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# some_common_ACE_adjustments_solutions - 300,000 Part 2...

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Solution : Some common ACE adjustments Part 1: Compute ACE. RedSox Inc., reported the following information: Required : Compute RedSox’s adjusted current earnings (ACE). Solution : AMTI \$5,120,000 Plus: Net municipal bond interest (\$630,000 – \$50,000) 580,000 Key-employee life insurance proceeds Excess of FIFO over LIFO 2,000,000 160,000 Amortization organizational costs 100,000 2,840,000 Less: Key-employee life insurance premiums paid 300,000 (300,000) Adjusted current earnings 7,660,000 ACE adjustment (\$7,660,000 – \$5,120,000) x 75% + 1,905,000 Alternative minimum taxable income 5,120,000 Municipal bond interest 630,000 Expenses related to municipal bonds 50,000 Key-employee life insurance proceeds in excess of cash surrender value Excess of FIFO over LIFO 2,000,000 160,000 Amortization organizational costs 100,000 Cost of goods sold 6,220,000 Advertising expenses 760,000 Loss between related parties 260,000 Key-employee life insurance premiums

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Unformatted text preview: 300,000 Part 2: Cumulative ACE adjustment : The Whaler Corporation reported the following amounts: Year Preadjusted AMTI ACE 2006 80,000,000 70,000,000 2007 60,000,000 90,000,000 2008 50,000,000 40,000,000 2009 60,000,000 20,000,000 Required : Calculate Whalerâ€™s positive and negative ACE adjustment for each year. Solution : The ACE adjustment is 75% of the excess, if any, of the ACE, over the pre-adjusted AMTI. Year Preadjusted AMTI ACE Difference ACE adjustment Cumulative positive adjustment 2006 80,000,000 70,000,000 (10,000,000)- 0 - - 0 - 2007 60,000,000 90,000,000 30,000,000 + 22,500,000 + 22,500,000 2008 50,000,000 40,000,000 (10,000,000) (7,500,000) + 15,000,000 2009 60,000,000 20,000,000 (40,000,000) (15,000,000) 1- 0 - Note 1 : Seventy-five percent of \$40,000,000 is \$30,000,000; but the negative ACE adjustment is limited to the net positive ACE adjustment from prior periods....
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