB has already been adjusted (except for tax), so shouldn't the $125 payments already be recorded in AR? Thank you!

FAR - n/a

REG - n/a

BEC - n/a

AUD - n/a

[monikernc]

The devil may be in the details here @omalley the 2 pmts of $125k due April and October of the current year will be included in current assets but the next year 2 payments due of $125k@ will be long term. Cash is cash and the balance would not include any future payments due. Instead of reducing cash by the 2 pmts of $125k each you reduce accounts receivable by the total of those future receipts.
You end up with current assets = cash $550k + a/r $1,400k = $1,950k

AUD - 93
BEC - 82
FAR - 76
REG - 88

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