[Anonymous]

I am currently in F10 (Becker) and I am struggling with Estimated and Accrued Liabilities sub-chapter. When I read the book, it seems easy to understand. However, when I do the multiple choices questions, it looks like this topic has various types of questions (FICA, payroll, taxes, insurance,etc. ) I don’t know where to start whenever I see the question. Could someone please explain to me what are the key things to remember about this topic and what I should do to answer these types of questions?

Thanks.

[Anonymous]

Give me a problem and I'll see if I can help.

[Anonymous]

@Kricket here is one of the question. I think I am struggling how to analyze the question.

On July 1, Year 1, Ran County issued realty tax assessments for its fiscal year ended June 30, Year 2. On September 1, Year 1, Day Co. purchased a warehouse in Ran County. The purchase price was reduced by a credit for accrued realty taxes. Day did not record the entire year's real estate tax obligation, but instead records tax expenses at the end of each month by adjusting prepaid real estate taxes or real estate taxes payable, as appropriate. On November 1, Year 1, Day paid the first of two equal installments of $12,000 for realty taxes. What amount of this payment should Day record as a debit to real estate taxes payable?

a. $4,000

b. $10,000

c. $12,000

d. $8,000

Thank you

[Anonymous]

Should be (D).

On July 1 you prepay the $12K which covers you for 6 months. July – October reduces your prepaid balance by $8K because it's 4 months. So your balance on Nov 1 you have 2 months left ($4K).

[M.O.D.]

He has to pay the full amount $12,000 when due, because he received credit from the prior owner for the two months when he did not own the warehouse, and in any case he is the responsible owner now.

Let's say the warehouse was 100,000. We know the annual taxes are 24,000 (2x 12000). This means the monthly tax is 2000

Initally

WHse asset 100000

…Tax expense 4000 (July and August)

…Cash 96000

Sep:

Tax exp 2000

… tax payable 2000

Oct: same

Nov 1

Prepaid tax 8000

…tax payable 8000 (for a total of 12,000 due to the county)

the payment is therefore

Tax payable 12000

…cash 12000

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

M.O.D.,

Initially, wouldn't 4000 be recorded as tax payable?

[M.O.D.]

@ anja

I think you are right. I am just making stuff up as I go along. I have not yet studied that section in Gleim (if there is one..)

So:

initially credit 4000 to tax payable

So when the bill comes in

Prepaid tax 4000

…. Tax payable 4000

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

Thank you guys so much. This is really helpful.

@M.O.D: Your JE is very helpful. I am just wondering when you take FAR, how did you prepare and practice JE?

[Anonymous]

I would think the previous owner expensed those July and August taxes?

The question is What amount of this payment should Day record as a debit to real estate taxes payable?

So I thought

DR tax payable 8000(initially recorded 4 + 2 + 2)

DR prepaid tax 16000

CR cash 24000

[M.O.D.]

I have not yet taken FAR.

I study almost exclusively with T accounts, calendars, timelines, miniature statements, and pencils and paper.

I try to make a T acct for every problem. It helps me visualize what they are talking about: Liability, Asset, equity, cash, etc.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[M.O.D.]

@ Anna

Yes, the prior owner expensed two months of taxes.

But the current payment is only 12,000 due for 6 months, 2 of which the current owner received prepayment for.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

Try this and see if it helps.

https://docs.google.com/spreadsheets/d/1zolHAENLd2mybz4JYtjL_HVx6F1wkABKLJTdsJF9FjM/edit?usp=sharing

[M.O.D.]

@ Kricket

Its beautiful!

Can I ask your specialty? I read it is not tax, despite your avatar.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

@Kricket: Wow this is awesome, thank you so much 🙂

[Anonymous]

@Kricket: also, do you have any specific step by step how to set up T account and write J/E to answer FAR's calculation questions? I learned about T account in college but I rarely use it to answer question, and J/E is one of my weaknesses. Do you have any suggestion on how to practice JE?

[Anonymous]

Thank you! My avatar says “Drinking Wine Should Be Tax Deductible” and I firmly believe that, which is why I loathe taxes. I don't really have a specialty. I do monthly write ups, Compilations, consolidated FS and small gov audits. I prefer auditing but just about anything with a BS and IS is fun to me. I'm one of those weird people who never have to work a day in their lives because I love what I do.

T-Accounts are the easiest way for me to see what the JE should look like. If you know the normal balance of an account and you know the rules, then you can create one. In this example, we bought a piece of property but got a discount for the property taxes. We know the property had to go on the books at the actual value so we knew the Dr to Property, Plant and Equipment (the warehouse) and we knew the Cr to Cash (value – 2 months taxes). Since we didn't own the warehouse during those two months, the expense wasn't ours (it belonged to the previous owners) and an expense of any kind would have been an additional Dr. Taxes Payable was the only option because we had to pay it AND it has a normal Cr balance which would make our entry balance. I rarely ever do a JE that I haven't run the T-account prior. It saves a lot of time for me.

There is a much quicker way to come to the correct amount that the problem was asking for. I took the long way around to show every step. I hope it helped. Good Luck!!!

[Author]

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