FAR – Update to Deferred Taxes and Possible Error on Ninja MCQ

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    Topic
  • #1437366
    mad max
    Participant

    NINJA Question –

    Hello (first post!)

    Anyway, I’m preparing for my FAR exam coming up on Wednesday, and I remembered reading a few weeks ago about the changes to deferred taxes. In summary, it seems that now all temporary taxable differences will be reported as a single, noncurrent amount.

    Sources:
    PWC – Deferred Taxes Changes
    2015 FASB Pronouncement for Deferred Taxes

    Question I got wrong:
    At the end of 20X1, its first year of operations, Patch Co. has only one type of temporary difference—a $9,000 taxable temporary difference that is expected to reverse at the rate of $3,000 per year in each of the years 20X2–20X4. This temporary difference is not related to any specific asset or liability on the enterprise’s balance sheet. Assuming a 40% tax rate, Patch should report on its December 31, 20X1, balance sheet:
    A. a $3,600 deferred tax liability classified as a current liability.
    B. a $3,600 deferred tax liability classified as a noncurrent liability.
    C. a $1,200 deferred tax liability classified as current and a $2,400 deferred tax liability classified as noncurrent.
    D. a $1,200 deferred tax asset classified as current and a $2,400 deferred tax asset classified as noncurrent.

    You answered B. The correct answer is C.

    The deferred tax asset or liability in this case will be a liability because the underlying temporary differences are taxable temporary differences. Since the deferred tax liability is not related to an asset or liability, it should be classified according to the reversal of the underlying temporary differences (FASB ASC 740-10-45-9).

    Accordingly, since 1/3 ($3,000 of the $9,000 total) of the temporary differences reverse within the next year, 1/3 of the deferred tax liability should be classified as current, and 2/3 as noncurrent. The total deferred tax liability is 40% of $9,000 = $3,600. Therefore, $1,200 should be classified as a current liability and $2,400 as a noncurrent liability.

    Please correct me if I am wrong, but wouldn’t the answer have changed from C to B under the new guidance? Or, am I misreading something? Which way should I be prepared to answer a similar question on Wednesday?

    AUD - 82
    BEC - 90
    FAR - 90
    REG - 86
    Four for four. Licensed in NJ as of 10/18/17
Viewing 7 replies - 1 through 7 (of 7 total)
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  • #1437380
    Spartans92
    Participant

    Yep, I believe Ninja is wrong. All DTA and DTL now are classified as non-current. Go with B if thats what u see on exam.

    BEC - 76
    REG- 67, 85
    AUD-63, 74, 80!!
    FAR-65, 62, 57, 79

    3 down 1 more to go. BEC is on the Line 🙁

    BEC- PASS

    #1437410
    mad max
    Participant

    Thank You! I will continue to study this way, answering incorrectly… It seems so spooky though 😛

    Hard to keep track of all the changes!

    AUD - 82
    BEC - 90
    FAR - 90
    REG - 86
    Four for four. Licensed in NJ as of 10/18/17
    #1437438
    jeff
    Keymaster

    Sorry about this – We should be running a DB update this weekend…the quality control process has taken longer than expected.

    Here are the updates quickly summarized: https://www.another71.com/2017-cpa-exam-update-far-aud-reg-bec/

    AUD - 79
    BEC - 80
    FAR - 76
    REG - 92
    Jeff Elliott, CPA (KS)
    NINJA CPA | NINJA CMA | NINJA CPE | Another71
    #1440066
    mad max
    Participant

    Thanks so much @Jeff !

    AUD - 82
    BEC - 90
    FAR - 90
    REG - 86
    Four for four. Licensed in NJ as of 10/18/17
    #1440074
    jeff
    Keymaster

    No worries – should be running the update this weekend…thank you for your patience.

    AUD - 79
    BEC - 80
    FAR - 76
    REG - 92
    Jeff Elliott, CPA (KS)
    NINJA CPA | NINJA CMA | NINJA CPE | Another71
    #1444487
    Anonymous
    Inactive

    I thought DTA was always non-current and DTL was current or non-current. When did the update occur? Thanks!

    #1444500
    mad max
    Participant

    The change is sourced in my OP. Just scroll up and click the link…

    AUD - 82
    BEC - 90
    FAR - 90
    REG - 86
    Four for four. Licensed in NJ as of 10/18/17
Viewing 7 replies - 1 through 7 (of 7 total)
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