F-6 Simulations

Question 1

Remeasurement

Answer 1

Sub’s reporting currency is not its functional currency

Balance Sheet: monetary items use current rate and nonmentary use historical

Income Statement: non-balance sheet items use weighted average and balance sheet items like COGS and depreciation use historical rate

Remeasurement gains and losses are reported on the income statement

Question 2

Translation

Answer 2

Sub’s reporting currency is its functional currency

Income statement: weighted average

Balance sheet: assets and liabilities uses current rate, common stock uses historical, and retained earnings is a rollforward

Translation gain or loss is reported in comprehensive income

Question 3

Accounting for foreign currency transaction “purchase order”

Answer 3

No journal entry necessary

Question 4

How to do journal entries on account for foreign transactions

Answer 4

Remember when you have a receivable or payable that once you receive or pay the money the exact amount you recorded for the receivable or payable needs to be removed

Question 5

Financial statement income first and tax return income later

Answer 5

Tax income later = future tax liability

Instalment sales
Contractor accounting % of completion
Equity method income

Question 6

Tax return income first and financial statement income later

Answer 6

Tax income first = prepaid tax benefit (asset)

Prepaids

Question 7

Financial statement expense first and tax return expense later

Answer 7

Tax deduct later = future tax benefit (asset)

Bad debt expense
Estimated liability/warranty expense
Start up expenses

Question 8

Tax return expense first and financial statement expense later

Answer 8

Tax deduct first = future tax liability

Depreciation and amortization
Cash basis prepaid

Question 9

How to calculate deferred tax assets and liabilities

Answer 9

You have to net them against each other so you’re either gonna have an asset or liability

Question 10

Examples of permanent differences

Answer 10

Municipal bonds - interest paid
Tax exempt interest from tax or state
Life insurance proceeds on officer’s key man policy
Life insurance premiums when corporation is the beneficiary
Certain penalties, bribes, fines, kickbacks, etc.
Nondeductible portion of meal and entertainment expense
Dividend-received deductions
Excess percentage depletion over cost depletion

Question 11

How to determine if answer in tax question is an asset or a liability for income taxes

Answer 11

It is a liability when financial statement income is greater than tax and an asset when financial statement income is less like if a company decides to use Straight line for tax and accelerated for financial (unusual so watch out for it)

Question 12

Dividend received deduction rules

Answer 12

• Dividends received is what is taxable
• The difference between equity method and dividends is multiplied by 1 minus exclusion rate and you multiply that by enacted rate to get deferred income tax expense
• taxable income is dividends received multiplied by exclusion rate and you multiply that by enacted rate to get current income tax expense

Question 13

Dividend received deduction exclusion rates

Answer 13

Ownership 0-19% - 50% exclusion
Ownership 20-80% - 65% exclusion
Ownership Over 80% - 100% exclusion

Question 14

Determining deferred tax assets and liabilities with just journal entries

Answer 14

1. Find the difference between debits & credits and that is the temporary difference
2. If the debits are greater than the credits then you have a liability, but if credits are greater then debits you have an asset

Question 15

To simplify how Deferred Tax Assets

Answer 15

1. For income if it’s something that is reported on the financial statements first it is an asset and if recognized on the tax statement first it is a liability
2. For expense if it shows up on the income statement first it is an asset and if shows up on tax first then it is a liability

Question 16

How to account for when tax rate changes for income statement questions with journal entries

Answer 16

If year one was 30% and year two was 35% you would multiply the DTAs & DTLs by 30% for year 1 and only 5% for year 2

Question 17

Ineffective and effective portion of cash flow hedge

Answer 17

Ineffective portion is reported in income statement and the effective portion is reported in comprehensive income

Question 18

Note about how to depreciate finance leases

Answer 18

• If it meats the transfer of ownership criteria or purchase option criteria then you depreciate over the life of the asset but if there isn’t one then you depreciate over the life of the lease