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December 22, 2009
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www.CPAreviewforFREE.com
Congratulations on All Your Work in 2009
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Lesson 58
From: Joe
(1) – Happy Holidays!!! from all of us here at www.CPAreviewforFREE.com. We hope you have a great and wonderful holiday season and that 2010 turns out to be the very best year of your entire life. Go for it!!!
I am actually sitting here in Richmond looking out my window on most of the 15 inches of snow that we had this past week-end (which appears to be very intent on hanging around). It is amazing how much work you can get accomplished if you cannot get your car down your very steep driveway.
(2) – FACEBOOK - I just finished posting my 17th tip in my “30 tips in 30 days” program on Facebook. This one was on Joe’s own “Four C’s for Success on the CPA Exam.” If you are interested in signing up to get these, go to www.facebook.com and search for CPAreviewforFREE and sign up.
(3) – TEXTBOOK - I have written some over the past few months about my new textbook that will be coming out in just the next few days. It is a free on-line book. If you are a college student or a college professor and want to learn more, here is a story about my writing of this book.
news.richmond.edu/features/article/www/690/award-winning-accounting-professor-keeps-teaching-fresh-after-30-years.html
If you are interested in actual information about the textbook itself, you can go to (tell your teachers to have a look):
www.flatworldknowledge.com/printed-book/1638
I have poured three years of my life into that book – I’ll let you decide whether that was a good allocation of time or not.
(4) – UNSUBSCRIBE – If you should ever decide that you are ready to stop hearing from us, you can scroll to the bottom of this lesson (or any other email lesson) and click on the box and unsubscribe. We certainly love having you but we’ll leave it up to you as to how long you stick around (have you ever noticed that most emails hide the “unsubscribe message” so that you can barely find it – we want you to stay only as long as you want to).
(5) – WHO STUDIES THE MOST – We get weekly statistics about the traffic on our site. We typically have visitors from about 80 locations every week. The 50 states of the United States make up one location and then we get traffic from many other locations around the world. We always get extra information about the traffic from the top 10 locations each week. One of my habits is to look and see which of those top locations actually studies the most. For some reason, that seems interesting to me. I figure that indicates who is really most interested in learning the material and passing.
Last week, the winner was the Philippines. The average person from the Philippines stayed on www.CPAreviewforFREE.com for 39 minutes and 8 seconds each time they visited. That was following closely by Puerto Rico with an excellent 34 minutes and 28 seconds. The United States was a respectable 21 minutes and 51 seconds.
Okay, if you are not from one of those three locations, spend some extra time this week on the site so that you can get your area into our “who studies the most” designation.
(6) – SALUTE – I want to pause for a moment here as we near the end of 2009 to raise a salute to every single one of you who studied for the CPA Exam this year whether you have taken it yet or not. It takes an incredible amount of time, energy, and perseverance to get yourself ready for this exam. In some ways, it is like preparing for the Olympics. You should be very pleased about all that you have been able to accomplish this year. No one ever gets as much done as they would like but you took a good shot at it. Anyone can talk about preparing – you did it. I realize that the one and only goal is to pass the CPA Exam but I just have to tell you how pleased I am that you have worked so hard in 2009.
Whether you pass or fail, the CPA Exam is an incredible challenge. One of the hard parts is that so few people really understand how difficult it is – until you have done it, you cannot appreciate the amount of effort you have to expend to prepare. Well, I did that preparation myself and I do understand. So, I want to pass along my praise.. You have taken on a real challenge and you have not backed down. Good for you!!!!
One of my all-time favorite quotes comes from President Theodore Roosevelt. I was reminded of this quote because it was mentioned in Time magazine this week. I have used this quote often and it really does mirror my feelings. It applies to all of you who have worked to make yourselves better this year so that you can pass the CPA Exam.
From President Roosevelt: “The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again… who spends himself in a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who at the worst, if he fails, at least he fails while daring greatly.”
Strive valiantly, my friends.
This is a worthy cause.
What more could I possibly add?
(7) – PRACTICE
FAR
Company A buys Company B and pays $5 million more than the fair value of the identifiable assets and liabilities. The $5 million was recorded as Goodwill. Which of the following statements is true?
A – Goodwill is amortized to expense over 40 years.
B – The rules have changed so that goodwill is now expensed immediately.
C – Goodwill must be checked for impairment periodically and reduced if impaired.
D – Goodwill is amortized over an appropriate period of 40 years or less.
Answer is C
Goodwill is no longer amortized. It is recorded as an intangible asset on a consolidated balance sheet. This reported balance must then be checked periodically for possible impairment. If impaired, it is reduced and a loss recognized.
BEC
A company has seven divisions. The Blue Division is very slow at sending out invoices so that cash collections are delayed. The management of the Blue Division looks at the invoice systems operating within the other six divisions and discovers that the Green Division has the best practices in this area of the business. Therefore, where practical, they adopt some of these practices for use by the Blue Division. What is this process called?
A – Maximization of Time
B – Benchmarking
C – Quantum Time Theory
D – Hagler’s Theory of Routine Processes
Answer is B
Company officials should always be looking for better ways to do things so that their own organization is able to become more efficient on a continuous basis. Comparisons should be made between the way that activities are executed by the organization and the procedures carried out by others, in other divisions and even in other companies. The process of discovering weaknesses and using the results obtained from others to create improvement is known as benchmarking.
Auditing and Attestation
The Waynesboro Corporation has recently installed a new computer payroll processing program. Before the program is used to compute actual payroll checks for the employees, test data is going to be run through the computer to see how it would be processed. Which of the following is least likely to be tested in this manner?
A – Two checks requested for the same employee
B – A check requested for an employee who quit two months earlier.
C – A check requested for an employee working more than 60 hours per week.
D – A check requested for an employee paid an hourly rate of $12 per hour.
Answer is D
Test data hopes to verify that the computer will produce an error report where there is a problem (such as in A and B) or a potential problem (such as in C) that must be cleared before actual processing proceeds. The fact that some employees are paid hourly wages is not a problem and there is nothing suspicious about a rate of $12 per hour (roughly $24,000 per year).
Regulation
Jay Wilkinson serves as the host at a fancy restaurant in New Orleans. As such, he wears a nice jacket so that he has an appropriate professional look. However, he must pay $30 per week to have the jacket cleaned and looking nice. How much of the cleaning costs can he deduct as a miscellaneous itemized deduction on his income tax return?
A – Zero
B – 20 percent of the amount spent
C – 50 percent of the amount spent
D – 100 percent of the amount spent
Answer is A
If these costs were incurred as ordinary and necessary expenses of traveling away from home for the person’s business, profession, or job, they are deductible. However, this expense here was not during business travel and is, therefore, not deductible. Most employees are expected to wear clean clothes while at work but no deduction is allowed for that cleaning. The fact that it was a nice jacket worn at a fancy restaurant is not important to the tax laws.
Have a wonderful and happy holiday!!!
Hug, at least one person you love – in fact, hug a lot of people that you love.
Joe Hoyle
Co-Founder
CPA Review for FREE
Wednesday, December 30, 2009
Tuesday, December 22, 2009
You Have a Wonderful Opportunity
You Have a Wonderful Opportunity
76 Weeks of Operation and 7,631,253 Page Views (without a penny spent on marketing)
Lesson 57
From: Joe
(1) – FACEBOOK We have now sent out 10 tips in our 30 Tips in 30 Days program on Facebook. After the 30 days are up, I’d like to continue to do something
similar 2-3 times per week. Or maybe we’ll just go for a 60 Tips in 60 Days program.
If you want to receive our daily tips on Facebook, here are the directions: If you are already a member of Facebook, type in "CPAreviewforFREE" in
the search box to get to our page. If you are not a member, go to www.facebook.com and create an account. Apparently it is easy (even for an older time like
me) because we are adding fans at a very nice pace.
(If you have any trouble signing up because you are not a Facebook person, hit reply and we’ll have our Facebook expert contact you about getting started.)
(2) – Whenever you get ready to stop receiving these weekly email lessons, you can unsubscribe by scrolling to the bottom of any lesson. Click on the link and
you’ll be off.
However, if it were up to us, we’d just as soon have you stay. We are well over 10,000 subscribers and I can hardly wait to have 20,000 or even 100,000. The
cost is the same for us. So, stay for as long as you wish.
And, tell your friends. In fact, if you are looking for just the perfect holiday gift for a loved one, remember that a subscription to our email lessons
might just be the thing that would brighten up that person’s life. Plus, the cost is excellent (free).
(3) – My wife was working last Saturday so I took my two daughters to see the movie: The Princess and the Frog. Okay, it is a cartoon so it probably is not
going to rival The Godfather. But, it did have an excellent message: “You can do anything that you set your mind on.” The heroine was a child who was very
poor but wanted to start a restaurant of her own and that was the message her father kept pushing. So, she worked double and triple shifts to make that dream
come true.
Well, in all honesty, I do not know that you can do every single thing that you set your mind on. There are a few dreams (a friend of mine dreams of swimming
in the Olympics, for example) that are a bit unlikely. However, I will tell you exactly what I do believe:
--If you don’t want something badly enough to set your mind on it, you don’t really want it.
--If you don’t want something badly enough to do the work, you don’t really want it.
--If you don’t want something badly enough, you are probably not going to get it.
So, the question I would pose to you, today, on December 14, 2009, is: how badly do you want to pass the CPA Exam? Simply question but the answer can be
complicated. Everyone will say that they are dying to pass but that is just “lip service” – how badly do you really want to pass?
I can tell you two ways that you can find out for yourself.
First, there are times every day when you can study or you can do something that is more interesting.
You can study or you can watch television.
You can study or you can read a magazine.
You can study or you can go to a movie.
Count how often each day “You can study” wins. If it is 80 percent or more of the time, then you are probably serious about passing the CPA Exam. It doesn’t
have to be 100 percent of the time but it ought to be a solid majority. Study needs to win very frequently.
When faced with temptation, if you choose to study most of the time that is a great sign that you really have set your mind on passing.
Second, I have said often in these email lessons that you should plan out how many hours per day (on the average) that you want to study. Are you able to
study one hour each day, 90 minutes each day, two hours each day or what? In your life, what is a reasonable goal?
Then, of course, keep track of the number of days that you are able to hit that goal. Again, it doesn’t have to be 100 percent of the time but if you are not
able to meet the hourly goal at least 70-80 percent of the time, it may be that you just think you want to pass the CPA Exam but you have not really set your
mind on passing.
“You can do anything that you set your mind on.”
(4) – Over the years in these email lessons, I have written several times about Thomas Edison, one of the most successful people in history and, apparently,
one of the hardest working people in history (hmm, could there be a connection?).
Someone must have read those previous lessons and remembered them because I received the following Thomas Edison quote in an email:
“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
I love the idea that the CPA Exam represents an “opportunity.” I often hear the CPA Exam described in negative terms such as “painful,” “torturous,” “cruel,”
and the like. But that makes the whole process seem like drudgery. And, I think you are so much better off if you can adopt a different mindset.
Participating in the Olympics would be an opportunity.
Playing in the Super Bowl would be an opportunity.
Taking the field in the World Series would be an opportunity.
So, why is the CPA Exam not an “opportunity” – it gives you the chance to pit yourself against the best known accounting exam in the history of the world. It
is an exam that you can pass but only if you do your best. It is an exam that is recognized throughout the world as the pinnacle of achievement in the
accounting profession.
Yeah, it really does qualify as an opportunity.
But, as Edison says, people often miss their greatest opportunities because they “look like work.” I know we all love to play and have fun but some of the
greatest thrills in my life have come from taking on a challenging opportunity—one that required the best of me every day, one that required me to put in some
serious work.
Work on your mindset. Every single morning ask yourself to describe the CPA Exam in just one word. That is not a bad exercise. That one word may not
always be “opportunity” depending on how you are feeling on that day but, hopefully, you will view it as an opportunity on most days.
That is always a good start to any day.
(5) – Now for a little practice. Work these questions today and see how you do. Wait 7 days and try them again. Obviously, what you want is a higher
score the second time. That is what you want: progress.
Good luck – go get them!!!
FAR
You buy two investments in equity securities. Each one cost $7,000 and each one goes up to $10,000 in value by the end of the year. One was a trading
security and one was available-for-sale. Each company declared a cash dividend on December 1 of the current year, payable to owners on record as of December
26. You received two dividend checks of $400 each on January 8 of the following year. Which of the following statements is true? (Assume that you have
not chosen to account for the available-for-sale security as if it were a trading security.)
A – Your net income goes up a total of $3,000 because of each investment.
B – Your net income goes up a total of $3,400 because of each investment.
C – Your net income goes up $3,400 because of the trading security but $400 because of the available-for-sale security.
D – Your net income goes up $3,000 because of the trading security but is unchanged because of the available-for-sale security.
Answer is C
The dividend received on both investments is recognized as revenue in the current period because the date of record (December 26) is in the current period. In
addition, the $3,000 increase in value of the trading security is also recognized within net income (for a total of $3,400). However, the increase in value
of the available-for-sale security is reported within accumulated other comprehensive income that appears in stockholders’ equity and not within net income.
Only the dividend affects net income in connection with the available-for-sale security.
Auditing and Attestation
A CPA firm is auditing the financial statements prepared by the Lion Corporation for the year ending December 31, Year One. The auditors are concerned that a
number of accounts payable were not included in the year-end liabilities. Which of the following audit procedures would help the auditors make certain that
the accounts payable balance is not understated?
A – Confirm a sample of the year-end accounts payable balances.
B – Review the cause for the cash disbursements made in the first month or two of Year Two.
C – Compare the balances in accounts payable to receiving reports created by the company.
D – Check the math and extensions on the accounts payable balances recorded during the last month of Year One.
Answer is B
A, C, and D involve the examination of balances that were already recorded prior to the end of Year One. However, that is not the problem that is suspected
by the auditors. The auditors are concerned about payable balances that were omitted in Year One. Only answer B looks at transactions that might not have
been recorded appropriately in Year One. The auditors will look at cash disbursements in Year Two and determine when the liability was created and whether it
was recorded in the correct time period.
Regulation
James Miller operates a wine shop as a sole proprietorship. On a Wednesday evening, he holds a meeting with several of his suppliers. The meeting lasts for
several hours as they discuss various wines that will become available during the following year. After the meeting, Miller takes the entire group to a
local minor league baseball game and pays for the entire event. How much of this cost can he deduct for income tax purposes?
A – Zero
B – Twenty percent
C – Fifty percent
D – All of it
Answer is C
Fifty percent of entertainment expenses can be deducted for tax purposes as long as it is directly related or associated with the active conduct of the
taxpayer’s trade or business. This rule is met if the entertainment precedes or follows a substantial business discussion. That rule is met in this
situation.
BEC
Lenit Corporation recently acquired widgets from a company in the country of Becktle where the currency is the romtag. Each romtag is currently worth $.40
and Lenit must pay 100,000 romtags in 60 days (value of $40,000). The treasurer for Lenit believes that the value of the romtag is going to go up over the
next 60 days so that a more valuable currency will have to be paid and money will be lost. What action is the treasurer most likely to take?
A - Acquire a forward exchange contract that allows the company to buy 100,000 romtags in 60 days for exactly $.41.
B - Sell the widgets in the U. S. as quickly as possible even if they must be sold at a loss.
C - Buy the next batch of widgets in some other country.
D - Begin production of widgets in the U. S.
Answer is A.
The fluctuation of currency values is always a concern but one that can be managed through a hedging arrangement. The company has a 100,000 romtag payable.
To create a hedge, the company needs to establish a 100,000 romtag receivable. The forward exchange contract is set up here so that the company will get
100,000 romtags in 60 days. That is a receivable. Any change in the value of the romtag will cause equal and offsetting changes in the receivable and the
payable. Thus, a gain on one cancels out a loss on the other. The company does have to pay $41,000 for the romtags that will be received which is $1,000
more than the current value of the liability. That is the cost of establishing the hedge. The company knows that amount and has judged it to be more
reasonable than the uncertainty of waiting to see what paying 100,000 romtags will cost the company in 60 days.
Have a great week
Work hard
Accomplish everything you set out to do.
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
76 Weeks of Operation and 7,631,253 Page Views (without a penny spent on marketing)
Lesson 57
From: Joe
(1) – FACEBOOK We have now sent out 10 tips in our 30 Tips in 30 Days program on Facebook. After the 30 days are up, I’d like to continue to do something
similar 2-3 times per week. Or maybe we’ll just go for a 60 Tips in 60 Days program.
If you want to receive our daily tips on Facebook, here are the directions: If you are already a member of Facebook, type in "CPAreviewforFREE" in
the search box to get to our page. If you are not a member, go to www.facebook.com and create an account. Apparently it is easy (even for an older time like
me) because we are adding fans at a very nice pace.
(If you have any trouble signing up because you are not a Facebook person, hit reply and we’ll have our Facebook expert contact you about getting started.)
(2) – Whenever you get ready to stop receiving these weekly email lessons, you can unsubscribe by scrolling to the bottom of any lesson. Click on the link and
you’ll be off.
However, if it were up to us, we’d just as soon have you stay. We are well over 10,000 subscribers and I can hardly wait to have 20,000 or even 100,000. The
cost is the same for us. So, stay for as long as you wish.
And, tell your friends. In fact, if you are looking for just the perfect holiday gift for a loved one, remember that a subscription to our email lessons
might just be the thing that would brighten up that person’s life. Plus, the cost is excellent (free).
(3) – My wife was working last Saturday so I took my two daughters to see the movie: The Princess and the Frog. Okay, it is a cartoon so it probably is not
going to rival The Godfather. But, it did have an excellent message: “You can do anything that you set your mind on.” The heroine was a child who was very
poor but wanted to start a restaurant of her own and that was the message her father kept pushing. So, she worked double and triple shifts to make that dream
come true.
Well, in all honesty, I do not know that you can do every single thing that you set your mind on. There are a few dreams (a friend of mine dreams of swimming
in the Olympics, for example) that are a bit unlikely. However, I will tell you exactly what I do believe:
--If you don’t want something badly enough to set your mind on it, you don’t really want it.
--If you don’t want something badly enough to do the work, you don’t really want it.
--If you don’t want something badly enough, you are probably not going to get it.
So, the question I would pose to you, today, on December 14, 2009, is: how badly do you want to pass the CPA Exam? Simply question but the answer can be
complicated. Everyone will say that they are dying to pass but that is just “lip service” – how badly do you really want to pass?
I can tell you two ways that you can find out for yourself.
First, there are times every day when you can study or you can do something that is more interesting.
You can study or you can watch television.
You can study or you can read a magazine.
You can study or you can go to a movie.
Count how often each day “You can study” wins. If it is 80 percent or more of the time, then you are probably serious about passing the CPA Exam. It doesn’t
have to be 100 percent of the time but it ought to be a solid majority. Study needs to win very frequently.
When faced with temptation, if you choose to study most of the time that is a great sign that you really have set your mind on passing.
Second, I have said often in these email lessons that you should plan out how many hours per day (on the average) that you want to study. Are you able to
study one hour each day, 90 minutes each day, two hours each day or what? In your life, what is a reasonable goal?
Then, of course, keep track of the number of days that you are able to hit that goal. Again, it doesn’t have to be 100 percent of the time but if you are not
able to meet the hourly goal at least 70-80 percent of the time, it may be that you just think you want to pass the CPA Exam but you have not really set your
mind on passing.
“You can do anything that you set your mind on.”
(4) – Over the years in these email lessons, I have written several times about Thomas Edison, one of the most successful people in history and, apparently,
one of the hardest working people in history (hmm, could there be a connection?).
Someone must have read those previous lessons and remembered them because I received the following Thomas Edison quote in an email:
“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
I love the idea that the CPA Exam represents an “opportunity.” I often hear the CPA Exam described in negative terms such as “painful,” “torturous,” “cruel,”
and the like. But that makes the whole process seem like drudgery. And, I think you are so much better off if you can adopt a different mindset.
Participating in the Olympics would be an opportunity.
Playing in the Super Bowl would be an opportunity.
Taking the field in the World Series would be an opportunity.
So, why is the CPA Exam not an “opportunity” – it gives you the chance to pit yourself against the best known accounting exam in the history of the world. It
is an exam that you can pass but only if you do your best. It is an exam that is recognized throughout the world as the pinnacle of achievement in the
accounting profession.
Yeah, it really does qualify as an opportunity.
But, as Edison says, people often miss their greatest opportunities because they “look like work.” I know we all love to play and have fun but some of the
greatest thrills in my life have come from taking on a challenging opportunity—one that required the best of me every day, one that required me to put in some
serious work.
Work on your mindset. Every single morning ask yourself to describe the CPA Exam in just one word. That is not a bad exercise. That one word may not
always be “opportunity” depending on how you are feeling on that day but, hopefully, you will view it as an opportunity on most days.
That is always a good start to any day.
(5) – Now for a little practice. Work these questions today and see how you do. Wait 7 days and try them again. Obviously, what you want is a higher
score the second time. That is what you want: progress.
Good luck – go get them!!!
FAR
You buy two investments in equity securities. Each one cost $7,000 and each one goes up to $10,000 in value by the end of the year. One was a trading
security and one was available-for-sale. Each company declared a cash dividend on December 1 of the current year, payable to owners on record as of December
26. You received two dividend checks of $400 each on January 8 of the following year. Which of the following statements is true? (Assume that you have
not chosen to account for the available-for-sale security as if it were a trading security.)
A – Your net income goes up a total of $3,000 because of each investment.
B – Your net income goes up a total of $3,400 because of each investment.
C – Your net income goes up $3,400 because of the trading security but $400 because of the available-for-sale security.
D – Your net income goes up $3,000 because of the trading security but is unchanged because of the available-for-sale security.
Answer is C
The dividend received on both investments is recognized as revenue in the current period because the date of record (December 26) is in the current period. In
addition, the $3,000 increase in value of the trading security is also recognized within net income (for a total of $3,400). However, the increase in value
of the available-for-sale security is reported within accumulated other comprehensive income that appears in stockholders’ equity and not within net income.
Only the dividend affects net income in connection with the available-for-sale security.
Auditing and Attestation
A CPA firm is auditing the financial statements prepared by the Lion Corporation for the year ending December 31, Year One. The auditors are concerned that a
number of accounts payable were not included in the year-end liabilities. Which of the following audit procedures would help the auditors make certain that
the accounts payable balance is not understated?
A – Confirm a sample of the year-end accounts payable balances.
B – Review the cause for the cash disbursements made in the first month or two of Year Two.
C – Compare the balances in accounts payable to receiving reports created by the company.
D – Check the math and extensions on the accounts payable balances recorded during the last month of Year One.
Answer is B
A, C, and D involve the examination of balances that were already recorded prior to the end of Year One. However, that is not the problem that is suspected
by the auditors. The auditors are concerned about payable balances that were omitted in Year One. Only answer B looks at transactions that might not have
been recorded appropriately in Year One. The auditors will look at cash disbursements in Year Two and determine when the liability was created and whether it
was recorded in the correct time period.
Regulation
James Miller operates a wine shop as a sole proprietorship. On a Wednesday evening, he holds a meeting with several of his suppliers. The meeting lasts for
several hours as they discuss various wines that will become available during the following year. After the meeting, Miller takes the entire group to a
local minor league baseball game and pays for the entire event. How much of this cost can he deduct for income tax purposes?
A – Zero
B – Twenty percent
C – Fifty percent
D – All of it
Answer is C
Fifty percent of entertainment expenses can be deducted for tax purposes as long as it is directly related or associated with the active conduct of the
taxpayer’s trade or business. This rule is met if the entertainment precedes or follows a substantial business discussion. That rule is met in this
situation.
BEC
Lenit Corporation recently acquired widgets from a company in the country of Becktle where the currency is the romtag. Each romtag is currently worth $.40
and Lenit must pay 100,000 romtags in 60 days (value of $40,000). The treasurer for Lenit believes that the value of the romtag is going to go up over the
next 60 days so that a more valuable currency will have to be paid and money will be lost. What action is the treasurer most likely to take?
A - Acquire a forward exchange contract that allows the company to buy 100,000 romtags in 60 days for exactly $.41.
B - Sell the widgets in the U. S. as quickly as possible even if they must be sold at a loss.
C - Buy the next batch of widgets in some other country.
D - Begin production of widgets in the U. S.
Answer is A.
The fluctuation of currency values is always a concern but one that can be managed through a hedging arrangement. The company has a 100,000 romtag payable.
To create a hedge, the company needs to establish a 100,000 romtag receivable. The forward exchange contract is set up here so that the company will get
100,000 romtags in 60 days. That is a receivable. Any change in the value of the romtag will cause equal and offsetting changes in the receivable and the
payable. Thus, a gain on one cancels out a loss on the other. The company does have to pay $41,000 for the romtags that will be received which is $1,000
more than the current value of the liability. That is the cost of establishing the hedge. The company knows that amount and has judged it to be more
reasonable than the uncertainty of waiting to see what paying 100,000 romtags will cost the company in 60 days.
Have a great week
Work hard
Accomplish everything you set out to do.
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
Friday, December 11, 2009
Getting Stronger
Try us FIRST before you spend your hard-earned money.
December 10, 2009
Getting Stronger
75 Weeks of Operation and 7,521,309 Page Views (without a penny spent on marketing)
Lesson 56
From: Joe
(1) - FACEBOOK We have started our 30 Tips in 30 Days program on Facebook. Tip Five went out today and was as follows:
When I took the CPA Exam years ago, the pass rate on each part was about 33 percent. This meant that no matter how hard you studied, you had serious trouble passing. The CPA Exam was universally viewed as a "killer." In the 3rd quarter of 2009, the pass rate on each part was above 51 percent (Auditing-51.5%, FAR-51.1%, BEC-52.3%, and Regulation-52.4%). The exam is still very tough but it is no longer the same type of killer exam. You need to realize that fact before you start studying. We could debate the reasons for this increase in pass rate but the important issue is that everyone can pass the computerized exam if they do they work. It is no longer just for the A students. If you work enough practice problems and put in the time to learn from your mistakes, you can pass this exam regardless of your job or college grade point average. This should give you confidence: "if I do the work, I have a legitimate shot at making this happen." On our site, we
recommend doing 10-20 questions per day and taking 10 word notes on the ones you missed. Then, review those notes every two weeks. That approach gives you a great shot at passing.
If you would like to get these daily tips on Facebook, here are the directions that I sent out last week: "How do you find us? If you are already a member of Facebook, type in "CPAreviewforFREE" in the search box for our page. If you are not a member, go to www.facebook.com and create an account. It's fast and easy!"
(2) EMAILS Several neat emails were received in the last few days. I love hearing from every one.
FROM JJ in OHIO: Just a quick testament to your website. I tend to be a bit of a cheapskate so I eschewed expensive CPA review courses, etc. I bought some used study guides off of Ebay and tried to do it alone. The bottom line is I went 0 for 4 on all four parts. I found your site and combined it with the study guides. Resultantly, I went 4 for 5 over my next five attempts and have now passed all parts!
FROM LK: I just wanted to write and tell you that your materials are extremely helpful! I was struggling with passing my first section (REG) and I came upon your website a week before the test. The materials were relevant and timely. I then used your materials prior to taking FAR and have now successfully passed both parts with high scores. I can't wait to earn my initials (CPA) and your website has been a large part of my success. Thank you!
FROM RM: I just wanted to check in with you and let you know that I took the auditing section of the CPA exam today. I felt well prepared due to the questions provided with your free review. My employer paid for (big expensive course) and I used that in conjunction with your review. I think the exam went pretty well and hopefully I am on my way to passing the CPA exam.
(3) UNSUBSCRIBE Yes, regrettably, you can unsubscribe whenever you wish. We love having everyone (even if you have already passed the CPA Exam and gone on to fame, wealth, and happiness). But, if you decide you can do without our weekly email lessons, just scroll to the bottom of this email and click on the link.
In truth, we would much prefer that you forward this email to every person (accountant or nonaccountant) that you know in the entire world with the recommendation: "you really should go to www.CPAreviewforFREE.com and register so that Joe will send you these emails every week or so to bring joy, excitement, and enlightenment to your life." (hey, it works for me.)
(4) FOURTH QUARTER Both the pro and college football seasons are winding down and we are beginning to get a feel for the teams that are really good this year. The winners are starting to separate from the losers. There is one quality that I love to see in a football team. That is when they play harder in the fourth quarter than they did in the first quarter. Anyone can be great in the first quarter. The true winners are those who can still be great when they are completely exhausted in the fourth quarter.
I used to have a saying when I ran live CPA Review courses here in Richmond: "everyone loves to do the work for the first week or two." That is so true. When they first start, everyone gets excited and rushes home and studies like crazy. For many, that excitement lasts about a week or two and then "the fade" starts.
In the fade, people start skipping days and then cutting back hours and pretty soon, study becomes a relatively rare event. More and more often they find "good" excuses not to study. Pretty soon, as my college roommate used to say, "if you really don't want to do it, then any excuse is good enough."
But, for some, there is a wonderful consistency to their preparation. They start out strong and steady. They put in their time. They put in their time virtually every day. They create smart study techniques so that study can cause as little disruption in their lives as possible. They are just very efficient. Steady is the word that I use to describe these people. If they are answering 15 questions per day and taking notes than they are just methodical at it. It is a solid 15 questions every day come rain or snow or whatever other distraction pops up.
Then, when the exam gets close, instead of just seeming thoroughly exhausted, they actually start to get stronger. There is a point when a realization hits. That is a realization that you want to see hit a candidate about 10-14 days before they are scheduled to go take the exam: "hey, you know, I really have a chance to pass this exam." "I have a chance"-those are beautiful words. When that realization hits, it is like a second wind. The candidates start finding time they didn't know they had. Their focus is as keen as a surgeon's. They forget about being tired and they become obsessed with adding one or more points every day. They leave no stone unturned looking for points.
Are you a first quarter candidate: one who studies hard until the first problem arises and that knocks you off course.
Or,
Are you a fourth quarter candidate: one who stays steady for the first three quarters and then puts on a strong push in the fourth quarter to blow away the opponent.
The answer to that question may truly tell you your chances of passing the CPA Exam.
(5) - PRACTICE
FAR - I gave a final exam this past Tuesday. Here is one of the questions that I asked my own intermediate accounting students. They did well on this question.
At the end of the current year, a company with a defined benefit pension plan has a projected benefit obligation of $375,000, plan assets of $311,000, pension expense of $175,000, prior service cost-OCI of $41,000, and unrecognized loss-OCI of $11,000. Funding for the year was $91,000 and the service cost was $116,000. What liability is reported by the company on its balance sheet?
A - $52,000
B - $64,000
C - $75,000
D - $116,000
Answer is B
These are end-of-year figures so no further changes or adjustments need to be made. The amount reported on the balance sheet is the net of the projected benefit obligation (the liability) and the plan assets. The $375,000 less the $311,000 give a net liability balance of $64,000. The expense figure is reported in the income statement. The prior service cost and the unrecognized (or deferred) loss are reported within "accumulated other comprehensive income" in the stockholders' equity section of the balance sheet.
BEC
A company starts off the current year with accounts receivable of $32,000. During the year, inventory costing $93,000 is bought and sold on credit for $120,000. Cash of $112,000 is collected. This money is used to pay a dividend ($30,000) and decrease long-term liabilities ($72,000). What is the receivable turnover ratio for this period?
A- 3.33
B - 3.50
C - 3.60
D - 3.75
Answer is A
The receivable turnover ratio is computed by taking net sales ($120,000 here since no discounts or allowances are mentioned) and dividing that figure by the average receivable balance for the year. The beginning balance ($32,000) goes up by $120,000 and down by $112,000 leaving an ending balance of $40,000. The average balance for the period is $36,000 ([$32,000 + $40,000] divided by 2). The receivable turnover ratio is $120,000 divided by $36,000 or 3.33.
Regulation
One of your tax clients comes to you with a tax problem. She is 38 years old and has a traditional IRA. She wants to pull out $12,000 in cash this year for personal reasons and wants to know the tax implications. Without this $12,000, she will have taxable income of $200,000 and pay an income tax of $50,000. She is in the 33 percent tax bracket. How much more income tax will she have to pay if she does take out this $12,000?
A - $3,000
B - $3,960
C - $5,160
D - $5,480
Answer is C.
Since she is in the 33 percent tax bracket, the $12,000 is simply taxed at that rate for an additional charge of $3,960. In addition, because she is taking the money out before she reaches 59 ½ (and none of the exceptions in the law are mentioned as being applicable), she must also pay a 10 percent penalty or $1,200. Her additional income tax is $3,960 plus $1,200 or $5,160.
Auditing and Attestation
The CPA firm of Right & Wrong is looking at the internal control procedures utilized by one of their clients in connection with the cash balance. All of the control procedures look wonderful but the auditors are aware that internal control always has certain inherent limitations. Which of the following would be an example of that type of inherent limitation?
A - Bank reconciliations are performed by a party independent of the cash account.
B - Check requests for over $1,500 must go through a special approval process which often requires several days.
C - The company's president can request checks made out to cash although that is not allowed by the stated procedures.
D - Cash balances of over $22,000 are invested in government short-term bonds with a maturity of less than 60 days.
Answer is C.
The term "inherent limitation" when applied to internal control means that a problem or potential risk exists that no amount of control can completely eliminate. A and B are both good internal control procedures. They are not limitations. D is a wise business move that does not necessarily impact control risk. However, it is difficult for any control system to completely eliminate potential problems created by management authority. Because they have power over the people applying the procedures, rules cannot always be enforced. Here, although a rule exists against checks made out to cash, the president has the ability to hire and fire employees. Thus, the person who writes the checks faces the possibility of job loss if the rule is obeyed. That fear might lead them to break the rules. That is an inherent limitation of internal control; there is virtually no way to completely eliminate one person using his or her authority to get another person to break the
rules.
Study hard - see you on FACEBOOK!!!!
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
December 10, 2009
Getting Stronger
75 Weeks of Operation and 7,521,309 Page Views (without a penny spent on marketing)
Lesson 56
From: Joe
(1) - FACEBOOK We have started our 30 Tips in 30 Days program on Facebook. Tip Five went out today and was as follows:
When I took the CPA Exam years ago, the pass rate on each part was about 33 percent. This meant that no matter how hard you studied, you had serious trouble passing. The CPA Exam was universally viewed as a "killer." In the 3rd quarter of 2009, the pass rate on each part was above 51 percent (Auditing-51.5%, FAR-51.1%, BEC-52.3%, and Regulation-52.4%). The exam is still very tough but it is no longer the same type of killer exam. You need to realize that fact before you start studying. We could debate the reasons for this increase in pass rate but the important issue is that everyone can pass the computerized exam if they do they work. It is no longer just for the A students. If you work enough practice problems and put in the time to learn from your mistakes, you can pass this exam regardless of your job or college grade point average. This should give you confidence: "if I do the work, I have a legitimate shot at making this happen." On our site, we
recommend doing 10-20 questions per day and taking 10 word notes on the ones you missed. Then, review those notes every two weeks. That approach gives you a great shot at passing.
If you would like to get these daily tips on Facebook, here are the directions that I sent out last week: "How do you find us? If you are already a member of Facebook, type in "CPAreviewforFREE" in the search box for our page. If you are not a member, go to www.facebook.com and create an account. It's fast and easy!"
(2) EMAILS Several neat emails were received in the last few days. I love hearing from every one.
FROM JJ in OHIO: Just a quick testament to your website. I tend to be a bit of a cheapskate so I eschewed expensive CPA review courses, etc. I bought some used study guides off of Ebay and tried to do it alone. The bottom line is I went 0 for 4 on all four parts. I found your site and combined it with the study guides. Resultantly, I went 4 for 5 over my next five attempts and have now passed all parts!
FROM LK: I just wanted to write and tell you that your materials are extremely helpful! I was struggling with passing my first section (REG) and I came upon your website a week before the test. The materials were relevant and timely. I then used your materials prior to taking FAR and have now successfully passed both parts with high scores. I can't wait to earn my initials (CPA) and your website has been a large part of my success. Thank you!
FROM RM: I just wanted to check in with you and let you know that I took the auditing section of the CPA exam today. I felt well prepared due to the questions provided with your free review. My employer paid for (big expensive course) and I used that in conjunction with your review. I think the exam went pretty well and hopefully I am on my way to passing the CPA exam.
(3) UNSUBSCRIBE Yes, regrettably, you can unsubscribe whenever you wish. We love having everyone (even if you have already passed the CPA Exam and gone on to fame, wealth, and happiness). But, if you decide you can do without our weekly email lessons, just scroll to the bottom of this email and click on the link.
In truth, we would much prefer that you forward this email to every person (accountant or nonaccountant) that you know in the entire world with the recommendation: "you really should go to www.CPAreviewforFREE.com and register so that Joe will send you these emails every week or so to bring joy, excitement, and enlightenment to your life." (hey, it works for me.)
(4) FOURTH QUARTER Both the pro and college football seasons are winding down and we are beginning to get a feel for the teams that are really good this year. The winners are starting to separate from the losers. There is one quality that I love to see in a football team. That is when they play harder in the fourth quarter than they did in the first quarter. Anyone can be great in the first quarter. The true winners are those who can still be great when they are completely exhausted in the fourth quarter.
I used to have a saying when I ran live CPA Review courses here in Richmond: "everyone loves to do the work for the first week or two." That is so true. When they first start, everyone gets excited and rushes home and studies like crazy. For many, that excitement lasts about a week or two and then "the fade" starts.
In the fade, people start skipping days and then cutting back hours and pretty soon, study becomes a relatively rare event. More and more often they find "good" excuses not to study. Pretty soon, as my college roommate used to say, "if you really don't want to do it, then any excuse is good enough."
But, for some, there is a wonderful consistency to their preparation. They start out strong and steady. They put in their time. They put in their time virtually every day. They create smart study techniques so that study can cause as little disruption in their lives as possible. They are just very efficient. Steady is the word that I use to describe these people. If they are answering 15 questions per day and taking notes than they are just methodical at it. It is a solid 15 questions every day come rain or snow or whatever other distraction pops up.
Then, when the exam gets close, instead of just seeming thoroughly exhausted, they actually start to get stronger. There is a point when a realization hits. That is a realization that you want to see hit a candidate about 10-14 days before they are scheduled to go take the exam: "hey, you know, I really have a chance to pass this exam." "I have a chance"-those are beautiful words. When that realization hits, it is like a second wind. The candidates start finding time they didn't know they had. Their focus is as keen as a surgeon's. They forget about being tired and they become obsessed with adding one or more points every day. They leave no stone unturned looking for points.
Are you a first quarter candidate: one who studies hard until the first problem arises and that knocks you off course.
Or,
Are you a fourth quarter candidate: one who stays steady for the first three quarters and then puts on a strong push in the fourth quarter to blow away the opponent.
The answer to that question may truly tell you your chances of passing the CPA Exam.
(5) - PRACTICE
FAR - I gave a final exam this past Tuesday. Here is one of the questions that I asked my own intermediate accounting students. They did well on this question.
At the end of the current year, a company with a defined benefit pension plan has a projected benefit obligation of $375,000, plan assets of $311,000, pension expense of $175,000, prior service cost-OCI of $41,000, and unrecognized loss-OCI of $11,000. Funding for the year was $91,000 and the service cost was $116,000. What liability is reported by the company on its balance sheet?
A - $52,000
B - $64,000
C - $75,000
D - $116,000
Answer is B
These are end-of-year figures so no further changes or adjustments need to be made. The amount reported on the balance sheet is the net of the projected benefit obligation (the liability) and the plan assets. The $375,000 less the $311,000 give a net liability balance of $64,000. The expense figure is reported in the income statement. The prior service cost and the unrecognized (or deferred) loss are reported within "accumulated other comprehensive income" in the stockholders' equity section of the balance sheet.
BEC
A company starts off the current year with accounts receivable of $32,000. During the year, inventory costing $93,000 is bought and sold on credit for $120,000. Cash of $112,000 is collected. This money is used to pay a dividend ($30,000) and decrease long-term liabilities ($72,000). What is the receivable turnover ratio for this period?
A- 3.33
B - 3.50
C - 3.60
D - 3.75
Answer is A
The receivable turnover ratio is computed by taking net sales ($120,000 here since no discounts or allowances are mentioned) and dividing that figure by the average receivable balance for the year. The beginning balance ($32,000) goes up by $120,000 and down by $112,000 leaving an ending balance of $40,000. The average balance for the period is $36,000 ([$32,000 + $40,000] divided by 2). The receivable turnover ratio is $120,000 divided by $36,000 or 3.33.
Regulation
One of your tax clients comes to you with a tax problem. She is 38 years old and has a traditional IRA. She wants to pull out $12,000 in cash this year for personal reasons and wants to know the tax implications. Without this $12,000, she will have taxable income of $200,000 and pay an income tax of $50,000. She is in the 33 percent tax bracket. How much more income tax will she have to pay if she does take out this $12,000?
A - $3,000
B - $3,960
C - $5,160
D - $5,480
Answer is C.
Since she is in the 33 percent tax bracket, the $12,000 is simply taxed at that rate for an additional charge of $3,960. In addition, because she is taking the money out before she reaches 59 ½ (and none of the exceptions in the law are mentioned as being applicable), she must also pay a 10 percent penalty or $1,200. Her additional income tax is $3,960 plus $1,200 or $5,160.
Auditing and Attestation
The CPA firm of Right & Wrong is looking at the internal control procedures utilized by one of their clients in connection with the cash balance. All of the control procedures look wonderful but the auditors are aware that internal control always has certain inherent limitations. Which of the following would be an example of that type of inherent limitation?
A - Bank reconciliations are performed by a party independent of the cash account.
B - Check requests for over $1,500 must go through a special approval process which often requires several days.
C - The company's president can request checks made out to cash although that is not allowed by the stated procedures.
D - Cash balances of over $22,000 are invested in government short-term bonds with a maturity of less than 60 days.
Answer is C.
The term "inherent limitation" when applied to internal control means that a problem or potential risk exists that no amount of control can completely eliminate. A and B are both good internal control procedures. They are not limitations. D is a wise business move that does not necessarily impact control risk. However, it is difficult for any control system to completely eliminate potential problems created by management authority. Because they have power over the people applying the procedures, rules cannot always be enforced. Here, although a rule exists against checks made out to cash, the president has the ability to hire and fire employees. Thus, the person who writes the checks faces the possibility of job loss if the rule is obeyed. That fear might lead them to break the rules. That is an inherent limitation of internal control; there is virtually no way to completely eliminate one person using his or her authority to get another person to break the
rules.
Study hard - see you on FACEBOOK!!!!
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
Friday, December 4, 2009
Get More Efficient
Try us FIRST before you spend your hard-earned money.
December 3, 2009
CPA Review for FREE
www.CPAreviewforFREE.com
Get More Efficient
74 Weeks of Operation and 7,429,924 Page Views (without a penny spent on marketing)
Lesson 55
From: Joe
(1) - SOMETHING NEW FROM CPAreviewforFREE: We here at CPA review for FREE are constantly working om new ways to be helpful in your quest to pass the CPA Exam. The other review courses seem to think it is still 1959 while we are trying to use the technological advantages of 2009.
Soooo, we are going to try a 30 day experiment. Starting in about a week (after I get all of my final exams written), we are going to use www.Facebook.com to post a short message every day for 30 days. Some days it will be a problem and explanation, some days a short message of encouragement, some days a testing or preparation hint. We'll try to post a short and helpful message every day for 30 days. After that, we'll see whether we want to continue the idea or not. I like to experiment and see what works well.
I'm not an expert at Facebook so here is a message from one of my partners: "How do you find us? If you are already a member of Facebook, type in "CPAreviewforFREE" in the search box for our page. If you are not a member, go to www.facebook.com and create an account. It's fast and easy!"
(2) - A GOAL ACHIEVED Last week we went over 7.4 million page views. That was our 74th week of operation. So, www.CPAreviewforFREE is now officially averaging over 100,000 page views each and every week since we first began in the summer of 2008. What is even more impressive (at least to me) is that we did not even achieve 100,000 page views until our 40th week. It took 40 weeks to get to 100,000 page views in a single week and then only 34 more weeks to the point where we are averaging 100,000 page views per week.
Think we can get to an average of 200,000 page views per week by April 1????
(3) - THANKS I received the nicest letter last week from JD in Pennsylvania. I am used to getting emails but a personal letter was really unique. My favorite lines: "At the times I was feeling down or found it difficult to pick up the book and study, I would receive one of your emails and I really took those to heart and wrote down your tips and several quotes. I have quotes from your emails taped all over my computer at work, my refrigerator at home and at my table where I study."
I have this wonderful mental picture of my quotes taped all over her house.
Whatever helps you get up the energy to do the work that is needed is fine by me.
(4) - UNSUBSCRIBE We currently have over 10,000 subscribers who get these email lessons. And we love having every single one of you (yeah, YOU). Whether you are using our free questions and answers or are paying good money to someone else, we are glad to be as much help as possible. We want YOU to pass.
However, if you are ever ready to unsubscribe, it is easy to do. Scroll to the bottom of the email and click on the appropriate link.
(5) - PREPARATION When I was studying for the CPA Exam, I was a full-time student in college trying to pass enough courses to graduate. I was getting married in just a few months and I was preparing to start my first professional job with a regional CPA firm. Plus, there was a war going on (Vietnam) and I was concerned about being drafted. I had a lot on my mind and not much time on my hands.
There is never a good time to study for the CPA Exam.
I knew I wanted to pass as quickly as possible for several reasons. I think it is very important to know why you want to pass. During those long hours of study, you need to have a reason. It is not fun to sit there, all alone, and study hour after hour. If you are doing it without a good reason, it is simply hard to make the sacrifice.
---First, I'm very competitive. I don't like competing unless I play to win. To me, this was just a big sporting event and it brought out my competitive nature.
---Second, I wanted to win so that my parents and my girl friend would be proud of me. They believed in me and I didn't want to let them down.
---Third, I sincerely did not want to do that exam again. I was ready to get on with my life and my career. I wanted the exam to be over.
Your reasons may be radically different - these were mine. You do need to think about why you are putting yourself through this.
However, I made a big mistake. I waited too long to start studying. There were no review books or review courses in those days so no one told me how long I needed to study. I had to take all four exams in a 2 ½ day period. That is a lot of material to get into your head and then keep in your head. I simply did not realize how much material there was and how much time would be needed.
Almost from the first day, I realized that I had not left myself enough time. Instead of beating my head against a wall, I started trying to figure out how I could (a) make more time for study and (b) become more efficient.
What did I do? This is nearly 40 years ago but I remember it quite well.
---Every night before I went to bed, I would write out exactly what I wanted to do the next day and how long it would take and when I would do it. I literally had my entire day scheduled out to the minute. When I woke up each morning, I didn't have to stop and think-I just started working.
---I started getting up 30-45 minutes earlier every day and I spent that time studying. I often set the books beside my bed at night and then studied for 30 minutes before I even got up. I didn't want to lose too much sleep and stay groggy all the time but I figured that I could cut down on my sleep that much.
---I started keeping all my notes on index cards that I carried with me everywhere I went. If I had even 5 free seconds, I would go through a card or two. You would be amazed how much free time there is in a day. I remember sitting on a bus just reading those cards to myself as we bounced down the highway.
---I started eating my meals alone so that I could study while I ate. If you rise 30 minutes early every day and you study while you eat, you can easily add 2 hours per day with no serious change in your life. I wouldn't want to live like that 365 days per year but I was only doing this during those weeks while I was studying for the CPA Exam.
---I realized that I was going to wear down so I started running one mile a day just to get my heart pumping. I also needed to release the tension that was building up. I have never been an exercise person---I find it terribly boring. But, during those weeks, I made an exception. I would do my running and go right back to work.
---I told my girl friend/fiancé that I could only see her on Saturday afternoon and evening. I felt like I was making an investment in our future and I needed the time to study. She was very understanding. In fact, I can remember a number of Saturday nights sitting in my room at college as she would read study questions to me so that I could recite the answers.
---I found a room (more like a closet) in the basement of the college library that no one seemed to know about. I would go there and study so that I was not distracted. True story: it did not have a desk but it did have a large peach basket that was turned over and I used as a table.
Did I pass? I barely passed. I averaged 78 on the four parts. But, I didn't care. I had passed. I danced and sang when the letter came. I had waited too late and had to compensate but, nearly 40 years later, I am still proud that I passed the CPA Exam-what's a few weeks of hard study in comparison?
Okay, the exam is significantly different today. But the challenges of preparing are still there.
Do you know why you want to pass?
What have you done to make yourself a more efficient learner?
What have you done to make better use of your time?
Have you made studying a true priority?
Are you just working automatically without focus or have you considered how to get those points you need to pass?
Forty years from now, you want to look back and say "wow, I worked hard and it was a pain in the neck but I did it the right way and I passed and to this day, I am still delighted."
(6) - TIME FOR SOME PRACTICE
FAR
A company has a defined benefit pension plan. On January 1, Year One, employees threaten to strike and, as a result, a change is made in the pension plan to allow them to draw retirement benefits a year earlier. As a result, the projected benefit obligation increases by $300,000. At that time, employees are expected to work for an average of five years. When financial statements are to be prepared at the end of Year One, which is true for this $300,000 amount?
A - It is reported within pension expense for that year.
B - It is reported as a pension asset at the end of that year.
C - $60,000 is reported as pension expense with the remainder shown as accumulated other comprehensive income within stockholders' equity.
D - $240,000 is reported as pension expense with the remainder shown as accumulated other comprehensive income within stockholders' equity.
Answer is C.
When the projected benefit obligation increases as a result of a contractual amendment or change in the contract, the entire amount is initially recorded within accumulated other comprehensive income in the stockholders' equity section of the balance sheet. It is then amortized from stockholders' equity into pension expense. That amortization can be done a couple of ways but the most common is straight-line over the expected work period of the employees. Over five years, the $300,000 will be moved to pension expense at the rate of $60,000 per year.
Auditing & Attestation
The CPA firm of George and Ringo is currently assessing control risk at an audit client. They are looking at one particularly important control procedure in hopes of determining whether the company has been efficiently following its own requirements. The auditors are going to examine a sample of the related documents to determine how often the process is not followed properly. The auditors expect to find that errors occur 1 percent of the time. However, they can tolerate a rate as high as 3 percent. At the last minute, the partner in charge of the engagement lowers the tolerable rate to 2 percent because the procedure is so important. What is the impact of this decision?
A - Statistical sampling can no longer be used.
B - There is no effect on the sample.
C - The appropriate sample size will be lower.
D - The appropriate sample size will be greater.
Answer is D.
In statistical sampling, if the auditor seeks to determine a percentage, such as an error rate, attribute sampling is applied. Lowering the tolerable rate means that the auditor needs a more precise answer from the sample drawn. They expect 1 percent but can only tolerate 2 percent rather than 3 percent. That narrowing down of the auditor's needs requires them to examine a larger sample.
Regulation
John Doe bought five shares of JBH Corporation for $100 per share. By December 1, Year One, the stock price had fallen to $70 per share and John Doe sold three of the shares. However, on December 26, Year One, Mr. Doe acquired two shares of the same company for $50 per share. For income tax purposes, what loss does Mr. Doe have on the sale of shares of JBH Corporation?
A - Zero
B - $30
C - $90
D - $150
Answer is B.
The original loss was clearly $30 per share or $90 for all three shares. However, for income tax purposes, a loss is not allowed if substantially identical stock is purchased within 30 days before or after the loss transaction. Two shares were bought back within 30 days so the loss on two shares cannot be taken. Only the loss on the one share that was not replaced is allowed. That loss was $100 less $70 or $30.
BEC
A company has three investments. The first cost $1,000 and earns $180. The second cost $2,000 and earns $290. The third cost $3,000 and earns $400. The company seeks a rate of return of 10 percent on all investments. Which of these investments has the highest amount of residual income?
A - The one costing $1,000
B - The one costing $2,000
C - The one costing $3,000
D - Residual income cannot be determined based on the information provided
Answer is C.
Residual income is the amount of income earned in excess of a desired level. The desired level for the first investment is $100 (10 percent of $1,000) so the residual income is $80 ($180 less $100). The desired level for the second investment is $200 (10 percent of $2,000) so the residual income is $90 ($290 less $200). The desired level for the first investment is $300 (10 percent of $3,000) so the residual income is $100 ($400 less $300). The highest level of residual income is the $100 earned by the last investment.
Use your time wisely - be an efficient CPA Exam candidate.
Joe Hoyle
Co-Founder
CPA Review for FREE
December 3, 2009
CPA Review for FREE
www.CPAreviewforFREE.com
Get More Efficient
74 Weeks of Operation and 7,429,924 Page Views (without a penny spent on marketing)
Lesson 55
From: Joe
(1) - SOMETHING NEW FROM CPAreviewforFREE: We here at CPA review for FREE are constantly working om new ways to be helpful in your quest to pass the CPA Exam. The other review courses seem to think it is still 1959 while we are trying to use the technological advantages of 2009.
Soooo, we are going to try a 30 day experiment. Starting in about a week (after I get all of my final exams written), we are going to use www.Facebook.com to post a short message every day for 30 days. Some days it will be a problem and explanation, some days a short message of encouragement, some days a testing or preparation hint. We'll try to post a short and helpful message every day for 30 days. After that, we'll see whether we want to continue the idea or not. I like to experiment and see what works well.
I'm not an expert at Facebook so here is a message from one of my partners: "How do you find us? If you are already a member of Facebook, type in "CPAreviewforFREE" in the search box for our page. If you are not a member, go to www.facebook.com and create an account. It's fast and easy!"
(2) - A GOAL ACHIEVED Last week we went over 7.4 million page views. That was our 74th week of operation. So, www.CPAreviewforFREE is now officially averaging over 100,000 page views each and every week since we first began in the summer of 2008. What is even more impressive (at least to me) is that we did not even achieve 100,000 page views until our 40th week. It took 40 weeks to get to 100,000 page views in a single week and then only 34 more weeks to the point where we are averaging 100,000 page views per week.
Think we can get to an average of 200,000 page views per week by April 1????
(3) - THANKS I received the nicest letter last week from JD in Pennsylvania. I am used to getting emails but a personal letter was really unique. My favorite lines: "At the times I was feeling down or found it difficult to pick up the book and study, I would receive one of your emails and I really took those to heart and wrote down your tips and several quotes. I have quotes from your emails taped all over my computer at work, my refrigerator at home and at my table where I study."
I have this wonderful mental picture of my quotes taped all over her house.
Whatever helps you get up the energy to do the work that is needed is fine by me.
(4) - UNSUBSCRIBE We currently have over 10,000 subscribers who get these email lessons. And we love having every single one of you (yeah, YOU). Whether you are using our free questions and answers or are paying good money to someone else, we are glad to be as much help as possible. We want YOU to pass.
However, if you are ever ready to unsubscribe, it is easy to do. Scroll to the bottom of the email and click on the appropriate link.
(5) - PREPARATION When I was studying for the CPA Exam, I was a full-time student in college trying to pass enough courses to graduate. I was getting married in just a few months and I was preparing to start my first professional job with a regional CPA firm. Plus, there was a war going on (Vietnam) and I was concerned about being drafted. I had a lot on my mind and not much time on my hands.
There is never a good time to study for the CPA Exam.
I knew I wanted to pass as quickly as possible for several reasons. I think it is very important to know why you want to pass. During those long hours of study, you need to have a reason. It is not fun to sit there, all alone, and study hour after hour. If you are doing it without a good reason, it is simply hard to make the sacrifice.
---First, I'm very competitive. I don't like competing unless I play to win. To me, this was just a big sporting event and it brought out my competitive nature.
---Second, I wanted to win so that my parents and my girl friend would be proud of me. They believed in me and I didn't want to let them down.
---Third, I sincerely did not want to do that exam again. I was ready to get on with my life and my career. I wanted the exam to be over.
Your reasons may be radically different - these were mine. You do need to think about why you are putting yourself through this.
However, I made a big mistake. I waited too long to start studying. There were no review books or review courses in those days so no one told me how long I needed to study. I had to take all four exams in a 2 ½ day period. That is a lot of material to get into your head and then keep in your head. I simply did not realize how much material there was and how much time would be needed.
Almost from the first day, I realized that I had not left myself enough time. Instead of beating my head against a wall, I started trying to figure out how I could (a) make more time for study and (b) become more efficient.
What did I do? This is nearly 40 years ago but I remember it quite well.
---Every night before I went to bed, I would write out exactly what I wanted to do the next day and how long it would take and when I would do it. I literally had my entire day scheduled out to the minute. When I woke up each morning, I didn't have to stop and think-I just started working.
---I started getting up 30-45 minutes earlier every day and I spent that time studying. I often set the books beside my bed at night and then studied for 30 minutes before I even got up. I didn't want to lose too much sleep and stay groggy all the time but I figured that I could cut down on my sleep that much.
---I started keeping all my notes on index cards that I carried with me everywhere I went. If I had even 5 free seconds, I would go through a card or two. You would be amazed how much free time there is in a day. I remember sitting on a bus just reading those cards to myself as we bounced down the highway.
---I started eating my meals alone so that I could study while I ate. If you rise 30 minutes early every day and you study while you eat, you can easily add 2 hours per day with no serious change in your life. I wouldn't want to live like that 365 days per year but I was only doing this during those weeks while I was studying for the CPA Exam.
---I realized that I was going to wear down so I started running one mile a day just to get my heart pumping. I also needed to release the tension that was building up. I have never been an exercise person---I find it terribly boring. But, during those weeks, I made an exception. I would do my running and go right back to work.
---I told my girl friend/fiancé that I could only see her on Saturday afternoon and evening. I felt like I was making an investment in our future and I needed the time to study. She was very understanding. In fact, I can remember a number of Saturday nights sitting in my room at college as she would read study questions to me so that I could recite the answers.
---I found a room (more like a closet) in the basement of the college library that no one seemed to know about. I would go there and study so that I was not distracted. True story: it did not have a desk but it did have a large peach basket that was turned over and I used as a table.
Did I pass? I barely passed. I averaged 78 on the four parts. But, I didn't care. I had passed. I danced and sang when the letter came. I had waited too late and had to compensate but, nearly 40 years later, I am still proud that I passed the CPA Exam-what's a few weeks of hard study in comparison?
Okay, the exam is significantly different today. But the challenges of preparing are still there.
Do you know why you want to pass?
What have you done to make yourself a more efficient learner?
What have you done to make better use of your time?
Have you made studying a true priority?
Are you just working automatically without focus or have you considered how to get those points you need to pass?
Forty years from now, you want to look back and say "wow, I worked hard and it was a pain in the neck but I did it the right way and I passed and to this day, I am still delighted."
(6) - TIME FOR SOME PRACTICE
FAR
A company has a defined benefit pension plan. On January 1, Year One, employees threaten to strike and, as a result, a change is made in the pension plan to allow them to draw retirement benefits a year earlier. As a result, the projected benefit obligation increases by $300,000. At that time, employees are expected to work for an average of five years. When financial statements are to be prepared at the end of Year One, which is true for this $300,000 amount?
A - It is reported within pension expense for that year.
B - It is reported as a pension asset at the end of that year.
C - $60,000 is reported as pension expense with the remainder shown as accumulated other comprehensive income within stockholders' equity.
D - $240,000 is reported as pension expense with the remainder shown as accumulated other comprehensive income within stockholders' equity.
Answer is C.
When the projected benefit obligation increases as a result of a contractual amendment or change in the contract, the entire amount is initially recorded within accumulated other comprehensive income in the stockholders' equity section of the balance sheet. It is then amortized from stockholders' equity into pension expense. That amortization can be done a couple of ways but the most common is straight-line over the expected work period of the employees. Over five years, the $300,000 will be moved to pension expense at the rate of $60,000 per year.
Auditing & Attestation
The CPA firm of George and Ringo is currently assessing control risk at an audit client. They are looking at one particularly important control procedure in hopes of determining whether the company has been efficiently following its own requirements. The auditors are going to examine a sample of the related documents to determine how often the process is not followed properly. The auditors expect to find that errors occur 1 percent of the time. However, they can tolerate a rate as high as 3 percent. At the last minute, the partner in charge of the engagement lowers the tolerable rate to 2 percent because the procedure is so important. What is the impact of this decision?
A - Statistical sampling can no longer be used.
B - There is no effect on the sample.
C - The appropriate sample size will be lower.
D - The appropriate sample size will be greater.
Answer is D.
In statistical sampling, if the auditor seeks to determine a percentage, such as an error rate, attribute sampling is applied. Lowering the tolerable rate means that the auditor needs a more precise answer from the sample drawn. They expect 1 percent but can only tolerate 2 percent rather than 3 percent. That narrowing down of the auditor's needs requires them to examine a larger sample.
Regulation
John Doe bought five shares of JBH Corporation for $100 per share. By December 1, Year One, the stock price had fallen to $70 per share and John Doe sold three of the shares. However, on December 26, Year One, Mr. Doe acquired two shares of the same company for $50 per share. For income tax purposes, what loss does Mr. Doe have on the sale of shares of JBH Corporation?
A - Zero
B - $30
C - $90
D - $150
Answer is B.
The original loss was clearly $30 per share or $90 for all three shares. However, for income tax purposes, a loss is not allowed if substantially identical stock is purchased within 30 days before or after the loss transaction. Two shares were bought back within 30 days so the loss on two shares cannot be taken. Only the loss on the one share that was not replaced is allowed. That loss was $100 less $70 or $30.
BEC
A company has three investments. The first cost $1,000 and earns $180. The second cost $2,000 and earns $290. The third cost $3,000 and earns $400. The company seeks a rate of return of 10 percent on all investments. Which of these investments has the highest amount of residual income?
A - The one costing $1,000
B - The one costing $2,000
C - The one costing $3,000
D - Residual income cannot be determined based on the information provided
Answer is C.
Residual income is the amount of income earned in excess of a desired level. The desired level for the first investment is $100 (10 percent of $1,000) so the residual income is $80 ($180 less $100). The desired level for the second investment is $200 (10 percent of $2,000) so the residual income is $90 ($290 less $200). The desired level for the first investment is $300 (10 percent of $3,000) so the residual income is $100 ($400 less $300). The highest level of residual income is the $100 earned by the last investment.
Use your time wisely - be an efficient CPA Exam candidate.
Joe Hoyle
Co-Founder
CPA Review for FREE
Wednesday, November 25, 2009
Take a Moment to be Thankful
72 Weeks of Operation and 7,045,237 Page Views (without a penny spent on marketing)
Lesson 54
From: Joe
(a) - I won't tell you who I am watching but my NFL team is ahead right now. But, I'm going to write this email and only watch the game every 10 minutes for about a minute. I guess I want you to pass more than I want to sit and watch a football team play.
(1) - At least in the United States, this coming Thursday is Thanksgiving Day. Wherever you live, it is not a bad idea to take a few moments and think about the many things you have to give thanks for. Somehow our society seems to have become obsessed with the problems of life. It is hard to turn on television or the radio or pick up a newspaper without having 20 different people telling us all the things that are wrong with life today. I am amazed by how many people make their livelihoods screaming about how bad things are.
You know, if you hear that enough, it is easy to start believing it.
Okay, I'm not naïve. I know that the world has problems and that each of us has our own problems. But, I'm not ready to spend 24 out of each day beating my head over those problems.
When I was growing up, I would often complain to my father about how bad things were in the world. His response was always the same: "I lived through the Great Depression where we had no money, little or no food, outdoor toilets, no running water, and most people died before they were 50. To me, life today doesn't seem all that bad."
Maybe that is the problem. Maybe we have so very much to be thankful for that we just take it for granted. So, on Thursday, don't take it for granted. Sit down and make a list of the 10 or 20 things that really make your life special.
You'll feel better. I guarantee it.
(2) - We here at www.CPAreviewforFREE.com are grateful for all of you guys. We moved over 7 million page views this past week. (7 million!!!!!) That's a lot of page hits in just 72 weeks (WITH NO ADVERTISING).
We could not have made the splash without you guys spreading the word. So:
THANKS!!!!!!
(3) - A couple of nice notes from several of our "customers:"
FROM BC: As evidence of the quality of your CPA review questions, I just made a 91 on the FAR. Didn't go to any of those review classes, just used two sources: your website, and the Wiley book. Thank you so much for your service and your inspirational emails. I will continue to use your website as I prepare for BEC, REG, and AUD.
FROM MH: Thank you for your dedication in helping us to pass the CPA exam. I am an international student from Mexico, I took classes in Belize Central America and it has been a long process to get approved to sit for the exam. My "big name" review is expiring - I am so thankful to have a good alternative to continue studying. Thank you. When I pass the CPA exam, you will be one of the first persons that will know. I hope you are well, thank you for sharing the chalk art by your son. It was fun!
FROM GS: I am currently working on the FAR exam and I noticed your questions and explanations seem to be better than the (big major CPA review program) material.
(4) - As always, just a reminder: if you want to unsubscribe from getting these CPA Review for FREE email lessons every week or so, just scroll to the bottom of this email and click on the link that is provided.
(5) - I am always fascinated by people who have been successful over a long period of time. A lot of people are successful once and then never again. Almost like it was an accident. But, in every profession, you find a few people who seem to be at the top consistently. Those are the people that I want to learn from.
I figure that they must have some kind of special secret and I am always looking for that secret.
Last week on National Public Radio, Roy Williams-who is the coach of the University of North Carolina basketball team-was interviewed. He is clearly one of the real winners in college basketball. His teams have done well for a long time. Although I went to a school that is a rival of UNC, I must admit that he knows how to build a winning program.
During the interview, he said two things that I thought showed why he was a winner. He made two points that I need to make to myself.
They asked him what his team yells whenever they break out of a huddle. It wasn't "win" or "beat them" or "go team." It was "HARD WORK!!" I think you can learn right there from Roy Williams what it takes to be good at something for a long period of time. If you can figure out how to make "Hard Work" your motto, I think you will have taken a giant step toward success.
If you have followed these email lessons for long, you probably know that my ultimate secret for passing is CPA Exam is always the same: "Hours Equal Points."
--Work all of the questions
--Work them again.
--Take notes
--Carry those notes with you and study them whenever you have a free moment.
What you need to do to pass the CPA Exam is not rocket science. The hard part is just doing it day in and day out. The hard part is doing it and not wasting time or losing focus.
That's why I am always so thrilled when someone writes to tell me that they have passed the CPA Exam; I know how hard they have worked. I know the time and energy they have sacrificed. I know how much they have done to gain those points. Hard work is never easy.
It is not about an expensive review course (or even a free review course), it is all about hard work. The willingness to do it.
Hard work is no guarantee that you will pass. However, if you don't put in the hard work, you are almost guaranteed that you will not pass.
The second thing that Coach Williams said that caught my attention was when he said that he always told his players not to come back to the locker room after the game wishing about what they had done differently. Do it right the first time. Do it to the best of your ability the first time. Win or lose, give it all you've got the first time.
If you are going to do it, if you are going to put in the hard work, then, do that work before you take the exam and don't wish about doing it after you take the exam.
Let's break it down to right now: How many hours can you legitimately spend studying for the CPA Exam over the next week?
Set up that goal. Make it a real, honest goal.
Okay - go do it!!!
(6) - I had an appointment this past week and I got to the place a bit early. So, I sat in the waiting room and they had a copy of Sports Illustrated from a couple of weeks back. To kill a few minutes, I opened it up. The very first thing I saw was this description of a professional basketball player (a guy named Chris Andersen-a person that I don't think I had ever heard of):
---"Here's a guy who plays harder than anyone on the court and he does it every night."
---"He swoops in for rebounds, pounces on loose balls and plays with an almost jarring amount of energy."
Wouldn't it be great to be known as:
--a guy who plays harder than anyone
--a guy who plays harder than anyone every night
--a guy who plays with an almost jarring amount of energy.
Okay, here is my question for YOU (yes, you) right now. If someone were watching you and how you study for the CPA Exam, what would that person say? How would they describe you? Would they call you someone who works harder than anyone every night, someone who studies with an almost jarring amount of energy?
When the people around you start saying this about you, your chances for success have gone sky high. And, the best thing: this does not require money or talent. No matter who you are; you are not at a disadvantage when it comes to working hard. It only requires you to get some energy into your life and do the work necessary to add those points.
That is something that everyone (yes, YOU) can do.
(7) - PRACTICE!!!!
FAR
The Seattle Company reports assets of $500,000 on January 1, Year One and liabilities of $100,000. However, one building with a book value of $150,000 and a remaining life of 10 years is really worth $270,000. The Polono Company acquires 30 percent of the outstanding shares of Seattle for $156,000. This ownership gives Polono the ability to apply significant influence to the operating and financing decisions of Seattle. At the end of Year One, Seattle reports net income of $130,000 and pays cash dividends of $40,000. What amount of income should Polono recognize as a result of its ownership?
A - $12,000
B - $27,000
C - $35,400
D - $39,000
Answer is C
Because Polono has the ability to apply significant influence, this investment is recorded by means of the equity method. That means that income recognized each year is the owner's share of the reported income less any amortization resulting from the purchase price. Seattle had a book value of $400,000 ($500,000 less $100,000). Polono bought 30 percent which equates to a price of $120,000. However, Polono paid an extra $36,000 ($156,000 less $120,000). That added price is explained by the building. It was worth $120,000 more than book value ($270,000 less $150,000). Since Polono bought 30 percent, the assumption is that an extra $36,000 was paid to compensate for the extra building value ($120,000 times 30 percent). The building has a ten-year life so Polono's cost is amortized at the rate of $3,600 per year. Thus, the owner recognizes $39,000 in income (30 percent of the $130,000 reported) less $3,600 in amortization on the extra payment because of the building or
a net amount of $35,400.
Auditing & Attestation
The CPA firms of Gibbs and Spurrier is auditing a large company located in New Jersey. One subsidiary is located in California and the CPA firm of Landry and Company audited this subsidiary. Landry and Company has a great reputation and is independent of the audit client. A partner in the firm of Gibbs and Spurrier flies to California to review the audit program followed by Landry and Company in auditing the subsidiary. What is the most likely reason for this trip?
A - Gibbs and Spurrier do not plan to make reference to the work of Landry and Company in the audit opinion of the consolidated company.
B - Gibbs and Spurrier must always make this type of trip when another audit firm has done part of the audit work.
C - Gibbs and Spurrier plan to make reference to the work of Landry and Company in the audit opinion of the consolidated company.
D - Gibbs and Spurrier should not have made this trip since each firm is responsible for their own work.
Answer is A
When another firm does part of the audit work, the firm that is going to provide the overall audit opinion on the consolidated statements must take several actions in connection with the other firm: make inquiries about its professional reputation, get representation that the firm is independent of the audit client, and make sure the other firm knows that the audited financial information will be included in the consolidated statements. However, if the audit firm that is going to issue the audit report does not plan to make reference to the other firm, several other actions should be considered including review of the audit program and the resulting working papers. They are not required but they should be considered.
Regulation
On a Form 1120, what is the purpose of Schedule M-2?
A - Reconciles net income to taxable income.
B - Reconciles unappropriated retained earnings from the beginning of year to the end.
C - Reconciles revenue per books to revenue reported on the tax return.
D - Reconciles total expenses on the financial statements to the ordinary and necessary expenses reported on the tax return.
Answer is B
Schedule M-1 on the form 1120 reconciles the income on the corporation's financial statements to the taxable income being reported. Then, Schedule M-2 analyzes the changes in unappropriated retained earnings from the first day of the year to the last.
BEC
A company is studying a possible investment opportunity. The company can spend $22,000 and then get $5,000 in cash at the end of each of the next 8 years. The company has a target rate on such investments of 6 percent per year. The present value of an annuity due of $1 per year at 6 percent annual interest for 8 years is 6.58. The present value of an ordinary annuity of $1 per year at 6 percent annual interest for 8 years is 6.21. Which of the following is true?
A - Company should buy the investment because it has a net present value of $9,050.
B - Company should buy the investment because it has a net present value of $10,900.
C - Company should buy the investment because the present value of 6.58 is larger than 6.0
D - Company should buy the investment because the present value of 6.21 is larger than 6.0.
Answer is A
Net present value is one technique used by some companies to evaluate the wisdom of an investment. Because payments are made at the end of each period, this is an ordinary annuity. The present value of the cash flows is $5,000 times 6.21 or $31,050. Because the cost is $22,000, the extra amount ($9,050 or $31,050 less $22,000) is called the net present value. Investments with a positive net present value are viewed as good choices.
HARD WORK!!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Lesson 54
From: Joe
(a) - I won't tell you who I am watching but my NFL team is ahead right now. But, I'm going to write this email and only watch the game every 10 minutes for about a minute. I guess I want you to pass more than I want to sit and watch a football team play.
(1) - At least in the United States, this coming Thursday is Thanksgiving Day. Wherever you live, it is not a bad idea to take a few moments and think about the many things you have to give thanks for. Somehow our society seems to have become obsessed with the problems of life. It is hard to turn on television or the radio or pick up a newspaper without having 20 different people telling us all the things that are wrong with life today. I am amazed by how many people make their livelihoods screaming about how bad things are.
You know, if you hear that enough, it is easy to start believing it.
Okay, I'm not naïve. I know that the world has problems and that each of us has our own problems. But, I'm not ready to spend 24 out of each day beating my head over those problems.
When I was growing up, I would often complain to my father about how bad things were in the world. His response was always the same: "I lived through the Great Depression where we had no money, little or no food, outdoor toilets, no running water, and most people died before they were 50. To me, life today doesn't seem all that bad."
Maybe that is the problem. Maybe we have so very much to be thankful for that we just take it for granted. So, on Thursday, don't take it for granted. Sit down and make a list of the 10 or 20 things that really make your life special.
You'll feel better. I guarantee it.
(2) - We here at www.CPAreviewforFREE.com are grateful for all of you guys. We moved over 7 million page views this past week. (7 million!!!!!) That's a lot of page hits in just 72 weeks (WITH NO ADVERTISING).
We could not have made the splash without you guys spreading the word. So:
THANKS!!!!!!
(3) - A couple of nice notes from several of our "customers:"
FROM BC: As evidence of the quality of your CPA review questions, I just made a 91 on the FAR. Didn't go to any of those review classes, just used two sources: your website, and the Wiley book. Thank you so much for your service and your inspirational emails. I will continue to use your website as I prepare for BEC, REG, and AUD.
FROM MH: Thank you for your dedication in helping us to pass the CPA exam. I am an international student from Mexico, I took classes in Belize Central America and it has been a long process to get approved to sit for the exam. My "big name" review is expiring - I am so thankful to have a good alternative to continue studying. Thank you. When I pass the CPA exam, you will be one of the first persons that will know. I hope you are well, thank you for sharing the chalk art by your son. It was fun!
FROM GS: I am currently working on the FAR exam and I noticed your questions and explanations seem to be better than the (big major CPA review program) material.
(4) - As always, just a reminder: if you want to unsubscribe from getting these CPA Review for FREE email lessons every week or so, just scroll to the bottom of this email and click on the link that is provided.
(5) - I am always fascinated by people who have been successful over a long period of time. A lot of people are successful once and then never again. Almost like it was an accident. But, in every profession, you find a few people who seem to be at the top consistently. Those are the people that I want to learn from.
I figure that they must have some kind of special secret and I am always looking for that secret.
Last week on National Public Radio, Roy Williams-who is the coach of the University of North Carolina basketball team-was interviewed. He is clearly one of the real winners in college basketball. His teams have done well for a long time. Although I went to a school that is a rival of UNC, I must admit that he knows how to build a winning program.
During the interview, he said two things that I thought showed why he was a winner. He made two points that I need to make to myself.
They asked him what his team yells whenever they break out of a huddle. It wasn't "win" or "beat them" or "go team." It was "HARD WORK!!" I think you can learn right there from Roy Williams what it takes to be good at something for a long period of time. If you can figure out how to make "Hard Work" your motto, I think you will have taken a giant step toward success.
If you have followed these email lessons for long, you probably know that my ultimate secret for passing is CPA Exam is always the same: "Hours Equal Points."
--Work all of the questions
--Work them again.
--Take notes
--Carry those notes with you and study them whenever you have a free moment.
What you need to do to pass the CPA Exam is not rocket science. The hard part is just doing it day in and day out. The hard part is doing it and not wasting time or losing focus.
That's why I am always so thrilled when someone writes to tell me that they have passed the CPA Exam; I know how hard they have worked. I know the time and energy they have sacrificed. I know how much they have done to gain those points. Hard work is never easy.
It is not about an expensive review course (or even a free review course), it is all about hard work. The willingness to do it.
Hard work is no guarantee that you will pass. However, if you don't put in the hard work, you are almost guaranteed that you will not pass.
The second thing that Coach Williams said that caught my attention was when he said that he always told his players not to come back to the locker room after the game wishing about what they had done differently. Do it right the first time. Do it to the best of your ability the first time. Win or lose, give it all you've got the first time.
If you are going to do it, if you are going to put in the hard work, then, do that work before you take the exam and don't wish about doing it after you take the exam.
Let's break it down to right now: How many hours can you legitimately spend studying for the CPA Exam over the next week?
Set up that goal. Make it a real, honest goal.
Okay - go do it!!!
(6) - I had an appointment this past week and I got to the place a bit early. So, I sat in the waiting room and they had a copy of Sports Illustrated from a couple of weeks back. To kill a few minutes, I opened it up. The very first thing I saw was this description of a professional basketball player (a guy named Chris Andersen-a person that I don't think I had ever heard of):
---"Here's a guy who plays harder than anyone on the court and he does it every night."
---"He swoops in for rebounds, pounces on loose balls and plays with an almost jarring amount of energy."
Wouldn't it be great to be known as:
--a guy who plays harder than anyone
--a guy who plays harder than anyone every night
--a guy who plays with an almost jarring amount of energy.
Okay, here is my question for YOU (yes, you) right now. If someone were watching you and how you study for the CPA Exam, what would that person say? How would they describe you? Would they call you someone who works harder than anyone every night, someone who studies with an almost jarring amount of energy?
When the people around you start saying this about you, your chances for success have gone sky high. And, the best thing: this does not require money or talent. No matter who you are; you are not at a disadvantage when it comes to working hard. It only requires you to get some energy into your life and do the work necessary to add those points.
That is something that everyone (yes, YOU) can do.
(7) - PRACTICE!!!!
FAR
The Seattle Company reports assets of $500,000 on January 1, Year One and liabilities of $100,000. However, one building with a book value of $150,000 and a remaining life of 10 years is really worth $270,000. The Polono Company acquires 30 percent of the outstanding shares of Seattle for $156,000. This ownership gives Polono the ability to apply significant influence to the operating and financing decisions of Seattle. At the end of Year One, Seattle reports net income of $130,000 and pays cash dividends of $40,000. What amount of income should Polono recognize as a result of its ownership?
A - $12,000
B - $27,000
C - $35,400
D - $39,000
Answer is C
Because Polono has the ability to apply significant influence, this investment is recorded by means of the equity method. That means that income recognized each year is the owner's share of the reported income less any amortization resulting from the purchase price. Seattle had a book value of $400,000 ($500,000 less $100,000). Polono bought 30 percent which equates to a price of $120,000. However, Polono paid an extra $36,000 ($156,000 less $120,000). That added price is explained by the building. It was worth $120,000 more than book value ($270,000 less $150,000). Since Polono bought 30 percent, the assumption is that an extra $36,000 was paid to compensate for the extra building value ($120,000 times 30 percent). The building has a ten-year life so Polono's cost is amortized at the rate of $3,600 per year. Thus, the owner recognizes $39,000 in income (30 percent of the $130,000 reported) less $3,600 in amortization on the extra payment because of the building or
a net amount of $35,400.
Auditing & Attestation
The CPA firms of Gibbs and Spurrier is auditing a large company located in New Jersey. One subsidiary is located in California and the CPA firm of Landry and Company audited this subsidiary. Landry and Company has a great reputation and is independent of the audit client. A partner in the firm of Gibbs and Spurrier flies to California to review the audit program followed by Landry and Company in auditing the subsidiary. What is the most likely reason for this trip?
A - Gibbs and Spurrier do not plan to make reference to the work of Landry and Company in the audit opinion of the consolidated company.
B - Gibbs and Spurrier must always make this type of trip when another audit firm has done part of the audit work.
C - Gibbs and Spurrier plan to make reference to the work of Landry and Company in the audit opinion of the consolidated company.
D - Gibbs and Spurrier should not have made this trip since each firm is responsible for their own work.
Answer is A
When another firm does part of the audit work, the firm that is going to provide the overall audit opinion on the consolidated statements must take several actions in connection with the other firm: make inquiries about its professional reputation, get representation that the firm is independent of the audit client, and make sure the other firm knows that the audited financial information will be included in the consolidated statements. However, if the audit firm that is going to issue the audit report does not plan to make reference to the other firm, several other actions should be considered including review of the audit program and the resulting working papers. They are not required but they should be considered.
Regulation
On a Form 1120, what is the purpose of Schedule M-2?
A - Reconciles net income to taxable income.
B - Reconciles unappropriated retained earnings from the beginning of year to the end.
C - Reconciles revenue per books to revenue reported on the tax return.
D - Reconciles total expenses on the financial statements to the ordinary and necessary expenses reported on the tax return.
Answer is B
Schedule M-1 on the form 1120 reconciles the income on the corporation's financial statements to the taxable income being reported. Then, Schedule M-2 analyzes the changes in unappropriated retained earnings from the first day of the year to the last.
BEC
A company is studying a possible investment opportunity. The company can spend $22,000 and then get $5,000 in cash at the end of each of the next 8 years. The company has a target rate on such investments of 6 percent per year. The present value of an annuity due of $1 per year at 6 percent annual interest for 8 years is 6.58. The present value of an ordinary annuity of $1 per year at 6 percent annual interest for 8 years is 6.21. Which of the following is true?
A - Company should buy the investment because it has a net present value of $9,050.
B - Company should buy the investment because it has a net present value of $10,900.
C - Company should buy the investment because the present value of 6.58 is larger than 6.0
D - Company should buy the investment because the present value of 6.21 is larger than 6.0.
Answer is A
Net present value is one technique used by some companies to evaluate the wisdom of an investment. Because payments are made at the end of each period, this is an ordinary annuity. The present value of the cash flows is $5,000 times 6.21 or $31,050. Because the cost is $22,000, the extra amount ($9,050 or $31,050 less $22,000) is called the net present value. Investments with a positive net present value are viewed as good choices.
HARD WORK!!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Sunday, November 15, 2009
Nine Tips for Taking the exam
71 Weeks of Operation and 6,851,220 Page Views (without a penny spent on marketing)
Lesson 53
From: Joe
(1) – I know a lot of you folks are putting on a last minute frantic push to pass one or more parts of the CPA Exam here at the end of the November window. The stress can be difficult and counter-productive. So, I want you to take 55 seconds and smile. Really, you will feel better. I think that will help you to do better. It will release some tension.
To encourage that smile: Go to the following URL and watch for all 55 seconds. If this doesn’t make you feel a bit better, a bit more rejuvenated, you may need to take the rest of the day off.
www.youtube.com/watch?v=XF_XJd7pLIY
By the way, the artist is my older son.
(2) – Good job on our survey question for last week:
“You are taking FAR on the CPA Exam. You have completed and submitted your first testlet. In the second testlet, the multiple-choice questions seem to have gotten harder. What does this mean?”
75 percent of you folks knew that this was great news. In Auditing, FAR, and Regulation, if you do well on the first testlet, the second testlet will be a bit harder. The same is true for the third testlet. So, if the questions seem to be getting harder, that means you have been doing well in the previous testlets which means that you are much more likely to pass.
(3) – Don’t forget: to unsubscribe, scroll to the bottom of this lesson and click on that link.
Don’t forget: to help someone pass the CPA Exam, forward this email along.
(4) – One of my former students was visiting last week. He is now a personal trainer at a gym. He made an interesting comment: “People pay me a lot of money to show them how to do exercises that they could easily download off the Internet for free. They must have too much money is all I can figure. But, I hope those people never catch on.”
Hmmm. People pay someone to give them help that they could get off the Internet for free. Does that sound familiar????
I know people who are paying $2,500 to large CPA Review Courses for information that we provide for free. Don’t you know that there are a lot of officials at those big review courses that are sitting around today with their fingers crossed saying “I hope those people never catch on.”
Before you spend that money, why not try out www.CPAreviewforFREE.com? Be a wise shopper. You worked hard for that money. Why give it away? Try us for one month. That’s all I ask. After that, if you still want to spend $2,500, the large programs already have their hands out.
(5) – For all of you folks who are going to be taking a section of the CPA Exam over the next two weeks, here are a list of last minute suggestions.
--First and foremost. Don’t overwork here at the end. It is not smart to go into the exam tired and burned out. As everyone knows, baseball season just ended and football season is in swing and basketball season is just beginning. You can learn a lot from smart athletes.
Athletes come into an important game having practiced hard but they really try to make sure (if they are smart) not to over train at the end. You want to be at your very strongest (in mind and body) on the day of the exam. So make sure that you get a normal amount of rest and that you get a normal amount of exercise (a brisk walk is always helpful to get the blood into your brain) and that you eat a normal amount of food. I cannot say this enough: do not work yourself into exhaustion and then wonder why you feel sluggish and slow and can’t seem to get going on the CPA Exam. College students do that all the time and then complain because they missed questions that they knew. Well???? Do not get into a weird routine at the last minute and then wonder why your mind does not react as it normally does.
The night before I took the CPA Exam, I went to a movie. It was a light comedy. I really wanted to walk into the exam (1) relaxed, (2) alert, and (3) focused. A good movie helps with all three.
--Second. As I have said many times, the CPA Exam is a mile wide and one inch deep so it really rewards the candidate who has some knowledge about all topics. Thus, no matter how you have prepared, go back through all of the topics one last time very quickly here at the end. Make sure that the essentials about each and every topic are fresh in your mind on test day. One of the difficulties of preparing for the CPA Exam is that the information tends to leak out of your brain pretty quickly. Things you knew well two weeks ago may start to seem foreign. Therefore, hit everything quickly one last time near the end.
--Third. Make a list of all the major topics and put them into order starting with your weakest area first. Take the top third of that list (the third where you are the weakest) and eliminate any minor topics (there are not many questions on prepaid rent or supplies). Then, spend 30-45 minutes of additional time on as many of those topics as you can. What you are trying to do is go to the areas where you are most likely to be able to add points to your score. Find big areas where you are weak; those are great places for last minute study. Remember, that we have hundreds of questions readily available for you at www.CPAreviewforFREE.com. Go to a topic and begin reading questions and reading answers. At the end, do that as fast as you can. Remember, you are not testing yourself; in your study, it is not important whether you get questions right or wrong. You are working to learn more and more. However, watch your time. It is more important to restrict yourself to
30 or so extra minutes on each of six major topics than spend three extra hours on one major topic.
--Fourth. Go to www.CPAreviewforFREE.com and under the section “CPA Exam Resources,” you should find an article titled “Structure of CPA Exam.” Read that article. Okay, you may well know some/much of this already. However, you might just pick up valuable points on what the exam is going to look like. You don’t want to walk into the exam site and be surprised by what you see.
--Fifth. Carefully, read all the information that you have been sent about the exam. The examination team has tried to anticipate everything you need to know in advance and they have included it with the “Notice To Schedule” they sent you. You do not want to waste time at the test site trying to figure out the rules that you are supposed to follow.
--Sixth. Plan in advance for time management. How much time is allowed on your exam and how are you going to allocate or make use of that time? Rushing through the exam and finishing early means that you have wasted time. Being slow and methodical and not finishing makes passing difficult. One key question: how much time do you plan to spend on each multiple-choice question? Everyone associated with the CPA Exam will tell you that you need to stay very aware of the time. To do that, know how much time you plan to spend on each question and then stick with it.
When I took the exam, there were actually five parts and I remember being so pleased that I finished each one with less than three minutes to spare. I might not have been the smartest candidate but I did a great job with time management.
--Seventh. As I indicate often, keep in mind that you do not have to be perfect. You do not have to get every question correct. You only want to pass. You only want to make 75. So, if you see a question that you do not know, eliminate as many answers as you can and take a guess. Then, don’t worry about it. If you see a question that is difficult, don’t let it get you rattled. You have no need for perfection. It is not the goal. You only want to pass.
--Eighth. During the exam, don’t let yourself get mentally tired and lazy. The perfect exam is where you are able to be as mentally “into the exam” on the last question as you were on the first. In college, students often get excited on a test and race out at a million miles an hour and then wear down and make all kinds of careless mistakes at the end. In sporting events, you have probably seen athletes who lead most of the game but just don’t have the stamina at the end and wind up losing. Just stay as consistent and careful as you go from the first minute to the last. Keep repeating: “be strong until it is over.”
In review courses, I often talk with the candidates about the five C’s as keys for success on the CPA Exam: calm, careful, consistent, confidence, and concentration. A pretty good recipe for success.
--Ninth. When it is over, forget about it. There is no reason to keep reliving the CPA Exam. The time to think about the CPA Exam is right now when there is something you can do to improve your score. Right now, you can study and prepare. After it is over, tell yourself that you did the best you could do at the time and put it out of your mind.
(6)—I once saw a big poster that said “Desire Creates Power.” I could not agree more. Success does not begin with power and knowledge and aptitude. Success begins with desire. Once you have the desire (to pass the CPA Exam, for example), then that desire will gradually help you develop the power, the knowledge, the confidence, and the understanding that you need to achieve success.
Without the desire, success is always difficult to achieve.
With desire, everyone can make it happen.
I cannot tell you that you are going to pass the CPA Exam before the end of November. I would love to say that but I don’t have a true basis for that assertion. However, I can tell you for sure that if you have the desire you will keep working and improving and getting better and more powerful and you will pass. Trust me---it will happen.
(7) – Time for some practice – time to add some points!!!
FAR
The Mozart Company is sued on December 31, Year One for $1 million. On that date, company officials believe it is reasonably possible that the loss will be $220,000. During Year Two, the situation gets worse. At the end of Year Two, officials for Beethoven now believe that is probable that the company will lose between $300,000 and $400,000. Every number in that range has an equal chance of being the actual loss. During Year Three, Beethoven settles the law suit for $410,000. What amount of loss is recognized in Year Three?
A - $10,000
B - $60,000
C - $110,000
D - $410,000
Answer is C
No amount of a contingency is recognized until (a) the loss is probable and (b) the amount is subject to a reasonable estimation. Hence, footnote disclosure is appropriate for Year One. In looking at Year Two, US GAAP specifies that when a contingent loss is probable but can only be estimated to within a range, the most likely number is recognized. If no number is most likely, the lowest number in that range is recognized. Therefore, in Year Two, a loss and liability of $300,000 are reported. When the actual amount turns out to be $410,000 in Year Three, an additional $110,000 is recognized.
Regulation
Brittani holds a 30 percent ownership interest in the Holden Partnership. She has an adjusted basis in this business of $13,000. The partnership conveys cash of $4,000 to her along with land that had a tax basis to the partnership of $10,000 but a fair value of $17,000. The partnership is not going out of business so this transfer is a nonliquidating distribution. Once Brittani receives the cash and the land, what is the tax basis of the land on her personal financial records?
A - $9,000
B - $10,000
C - $13,000
D - $17,000
Answer is A
Nonliquidating distributions from a partnership are normally tax free. They simply reduce the partner’s basis in the partnership. If they are tax free, tax basis usually remains the same. Normally, then, the basis of $10,000 would move with the land and become the basis to Brittani. Normally, the basis in the partnership is reduced by this same $10,000. One major exception exists and that can be seen here. Keeping the basis means that Brittani would record the cash at $4,000 and the land at $10,000 (the previous basis). That transfer would reduce her basis in the partnership to a negative amount ($1,000). The rules hold that her basis in the partnership can only be reduced to zero by such a distribution. That means the reduction in her basis in the partnership can only be $13,000 as a maximum (down to zero). Cash has to be recorded at $4,000 so the other $9,000 of the reduction is the basis picked up by the owner for the land received. This alternative is required
because keeping the old basis would drop her basis in the partnership to a negative.
Auditing and Attestation
The Ace Corporation has prepared financial statements for December 31, Year One and the year then ended. The statements are scheduled to be issued to the public on February 19, Year Two. The statements are being audited by Jurgeson and Huff CPAs. Which of the following is the audit firm most likely to do during February of Year Two?
A – Test important internal control procedures to ensure they are working efficiently.
B – Perform analytical review procedures
C – Mail out positive confirmations for large accounts receivable balances.
D – Make an assessment of the inherent risk involved with the larger balance sheet accounts.
Answer is B
Internal control testing and assessment of inherent risk are both typically performed early in an audit because they help the auditors judge how much substantive testing must be performed to reduce overall audit risk to an acceptably low level. Confirmations are also mailed out early in the audit because the responses and any needed follow up can take a long time. Analytical procedures are carried out early in an audit as part of the inherent risk assessment. However, they are also performed again near the very end of the audit to help make sure that nothing has changed in the company records that might indicate that a possible misstatement has popped up at the end of the audit. In this way, the auditor does one last overview to highlight any account, balance, or ratio that no longer appears to be an acceptable amount.
BEC
It takes 10 pounds of plastic to make a widget under normal conditions and plastic normally costs $2 per pound. This year, a company buys 100,000 pounds of plastic at $2.20 per pound and uses 73,000 pounds to make 7,000 widgets. In a standard cost accounting system, what is the material price variance?
A - $14,000 unfavorable
B - $14,600 unfavorable
C - $15,400 unfavorable
D - $20,000 unfavorable
Answer is D
In a standard cost accounting system, a company determines the material price variance when materials are bought (other variances are created during production). Here, the company bought 100,000 pounds of plastic and paid $.20 more than the standard price for each pound. That is an unfavorable price variance of $20,000 (100,000 pounds times $.20).
I want to leave you with just two words:
ADD POINTS!!!!!
Lesson 53
From: Joe
(1) – I know a lot of you folks are putting on a last minute frantic push to pass one or more parts of the CPA Exam here at the end of the November window. The stress can be difficult and counter-productive. So, I want you to take 55 seconds and smile. Really, you will feel better. I think that will help you to do better. It will release some tension.
To encourage that smile: Go to the following URL and watch for all 55 seconds. If this doesn’t make you feel a bit better, a bit more rejuvenated, you may need to take the rest of the day off.
www.youtube.com/watch?v=XF_XJd7pLIY
By the way, the artist is my older son.
(2) – Good job on our survey question for last week:
“You are taking FAR on the CPA Exam. You have completed and submitted your first testlet. In the second testlet, the multiple-choice questions seem to have gotten harder. What does this mean?”
75 percent of you folks knew that this was great news. In Auditing, FAR, and Regulation, if you do well on the first testlet, the second testlet will be a bit harder. The same is true for the third testlet. So, if the questions seem to be getting harder, that means you have been doing well in the previous testlets which means that you are much more likely to pass.
(3) – Don’t forget: to unsubscribe, scroll to the bottom of this lesson and click on that link.
Don’t forget: to help someone pass the CPA Exam, forward this email along.
(4) – One of my former students was visiting last week. He is now a personal trainer at a gym. He made an interesting comment: “People pay me a lot of money to show them how to do exercises that they could easily download off the Internet for free. They must have too much money is all I can figure. But, I hope those people never catch on.”
Hmmm. People pay someone to give them help that they could get off the Internet for free. Does that sound familiar????
I know people who are paying $2,500 to large CPA Review Courses for information that we provide for free. Don’t you know that there are a lot of officials at those big review courses that are sitting around today with their fingers crossed saying “I hope those people never catch on.”
Before you spend that money, why not try out www.CPAreviewforFREE.com? Be a wise shopper. You worked hard for that money. Why give it away? Try us for one month. That’s all I ask. After that, if you still want to spend $2,500, the large programs already have their hands out.
(5) – For all of you folks who are going to be taking a section of the CPA Exam over the next two weeks, here are a list of last minute suggestions.
--First and foremost. Don’t overwork here at the end. It is not smart to go into the exam tired and burned out. As everyone knows, baseball season just ended and football season is in swing and basketball season is just beginning. You can learn a lot from smart athletes.
Athletes come into an important game having practiced hard but they really try to make sure (if they are smart) not to over train at the end. You want to be at your very strongest (in mind and body) on the day of the exam. So make sure that you get a normal amount of rest and that you get a normal amount of exercise (a brisk walk is always helpful to get the blood into your brain) and that you eat a normal amount of food. I cannot say this enough: do not work yourself into exhaustion and then wonder why you feel sluggish and slow and can’t seem to get going on the CPA Exam. College students do that all the time and then complain because they missed questions that they knew. Well???? Do not get into a weird routine at the last minute and then wonder why your mind does not react as it normally does.
The night before I took the CPA Exam, I went to a movie. It was a light comedy. I really wanted to walk into the exam (1) relaxed, (2) alert, and (3) focused. A good movie helps with all three.
--Second. As I have said many times, the CPA Exam is a mile wide and one inch deep so it really rewards the candidate who has some knowledge about all topics. Thus, no matter how you have prepared, go back through all of the topics one last time very quickly here at the end. Make sure that the essentials about each and every topic are fresh in your mind on test day. One of the difficulties of preparing for the CPA Exam is that the information tends to leak out of your brain pretty quickly. Things you knew well two weeks ago may start to seem foreign. Therefore, hit everything quickly one last time near the end.
--Third. Make a list of all the major topics and put them into order starting with your weakest area first. Take the top third of that list (the third where you are the weakest) and eliminate any minor topics (there are not many questions on prepaid rent or supplies). Then, spend 30-45 minutes of additional time on as many of those topics as you can. What you are trying to do is go to the areas where you are most likely to be able to add points to your score. Find big areas where you are weak; those are great places for last minute study. Remember, that we have hundreds of questions readily available for you at www.CPAreviewforFREE.com. Go to a topic and begin reading questions and reading answers. At the end, do that as fast as you can. Remember, you are not testing yourself; in your study, it is not important whether you get questions right or wrong. You are working to learn more and more. However, watch your time. It is more important to restrict yourself to
30 or so extra minutes on each of six major topics than spend three extra hours on one major topic.
--Fourth. Go to www.CPAreviewforFREE.com and under the section “CPA Exam Resources,” you should find an article titled “Structure of CPA Exam.” Read that article. Okay, you may well know some/much of this already. However, you might just pick up valuable points on what the exam is going to look like. You don’t want to walk into the exam site and be surprised by what you see.
--Fifth. Carefully, read all the information that you have been sent about the exam. The examination team has tried to anticipate everything you need to know in advance and they have included it with the “Notice To Schedule” they sent you. You do not want to waste time at the test site trying to figure out the rules that you are supposed to follow.
--Sixth. Plan in advance for time management. How much time is allowed on your exam and how are you going to allocate or make use of that time? Rushing through the exam and finishing early means that you have wasted time. Being slow and methodical and not finishing makes passing difficult. One key question: how much time do you plan to spend on each multiple-choice question? Everyone associated with the CPA Exam will tell you that you need to stay very aware of the time. To do that, know how much time you plan to spend on each question and then stick with it.
When I took the exam, there were actually five parts and I remember being so pleased that I finished each one with less than three minutes to spare. I might not have been the smartest candidate but I did a great job with time management.
--Seventh. As I indicate often, keep in mind that you do not have to be perfect. You do not have to get every question correct. You only want to pass. You only want to make 75. So, if you see a question that you do not know, eliminate as many answers as you can and take a guess. Then, don’t worry about it. If you see a question that is difficult, don’t let it get you rattled. You have no need for perfection. It is not the goal. You only want to pass.
--Eighth. During the exam, don’t let yourself get mentally tired and lazy. The perfect exam is where you are able to be as mentally “into the exam” on the last question as you were on the first. In college, students often get excited on a test and race out at a million miles an hour and then wear down and make all kinds of careless mistakes at the end. In sporting events, you have probably seen athletes who lead most of the game but just don’t have the stamina at the end and wind up losing. Just stay as consistent and careful as you go from the first minute to the last. Keep repeating: “be strong until it is over.”
In review courses, I often talk with the candidates about the five C’s as keys for success on the CPA Exam: calm, careful, consistent, confidence, and concentration. A pretty good recipe for success.
--Ninth. When it is over, forget about it. There is no reason to keep reliving the CPA Exam. The time to think about the CPA Exam is right now when there is something you can do to improve your score. Right now, you can study and prepare. After it is over, tell yourself that you did the best you could do at the time and put it out of your mind.
(6)—I once saw a big poster that said “Desire Creates Power.” I could not agree more. Success does not begin with power and knowledge and aptitude. Success begins with desire. Once you have the desire (to pass the CPA Exam, for example), then that desire will gradually help you develop the power, the knowledge, the confidence, and the understanding that you need to achieve success.
Without the desire, success is always difficult to achieve.
With desire, everyone can make it happen.
I cannot tell you that you are going to pass the CPA Exam before the end of November. I would love to say that but I don’t have a true basis for that assertion. However, I can tell you for sure that if you have the desire you will keep working and improving and getting better and more powerful and you will pass. Trust me---it will happen.
(7) – Time for some practice – time to add some points!!!
FAR
The Mozart Company is sued on December 31, Year One for $1 million. On that date, company officials believe it is reasonably possible that the loss will be $220,000. During Year Two, the situation gets worse. At the end of Year Two, officials for Beethoven now believe that is probable that the company will lose between $300,000 and $400,000. Every number in that range has an equal chance of being the actual loss. During Year Three, Beethoven settles the law suit for $410,000. What amount of loss is recognized in Year Three?
A - $10,000
B - $60,000
C - $110,000
D - $410,000
Answer is C
No amount of a contingency is recognized until (a) the loss is probable and (b) the amount is subject to a reasonable estimation. Hence, footnote disclosure is appropriate for Year One. In looking at Year Two, US GAAP specifies that when a contingent loss is probable but can only be estimated to within a range, the most likely number is recognized. If no number is most likely, the lowest number in that range is recognized. Therefore, in Year Two, a loss and liability of $300,000 are reported. When the actual amount turns out to be $410,000 in Year Three, an additional $110,000 is recognized.
Regulation
Brittani holds a 30 percent ownership interest in the Holden Partnership. She has an adjusted basis in this business of $13,000. The partnership conveys cash of $4,000 to her along with land that had a tax basis to the partnership of $10,000 but a fair value of $17,000. The partnership is not going out of business so this transfer is a nonliquidating distribution. Once Brittani receives the cash and the land, what is the tax basis of the land on her personal financial records?
A - $9,000
B - $10,000
C - $13,000
D - $17,000
Answer is A
Nonliquidating distributions from a partnership are normally tax free. They simply reduce the partner’s basis in the partnership. If they are tax free, tax basis usually remains the same. Normally, then, the basis of $10,000 would move with the land and become the basis to Brittani. Normally, the basis in the partnership is reduced by this same $10,000. One major exception exists and that can be seen here. Keeping the basis means that Brittani would record the cash at $4,000 and the land at $10,000 (the previous basis). That transfer would reduce her basis in the partnership to a negative amount ($1,000). The rules hold that her basis in the partnership can only be reduced to zero by such a distribution. That means the reduction in her basis in the partnership can only be $13,000 as a maximum (down to zero). Cash has to be recorded at $4,000 so the other $9,000 of the reduction is the basis picked up by the owner for the land received. This alternative is required
because keeping the old basis would drop her basis in the partnership to a negative.
Auditing and Attestation
The Ace Corporation has prepared financial statements for December 31, Year One and the year then ended. The statements are scheduled to be issued to the public on February 19, Year Two. The statements are being audited by Jurgeson and Huff CPAs. Which of the following is the audit firm most likely to do during February of Year Two?
A – Test important internal control procedures to ensure they are working efficiently.
B – Perform analytical review procedures
C – Mail out positive confirmations for large accounts receivable balances.
D – Make an assessment of the inherent risk involved with the larger balance sheet accounts.
Answer is B
Internal control testing and assessment of inherent risk are both typically performed early in an audit because they help the auditors judge how much substantive testing must be performed to reduce overall audit risk to an acceptably low level. Confirmations are also mailed out early in the audit because the responses and any needed follow up can take a long time. Analytical procedures are carried out early in an audit as part of the inherent risk assessment. However, they are also performed again near the very end of the audit to help make sure that nothing has changed in the company records that might indicate that a possible misstatement has popped up at the end of the audit. In this way, the auditor does one last overview to highlight any account, balance, or ratio that no longer appears to be an acceptable amount.
BEC
It takes 10 pounds of plastic to make a widget under normal conditions and plastic normally costs $2 per pound. This year, a company buys 100,000 pounds of plastic at $2.20 per pound and uses 73,000 pounds to make 7,000 widgets. In a standard cost accounting system, what is the material price variance?
A - $14,000 unfavorable
B - $14,600 unfavorable
C - $15,400 unfavorable
D - $20,000 unfavorable
Answer is D
In a standard cost accounting system, a company determines the material price variance when materials are bought (other variances are created during production). Here, the company bought 100,000 pounds of plastic and paid $.20 more than the standard price for each pound. That is an unfavorable price variance of $20,000 (100,000 pounds times $.20).
I want to leave you with just two words:
ADD POINTS!!!!!
Tuesday, November 3, 2009
The Possibility of Having a Dream Come True
The Possibility of Having a Dream Come True
70 Weeks of Operation and 6,681,873 Page Views (without a penny spent on marketing)
Lesson 52
From: Joe
(1) – We crossed 6.6 million page views this past week and we are nearing our first major goal of averaging 100,000 page views per week. Considering that we had 1,920 page views in our first week of operation (and that we have spent absolutely nothing to date on marketing), that is quite a growth curve. Thanks for your continued help. We may not always say it but we always think it and hope you know how much we appreciate your willingness to aid our growth by passing along information about our site.
(2) – Our survey question last week was: What percentage of the multiple-choice questions on each part of the CPA Exam are actually graded and included in arriving at a grade? The survey results showed:
--80 percent – chosen by 36 percent of the respondents
--90 percent – chosen by 27 percent of the respondents
--75 percent – chosen by 21 percent of the respondents
--100 percent – chosen by 15 percent of the respondents
Good job: The answer is 80 percent. On all four of the sections, 20 percent of the multiple-choice questions are included solely so that the examiners can determine if they are statistically valid. If they prove to be valid, they will later be entered into the exam for real. But, at first, they are just being tested for future use. And, no, you cannot tell which ones count and which ones do not count.
However, I always tell candidates (and I think it is frequently true) that if you get a few questions that seem rather bizarre, they are probably the ones being tested so do not get too upset if you don’t know the answers. Those do not affect your grade.
Our next survey on the CPA Exam is in the upper left hand corner of this page.
Read it and give us your best guess for the answer. The more you know about the CPA Exam, the better off you are.
(3) – Always enjoy passing along emails that I get from our “customers” (is a person a customer if they don’t have to pay anything?):
FROM AE: Your efforts have been a great help to me! I have used your website along with a big name review course to help me pass the other three sections and plan to use it to help me prepare for FAR. And by-the-way, you're right about there not being many out there who are willing to truly help others pass the CPA exam. Rather there are many out there who are willing to take our money and then they want more if we're unable to complete their course in the allotted time...very frustrating!! Also, thank you for the encouraging e-mails. They have helped keep me going!
(4) – And, always remember: if you want to unsubscribe, it is easy. Go to the end of the email lesson and there is always a link that will allow you to unsubscribe.
(5) – I was talking with one of my students yesterday about a book she had read. She mentioned one of her favorite quotes from the book: “It’s the possibility of having a dream come true that makes life interesting.”
A lot of people talk with me about the CPA Exam. They always tend to ask the same questions:
--“What good is this going to do me?”
--“What if I fail?”
--“Is it really as much work as I’ve heard?”
--“How will I ever find time to do the studying?”
Those are very important questions and I always try to answer them as best as I can. But, they all miss a very essential point. Life is just more interesting if you are doing things that push you to be better. Life is more fun if you are willing to take up challenges. Life is more exciting if you risk a little bit. Life is just better all around if you have dreams that are pushing you forward. Even alone those are great reasons for taking the CPA Exam.
I know a lot of people who live wonderfully ho-hum lives.
--They never take any risks so they never have to worry about failure.
--They never try to squeeze in any adventure but, at the end of the day, their grass is mown and the dishes are washed.
Is that what you live for: mown grass and washed dishes? Is that what will be carved on your tombstone: “the grass was always mown; the dishes were always clean.”
Surely, there is more excitement to life than avoiding challenges. Surely, there is more fun than getting your bills paid at the same time every week.
You need a dream!! Yes, YOU do. Something that, when things get really quiet, you can think about and get your blood pumping. The book the student read was right: It is the mere possibility of having a dream come true that makes life interesting. That possibility gives us a reason to get up in the morning and a reason not to give up when the going gets tough.
I know for a lot of you, passing the CPA Exam is your current dream. You’ve probably heard about the CPA Exam since you were a sophomore in college and you’ve always wondered whether you could do the work necessary to pass.
It is a great time to start turning that dream into a reality.
It is time for the possibility of that dream to help make your life interesting again.
And, you cannot even use the old excuse: “I simply cannot afford to take a review course.” Yeah, up until 70 weeks ago, that was a genuine excuse. CPA Exam review courses have always been expensive (and often poorly organized and taught). They often provided more of an obstacle than a help.
Now, of course, www.CPAreviewforFREE.com offers you 2,100 great questions and well written answers. Hundreds of folks, just like you, have passed this way. So, can you.
It is time to stop making excuses. Excuses are easy. Excuses are cheap. It’s time to put away those excuses and shoot for a real dream. It is time to make life interesting again.
I know it will be hard work but you can do it. And, we are delighted to be here to help.
(6) – Speaking of former students, I joined Facebook some months ago. To date, I have not sent out any messages of my own but I do get to keep up with some of my former students. Yesterday (yeah, yesterday was a busy day for me), one of my former students posted the following quote from Booker T. Washington: “Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome.”
It seems to me that we spend too much worrying about whether we have achieved success. Oh sure, I guess we would all like to be someone like Bill Gates and have billions upon billions of dollars. But, at the end of the day, you should judge yourself by how far you have come and the obstacles you have conquered.
If there were no problems in life, success would be easy. But, in truth, there are problems. Some problems are minor and easy to get beyond but a lot of problems are truly serious and provide a real mountain for us to climb.
I have had students make 99. I have been pleased for them but they were often very bright people with a great education. I’m still pleased but those are not my favorite “success stories.”
I have also had students who have worked even harder and made just 75 but I was even more pleased for them because I knew the obstacles they had to overcome.
--I have seen people battle through sickness to take the CPA Exam.
--I have seen people have emergency appendectomies a few days before the exam and still pass.
--I have had people who were fired from their jobs two days before the exam and still managed to get back up and go in there and do well.
--I have had people whose spouses have left them right before the exam but who fought back and still took it and did fine.
--I have had people who have dealt with the death of a loved one right before the exam and still went in and gave it their best shots.
--I have had people have car wrecks on the way to the exam but still managed to get there and make 75s.
There are obstacles out there – you have to be ready to push through them.
Yeah, life can really throw obstacles at you. Win, lose, or draw, I’m always most proud of those people who don’t let those obstacles defeat them. They fought back despite overwhelming problems.
Those are the real winners. Those are the people that I really respect.
(7) – As always, time for a bit of practice. And, as usual, my FAR question comes from my intermediate accounting II course for tomorrow.
FAR
A company has a defined benefit pension plan with a projected benefit obligation of $4 million. On January 1, Year One, the plan is amended so that employees can begin to draw benefits at the age of 63 instead of 65. As a result, the projected benefit obligation goes up from $4 million to $4.7 million. The $700,000 jump is referred to as a prior service cost. Which of the following is true about the reporting of the prior service cost?
A – It is expensed immediately.
B – It is never expensed unless it becomes bigger than 10 percent of the projected benefit obligation.
C – It is placed into stockholders’ equity on January 1, Year One, and then systemically moved into pension expense over time.
D – The prior service cost is either recorded as a prior period adjustment or is charged to expense immediately depending on the type of change.
Answer is C
There is no immediate expense effect that comes from a prior service cost. Instead, the entire $700,000 is recorded within “accumulated other comprehensive income” which is a category within stockholders’ equity on the balance sheet. Over time, this amount is moved systematically from stockholders’ equity to pension expense which is reported on the income statement.
BEC
Dr. Jekyl and Dr. Kildare are two dentists who run a practice together as partners. Dr. Jekyl invested $300,000 to start the business while Dr. Kildare only invested $100,000. Dr. Jekyl works 20 hours per week for the business whereas Dr. Kildare works 40 hours per week. Dr. Jekyl charges $80 per hour for his dental services while Dr. Kildare charges $120 per hour for her dental services. In the first year of operation, the business made a profit of $200,000. No agreement has been established as to the allocation of income to the partners. What is the most likely allocation?
A - $150,000 to Jekyl and $50,000 to Kildare
B - $100,000 to Jekyl and $100,000 to Kildare
C - $66,667 to Jekyl and $133,333 to Kildare
D - $80,000 to Jekyl and $120,000 to Kildare
Answer is B
Partners have every right to allocate income in any way they see fit. Such systems often involve capital investments, amount of work each period, or their level of expertise. However, if no agreement is made, everyone should be uncomfortable trying to guess at the intent of the parties involved. Therefore, without an agreement, income is allocated evenly between the partners. If there is an agreement as to profits but no mention of losses, the agreement used for profits is assumed to apply to losses.
Regulation
What form must most private not-for-profit organizations file annually with the federal government as a result of their tax-exempt status?
A – Form 1065
B – Form 8-K
C – Form 990
D – Form 1120 NFP
Answer is C
The information form that a not-for-profit organization files with the government is the Form 990. A copy can be found at the following website to indicate the type of information that the organization must provide: www.irs.gov/pub/irs-pdf/f990.pdf
Auditing & Attestation
Which of the following sentences is found in the opening paragraph of an unqualified audit report?
A – An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements.
B – These financial statements are the responsibility of the company’s management.
C – We believe that our audit provides a reasonable basis for our opinion.
D – An audit includes assessing the accounting principles used and significant estimates made by management.
Answer is B
The opening or introductory paragraph indicates which financial statements were audited and the general responsibility of the management (for the financial statements) and the independent auditors. The other three statements in this question come from the second (or scope) paragraph which seeks to describe the general idea of an audit so that the reader will be aware of the level of activity that has been performed.
Have a great week – if you are moving close to taking a part of the exam, then remember that your responsibility is to work each day to add one or two points. Keep your goals reasonable and that is, I believe, a very reasonable goal.
If you need a study break and want to see something that I found both beautiful and amazing, go to:
www.youtube.com/watch?v=518XP8prwZo
It won’t add any points to your CPA Exam score but I still think it is worth 8 minutes and 33 seconds of your time.
70 Weeks of Operation and 6,681,873 Page Views (without a penny spent on marketing)
Lesson 52
From: Joe
(1) – We crossed 6.6 million page views this past week and we are nearing our first major goal of averaging 100,000 page views per week. Considering that we had 1,920 page views in our first week of operation (and that we have spent absolutely nothing to date on marketing), that is quite a growth curve. Thanks for your continued help. We may not always say it but we always think it and hope you know how much we appreciate your willingness to aid our growth by passing along information about our site.
(2) – Our survey question last week was: What percentage of the multiple-choice questions on each part of the CPA Exam are actually graded and included in arriving at a grade? The survey results showed:
--80 percent – chosen by 36 percent of the respondents
--90 percent – chosen by 27 percent of the respondents
--75 percent – chosen by 21 percent of the respondents
--100 percent – chosen by 15 percent of the respondents
Good job: The answer is 80 percent. On all four of the sections, 20 percent of the multiple-choice questions are included solely so that the examiners can determine if they are statistically valid. If they prove to be valid, they will later be entered into the exam for real. But, at first, they are just being tested for future use. And, no, you cannot tell which ones count and which ones do not count.
However, I always tell candidates (and I think it is frequently true) that if you get a few questions that seem rather bizarre, they are probably the ones being tested so do not get too upset if you don’t know the answers. Those do not affect your grade.
Our next survey on the CPA Exam is in the upper left hand corner of this page.
Read it and give us your best guess for the answer. The more you know about the CPA Exam, the better off you are.
(3) – Always enjoy passing along emails that I get from our “customers” (is a person a customer if they don’t have to pay anything?):
FROM AE: Your efforts have been a great help to me! I have used your website along with a big name review course to help me pass the other three sections and plan to use it to help me prepare for FAR. And by-the-way, you're right about there not being many out there who are willing to truly help others pass the CPA exam. Rather there are many out there who are willing to take our money and then they want more if we're unable to complete their course in the allotted time...very frustrating!! Also, thank you for the encouraging e-mails. They have helped keep me going!
(4) – And, always remember: if you want to unsubscribe, it is easy. Go to the end of the email lesson and there is always a link that will allow you to unsubscribe.
(5) – I was talking with one of my students yesterday about a book she had read. She mentioned one of her favorite quotes from the book: “It’s the possibility of having a dream come true that makes life interesting.”
A lot of people talk with me about the CPA Exam. They always tend to ask the same questions:
--“What good is this going to do me?”
--“What if I fail?”
--“Is it really as much work as I’ve heard?”
--“How will I ever find time to do the studying?”
Those are very important questions and I always try to answer them as best as I can. But, they all miss a very essential point. Life is just more interesting if you are doing things that push you to be better. Life is more fun if you are willing to take up challenges. Life is more exciting if you risk a little bit. Life is just better all around if you have dreams that are pushing you forward. Even alone those are great reasons for taking the CPA Exam.
I know a lot of people who live wonderfully ho-hum lives.
--They never take any risks so they never have to worry about failure.
--They never try to squeeze in any adventure but, at the end of the day, their grass is mown and the dishes are washed.
Is that what you live for: mown grass and washed dishes? Is that what will be carved on your tombstone: “the grass was always mown; the dishes were always clean.”
Surely, there is more excitement to life than avoiding challenges. Surely, there is more fun than getting your bills paid at the same time every week.
You need a dream!! Yes, YOU do. Something that, when things get really quiet, you can think about and get your blood pumping. The book the student read was right: It is the mere possibility of having a dream come true that makes life interesting. That possibility gives us a reason to get up in the morning and a reason not to give up when the going gets tough.
I know for a lot of you, passing the CPA Exam is your current dream. You’ve probably heard about the CPA Exam since you were a sophomore in college and you’ve always wondered whether you could do the work necessary to pass.
It is a great time to start turning that dream into a reality.
It is time for the possibility of that dream to help make your life interesting again.
And, you cannot even use the old excuse: “I simply cannot afford to take a review course.” Yeah, up until 70 weeks ago, that was a genuine excuse. CPA Exam review courses have always been expensive (and often poorly organized and taught). They often provided more of an obstacle than a help.
Now, of course, www.CPAreviewforFREE.com offers you 2,100 great questions and well written answers. Hundreds of folks, just like you, have passed this way. So, can you.
It is time to stop making excuses. Excuses are easy. Excuses are cheap. It’s time to put away those excuses and shoot for a real dream. It is time to make life interesting again.
I know it will be hard work but you can do it. And, we are delighted to be here to help.
(6) – Speaking of former students, I joined Facebook some months ago. To date, I have not sent out any messages of my own but I do get to keep up with some of my former students. Yesterday (yeah, yesterday was a busy day for me), one of my former students posted the following quote from Booker T. Washington: “Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome.”
It seems to me that we spend too much worrying about whether we have achieved success. Oh sure, I guess we would all like to be someone like Bill Gates and have billions upon billions of dollars. But, at the end of the day, you should judge yourself by how far you have come and the obstacles you have conquered.
If there were no problems in life, success would be easy. But, in truth, there are problems. Some problems are minor and easy to get beyond but a lot of problems are truly serious and provide a real mountain for us to climb.
I have had students make 99. I have been pleased for them but they were often very bright people with a great education. I’m still pleased but those are not my favorite “success stories.”
I have also had students who have worked even harder and made just 75 but I was even more pleased for them because I knew the obstacles they had to overcome.
--I have seen people battle through sickness to take the CPA Exam.
--I have seen people have emergency appendectomies a few days before the exam and still pass.
--I have had people who were fired from their jobs two days before the exam and still managed to get back up and go in there and do well.
--I have had people whose spouses have left them right before the exam but who fought back and still took it and did fine.
--I have had people who have dealt with the death of a loved one right before the exam and still went in and gave it their best shots.
--I have had people have car wrecks on the way to the exam but still managed to get there and make 75s.
There are obstacles out there – you have to be ready to push through them.
Yeah, life can really throw obstacles at you. Win, lose, or draw, I’m always most proud of those people who don’t let those obstacles defeat them. They fought back despite overwhelming problems.
Those are the real winners. Those are the people that I really respect.
(7) – As always, time for a bit of practice. And, as usual, my FAR question comes from my intermediate accounting II course for tomorrow.
FAR
A company has a defined benefit pension plan with a projected benefit obligation of $4 million. On January 1, Year One, the plan is amended so that employees can begin to draw benefits at the age of 63 instead of 65. As a result, the projected benefit obligation goes up from $4 million to $4.7 million. The $700,000 jump is referred to as a prior service cost. Which of the following is true about the reporting of the prior service cost?
A – It is expensed immediately.
B – It is never expensed unless it becomes bigger than 10 percent of the projected benefit obligation.
C – It is placed into stockholders’ equity on January 1, Year One, and then systemically moved into pension expense over time.
D – The prior service cost is either recorded as a prior period adjustment or is charged to expense immediately depending on the type of change.
Answer is C
There is no immediate expense effect that comes from a prior service cost. Instead, the entire $700,000 is recorded within “accumulated other comprehensive income” which is a category within stockholders’ equity on the balance sheet. Over time, this amount is moved systematically from stockholders’ equity to pension expense which is reported on the income statement.
BEC
Dr. Jekyl and Dr. Kildare are two dentists who run a practice together as partners. Dr. Jekyl invested $300,000 to start the business while Dr. Kildare only invested $100,000. Dr. Jekyl works 20 hours per week for the business whereas Dr. Kildare works 40 hours per week. Dr. Jekyl charges $80 per hour for his dental services while Dr. Kildare charges $120 per hour for her dental services. In the first year of operation, the business made a profit of $200,000. No agreement has been established as to the allocation of income to the partners. What is the most likely allocation?
A - $150,000 to Jekyl and $50,000 to Kildare
B - $100,000 to Jekyl and $100,000 to Kildare
C - $66,667 to Jekyl and $133,333 to Kildare
D - $80,000 to Jekyl and $120,000 to Kildare
Answer is B
Partners have every right to allocate income in any way they see fit. Such systems often involve capital investments, amount of work each period, or their level of expertise. However, if no agreement is made, everyone should be uncomfortable trying to guess at the intent of the parties involved. Therefore, without an agreement, income is allocated evenly between the partners. If there is an agreement as to profits but no mention of losses, the agreement used for profits is assumed to apply to losses.
Regulation
What form must most private not-for-profit organizations file annually with the federal government as a result of their tax-exempt status?
A – Form 1065
B – Form 8-K
C – Form 990
D – Form 1120 NFP
Answer is C
The information form that a not-for-profit organization files with the government is the Form 990. A copy can be found at the following website to indicate the type of information that the organization must provide: www.irs.gov/pub/irs-pdf/f990.pdf
Auditing & Attestation
Which of the following sentences is found in the opening paragraph of an unqualified audit report?
A – An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements.
B – These financial statements are the responsibility of the company’s management.
C – We believe that our audit provides a reasonable basis for our opinion.
D – An audit includes assessing the accounting principles used and significant estimates made by management.
Answer is B
The opening or introductory paragraph indicates which financial statements were audited and the general responsibility of the management (for the financial statements) and the independent auditors. The other three statements in this question come from the second (or scope) paragraph which seeks to describe the general idea of an audit so that the reader will be aware of the level of activity that has been performed.
Have a great week – if you are moving close to taking a part of the exam, then remember that your responsibility is to work each day to add one or two points. Keep your goals reasonable and that is, I believe, a very reasonable goal.
If you need a study break and want to see something that I found both beautiful and amazing, go to:
www.youtube.com/watch?v=518XP8prwZo
It won’t add any points to your CPA Exam score but I still think it is worth 8 minutes and 33 seconds of your time.
Wednesday, October 21, 2009
Doing Ordinary Things Extraordinarily Well--CPA Review for FREE
Doing Ordinary Things Extraordinarily Well--CPA Review for FREE
Try us FIRST before you spend your hard-earned money.
October 20, 2009
CPA Review for FREE
www.CPAreviewforFREE.com
Shoot for Excellence
68 Weeks of Operation and 6,294,777 Page Views (without a penny spent on
marketing)
Lesson 51
From: Joe
(1) - How is the CPA Exam graded? That is always an important question.
The more you know about grading, the better off you are. So, we have a
brand new survey on-line this week at
www.cpareviewforfree.blogspot.com/
Our survey question for this week relates to how the CPA exam is actually
graded. Go to the URL, read the question and put in your answer and I'll
provide you with the real answer in my next email lesson.
How much do you really know about the grading?
(2) - The top five countries using our website last week were as follows (as
well as the amount of time that the average visitor spent on our website):
---United States - 26 minutes and 57 seconds
---Philippines - 30 minutes and 35 seconds
---Canada - 31 minutes and 49 seconds
---India - 18 minutes and 11 seconds
---Saudi Arabia - 34 minutes and 45 seconds
Congratulations to the future CPAs in Saudi Arabia. You folks did the most
work (or at least spent the most time) on our site last week of the top
five. And, all of you future CPAs in India need to answer a few more
questions and read a few more answers before you log off. It's a free
site-stay awhile longer with us.
(3) - Some emails - don't think I've shared these with you yet.
FROM EG: "I just wanted to mention that I used CPAreviewforfree extensively
in my preparation for the CPA examination. I cleared all four sections in my
first attempt. I did not take any review courses. My college text books, a
CPA review book, and CPAreviewforfree are what helped me to prepare for
these exams. Thank you for this wonderful website."
FROM BS: "Thank you so much. Just received my Reg result, which is my final
exam, I passed. That means I passed all the exams within 6 months with my
first attempt. Your website helped me a lot. Thank you for all your
encouraging and memorable words."
(4) - If you need to unsubscribe, scroll to the end of this email and just
click on the indicated link.
(5) - I was visiting a relative in the hospital on Saturday. There were
some posters on the wall and one of them caught my attention immediately:
"Excellence is doing ordinary things extraordinarily well"
a statement that was attributed to John Gardner.
We often think that excellence only comes from extraordinary people: the
Van Goghs and the William Faulkners and Tiger Woods of the world. That's
nonsense. There are very few people who are truly extraordinary. If we
wait around for them, we'll never get anywhere. We are all basically
ordinary people. But, we are all capable of achieving excellence. You, me,
and everyone else. We can be excellent.
As I was standing in that hospital room, I just had to agree with the quote
on the wall.
--If we cook dinner and we take care and do it extraordinarily well, we have
achieved excellence.
--If we take photographs and we do it extraordinarily well, we have achieved
excellence.
--If we go to work and we do it extraordinarily well, we have achieved
excellence.
You don't have to climb Mt. Everest or swim the English Channel to be
excellent. Take every small thing you do and work to do it extraordinarily
well and you will experience the joy of excellence.
What could be more ordinary in life than studying
accounting/auditing/tax/law/finance? You read a problem, you try to work
it, you read the answer, and you make a note on how to do it better next
time. It is very slow and very methodical. It is just plain ordinary.
--However, you can do that process about as poorly as possible. You can be
unfocused and bored and let your mind wander and waste a lot of time. You
can realize after 10 minutes, you don't remember the last 10 minutes.
Or, you can do that process extraordinarily well.
You can think about the question. What information is being given?
What are they asking? What rules come into play here and how do I apply
them? Are there any tricks that might catch you off guard?
You can read the answer very carefully. What did I get right? What
did I get wrong? What can I learn from this answer? How should I have
handled the question differently? How could this question be asked in
a different way next time? What should I watch for more closely?
Studying for the CPA Exam is just one ordinary step after another.
But, you have a choice.
--You can do those ordinary steps poorly.
--Or, you can do those ordinary steps extraordinarily well.
When you get to where the most ordinary event is done extraordinarily well,
you will know that you have achieved excellence.
When you work to answer questions extraordinarily well, you will be headed
toward excellence on the CPA Exam.
(6) - Practice - every question should help you add a point.
FAR - As usual, here's something we will be doing in intermediate accounting
tomorrow.
A company reports a warranty expense in Year One of $300,000 that is not
deductible for tax purposes until Year Four. The enacted tax rate is 30
percent. Which of the following is true?
A - It must be more likely than not that the company will have income to
reduce in Year Four before a deferred income tax asset of $90,000 is
recognized in Year One.
B - Because the benefit will not take place until Year Four, there is no
deferred tax asset recognized in Year One.
C - It must be certain that the company will have income to reduce in Year
Four before a deferred income tax asset of $90,000 is recognized in Year
One.
D - In all cases, a deferred tax asset of $90,000 should be recognized in
Year One.
Answer is A
The ability to deduct the $300,000 from taxable income in Year Four is a
temporary tax difference that leads to a deferred income tax asset of
$90,000 based on the 30 percent rate. However, accounting is conservative
and only allows companies to recognize that asset if it is more likely than
not that the benefit will be received by having income to reduce for tax
purposes in Year Four. We sometimes refer to that as the "51 percent rule"
because that is the level at which it becomes more likely than not.
Auditing & Attestation
The CPA firm of Jeter and Cano is auditing the Angel Corporation.
Currently, the auditors are looking at current liabilities that were
recording shortly after the end of the fiscal year. They are concerned that
some of these liabilities were actually owed by the reporting company at the
end of the year under audit. Which financial statement assertion are the
auditors most likely to be attempting to substantiate?
A - Existence
B - Disclosure
C - Completeness
D - Allocation
Answer is C
Whenever the auditor is concerned that transactions have been left out of an
account balance, it is the completeness assertion that is most likely being
tested. Here, the auditors are concerned that the liabilities reported on
the year-end balance sheet are not complete because some of these amounts
were not recorded until the subsequent period.
Regulation
A taxpayer is studying both a traditional individual retirement account
(IRA) and a Roth IRA. Which of the following is true?
A - Contributions to both are tax deductible when made.
B - Distributions from both are tax free when received.
C - Contributions to a traditional IRA are tax deductible but eventual
distributions are taxable while contributions to a Roth IRA are not tax
deductible but eventual distributions are tax free.
D - Contributions to a Roth IRA are tax deductible but eventual
distributions are taxable while contributions to a traditional IRA are not
tax deductible but eventual distributions are tax free.
Answer is C
For a traditional IRA, contributions reduce taxable income in the current
year. However, when the money is eventually received as a distribution, it
is taxable income. For a Roth IRA, there is no reduction in taxable income
when the contribution is made. But, when the money is eventually received
as a distribution, it is nontaxable income. (As with most tax laws, some
exceptions do exist in both cases.)
BEC
A company spends $200,000 and produces 10,000 pounds of product X and 20,000
pounds of product Y. The joint cost will be allocated between these two
based on units produced. The company also produced 1,000 pounds of
product Z that can be sold for $6 per pound after spending $1 per pound to
put into appropriate packages. Product Z is viewed as a by-product and
recorded at net realizable value. What portion of the joint cost is
allocated to product X?
A - $60,000
B - $64,250
C - $65,000
D - $66,667
Answer is C
The by-product must be handled first. This company records it at net
realizable value-the net amount of cash that can be received. Each pound is
sold for $6 after spending $1 so the net realizable value is $5 per pound or
$5,000 for the entire 1,000 pounds. That part of the $200,000 is recorded
for the by-product. That leaves $195,000 to be split between product X
and product Y. According to the information, the company allocates this
joint cost based on units. One-third of the units (10,000 pounds out of
a total of 30,000 pounds for the two major products) comes from product X.
So, 1/3 of the joint cost or $65,000 (1/3 times $195,000) is assigned to
product X.
Have a great week.
Shoot for excellence in everything you do.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Try us FIRST before you spend your hard-earned money.
October 20, 2009
CPA Review for FREE
www.CPAreviewforFREE.com
Shoot for Excellence
68 Weeks of Operation and 6,294,777 Page Views (without a penny spent on
marketing)
Lesson 51
From: Joe
(1) - How is the CPA Exam graded? That is always an important question.
The more you know about grading, the better off you are. So, we have a
brand new survey on-line this week at
www.cpareviewforfree.blogspot.com/
Our survey question for this week relates to how the CPA exam is actually
graded. Go to the URL, read the question and put in your answer and I'll
provide you with the real answer in my next email lesson.
How much do you really know about the grading?
(2) - The top five countries using our website last week were as follows (as
well as the amount of time that the average visitor spent on our website):
---United States - 26 minutes and 57 seconds
---Philippines - 30 minutes and 35 seconds
---Canada - 31 minutes and 49 seconds
---India - 18 minutes and 11 seconds
---Saudi Arabia - 34 minutes and 45 seconds
Congratulations to the future CPAs in Saudi Arabia. You folks did the most
work (or at least spent the most time) on our site last week of the top
five. And, all of you future CPAs in India need to answer a few more
questions and read a few more answers before you log off. It's a free
site-stay awhile longer with us.
(3) - Some emails - don't think I've shared these with you yet.
FROM EG: "I just wanted to mention that I used CPAreviewforfree extensively
in my preparation for the CPA examination. I cleared all four sections in my
first attempt. I did not take any review courses. My college text books, a
CPA review book, and CPAreviewforfree are what helped me to prepare for
these exams. Thank you for this wonderful website."
FROM BS: "Thank you so much. Just received my Reg result, which is my final
exam, I passed. That means I passed all the exams within 6 months with my
first attempt. Your website helped me a lot. Thank you for all your
encouraging and memorable words."
(4) - If you need to unsubscribe, scroll to the end of this email and just
click on the indicated link.
(5) - I was visiting a relative in the hospital on Saturday. There were
some posters on the wall and one of them caught my attention immediately:
"Excellence is doing ordinary things extraordinarily well"
a statement that was attributed to John Gardner.
We often think that excellence only comes from extraordinary people: the
Van Goghs and the William Faulkners and Tiger Woods of the world. That's
nonsense. There are very few people who are truly extraordinary. If we
wait around for them, we'll never get anywhere. We are all basically
ordinary people. But, we are all capable of achieving excellence. You, me,
and everyone else. We can be excellent.
As I was standing in that hospital room, I just had to agree with the quote
on the wall.
--If we cook dinner and we take care and do it extraordinarily well, we have
achieved excellence.
--If we take photographs and we do it extraordinarily well, we have achieved
excellence.
--If we go to work and we do it extraordinarily well, we have achieved
excellence.
You don't have to climb Mt. Everest or swim the English Channel to be
excellent. Take every small thing you do and work to do it extraordinarily
well and you will experience the joy of excellence.
What could be more ordinary in life than studying
accounting/auditing/tax/law/finance? You read a problem, you try to work
it, you read the answer, and you make a note on how to do it better next
time. It is very slow and very methodical. It is just plain ordinary.
--However, you can do that process about as poorly as possible. You can be
unfocused and bored and let your mind wander and waste a lot of time. You
can realize after 10 minutes, you don't remember the last 10 minutes.
Or, you can do that process extraordinarily well.
You can think about the question. What information is being given?
What are they asking? What rules come into play here and how do I apply
them? Are there any tricks that might catch you off guard?
You can read the answer very carefully. What did I get right? What
did I get wrong? What can I learn from this answer? How should I have
handled the question differently? How could this question be asked in
a different way next time? What should I watch for more closely?
Studying for the CPA Exam is just one ordinary step after another.
But, you have a choice.
--You can do those ordinary steps poorly.
--Or, you can do those ordinary steps extraordinarily well.
When you get to where the most ordinary event is done extraordinarily well,
you will know that you have achieved excellence.
When you work to answer questions extraordinarily well, you will be headed
toward excellence on the CPA Exam.
(6) - Practice - every question should help you add a point.
FAR - As usual, here's something we will be doing in intermediate accounting
tomorrow.
A company reports a warranty expense in Year One of $300,000 that is not
deductible for tax purposes until Year Four. The enacted tax rate is 30
percent. Which of the following is true?
A - It must be more likely than not that the company will have income to
reduce in Year Four before a deferred income tax asset of $90,000 is
recognized in Year One.
B - Because the benefit will not take place until Year Four, there is no
deferred tax asset recognized in Year One.
C - It must be certain that the company will have income to reduce in Year
Four before a deferred income tax asset of $90,000 is recognized in Year
One.
D - In all cases, a deferred tax asset of $90,000 should be recognized in
Year One.
Answer is A
The ability to deduct the $300,000 from taxable income in Year Four is a
temporary tax difference that leads to a deferred income tax asset of
$90,000 based on the 30 percent rate. However, accounting is conservative
and only allows companies to recognize that asset if it is more likely than
not that the benefit will be received by having income to reduce for tax
purposes in Year Four. We sometimes refer to that as the "51 percent rule"
because that is the level at which it becomes more likely than not.
Auditing & Attestation
The CPA firm of Jeter and Cano is auditing the Angel Corporation.
Currently, the auditors are looking at current liabilities that were
recording shortly after the end of the fiscal year. They are concerned that
some of these liabilities were actually owed by the reporting company at the
end of the year under audit. Which financial statement assertion are the
auditors most likely to be attempting to substantiate?
A - Existence
B - Disclosure
C - Completeness
D - Allocation
Answer is C
Whenever the auditor is concerned that transactions have been left out of an
account balance, it is the completeness assertion that is most likely being
tested. Here, the auditors are concerned that the liabilities reported on
the year-end balance sheet are not complete because some of these amounts
were not recorded until the subsequent period.
Regulation
A taxpayer is studying both a traditional individual retirement account
(IRA) and a Roth IRA. Which of the following is true?
A - Contributions to both are tax deductible when made.
B - Distributions from both are tax free when received.
C - Contributions to a traditional IRA are tax deductible but eventual
distributions are taxable while contributions to a Roth IRA are not tax
deductible but eventual distributions are tax free.
D - Contributions to a Roth IRA are tax deductible but eventual
distributions are taxable while contributions to a traditional IRA are not
tax deductible but eventual distributions are tax free.
Answer is C
For a traditional IRA, contributions reduce taxable income in the current
year. However, when the money is eventually received as a distribution, it
is taxable income. For a Roth IRA, there is no reduction in taxable income
when the contribution is made. But, when the money is eventually received
as a distribution, it is nontaxable income. (As with most tax laws, some
exceptions do exist in both cases.)
BEC
A company spends $200,000 and produces 10,000 pounds of product X and 20,000
pounds of product Y. The joint cost will be allocated between these two
based on units produced. The company also produced 1,000 pounds of
product Z that can be sold for $6 per pound after spending $1 per pound to
put into appropriate packages. Product Z is viewed as a by-product and
recorded at net realizable value. What portion of the joint cost is
allocated to product X?
A - $60,000
B - $64,250
C - $65,000
D - $66,667
Answer is C
The by-product must be handled first. This company records it at net
realizable value-the net amount of cash that can be received. Each pound is
sold for $6 after spending $1 so the net realizable value is $5 per pound or
$5,000 for the entire 1,000 pounds. That part of the $200,000 is recorded
for the by-product. That leaves $195,000 to be split between product X
and product Y. According to the information, the company allocates this
joint cost based on units. One-third of the units (10,000 pounds out of
a total of 30,000 pounds for the two major products) comes from product X.
So, 1/3 of the joint cost or $65,000 (1/3 times $195,000) is assigned to
product X.
Have a great week.
Shoot for excellence in everything you do.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
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