Words from Our New President
From: Joe
I want to wish my daughter Lara a very happy 16th birthday. She came to us from Russia 14.5 years ago and added a ton of joy to our lives. (Now, for the obvious questions: Yes, I do have two daughters and, yes, they were born exactly 53 weeks apart in the very middle of Russia.)
(a) – I mentioned last Saturday that the prior week had been our best ever. Our number of page views was 10 percent higher than in any previous week of our existence. Well, guess what? This past week our page views were up another 9 percent. At this rate, our goal of 10 million page views in 2009 is going to become a reality. Remember, that is a lot of points being added to your CPA Exam score (for FREE).
It is amazing how many emails we receive that start off "A friend just told me about your wonderful website." Thanks to every one of you folks who tell their friends, relatives, students, and coworkers about www.CPAreviewforFREE.com.
(b) – I had a free moment yesterday so I went to the website of a very well known CPA Review program. Just curious. What did I notice? Well, two things. The site spent an incredible amount of time talking about the ten people who attained the highest scores in the whole world on the CPA Exam in 2008. That is just great FOR THOSE TEN PEOPLE. I am not too sure who else that helps at all. I do not know about you but it would have never occurred to me when I took the CPA Exam to shoot for one of the top ten highest scores in the country. First, I couldn't see me scoring that high; it was not a realistic goal for anyone that I knew. And, second, I couldn't understand why I could ever want to study that hard. I just wanted to pass. I wanted to see a giant headline: "Joe scores exactly 75." (Actually, I did get two 75s and two 81s.)
Second, I looked forever on that website and I could not find how much they were charging. The Loch Ness Monster is not hidden as well as their prices. They have the cost so well hidden that you practically have to write them a check before you can find out the cost. Hmmm. I wonder why they hide the cost so carefully? My guess is that they are afraid you will pass out when you see what they are charging you. I am always concerned when someone wants to sell me something and will not tell me the price.
You know our motto: Try us FIRST before you spend your hard-earned money.
You do not have to follow the herd. Think for yourself. You can do this and we can help. Save your money—in these times, you might need it some day.
(1) – This past Tuesday, Barack Obama was sworn in as president of the United States. I am not going to get into politics but it was hard not to be pleased. He then gave a speech. He had a lot of great things to say but there was one line toward the end that really caught my attention. In fact, I stopped and wrote it down as soon as I heard it.
"There is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task."
I could not agree more. In fact, I have been preaching that attitude since I started working in CPA Review in 1980. Believe it or not, the important part is not passing. The important part is giving our all to a difficult task. It really does make you a better person. And, that is a worthwhile endeavor.
Of course, it is something we applaud when President Obama says it. How good are we at living up to that kind of assertion?
Nothing so satisfying
Giving our all
To a difficult task
Everyone can say it; not everyone can do it. Can you?
It is all about attitude. You are preparing to pass the CPA Exam, WHAT IS YOUR ATTITUDE? Let's make that a question with multiple choice answers. What is your attitude toward the CPA Exam?
A – I am going to hate every minute of this whole process.
B – I would never do this if I did not absolutely have to do it.
C – I will do what it takes but I am going to complain every single day.
D – It's a great challenge; I am looking forward to seeing how far I can push myself.
Well, we all know the "Obama" answer. However, he has managed to push and challenge himself all the way to the White House. We know what he would do. That is not the real question for us here today. The real question is: which one of these answers reflects your feeling? What is your attitude?
Here's maybe a better way to look at this question. If I were to ask your spouse or your best friend to describe how you are approaching the CPA Exam, what would that person say about you? What attitude radiates from you?
What I really want is for your spouse or best friend to say about you: "It is amazing. I never thought it would happen but the challenge is really bringing out the best in (fill in your name). I can just see more interest and energy and enthusiasm. There is more of a purpose in life. I figured this would be one long series of complaints but, actually, there is something here that is bringing out the best."
That is what a real challenge does for you. If you have the right attitude, it can make you a better person.
Go for that passing grade
and
Throw yourself into the challenge.
(2) – As always, please know that you can unsubscribe from these email lessons whenever you wish. Just scroll to the bottom of any lesson and click on the link that you will find there. However, don't get in a rush; we love having you on board.
If someone has forwarded this email to you and you would like to receive these lessons on a regular basis, just go to www.cpareviewforfree.com and register. Be sure that the box about getting additional material is checked. These lessons are the additional material.
(3) I mentioned getting emails from our "customers." Here is a wonderfully nice note that I received recently from KT. Notes like this really do pay for the website.
"I have found your website very helpful. This past year, I bought a CD review course through our firm at a discounted rate. I took the audit section in October, but did not pass. Shortly after, I received an email from a CPA about your website. I like the format of your website and the emails with practice questions sent each week or so. I really appreciated your message in your December email about the television and wasting time. My television will be off for more study time, for sure. I wish I had learned of your website before spending any money on study material, but your website will give me even more practice. Thanks so much for the free help. You are truly a caring individual and teacher. You actually like helping people to succeed. Thanks for sharing."
And, here is another email, this one from NM:
"I thank you for the wonderful support you and your team are extending to the CPA students through your free website. I have extensively used your website and I have cleared all my subjects within 6 weeks. It feels great because I had devoted 4 full months to the course and I cleared it in the first shot. And I owe a great part of my success to you."
(4) – I was talking with my intermediate accounting students last week about the importance of building a strong foundation of knowledge. It is hard to answer any questions if you don't have a solid core of understanding.
I introduced them to my concept of "3 second questions." These are questions that are so basic that if you get them, you should be able to count to three and then immediately answer the question. I suggested that they start making a list of all the 3 second questions. It helps them decide what is important and what they should know.
Three second questions are not a bad concept for CPA Exam Review also. As you go through a topic, write down everything you should be able to answer off the top of your head. Believe it or not, there is a fairly finite list of things you should know in three seconds. If you can just answer all of the three second questions, you are very close to passing the CPA Exam.
Let me give you an example (or the start of an example). Assume that you are going to take Regulation and you are currently studying individual income taxes. You are going through our questions and answers and writing down what you should know.
What are some of the three second questions that you should expect to be able to answer off the top of your head? As you study, you should ask the question, count to three, and give the answer.
Well, here is the start of such a list. I will not try to list everything but you can get the idea.
--Name three types of income that are taxable.
--Name three types of income that are nontaxable.
--How do taxpayers qualify to file a joint return and what are the advantages?
--How do taxpayers qualify as head of household and what are the advantages?
--How do taxpayers qualify as qualifying widow or widow (surviving spouse) and what are the advantages?
--In general, what are the five rules for qualifying as a dependent on a taxpayer's tax return?
--When does the amount of money that a person make not impact the decision as to whether they are a dependent on another person's tax return?
--When are dividends nontaxable?
--When is interest received from a US Series EE bond nontaxable?
--When is a scholarship taxable?
--What are examples of passive activities?
--When you have passive activity gains and losses, what is the tax effect?
--When is a prize taxable?
--How are gambling gains and losses taxed?
--An employer pays for life insurance on an employee. When is that benefit taxable to the employee?
--What is the statute of limitation in connection with the filing of an individual tax return? When does it go up to six years?
--What is a capital asset?
--What is meant by short-term versus long-term in connection with the sale of capital assets?
--What are the tax rules if you sell your house at a gain?
--What are the tax rules if you receive a gift and later sell it?
I assume you get my point. You can have a great little study guide by just listing out 3 second questions. There is nothing here on this list that you could not learn in a short period of time to get you ready for the CPA Exam.
Better still, by working our questions at www.CPAreviewforFREE.com, you can find the answers to all of these three second questions and many more.
(5) – Time for a little practice. Here are some brand new questions that we will be loading up on the CPA Review for FREE website next week. You can get a head start on these.
Regulation
Silas Wykowski receives 20 shares of stock from a friend as a gift. These shares had originally cost the friend $400 but were only worth $300 when the conveyance to Silas was made. The stock was held for some time and then sold for $280. What is the income tax effect recognized by SilasWykowski?
A - $300 gain at the time of gift and a $20 loss when sold.
B – No gain or loss at the time of gift and a $120 loss when sold.
C – No gain or loss at the time of gift and a $20 loss when sold.
D - $400 gain at the time of gift and a $120 loss when sold.
Answer is C
There is no income tax effect when a gift is made. A gift tax might have to be paid if the amount is large but this is a small gift. If the value then goes down, the owner can recognize a loss when sold. That loss is the difference in what was received and the lower of the tax basis to the previous owner (usually original cost) and the fair value at the date of the gift. Here, that fair value when conveyed ($300) is less. So, the tax loss is this $300 less the $280 sales price or $20.
Financial Accounting & Reporting
On December 31, Year One, United Open Housing, a nongovernmental not-for-profit organization, received a promise of a monetary gift of $10,000 to be received in five years. The gift is unconditional in that the charity does not have to do anything to qualify. However, the donor has specified that the gift cannot be utilized until received (for example, the promise cannot be sold for cash). There are no restrictions on the use of this money. The charity is confident that it will collect all $10,000. What is the initial recording by United Open Housing?
A – No recording is made.
B – A receivable of $10,000 is recorded along with an increase of that amount in unrestricted net assets.
C – A receivable of $10,000 is recorded along with an increase of that amount in temporarily restricted net assets.
D – A receivable for the present value of $10,000 is recorded along with an increase of that amount in temporarily restricted net assets.
Answer is D
Because the money is not expected to be collected within the next year, it must be recorded at its present value. The money cannot be used until received and, therefore, serves to increase the temporarily restricted net assets of the organization.
Auditing and Attestation
The Ligano Corporation is being sued for $3 million by the Stoneco Company. Abner and Doubleday are the independent auditors of Ligano and they are currently assessing the reporting of this litigation. Which of the following is the most likely test that they will carry out?
A – Discuss the case with Ligano's attorney and review the attorney's files to date.
B – Evaluate the procedures used by Ligano to assess the likelihood and amount of any potential loss from the suit.
C – Discuss the case with Stoneco's attorney with the understanding that all information is confidential and possibly biased.
D – Discuss the case with court officials who have jurisdiction over the proceedings.
Answer is B
Financial statements are produced by the management of the reporting company. Normally, the auditor begins by coming to an understanding of how client figures and disclosures were derived. For litigation, the auditor then sends a list of the claims and the likelihood and amount of loss as determined by the client to the company's outside attorney. This person is then asked to contact the auditor to indicate whether there is any disagreement with these assessments.
BEC
What is a call option?
A – The obligation to sell a security at a specified price in the future.
B – The right to purchase a security at a specified price for a defined period of time.
C – The right to sell a security if a specified event occurs.
D – The obligation to provide specified information to holders of a security if certain events take place.
Answer is B
A call option gives the holder the right to purchase a security at a specified price for a certain period of time (often three months or less). For example, if the price of company X stock is $30, an investor might buy a call option that would allow the purchase of company X stock for $32 per share over the next 3 months. If the price goes to $40 per share, the investor has made a large profit from a small investment.
To all of our friends around the world, HAVE A GREAT DAY!!!
Work hard and add some points to your CPA Exam score.
Have the right attitude. Enjoy the challenge that you are facing.
Joe Hoyle
Co-Founder
CPA Review for FREE
Sunday, January 25, 2009
Sunday, January 18, 2009
Believe in Yourself
I want to wish my daughter Anna a very happy 17th birthday. She came to us from Russia 14.5 years ago and added a ton of joy to our lives.
(a) Just a quick, special announcement: last week was our biggest in history at www.CPAreviewforFREE.com. Our number of visitors was 24 percent higher than in any previous week of our entire existence. What an amazing jump!!! Thanks to everyone who has helped us spread the word. We could not have this success without you!
Remember our goal for 2009 is 10 million page views. That is the equivalent of everyone who takes the CPA Exam looking at 100 pages on our site. Since we already have roughly 2,000 questions available for free, it is certainly a possible goal.
Just think how many points 10 million page views would add to CPA Exam scores around the country. So, please forward this email and say "these guys are for real; you should check them out. 2,000 great questions and every question is completely free."
(b) A lot of people focus on our free questions and miss all of the other stuff on our site especially the information located in our "resources" section.
If you are planning to take the CPA Exam in January or February, read "The Look and Feel of the CPA Exam."
If you are studying for auditing, read "Typical Audit Engagement" which goes through an audit step by step.
If you are considering applying to take the CPA Exam, read "Essential Information About Applying to Sit for the CPA Exam."
If you want to know how to use CPA Review for FREE to prepare for the CPA Exam, read "Using CPA Review for FREE to Prepare for Success." (Give us 40 days to prepare you for the first part of the exam and if you don't like the results, you can still pay for a course with someone else. Try us first and say your money.)
I think all of this information can be very helpful as you get ready to pass the CPA Exam in 2009.
(c) One other piece of interesting information. The pass rates for 2008 have now been announced:
Financial Accounting and Reporting - 49.21 percent
Auditing and Attestation - 49.10 percent
BEC - 47.49 percent
Regulation - 48.74 percent
This is considerably better than the roughly 30 percent pass rate under the old paper and pencil exam. "Old-timers" will tell you how hard the CPA Exam is to pass but times have changed. In recent years, this has become a much more passable exam; if you are willing to do the work, you have a great chance to get those 75 points that you need.
(1) - I read a quote yesterday that I thought applied to everyone taking the CPA Exam:
"You must believe in yourself, my child, or no one else will believe in you. Be self-confident, self-reliant, and even if you do not make it, you will know you have done your best. Now go for it."
So many good things about this quote:
"Believe in yourself"
"Be self-confident"
"Self-reliant"
"You will know you have done your best"
"Now go for it"
Success does not come from smarts or money. For the most part, success comes from doing more work than other people are willing to do. (Success = Ability to Do More Work than Others Are Willing to Do) When you start down the path to pass the CPA Exam, you must believe that you will do more work than other people are willing to do. That ability to drive yourself to success is going to get you those 75 points you need.
Unfortunately, doing work does not guarantee success; no one can guarantee success. However, not doing the work guarantees failure along with a feeling that you have not even tried. In life, there is a wonderful feeling that comes from putting in a great effort. One of the problems with much of life is that you can go through day after day with just mediocre effort. Life is not meant to be lived at a mediocre pace. There have to be times when you get so excited about the chance to accomplish something that you go at it as hard as you possibly can. You push yourself to success. That is what I have always loved about the CPA Exam. It is a goal worth all of that effort.
Make up your mind that you are going to go after that passing grade. Be confident that you can put in the work. Personally, I think if you have the self-discipline to work the questions on www.cpareviewforfree.com, you will have a great chance to pass. But just as importantly, I do not think you will ever forget the excitement of going for the gold. The ability to put out that effort makes you a better person.
Now go for it.
(2) Just a reminder that you can take your name off of our list by scrolling to the bottom of any of these email lessons and clicking on the appropriate button.
If someone has forwarded this email lesson to you and you would like to get them every 7-14 days automatically, just register at www.CPAreviewforFREE.com and make sure to check the box that indicates you want to receive extra materials about the exam.
(3) There is a lot of misunderstanding on the CPA Exam about the written communications questions. In each part of the exam except BEC, you will get two written communication questions (one in each simulation). You will be given a grade on your ability to use the English language and that grade will make up 10 percent of your overall grade.
To give you some guidance, here is what www.cpa-exam.org says specifically about this part of the exam: "In all simulations, candidates are presented with a situation and instructed to write a letter or memorandum on a specific topic. Written communication responses are scored on the basis of three criteria: (1) organization (structure, ordering of ideas, linking of ideas one to another); (2) development (presentation of supporting evidence); and (3) expression (use of standard business English)."
If you want more official information, you can check out the following site:
http://m1e.net/c?86471133-akFTZdhUgdLbs%403905862-d/0hY7WZ/BoXM
I believe that it is important for you to understand how your written communication answer will be graded. First, a grader looks over the answer to make sure that it is "on topic." In other words, if the question is about leases, then the answer has to be on leases. If the answer is not on the proper topic, you get a zero and no further grading is done. However, if the answer is just on topic, it is turned over to a different expert who then grades it on the three criteria mentioned above.
It is important to understand this grading process because the content itself is not graded. That is not the purpose of this question. So, if you get a question and you are not too sure about the exact answer, that may not make any difference at all. For these questions, you should worry about the writing and not the absolute precision of your answers.
Keep in mind also, that the computer on which you are taking the exam has "spell check" so you should not worry about misspelling words. You can check for that.
Let me give you some of my own hints on how to answer the written communication questions in order to maximize your points.
---Restate the question. That will help focus you in on what is wanted. Plus, in business writing, it is not unusual to make sure everyone knows the issue at hand.
---Keep your sentences as short as possible. Unless you are good at writing, once you go beyond about six or seven, the more likely it is that you will get into trouble. "The lease should be capitalized" is a great sentence. Avoid long and difficult sentences.
---Make sure each sentence logically follows the previous sentence. "The cat is in the kitchen. The cat is eating breakfast." makes sense. "The cat is in the kitchen. The Martian jumped out of his space ship." does not connect well. When the sentences stop connecting well, you need a new paragraph.
---Avoid using words unless you are very sure of their meaning. Do not try to get fancy. You are not trying to be William Shakespeare or William Faulkner.
---Remember that this is business writing. It should sound professional and formal. Slang is not appropriate. I also think that contractions and abbreviations should be avoided. You want your writing to look professional.
---Make sure that each sentence is complete. It should have a subject and a verb. "The cat over there in the kitchen." has no verb.
---Capitalize the first word in each sentence.
---Two to four sentences is a good length for most paragraphs.
---Unless you have strong skill as a writer, avoid semi-colons, colons, and dashes. Most people can say all they need to say with periods and a few commas.
---If you make any type of assertion, you should try to justify it. "Equipment must be depreciated" is an assertion. "Equipment must be depreciated because it has a finite life" is an assertion with an explanation.
I know a lot of people really dread the written communications questions. Personally, I think this is one place where if you simply take it easy and do not "overwrite" you can do well.
(4) We received several nice emails recently. Thanks to everyone who writes. We read them all. Here was just one that we got:
"When I first discovered the site, 'free online resources for the CPA exam,' I was skeptical. I asked myself: can there really be such a free site for the CPA exam? I then proceeded to try out some questions on BEC, and I was impressed. I have been trying several times over to pass BEC, and I hope that I can pass this time."
(5) Okay, as always, here are a few practice questions that I will eventually add to our database at CPA Review for FREE. I hope they help you to add a couple of points.
FAR (and this comes from the class that I did yesterday afternoon in my intermediate accounting II class)
The Simi Company has $10 million in long-term bonds coming due on August 9, 2009. The company is currently preparing a balance sheet as of December 31, 2008. The financial statements will be issued to the public on February 27, 2009. Which of the following statements is true?
A The bond must be reported as a current liability.
B The company can only report the bond as a noncurrent liability if it is refinanced prior to December 31, 2008.
C The company can only report the bond as a noncurrent liability if it is refinanced prior to February 27, 2009.
D If the company signs a non-cancellable agreement with a bank on January 17, 2009 indicating that the bond will be refinanced when it comes due, the bond is reported on the December 31, 2008, balance sheet as noncurrent.
Answer is D
The loan comes due within the current year and must be shown as current unless the company can show that it has both the intent and ability to refinance. That intent and ability is proven by either refinancing the debt prior to the issuance of the financial statements on February 27, 2009 or obtaining a non-cancellable agreement to refinance by that same date. Basically, the company must show that there is no chance that the bond will have to be paid out of the company's own current assets. If that is demonstrated, the bond is reported as long-term.
Regulation
The ABCD partnership has sales revenue of $300,000, cost of goods sold of $200,000, long-term capital gain of $12,000, repair expense of $20,000, and charitable contributions of $8,000. John Apple is one of the partners who holds a 25 percent share of the partnership. How should Mr. Apple report this partnership income on his own income federal tax return?
A Ordinary income from the partnership of $21,000
B Ordinary income from the partnership of $18,000 and a $3,000 long-term capital gain.
C Ordinary income from the partnership of $20,000, a $3,000 long-term capital gain, and $2,000 charitable contribution.
D Ordinary income from the partnership of $25,000, a $3,000 long-term capital gain, $2,000 charitable contribution, and $5,000 repair expense.
Answer is C
For the taxation of a partnership (or an S corporation), certain items such as long-term capital gains, charitable contributions, and interest expense are passed through directly to each partner based on the ownership percentage. Apple owns 25 percent of the partnership so that portion of the long-term capital gain and the charitable contribution are passed through directly and shown as such on his own return. All other income effects are then gathered into a single figure which is the income of the partnership which is assigned to the individual partners based on ownership percentage. Here, the $100,000 gross profit minus $20,000 repair expense gives income of $80,000 so that this 25 percent owner is assigned $20,000 as the income from the partnership.
Auditing & Attestation
What are the three components of audit risk?
A Preliminary risk, construction risk, and design risk
B Inherent risk, control risk, and detection risk
C Payment risk, receipt risk, and recording risk
D Variable risk, attribute risk, and assessment risk
Answer is B.
Audit risk is the chance that a material misstatement will occur and wind up being included in issued financial statements. The auditor needs to reduce overall audit risk to an acceptably low level before reasonable assurance can be given. Audit risk starts with inherent risk which is the chance that a material misstatement will actually occur in the accounting system that leads to the production of the financial statements. Then, control risk is the chance that this material misstatement (once it has occurred) will fail to be caught by the internal control policies and procedures established by the reporting company. Finally, detection risk is the chance that the material misstatement that has taken place and gotten past the internal control of the reporting company will not be caught by the work of the outside independent auditors.
BEC
The Madison Company takes 22 days to sell the average piece of inventory (that is the inventory conversion period). It takes another 27 days on the average to collect an account receivable (that is the receivables conversion period). It takes 31 days to pay accounts payable on the average (that is the payable conversion period). What is the cash conversion cycle for this company?
A - 18 days
B - 49 days
C - 53 days
D - 80 days
Answer is A.
The cash conversion cycle (which is sometimes referred to as CCC) is the time it takes a company to convert its resources into cash. It is actually the total time to convert inventory into accounts receivable and then collect those accounts less the period it takes the company to then pay for the inventory that it acquired. Hence, the computation for the Madison Company would be 22 plus 27 minus 31 or 18 days.
Believe in yourself and then go for it!!!!
Writing to you from Richmond, Virginia on a very cold Saturday night.
Joe Hoyle
Co-Founder
CPA Review for FREE
(a) Just a quick, special announcement: last week was our biggest in history at www.CPAreviewforFREE.com. Our number of visitors was 24 percent higher than in any previous week of our entire existence. What an amazing jump!!! Thanks to everyone who has helped us spread the word. We could not have this success without you!
Remember our goal for 2009 is 10 million page views. That is the equivalent of everyone who takes the CPA Exam looking at 100 pages on our site. Since we already have roughly 2,000 questions available for free, it is certainly a possible goal.
Just think how many points 10 million page views would add to CPA Exam scores around the country. So, please forward this email and say "these guys are for real; you should check them out. 2,000 great questions and every question is completely free."
(b) A lot of people focus on our free questions and miss all of the other stuff on our site especially the information located in our "resources" section.
If you are planning to take the CPA Exam in January or February, read "The Look and Feel of the CPA Exam."
If you are studying for auditing, read "Typical Audit Engagement" which goes through an audit step by step.
If you are considering applying to take the CPA Exam, read "Essential Information About Applying to Sit for the CPA Exam."
If you want to know how to use CPA Review for FREE to prepare for the CPA Exam, read "Using CPA Review for FREE to Prepare for Success." (Give us 40 days to prepare you for the first part of the exam and if you don't like the results, you can still pay for a course with someone else. Try us first and say your money.)
I think all of this information can be very helpful as you get ready to pass the CPA Exam in 2009.
(c) One other piece of interesting information. The pass rates for 2008 have now been announced:
Financial Accounting and Reporting - 49.21 percent
Auditing and Attestation - 49.10 percent
BEC - 47.49 percent
Regulation - 48.74 percent
This is considerably better than the roughly 30 percent pass rate under the old paper and pencil exam. "Old-timers" will tell you how hard the CPA Exam is to pass but times have changed. In recent years, this has become a much more passable exam; if you are willing to do the work, you have a great chance to get those 75 points that you need.
(1) - I read a quote yesterday that I thought applied to everyone taking the CPA Exam:
"You must believe in yourself, my child, or no one else will believe in you. Be self-confident, self-reliant, and even if you do not make it, you will know you have done your best. Now go for it."
So many good things about this quote:
"Believe in yourself"
"Be self-confident"
"Self-reliant"
"You will know you have done your best"
"Now go for it"
Success does not come from smarts or money. For the most part, success comes from doing more work than other people are willing to do. (Success = Ability to Do More Work than Others Are Willing to Do) When you start down the path to pass the CPA Exam, you must believe that you will do more work than other people are willing to do. That ability to drive yourself to success is going to get you those 75 points you need.
Unfortunately, doing work does not guarantee success; no one can guarantee success. However, not doing the work guarantees failure along with a feeling that you have not even tried. In life, there is a wonderful feeling that comes from putting in a great effort. One of the problems with much of life is that you can go through day after day with just mediocre effort. Life is not meant to be lived at a mediocre pace. There have to be times when you get so excited about the chance to accomplish something that you go at it as hard as you possibly can. You push yourself to success. That is what I have always loved about the CPA Exam. It is a goal worth all of that effort.
Make up your mind that you are going to go after that passing grade. Be confident that you can put in the work. Personally, I think if you have the self-discipline to work the questions on www.cpareviewforfree.com, you will have a great chance to pass. But just as importantly, I do not think you will ever forget the excitement of going for the gold. The ability to put out that effort makes you a better person.
Now go for it.
(2) Just a reminder that you can take your name off of our list by scrolling to the bottom of any of these email lessons and clicking on the appropriate button.
If someone has forwarded this email lesson to you and you would like to get them every 7-14 days automatically, just register at www.CPAreviewforFREE.com and make sure to check the box that indicates you want to receive extra materials about the exam.
(3) There is a lot of misunderstanding on the CPA Exam about the written communications questions. In each part of the exam except BEC, you will get two written communication questions (one in each simulation). You will be given a grade on your ability to use the English language and that grade will make up 10 percent of your overall grade.
To give you some guidance, here is what www.cpa-exam.org says specifically about this part of the exam: "In all simulations, candidates are presented with a situation and instructed to write a letter or memorandum on a specific topic. Written communication responses are scored on the basis of three criteria: (1) organization (structure, ordering of ideas, linking of ideas one to another); (2) development (presentation of supporting evidence); and (3) expression (use of standard business English)."
If you want more official information, you can check out the following site:
http://m1e.net/c?86471133-akFTZdhUgdLbs%403905862-d/0hY7WZ/BoXM
I believe that it is important for you to understand how your written communication answer will be graded. First, a grader looks over the answer to make sure that it is "on topic." In other words, if the question is about leases, then the answer has to be on leases. If the answer is not on the proper topic, you get a zero and no further grading is done. However, if the answer is just on topic, it is turned over to a different expert who then grades it on the three criteria mentioned above.
It is important to understand this grading process because the content itself is not graded. That is not the purpose of this question. So, if you get a question and you are not too sure about the exact answer, that may not make any difference at all. For these questions, you should worry about the writing and not the absolute precision of your answers.
Keep in mind also, that the computer on which you are taking the exam has "spell check" so you should not worry about misspelling words. You can check for that.
Let me give you some of my own hints on how to answer the written communication questions in order to maximize your points.
---Restate the question. That will help focus you in on what is wanted. Plus, in business writing, it is not unusual to make sure everyone knows the issue at hand.
---Keep your sentences as short as possible. Unless you are good at writing, once you go beyond about six or seven, the more likely it is that you will get into trouble. "The lease should be capitalized" is a great sentence. Avoid long and difficult sentences.
---Make sure each sentence logically follows the previous sentence. "The cat is in the kitchen. The cat is eating breakfast." makes sense. "The cat is in the kitchen. The Martian jumped out of his space ship." does not connect well. When the sentences stop connecting well, you need a new paragraph.
---Avoid using words unless you are very sure of their meaning. Do not try to get fancy. You are not trying to be William Shakespeare or William Faulkner.
---Remember that this is business writing. It should sound professional and formal. Slang is not appropriate. I also think that contractions and abbreviations should be avoided. You want your writing to look professional.
---Make sure that each sentence is complete. It should have a subject and a verb. "The cat over there in the kitchen." has no verb.
---Capitalize the first word in each sentence.
---Two to four sentences is a good length for most paragraphs.
---Unless you have strong skill as a writer, avoid semi-colons, colons, and dashes. Most people can say all they need to say with periods and a few commas.
---If you make any type of assertion, you should try to justify it. "Equipment must be depreciated" is an assertion. "Equipment must be depreciated because it has a finite life" is an assertion with an explanation.
I know a lot of people really dread the written communications questions. Personally, I think this is one place where if you simply take it easy and do not "overwrite" you can do well.
(4) We received several nice emails recently. Thanks to everyone who writes. We read them all. Here was just one that we got:
"When I first discovered the site, 'free online resources for the CPA exam,' I was skeptical. I asked myself: can there really be such a free site for the CPA exam? I then proceeded to try out some questions on BEC, and I was impressed. I have been trying several times over to pass BEC, and I hope that I can pass this time."
(5) Okay, as always, here are a few practice questions that I will eventually add to our database at CPA Review for FREE. I hope they help you to add a couple of points.
FAR (and this comes from the class that I did yesterday afternoon in my intermediate accounting II class)
The Simi Company has $10 million in long-term bonds coming due on August 9, 2009. The company is currently preparing a balance sheet as of December 31, 2008. The financial statements will be issued to the public on February 27, 2009. Which of the following statements is true?
A The bond must be reported as a current liability.
B The company can only report the bond as a noncurrent liability if it is refinanced prior to December 31, 2008.
C The company can only report the bond as a noncurrent liability if it is refinanced prior to February 27, 2009.
D If the company signs a non-cancellable agreement with a bank on January 17, 2009 indicating that the bond will be refinanced when it comes due, the bond is reported on the December 31, 2008, balance sheet as noncurrent.
Answer is D
The loan comes due within the current year and must be shown as current unless the company can show that it has both the intent and ability to refinance. That intent and ability is proven by either refinancing the debt prior to the issuance of the financial statements on February 27, 2009 or obtaining a non-cancellable agreement to refinance by that same date. Basically, the company must show that there is no chance that the bond will have to be paid out of the company's own current assets. If that is demonstrated, the bond is reported as long-term.
Regulation
The ABCD partnership has sales revenue of $300,000, cost of goods sold of $200,000, long-term capital gain of $12,000, repair expense of $20,000, and charitable contributions of $8,000. John Apple is one of the partners who holds a 25 percent share of the partnership. How should Mr. Apple report this partnership income on his own income federal tax return?
A Ordinary income from the partnership of $21,000
B Ordinary income from the partnership of $18,000 and a $3,000 long-term capital gain.
C Ordinary income from the partnership of $20,000, a $3,000 long-term capital gain, and $2,000 charitable contribution.
D Ordinary income from the partnership of $25,000, a $3,000 long-term capital gain, $2,000 charitable contribution, and $5,000 repair expense.
Answer is C
For the taxation of a partnership (or an S corporation), certain items such as long-term capital gains, charitable contributions, and interest expense are passed through directly to each partner based on the ownership percentage. Apple owns 25 percent of the partnership so that portion of the long-term capital gain and the charitable contribution are passed through directly and shown as such on his own return. All other income effects are then gathered into a single figure which is the income of the partnership which is assigned to the individual partners based on ownership percentage. Here, the $100,000 gross profit minus $20,000 repair expense gives income of $80,000 so that this 25 percent owner is assigned $20,000 as the income from the partnership.
Auditing & Attestation
What are the three components of audit risk?
A Preliminary risk, construction risk, and design risk
B Inherent risk, control risk, and detection risk
C Payment risk, receipt risk, and recording risk
D Variable risk, attribute risk, and assessment risk
Answer is B.
Audit risk is the chance that a material misstatement will occur and wind up being included in issued financial statements. The auditor needs to reduce overall audit risk to an acceptably low level before reasonable assurance can be given. Audit risk starts with inherent risk which is the chance that a material misstatement will actually occur in the accounting system that leads to the production of the financial statements. Then, control risk is the chance that this material misstatement (once it has occurred) will fail to be caught by the internal control policies and procedures established by the reporting company. Finally, detection risk is the chance that the material misstatement that has taken place and gotten past the internal control of the reporting company will not be caught by the work of the outside independent auditors.
BEC
The Madison Company takes 22 days to sell the average piece of inventory (that is the inventory conversion period). It takes another 27 days on the average to collect an account receivable (that is the receivables conversion period). It takes 31 days to pay accounts payable on the average (that is the payable conversion period). What is the cash conversion cycle for this company?
A - 18 days
B - 49 days
C - 53 days
D - 80 days
Answer is A.
The cash conversion cycle (which is sometimes referred to as CCC) is the time it takes a company to convert its resources into cash. It is actually the total time to convert inventory into accounts receivable and then collect those accounts less the period it takes the company to then pay for the inventory that it acquired. Hence, the computation for the Madison Company would be 22 plus 27 minus 31 or 18 days.
Believe in yourself and then go for it!!!!
Writing to you from Richmond, Virginia on a very cold Saturday night.
Joe Hoyle
Co-Founder
CPA Review for FREE
Thursday, January 15, 2009
CPA Exam Content Areas
Hi all,
Recently, the AICPA released the Uniform CPA Examination Content and Skill Specification Outlines (CSOs/SSOs) and copies of the new CSOs/SSOs. They will not go into effect until sometime in the future which has not yet been specified.
Not to worry though. CPAreviewforFREE has you covered.
Keep practicing and remember, the exam is a short term goal with long term benefits.
Recently, the AICPA released the Uniform CPA Examination Content and Skill Specification Outlines (CSOs/SSOs) and copies of the new CSOs/SSOs. They will not go into effect until sometime in the future which has not yet been specified.
Not to worry though. CPAreviewforFREE has you covered.
Keep practicing and remember, the exam is a short term goal with long term benefits.
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