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