Pass The CPA Exam One Topic At A Time
From: Joe
ANNOUNCEMENT: We here at CPA Review for FREE are always trying to find new ways to be helpful to our readers. We realize that people who pass the CPA Exam might also be interested in the CFA (Chartered Financial Analyst) Exam. Or, you may have friends who are thinking of taking the CFA Exam.
Consequently, we have teamed up with the good folks at ProfessionalExamReview.com to offer you a 10 percent discount on their CFA Exam Review products. In these days, save every penny you can. Take a moment and go out and look at the wide variety of products that they provide: http://m1e.net/c?86471133-T3oJUZE5tOzlk%404096319-vgjWOWZYWn9nA
Of course, pass the CPA Exam first, but, after that, you might look into the possibility of adding three more letters (CFA) after your name. When you are in a study and testing mindset, it is good to get as many of those letters as you can.
(1) - One other quick announcement: we should hit a total of 2.2 million page views in the next day or two. If anyone at one of these big fancy CPA Review programs tells you that we are not real, just ask them why we've gotten 2.2 million page views in such a short period of time.
These big courses WANT YOUR MONEY. That is their number one goal.
They will tell you almost anything to GET YOUR MONEY.
Don't be gullible.
My recommendation:
--go to www.CPAreviewforFREE.com
--under CPA Exam Resources, read "Using CPAreviewforFREE"
--try us for 4-6 weeks
--after that, if you still want to send a couple of thousand to the big courses, then that is a considered decision on your part.
Don't let the big courses SCARE YOU OUT OF YOUR MONEY.
(2) - One of the biggest problems of the CPA Exam is that it looks so hard. Everyone hears how difficult it is; how many hours you have to spend. When you first start, it seems like you are beginning to climb Mt. Everest. It is very easy to get overwhelmed and discouraged. A lot of people just have trouble getting started. It can seem so hopeless that they never really get out of the starting gate.
One recommendation is to focus on passing one topic at a time.
For example, if you are studying to pass FAR, focus on a topic such as Accounts Receivable first. Stop thinking about the CPA Exam. Only worry about gaining enough knowledge to pass that ONE topic. My guess is that you can pass Accounts Receivable with 30-90 minutes of preparation. Other than estimating and recording bad debt expense, there is not much to it. So, that is a reasonable goal.
Then, once you have enough knowledge to pass Accounts Receivable, you move on to the next topic-something like Inventory. Okay, that is a bit broader topic but you can probably pass it in 1 hour to 2.5 hours. Then move on to Buildings and Equipment.
In that way, when you wake up each morning, you have a goal that you can actually accomplish. TODAY: pass a topic or two. Don't focus on the CPA Exam, focus on today's topic.
Otherwise, it is easy to wake up with the entire CPA Exam in front of you. You face the burden of studying for a couple of hours without a sense of accomplishment. It feels like you are struggling up Mount Everest and it is winning. Instead of looking at the CPA Exam as a huge mountain that is almost impossible to climb, think of it as a series of small hills. You climb one hill and then begin up the second hill. Now, that is a reasonable goal.
Start right now: what is the very first topic that you want to pass? Start climbing that hill. You can climb a hill-get the first one done today.
(3) - Remember that you can unsubscribe from these email lessons (that I send out every week or two) by scrolling to the bottom of this lesson and clicking on the unsubscribe button.
And, since we do no marketing, we very much appreciate your willingness to tell other folks about www.CPAreviewforFREE.com. YOU are the most important part of our success.
(4) - It is so easy to run out of energy when you are studying for the CPA Exam. Every night you come home from work and you plan to open up www.CPAreviewforFREE.com but you are just soooo very tired. You keep thinking that you will defer study until you have more energy but every time you even think about studying, your energy flies out of your body.
Every night you get to bed time and you have not accomplished what you had wanted to do and that makes you discouraged. It is tough-trust me, I have been there. I well know.
I am currently reading a book about the making of the famous 1967 movie The Graduate. They were getting ready to film a very important scene and Dustin Hoffman was having trouble doing it just right. The director (Mike Nichols) asked Hoffman what was wrong and the actor responded that he was tired.
Nichols took Hoffman aside and said something like: You are going to look back on this movie for the rest of your life. Do you really want to look back at the most important scene in the entire movie and realize that you didn't do it as well as you could have because you were tired? It was the most important scene and you were tired???????
The CPA Exam is very important to your career and to your own feeling of self-confidence. Do you really want to look back and realize that you could have passed except that you were tired?
---If this exam is really so important to you, shouldn't your heart be pumping every time you think about passing?
---If this exam is really so important to your career, shouldn't the adrenaline be racing through your body like a NASCAR racer?
---If this exam is really going to show people what you really can do, shouldn't you wake up each morning excited to have the chance to pass a new topic?
Tired??? Bah! Humbug! The excitement of such a major accomplishment should push tired right out of your head.
I think most mental tiredness is just psychological. We tell ourselves "I have been busy today; my mind is not going to function well." Why not tell ourselves "I have been busy today; my mind is already pumped up and ready to go after the CPA Exam."
We tell ourselves "I just had my dinner; I need to put my feet up and rest and turn on television." Why not tell ourselves "Okay, I'm finished with dinner, now is a good time to put in an hour or two and get closer to passing the CPA Exam." Heck, I'm well over 60 and I don't go lay down after dinner and rest. I get excited about the prospect of getting something accomplished.
We tell ourselves "I don't study well in the morning; my brain does not work well that early." Why not tell ourselves "This is a great time to study; I can add some points when the world is peaceful and quiet and won't disturb me."
Are you telling your mind negative things or positive things? If you fill up your mind with negatives, don't be surprised that it feels tired.
Your mind is as tired or as active as you tell it to be. I know plenty of people who go through life with "mental weariness" because they tell themselves day in and day out that they are just so very tired. I know just as many people who convince themselves that their brain is alive and pumping and ready to go to work.
Guess who passes the CPA Exam?
Which one are you?
(5) - Here's an email I got a day or two ago:
"My exam experience with FAR was not that good. I was a wreck when I came out as I had run out of time and was only able to do the communications part of both simulations. That was the third time I'd taken it and had only done a little bit more than the other times. The only difference this time was that I had used questions from CPA Review for Free and tried to incorporate your 'inch deep, mile wide' attitude. Anyway, I was hopeful, but not as confident as when I did BEC. Bottom line. I passed with 75%!"
CONGRATULATIONS!!! That is just wonderful. That is a perfect example of my advice: remember, you do not have to be perfect; you just have to get enough questions right to pass!!! And you did it!! I know you must be proud of yourself. You did the work and you made it happen. Go out and celebrate-tell your friends and neighbors. YOU did it.
(6) - Some practice problems. The first one here I am taking from my Intermediate Accounting class this past Friday.
Financial Accounting and Reporting
The Palermo Company reported net income in its financial statements of $600,000 (before tax) in Year One. The tax rate is currently 30 percent but is expected to go up to 32 percent at the start of Year Two. The company has revenue of $90,000 that will not be taxed until Year Two. In addition, the company has another $50,000 in revenue that will never be taxed. What does the company show as its income tax expense for Year One?
A - Income tax expense-current is $138,000 and income tax expense-deferred is $27,000
B - Income tax expense-current is $180,000 and income tax expense-deferred is $28,800
C - Income tax expense-current is $153,000 and income tax expense-deferred is $27,000
D - Income tax expense-current is $153,000 and income tax expense-deferred is $28,800
Answer is A
Future tax rates are only used if the rate has been legally enacted, not just anticipated. Thus, all income here is recorded at the current rate of 30 percent since the new rate is only expected. Only $460,000 is to be taxed in the current year ($600,000 less $90,000 and $50,000). At 30 percent, the income tax expense-current is $138,000. The $50,000 will never be taxed and can be ignored. The $90,000 will be taxed next year but the expense is recognized this year at the 30 percent rate so that the income tax expense-deferred is $27,000.
Regulation (Unfortunately, I thought of this one yesterday when I was doing my income tax return for 2008)
Mr. and Mrs. Archibald Taylor are filing their income tax return for the current year. They have short-term capital losses of $10,000 and long-term capital losses of $20,000. Which of the following is correct?
A - They can deduct $3,000 of the short-term losses this year and carry all of the remaining losses forward indefinitely.
B - They can deduct nothing this year but can carry all of the losses back for three years and then forward for up to seven years.
C - They can deduct $3,000 of the long-term losses this year and carry all of the remaining losses forward for up to 20 years.
D - The losses are combined and $3,000 can be deducted this year with the remaining $17,000 carried over for up to seven years.
Answer is A
For individual taxpayers filing a joint return, $3,000 in capital losses can be deducted each year. Short-term losses are deducted first. The remaining amounts can be carried forward indefinitely. In the carryover process, short-term losses remain short-term and long-term losses remain long-term. Corporate rules are quite different for capital gains and losses.
Auditing & Attestation
The Acme Coal Company spends $3 million to buy a new coal mine. Depletion expense is to be computed based on the company's estimation that the mine contains 600,000 tons of coal. Ross and Company CPAs is auditing the financial statements produced by Acme. Ross hires the engineering firm of Less and Low to substantiate the estimation of coal made by company management. The CPA firm has made sure that the engineering firm is independent of Ross and has appropriate credentials. Which of the following is true?
A - The hiring of Less and Low was inappropriate because they are not under the control of the CPA firm.
B - The CPA firm must review all computations made by the engineering firm.
C - The CPA firm must ask the engineering firm to disclose and explain all assumptions and methods that were used in making this estimation.
D - The engineering firm must be independent of the audit client.
Answer is C
Using the work of a specialist in an audit is quite normal. CPAs cannot be expected to have unlimited knowledge on all possible topics (such as estimating the amount of coal in a coal mine). The specialist does not have to be independent but the CPA's reliance on the findings of the specialist should be guarded if independence is lacking. The auditor is probably not capable of reviewing all the work of the specialist. If the auditor had that much knowledge, a specialist would not be needed. However, the CPA needs to be well aware of all assumptions and methods used by the specialist in doing the assigned work.
BEC
A company buys and sells widgets on credit. The inventory conversion period is 31 days. The receivables conversion period is 23 days. The accounts payable conversion period is 28 days. What is the cash conversion period?
A - 23 days
B - 26 days
C - 54 days
D - 82 days
Answer is B
The cash conversion period is the inventory conversion period (31) plus the receivables conversion period (23) less the payable conversion period (28).
And one final thought for the upcoming week:
"Look at a day when you are supremely satisfied at the end. It's not a day when you lounge around doing nothing; it's when you've had everything to do, and you've done it."
Margaret Thatcher
Joe Hoyle
Co-Founder
CPA Review for FREE
Wednesday, March 25, 2009
Tuesday, March 10, 2009
Don't Let Those Walls Slow You Down
Don't Let Those Walls Slow You Down
From: Joe
(a) - YOU ARE INVITED. I realize that only a small percentage of our readers live here in Richmond, Virginia but I wanted to issue everyone an invitation anyway.
College campuses have had Last Lecture Programs for decades where a professor gives a talk as if it were his last chance to ever speak to the students. What would you say if you only had one final opportunity? It is an interesting question for any teacher.
These programs became especially famous about two years ago because of a wonderful speech (and subsequent book) by Dr. Randy Pausch, a brilliant professor at Carnegie-Mellon University who was dying of cancer at the time.
The University of Richmond is starting an annual Last Lecture series this spring and I was very fortunate to be chosen as its first speaker. If you do live in Richmond, the lecture is open to the public. It is at 7 p.m. on Tuesday, April 7 in the alumni center. I am not yet sure what I will talk about but I am pretty sure that I won't talk about debits and credits. Beyond that, who knows? If you have read these emails for long, you know that I am a person with lots of opinions.
Our campus is beautiful and it is even lovelier in the spring. If you are in the area, do know that you are invited.
(b) - If you have never watched Randy Pausch's speech, you really should join the 9.5 million other people who have watched it on YouTube. It is well worth your time. It is inspirational; it is energizing; it will make you feel better about life.
Just go to www.YouTube.com and search for "Randy Pausch" or "Randy Pausch last lecture." It will help you realize that you do NOT have to spend your life in despair even when times get tough.
(1) - Welcome to CPA Review for FREE. I send out these lessons about every 7-10 days to help you prepare to pass the CPA Exam. If this is your first time with us, my one and only goal is to assist you in getting the points you need to make 75 so that you can pass the CPA Exam. I firmly believe that everyone can pass the CPA Exam and do so without having to pay the outrageous costs charged by other CPA Review programs. If you are lucky enough to have unlimited money and want to give it away, those other programs will gladly take it. But, we have a database of approximately 2,000 excellent questions and answers that everyone can use to prepare for the CPA Exam.
No fees, no costs, no charges.
Just 2,000 great questions and clear answers.
But don't believe me. Be a wise shopper. Just try them for awhile. I amazed that people would hand over $2,000 without first trying a free alternative.
Go to www.CPAreviewforFREE.com. Then, start by reading the information under CPA Exam resources.
After that-go to work and start adding points. Read a question, figure out your response, and read the answer (carefully).
--You have no risk.
--You have no charges.
--You just have hundreds and hundreds of great questions and answers.
Don't you owe it to yourself and to your family to stick your $2,000 back in your pocket and try CPA Review for FREE first.
(2) - As probably everyone knows, the CPA Exam just finished the January-February testing window. The number of visitors to our website during the final four weeks of this testing window was AN AMAZING 43 PERCENT HIGHER than the final four weeks of the October-November testing window.
Honestly, what does that tell you? More and more people are catching on that paying those huge sums is just not necessary to get a passing grade on the CPA Exam.
(3) - Here are some recent emails that I received from our customers.
From Sheila: "I received my BEC score this morning and passed with a 75%! Thank you, thank you, thank you!!! Tonight I will make up my schedule and begin my review using the full approach with CPAreviewforFREE. I started this process a couple of years ago using one of the big name reviews and then another, but though they both claimed to offer support, you are the only one who really has followed through on that promise. Thanks for that as well. I will continue to sing your praises."
From Rose: "I was so happy when I received the email notification this morning that I have passed all of the CPA exam!!! It's been 9 years, from the time when I sat for the old exams, and gave up and then re-picked up and joined the (big name) CPA review course and paid my hard-earned money. Undoubtedly, the CPA review course material was good but expensive. And one day when I tried the (big name) CD, I was informed that the license was expired and I needed to pay again. I was mad since I had paid thousand dollars already. I searched for alternatives on the website and found CPAreviewforfree. I can't believe that this is such a good website with loads of questions and explanations. I made use of this website and finally passed all exams. Thank you, Joe, and I will definitely recommend this website to my friends."
(4) - As always, do remember that you can very easily unsubscribe from this email service. Just scroll to the bottom of this email lesson and click on the button marked "unsubscribe."
(5) - They are playing a lot of basketball these days. In fact, "March Madness" is just around the corner. I rarely pay attention to many games but, when I do, I am fascinated to watch the players when it comes down to the very end of a close contest. I always want to see which player is willing to take the shot that will win (or lose) the game.
That is tough. Anyone can shoot when it is early in the game and not much is on the line. It is much more difficult to come down the court with the clock ticking down 9..8..7.. and this last shot is going to make the difference in the whole game. At that point, many players prefer to pass off and let someone else take that shot. The fear of failure just gets to be overwhelming.
John Havlicek was one of the greatest basketball players ever. I remember reading that he had said that everyone wanted the ball early in the game. "Throw ME the ball!!" they would yell. However, at the very end of a close game, some of those same players would start looking the other way just so you would not throw the ball to them.
They were so afraid of failure that they refused to even try.
When it comes to the CPA Exam, I talk with a lot of people who start becoming obsessed by the chance they might fail. It is easy to start feeling scared. We can all understand how a candidate can become a bit tense. You work hard for months and every time you miss even one little question in practice, it reminds you that you are not perfect, that nothing is ever guaranteed.
The problem is that your mind can start focusing on the wrong things. You can become frozen by the chance of failure. Your mind can start to close down. Never never never think about the word "failure." Wash it out of your mind. The only thing that you should be thinking about is adding points and getting better. That is the thing that I want your brain to focus on as you prepare for the CPA Exam: adding points and getting better.
Read a question on CPAreviewforFREE, work that problem, read the answer, and then take notes if you missed the question. Getting better and adding points.
Always remember that the one thing you have control over is the work you are doing RIGHT NOW to add knowledge and gain points. It is easy to let the fear of failure slow you down. As championship athletes will always tell you:
"You miss 100 percent of the shots you never take."
The only way to ensure that you are going to be a complete failure is just to quit trying. As long as you are working, you are moving toward success.
You will always miss 100 percent of the questions that you don't attempt.
You will always miss 100 percent of the material that you don't cover.
You will always fail 100 percent of the times that you don't try.
Never think about failure. Being negative never helps anyone to get better.
(6) - Speaking of basketball, I was watching a game on Sunday afternoon and Michael Jordan was in the crowd. It seems to be the opinion of most sports people that Jordan was the greatest basketball player ever. Quite an accomplishment. We usually think about people like that as just so talented that it was inevitable that they would be good.
That is not necessarily so. Talent alone is never enough to accomplish much of anything. Effort is always more important than anything else you bring to any endeavor. I'll take effort over talent any day.
I remember hearing Jordan talk once about how he had managed to become such a great player. To me, his response could certainly apply to the CPA Exam and a whole lot of other activities rather than just to basketball.
"If you run into a wall, don't turn around and give up.
Figure out how to climb it, go through it, or work around it."
Do you turn around and give up or do you keep looking for a way to get past the problem?
It seems to me that preparing for the CPA Exam is all about running into walls and how you react to them. Give up? or work to get around them? In truth, which is the real you? When things get tough, will you quit or will you work your way around all of the various walls that impede your progress?
Things will always get tough so you need to think how you are going to respond. Are you a winner?
Whenever you start to study a new tough topic, it will always seem like you are crashing into a brick wall. It is easy to feel overwhelmed and confused. Every time you work a complicated question and get it wrong, you may feel like you've hit that wall full force once again. Each night when you are tired but still need to bear down and study for several hours, you may understand the true meaning of the term "hitting the wall."
As Michael Jordan says, every time you run into one of those walls, you have a choice: give up or figure out how to climb it, go through it, or work around it.
In many ways, you can envision your study time as a long series of walls extending across your path off into the distance as far as you can see. Some of these walls are relatively low and more of a nuisance that anything else. Others, though, are big and may test your abilities to withstand pressure. If you can work around or over or through each of these walls and never let "I quit" enter your mind, there is no reason why you cannot nail down the CPA Exam. Not one reason at all.
Here's a tip: Don't worry about passing the CPA Exam - worry about getting around the next wall that is in your path.
How will you successfully make it to the other side of the next wall that you encounter????? The answer may well determine how quickly you are going to pass the CPA Exam.
(7) - A little practice; let's add some points.
Financial Accounting and Reporting (I taught Advanced Accounting here at the University last week for a friend. This is one of the questions that we worked.)
The City of Sanborn levies an income tax. In Year One, city officials anticipate that the amount of this tax will be $350,000 and will be collected evenly over the period from January 1, Year Two to April 15, Year Two ($100,000 per month and $50,000 for the half month). City officials have a policy that any money collected within 60 days is viewed as available. How much of the revenue should be recognized at the end of Year One?
A - $200,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $200,000 in government-wide financial statements and $350,000 in fund-based financial statements
C - $350,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $350,000 in government-wide financial statements and $350,000 in fund-based financial statements
Answer is C
In state and local government accounting, an income tax (and a sales tax) are known as derived tax revenues. They are taxes on events (the earning of income or the making of a sale). A derived tax revenue is recognized when the taxed event occurs. The income here was earned in Year One so the income tax is recognized within the government-wide financial statements (which use accrual accounting) in Year One. In fund-based financial statements (for the governmental funds), modified accrual accounting is applied so that an additional standard must be met for revenue recognition. The resources must also be available quickly enough so that the money can be used to pay current obligations of Year One. The city has a policy that "available" is identified as anything received in 60 days. Thus, since $100,000 is collected each month, only the $200,000 to be collected in the first two months of Year Two is viewed as available to pay for Year One expenditures.
Auditing and Attestation
The Haynsworth CPA firm is auditing Agnestic Corporation. The auditors have come to the conclusion that certain illegal acts may have occurred during the year so that additional testing will be necessary. Which of the following is most likely to have led to this assessment?
A - The design of the company's internal control policies and procedures has not been revised in four years.
B - Related party transactions have occurred throughout the year.
C - Confirmation of accounts receivable indicates that several recorded balances appear to be understated.
D - Checks were written to "cash" during the year despite policies to the contrary.
Answer is D.
Internal control policies and procedures only need to be revised when they are no longer functioning as intended. A well-designed system might not need to be revised often. Related party transactions are common in many companies and do not, by themselves, indicate any type of illegal activities. Confirmation of receivables which show a pattern of overstatement can possibly indicate that money has been received and then stolen by company employees. However, understatements are more likely to occur because of slowness in posting new sales transactions. Checks should never be written to "cash" because documenting the use made of the money can be very difficult. Hence, checks can be written to "cash" to access money that will then be used for illegal activities.
Regulation
Ms. Polly Atkini collects $1,000 in dividends from a company located in Italy. A foreign tax of $93 was withheld on this income by the local authorities. Ms. Atkini is attempting to determine the impact of this foreign tax when she is filing her United States income tax return for this year. Which of the following is correct?
A - The foreign tax cannot be taken as either an itemized deduction or as a tax credit.
B - The foreign tax must be taken as an itemized deduction.
C - The foreign tax must be taken as a tax credit.
D - The foreign tax can be taken as either an itemized deduction or as a tax credit based on her preference.
Answer is D
The payment of a foreign income tax is one of the few items in federal income tax rules that an item can be used at either of two places. Normally, the benefit is larger if a credit is taken but the taxpayer is also allowed the option of using the amount as an itemized deduction.
BEC
The Bresson Company has recently changed the way that it handles customer service calls based on a benchmarking process. Which of the following is most likely to have taken place?
A - The company studied the methods used by its biggest competitors and found them to be superior to its own.
B - The company hired a consulting firm to smooth out the process that had been used in the past.
C - The company polled its customers to find weaknesses and then took their advice in making changes.
D - The company flowcharted all of its systems to find inherent weaknesses.
Answer is A.
The term "benchmarking" refers to a process of looking at other similar organizations to locate their best practices and then attempt to replicate them to increase its own efficiency. In effect, the company learns from the time and work that has already been carried out by the other organization.
Now is the time to start adding points. Remember, you only have one goal-to add points and get better. As long as you can stay focused on that goal, there is no reason why you cannot pass the CPA Exam in 2009.
Go Get It!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
From: Joe
(a) - YOU ARE INVITED. I realize that only a small percentage of our readers live here in Richmond, Virginia but I wanted to issue everyone an invitation anyway.
College campuses have had Last Lecture Programs for decades where a professor gives a talk as if it were his last chance to ever speak to the students. What would you say if you only had one final opportunity? It is an interesting question for any teacher.
These programs became especially famous about two years ago because of a wonderful speech (and subsequent book) by Dr. Randy Pausch, a brilliant professor at Carnegie-Mellon University who was dying of cancer at the time.
The University of Richmond is starting an annual Last Lecture series this spring and I was very fortunate to be chosen as its first speaker. If you do live in Richmond, the lecture is open to the public. It is at 7 p.m. on Tuesday, April 7 in the alumni center. I am not yet sure what I will talk about but I am pretty sure that I won't talk about debits and credits. Beyond that, who knows? If you have read these emails for long, you know that I am a person with lots of opinions.
Our campus is beautiful and it is even lovelier in the spring. If you are in the area, do know that you are invited.
(b) - If you have never watched Randy Pausch's speech, you really should join the 9.5 million other people who have watched it on YouTube. It is well worth your time. It is inspirational; it is energizing; it will make you feel better about life.
Just go to www.YouTube.com and search for "Randy Pausch" or "Randy Pausch last lecture." It will help you realize that you do NOT have to spend your life in despair even when times get tough.
(1) - Welcome to CPA Review for FREE. I send out these lessons about every 7-10 days to help you prepare to pass the CPA Exam. If this is your first time with us, my one and only goal is to assist you in getting the points you need to make 75 so that you can pass the CPA Exam. I firmly believe that everyone can pass the CPA Exam and do so without having to pay the outrageous costs charged by other CPA Review programs. If you are lucky enough to have unlimited money and want to give it away, those other programs will gladly take it. But, we have a database of approximately 2,000 excellent questions and answers that everyone can use to prepare for the CPA Exam.
No fees, no costs, no charges.
Just 2,000 great questions and clear answers.
But don't believe me. Be a wise shopper. Just try them for awhile. I amazed that people would hand over $2,000 without first trying a free alternative.
Go to www.CPAreviewforFREE.com. Then, start by reading the information under CPA Exam resources.
After that-go to work and start adding points. Read a question, figure out your response, and read the answer (carefully).
--You have no risk.
--You have no charges.
--You just have hundreds and hundreds of great questions and answers.
Don't you owe it to yourself and to your family to stick your $2,000 back in your pocket and try CPA Review for FREE first.
(2) - As probably everyone knows, the CPA Exam just finished the January-February testing window. The number of visitors to our website during the final four weeks of this testing window was AN AMAZING 43 PERCENT HIGHER than the final four weeks of the October-November testing window.
Honestly, what does that tell you? More and more people are catching on that paying those huge sums is just not necessary to get a passing grade on the CPA Exam.
(3) - Here are some recent emails that I received from our customers.
From Sheila: "I received my BEC score this morning and passed with a 75%! Thank you, thank you, thank you!!! Tonight I will make up my schedule and begin my review using the full approach with CPAreviewforFREE. I started this process a couple of years ago using one of the big name reviews and then another, but though they both claimed to offer support, you are the only one who really has followed through on that promise. Thanks for that as well. I will continue to sing your praises."
From Rose: "I was so happy when I received the email notification this morning that I have passed all of the CPA exam!!! It's been 9 years, from the time when I sat for the old exams, and gave up and then re-picked up and joined the (big name) CPA review course and paid my hard-earned money. Undoubtedly, the CPA review course material was good but expensive. And one day when I tried the (big name) CD, I was informed that the license was expired and I needed to pay again. I was mad since I had paid thousand dollars already. I searched for alternatives on the website and found CPAreviewforfree. I can't believe that this is such a good website with loads of questions and explanations. I made use of this website and finally passed all exams. Thank you, Joe, and I will definitely recommend this website to my friends."
(4) - As always, do remember that you can very easily unsubscribe from this email service. Just scroll to the bottom of this email lesson and click on the button marked "unsubscribe."
(5) - They are playing a lot of basketball these days. In fact, "March Madness" is just around the corner. I rarely pay attention to many games but, when I do, I am fascinated to watch the players when it comes down to the very end of a close contest. I always want to see which player is willing to take the shot that will win (or lose) the game.
That is tough. Anyone can shoot when it is early in the game and not much is on the line. It is much more difficult to come down the court with the clock ticking down 9..8..7.. and this last shot is going to make the difference in the whole game. At that point, many players prefer to pass off and let someone else take that shot. The fear of failure just gets to be overwhelming.
John Havlicek was one of the greatest basketball players ever. I remember reading that he had said that everyone wanted the ball early in the game. "Throw ME the ball!!" they would yell. However, at the very end of a close game, some of those same players would start looking the other way just so you would not throw the ball to them.
They were so afraid of failure that they refused to even try.
When it comes to the CPA Exam, I talk with a lot of people who start becoming obsessed by the chance they might fail. It is easy to start feeling scared. We can all understand how a candidate can become a bit tense. You work hard for months and every time you miss even one little question in practice, it reminds you that you are not perfect, that nothing is ever guaranteed.
The problem is that your mind can start focusing on the wrong things. You can become frozen by the chance of failure. Your mind can start to close down. Never never never think about the word "failure." Wash it out of your mind. The only thing that you should be thinking about is adding points and getting better. That is the thing that I want your brain to focus on as you prepare for the CPA Exam: adding points and getting better.
Read a question on CPAreviewforFREE, work that problem, read the answer, and then take notes if you missed the question. Getting better and adding points.
Always remember that the one thing you have control over is the work you are doing RIGHT NOW to add knowledge and gain points. It is easy to let the fear of failure slow you down. As championship athletes will always tell you:
"You miss 100 percent of the shots you never take."
The only way to ensure that you are going to be a complete failure is just to quit trying. As long as you are working, you are moving toward success.
You will always miss 100 percent of the questions that you don't attempt.
You will always miss 100 percent of the material that you don't cover.
You will always fail 100 percent of the times that you don't try.
Never think about failure. Being negative never helps anyone to get better.
(6) - Speaking of basketball, I was watching a game on Sunday afternoon and Michael Jordan was in the crowd. It seems to be the opinion of most sports people that Jordan was the greatest basketball player ever. Quite an accomplishment. We usually think about people like that as just so talented that it was inevitable that they would be good.
That is not necessarily so. Talent alone is never enough to accomplish much of anything. Effort is always more important than anything else you bring to any endeavor. I'll take effort over talent any day.
I remember hearing Jordan talk once about how he had managed to become such a great player. To me, his response could certainly apply to the CPA Exam and a whole lot of other activities rather than just to basketball.
"If you run into a wall, don't turn around and give up.
Figure out how to climb it, go through it, or work around it."
Do you turn around and give up or do you keep looking for a way to get past the problem?
It seems to me that preparing for the CPA Exam is all about running into walls and how you react to them. Give up? or work to get around them? In truth, which is the real you? When things get tough, will you quit or will you work your way around all of the various walls that impede your progress?
Things will always get tough so you need to think how you are going to respond. Are you a winner?
Whenever you start to study a new tough topic, it will always seem like you are crashing into a brick wall. It is easy to feel overwhelmed and confused. Every time you work a complicated question and get it wrong, you may feel like you've hit that wall full force once again. Each night when you are tired but still need to bear down and study for several hours, you may understand the true meaning of the term "hitting the wall."
As Michael Jordan says, every time you run into one of those walls, you have a choice: give up or figure out how to climb it, go through it, or work around it.
In many ways, you can envision your study time as a long series of walls extending across your path off into the distance as far as you can see. Some of these walls are relatively low and more of a nuisance that anything else. Others, though, are big and may test your abilities to withstand pressure. If you can work around or over or through each of these walls and never let "I quit" enter your mind, there is no reason why you cannot nail down the CPA Exam. Not one reason at all.
Here's a tip: Don't worry about passing the CPA Exam - worry about getting around the next wall that is in your path.
How will you successfully make it to the other side of the next wall that you encounter????? The answer may well determine how quickly you are going to pass the CPA Exam.
(7) - A little practice; let's add some points.
Financial Accounting and Reporting (I taught Advanced Accounting here at the University last week for a friend. This is one of the questions that we worked.)
The City of Sanborn levies an income tax. In Year One, city officials anticipate that the amount of this tax will be $350,000 and will be collected evenly over the period from January 1, Year Two to April 15, Year Two ($100,000 per month and $50,000 for the half month). City officials have a policy that any money collected within 60 days is viewed as available. How much of the revenue should be recognized at the end of Year One?
A - $200,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $200,000 in government-wide financial statements and $350,000 in fund-based financial statements
C - $350,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $350,000 in government-wide financial statements and $350,000 in fund-based financial statements
Answer is C
In state and local government accounting, an income tax (and a sales tax) are known as derived tax revenues. They are taxes on events (the earning of income or the making of a sale). A derived tax revenue is recognized when the taxed event occurs. The income here was earned in Year One so the income tax is recognized within the government-wide financial statements (which use accrual accounting) in Year One. In fund-based financial statements (for the governmental funds), modified accrual accounting is applied so that an additional standard must be met for revenue recognition. The resources must also be available quickly enough so that the money can be used to pay current obligations of Year One. The city has a policy that "available" is identified as anything received in 60 days. Thus, since $100,000 is collected each month, only the $200,000 to be collected in the first two months of Year Two is viewed as available to pay for Year One expenditures.
Auditing and Attestation
The Haynsworth CPA firm is auditing Agnestic Corporation. The auditors have come to the conclusion that certain illegal acts may have occurred during the year so that additional testing will be necessary. Which of the following is most likely to have led to this assessment?
A - The design of the company's internal control policies and procedures has not been revised in four years.
B - Related party transactions have occurred throughout the year.
C - Confirmation of accounts receivable indicates that several recorded balances appear to be understated.
D - Checks were written to "cash" during the year despite policies to the contrary.
Answer is D.
Internal control policies and procedures only need to be revised when they are no longer functioning as intended. A well-designed system might not need to be revised often. Related party transactions are common in many companies and do not, by themselves, indicate any type of illegal activities. Confirmation of receivables which show a pattern of overstatement can possibly indicate that money has been received and then stolen by company employees. However, understatements are more likely to occur because of slowness in posting new sales transactions. Checks should never be written to "cash" because documenting the use made of the money can be very difficult. Hence, checks can be written to "cash" to access money that will then be used for illegal activities.
Regulation
Ms. Polly Atkini collects $1,000 in dividends from a company located in Italy. A foreign tax of $93 was withheld on this income by the local authorities. Ms. Atkini is attempting to determine the impact of this foreign tax when she is filing her United States income tax return for this year. Which of the following is correct?
A - The foreign tax cannot be taken as either an itemized deduction or as a tax credit.
B - The foreign tax must be taken as an itemized deduction.
C - The foreign tax must be taken as a tax credit.
D - The foreign tax can be taken as either an itemized deduction or as a tax credit based on her preference.
Answer is D
The payment of a foreign income tax is one of the few items in federal income tax rules that an item can be used at either of two places. Normally, the benefit is larger if a credit is taken but the taxpayer is also allowed the option of using the amount as an itemized deduction.
BEC
The Bresson Company has recently changed the way that it handles customer service calls based on a benchmarking process. Which of the following is most likely to have taken place?
A - The company studied the methods used by its biggest competitors and found them to be superior to its own.
B - The company hired a consulting firm to smooth out the process that had been used in the past.
C - The company polled its customers to find weaknesses and then took their advice in making changes.
D - The company flowcharted all of its systems to find inherent weaknesses.
Answer is A.
The term "benchmarking" refers to a process of looking at other similar organizations to locate their best practices and then attempt to replicate them to increase its own efficiency. In effect, the company learns from the time and work that has already been carried out by the other organization.
Now is the time to start adding points. Remember, you only have one goal-to add points and get better. As long as you can stay focused on that goal, there is no reason why you cannot pass the CPA Exam in 2009.
Go Get It!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Monday, March 2, 2009
Make Your Knowledge Solid -- CPA Review for FREE
Filling in the Holes in Swiss Cheese Knowledge
From: Joe
(1) - It is Saturday night in Richmond, Virginia. Do you think the guys who run those great big CPA review courses and who want to charge you thousands of dollars (for pretty mediocre products) are working tonight? Are any of them trying to help YOU tonight? Do they even care if YOU pass? Think about that before you start mailing in those checks.
I have always felt that, if you really really really want to be successful, you should be willing to work when the other guy is not working. It gives you a chance to get ahead. Okay, I am going downstairs a little later tonight to watch a movie with my wife but, for right now, I'm working to help YOU pass the CPA Exam. How many other review courses can say that?
If you are only willing to work when it is easy, if you are only willing to work when it is fun, success is not necessarily your number one priority.
So, if you are planning on taking the CPA Exam in the near future, I hope you are adding a point or two tonight. You don't have to work all the time but it is nice to think: "I'm sitting here adding points when everyone else is wasting their time."
(2) - Quick story that I found funny. I was talking with one of the accounting majors at the University on Thursday. Here was her story:
"I have a friend who is a math major at another university. She has never even taken an accounting course. She doesn't know a thing about debits and credits. However, before every test that she takes, she goes online to YouTube and watches your 'Believe in Yourself' video. She claims that it gets her pumped up and ready to go do a great job on her tests. She watches it all the time."
I laughed and laughed. I don't remember which of the videos is the "Believe in Yourself" video but I was delighted to be helping a math major.
(If you go to YouTube and search for CPAreviewforFREE and you can find out which one it is.)
It is amazing how many people you can influence when you just try to help people believe in themselves. Nothing in life beats a little positive reinforcement. You always strengthen the people around you when you pat someone on the back and say "you are doing a great job; you really have a lot of great talent." Try it. Don't wait for someone else to do it. You do it. Pass it on.
(3) - I received a number of neat emails this week. Here are a few that I wanted to pass along.
From Erik: "It's been a long six months, but I've done it . I PASSED THE CPA EXAM! I logged on early this morning to check my REG score and saw a magical 89. I couldn't believe it. I want to thank you again for cpareviewforfree.com, which I used (in combination with a review book) for all four parts of the exam (98 on FAR in August, 99 on AUD in October, 92 on BEC in November, 89 on REG in January). It is a tremendous resource, and I know it helped me immensely in this accomplishment. Thanks again!"
From NA: "Thank you so much for your website!!! I just received my score for the FARS section and it was amazing! I just know that I could not have done it without your help. I used a CPA review books & CDs to organize my studying but if it wasn't for your questions I would not have had the confidence and strategies to take the exam as well as I did. This was the first section I've taken so passing it definitely gives me the encouragement I need to study for the other 3 sections. Thank you again and I am definitely recommending your website to anyone I know planning to study for the CPA."
From Donna: "Just a quick note to say Thank you for your encouragement and your free questions. I went through your questions and took my Audit test in January. I passed it, after two earlier attempts at 74 points! I enjoy reading your newsletter and respect you for writing such long newsletters."
THANKS to everyone who takes the time to write. I love reading your notes.
(4) - Always remember that you can unsubscribe at any time you wish. Just scroll down to the end of this email or any of our emails and click on the appropriate box.
And, if anyone ever asks you that all-important question: "How do you get those nifty email lessons from Joe Hoyle?" the answer is easy. You go to www.CPAreviewforFREE.com and register. In the registration process, there is a box that asks if you want to get additional materials (these email lessons). Make sure that box is checked. That's all it takes.
(5) - This semester, I teach one class of introductory accounting and two classes of intermediate accounting II. On Wednesday, in my intro class, we went over FIFO and LIFO. On that same day, in the intermediate classes, we went over capital leases (from the lessee's perspective).
We had a good day in all of the classes and, after each, the students were all smiles. Unfortunately, that can be a bad sign. The students were able to FOLLOW what we were doing in class and that led them to make the assumption that they could DO it themselves. In fact, students will often blurt out: I saw exactly what you just did (true) and I can do that myself now (maybe or maybe not). That can be a dangerous assumption in an accounting class.
So, on Friday, in the subsequent class, I brought in practice problems. I had changed a few of the words from Wednesday and some of the numbers and altered the situations slightly but the problems were not radically different than we had done a mere 48 hours before (with all smiles). This time, though, I did not lead them through the problems but rather let them go on their own. I put the students into teams of 2 or 3 and gave them the practice problems and told them that it was Friday and we could all go home when they had worked those questions successfully.
It was amazing how quickly those smiles turned into frowns. After 20 minutes, most of the students were completely lost. Some could not even get the problems started, let alone finished.
What happened? Did they all get stupid between Wednesday and Friday? Did they forget everything? Of course not.
I finally stopped the chaos and told them the following story that comes from 38 years of being a college professor.
--When you go over something, if it is well explained, it can be easy to follow. It is like following a well-worn path. That just proves that you can follow what someone else has done. It does not mean that you can do the problem yourself.
--After a topic is first covered, your knowledge is like a block of Swiss cheese. It looks solid; it looks substantial. However, it is full of holes. And, at first, those holes are gigantic. Any person who knows how to write a good test question can find those holes very easily.
--So, on Wednesday, the students thought they had solid knowledge but I needed for them to understand there were still a lot of holes in that knowledge. I needed for them to keep working rather than sit around congratulating themselves.
--Of course, my point was that every time they worked a problem, especially a slightly different problem, those holes begin to get smaller. If they keep practicing, quite quickly that Swiss cheese knowledge becomes completely solid. Every question they work helps to fill in a hole. It is not enough to follow an explanation; you have to know that you can do the problem yourself.
Unfortunately, college students have a tendency to quit too soon. They often move on before they get all the holes filled in. They then come to a test and the questions are written to find the holes. The students then come to my office, often in tears, with the following story: "I knew that material until I got to the test." I don't want to be mean but the truth is:
---their knowledge looked solid but really did have holes.
---I wrote questions that exposed those holes.
---If they had just worked more problems in advance, those holes would have gone away.
That is exactly why I wanted www.CPAreviewforFREE.com to have thousands of questions and answers. I firmly believe this is the best way to fill in the holes in your knowledge. Work problem and read the answers. Work problems and read the answers.
You can pass this exam. You can get the 75 points you need. But you cannot quit your study until you have knowledge without any serious holes. And, the only way to do that is keep working questions and keep reading those answers and keep taking 10 word notes on the ones you missed. That will do it.
Don't fool yourself. Don't walk into the testing center with Swiss cheese knowledge that has a whole lot of holes. If you seriously want to pass, you have to put in the hours of practice that are necessary to gain the knowledge that will eliminate the holes in your knowledge. Then, when you take the CPA Exam, it is NOT a question of luck. No matter what questions you get, you will be able to answer enough to get that magic grade of 75.
(6) - Time for some practice.
Financial Accounting and Reporting-it seems only fair that I give you a version of the question that I asked my intermediate accounting II students yesterday. With practice, they can get it and so can you.
On January 1, Year One, the Hermione Company leases a machine for $14,000 per year for five years with the first payment made immediately. The asset has an expected life of six years. At the end of five years, Hermione can buy the machine for $5,000 which is viewed as a bargain. The lessor's implicit interest rate (which is known by Hermione) is 10 percent per year. Hermione's own incremental borrowing rate is 6 percent. The present value of $1 in five years at 6 percent is .75 and at 10 percent is .62. The present value of an ordinary annuity of $1 for five years at 6 percent is 4.21 and at 10 percent is 3.79. The present value of an annuity due of $1 for five years at 6 percent is 4.47 and at 10 percent is 4.17. How much expense should Hermione recognize in Year One?
A-$14,000
B-$14,195
C-$15,035
D-$16,406
Answer is B
Because of the bargain purchase option, this a capital lease and the cash flows are recorded at present value. The incremental borrowing rate of 6 percent is used because it is lower than the implicit rate. The first payment is made immediately so the $14,000 payments represent an annuity due. The $5,000 purchase option is a single amount at the end of the fifth year. Present value is $14,000 times 4.47 or $62,580 plus $5,000 times .75 or $3,750 for a total present value of $66,330. Because of the bargain purchase option, depreciation each year will be $11,055 ($66,330/6 years). The lessee expects to use the asset for its entire life. The initial liability is $66,330 but that amount is reduced immediately by the first $14,000 payment to $52,330. When multiplied by the 6 percent annual rate, interest expense of $3,140 is reported for Year One. Total expense is $11,055 (depreciation) plus $3,140 (interest) for a total of $14,195.
Regulation
The Weasley Company had sales in Year One of $500,000 plus dividend income from other domestic corporations of $100,000. The company had ordinary and necessary business expenses of $400,000. All dividends came from companies in which Weasley held 8 percent ownership. The company also made charitable contributions of $40,000 during the year. What is its taxable income?
A-$90,000
B-$100,000
C-$110,000
D-$117,000
Answer is C
The company's operating income is $200,000 ($500,000 plus $100,000 less $400,000). However, the company also gets a deduction for charitable contributions even though it is not an ordinary and necessary business expense. The amount of that deduction in any one year is limited to 10 percent of this operating income figure or $20,000 in this problem (10 percent of $200,000). In addition, because Weasley holds ownership of less than 20 percent of the domestic companies paying dividends, a 70 percent dividends received deduction is available or $70,000. Thus, taxable income is $500,000 plus $100,000 less $400,000 less $20,000 less $70,000 or $110,000.
Auditing and Attestation
A CPA is performing an audit examination of Malfoy, Inc. The CPA has already done the work necessary to gain a general understanding of the company's internal control. The CPA is now looking at the internal control policies and procedures within the accounting system for accounts receivable. The CPA has decided to perform a test of controls in this area. Which is the following is least likely to be true?
A-The system contains an excess number of possible problems so that testing is required.
B-The system appears to be well designed.
C-The CPA hopes to reduce the amount of substantive testing to be necessary.
D-The CPA hopes to reduce overall audit time.
Answer is A
Once a general understanding of internal control has been obtained, the auditor only needs to test specific controls if it is efficient to do so. If the system is well designed, testing specific controls to verify their efficiency can lead to a reduction in the assessed level of control risk. Hopefully, the amount of substantive testing can then be reduced because the desired level of detection risk does not need to be so low. This decrease in substantive testing can lead, possibly, to an overall reduction in the time and cost of performing the audit. If the internal control appears to be weak, no benefit is gained by testing those controls further. It is not likely that the weaknesses can be overcome.
BEC
The Snape Corporation plans to raise $1 million for operating purposes by either issuing a number of bonds to the public or by issuing shares of common stock. Which of the following is not an advantage of issuing the bonds?
A-It is possible for owners to have an increase in profits without making any additional investment.
B-There is less risk associated with the bonds.
C-The cost of bonds is lowered because the resulting interest is deductible for tax purposes.
D-If inflation results between the date of issuance and the maturity date, the money paid back is worth less than the money originally received.
Answer is B
All debt raises the risk of company bankruptcy. If a cash flow problem arises and debts cannot be paid as they come due, the possibility of bankruptcy is always a possibility. However, debts do have advantages. If the company can use the money to increase income by more than the cost of the interest, this leveraging increases net income without any additional funds from the owners. Furthermore, interest expense is tax deductible so that its cost is reduced significantly (whereas dividend payouts are not tax deductible). Finally, if inflation takes place (which is common), the dollars that are eventually used to repay the bonds are worth less than the ones that were received on the day of issuance-a financial benefit.
Have a great week.
Believe in yourself (it really helps).
And
Go out there and help others to believe in themselves.
Joe Hoyle
Co-Founder
CPA Review for FREE
From: Joe
(1) - It is Saturday night in Richmond, Virginia. Do you think the guys who run those great big CPA review courses and who want to charge you thousands of dollars (for pretty mediocre products) are working tonight? Are any of them trying to help YOU tonight? Do they even care if YOU pass? Think about that before you start mailing in those checks.
I have always felt that, if you really really really want to be successful, you should be willing to work when the other guy is not working. It gives you a chance to get ahead. Okay, I am going downstairs a little later tonight to watch a movie with my wife but, for right now, I'm working to help YOU pass the CPA Exam. How many other review courses can say that?
If you are only willing to work when it is easy, if you are only willing to work when it is fun, success is not necessarily your number one priority.
So, if you are planning on taking the CPA Exam in the near future, I hope you are adding a point or two tonight. You don't have to work all the time but it is nice to think: "I'm sitting here adding points when everyone else is wasting their time."
(2) - Quick story that I found funny. I was talking with one of the accounting majors at the University on Thursday. Here was her story:
"I have a friend who is a math major at another university. She has never even taken an accounting course. She doesn't know a thing about debits and credits. However, before every test that she takes, she goes online to YouTube and watches your 'Believe in Yourself' video. She claims that it gets her pumped up and ready to go do a great job on her tests. She watches it all the time."
I laughed and laughed. I don't remember which of the videos is the "Believe in Yourself" video but I was delighted to be helping a math major.
(If you go to YouTube and search for CPAreviewforFREE and you can find out which one it is.)
It is amazing how many people you can influence when you just try to help people believe in themselves. Nothing in life beats a little positive reinforcement. You always strengthen the people around you when you pat someone on the back and say "you are doing a great job; you really have a lot of great talent." Try it. Don't wait for someone else to do it. You do it. Pass it on.
(3) - I received a number of neat emails this week. Here are a few that I wanted to pass along.
From Erik: "It's been a long six months, but I've done it . I PASSED THE CPA EXAM! I logged on early this morning to check my REG score and saw a magical 89. I couldn't believe it. I want to thank you again for cpareviewforfree.com, which I used (in combination with a review book) for all four parts of the exam (98 on FAR in August, 99 on AUD in October, 92 on BEC in November, 89 on REG in January). It is a tremendous resource, and I know it helped me immensely in this accomplishment. Thanks again!"
From NA: "Thank you so much for your website!!! I just received my score for the FARS section and it was amazing! I just know that I could not have done it without your help. I used a CPA review books & CDs to organize my studying but if it wasn't for your questions I would not have had the confidence and strategies to take the exam as well as I did. This was the first section I've taken so passing it definitely gives me the encouragement I need to study for the other 3 sections. Thank you again and I am definitely recommending your website to anyone I know planning to study for the CPA."
From Donna: "Just a quick note to say Thank you for your encouragement and your free questions. I went through your questions and took my Audit test in January. I passed it, after two earlier attempts at 74 points! I enjoy reading your newsletter and respect you for writing such long newsletters."
THANKS to everyone who takes the time to write. I love reading your notes.
(4) - Always remember that you can unsubscribe at any time you wish. Just scroll down to the end of this email or any of our emails and click on the appropriate box.
And, if anyone ever asks you that all-important question: "How do you get those nifty email lessons from Joe Hoyle?" the answer is easy. You go to www.CPAreviewforFREE.com and register. In the registration process, there is a box that asks if you want to get additional materials (these email lessons). Make sure that box is checked. That's all it takes.
(5) - This semester, I teach one class of introductory accounting and two classes of intermediate accounting II. On Wednesday, in my intro class, we went over FIFO and LIFO. On that same day, in the intermediate classes, we went over capital leases (from the lessee's perspective).
We had a good day in all of the classes and, after each, the students were all smiles. Unfortunately, that can be a bad sign. The students were able to FOLLOW what we were doing in class and that led them to make the assumption that they could DO it themselves. In fact, students will often blurt out: I saw exactly what you just did (true) and I can do that myself now (maybe or maybe not). That can be a dangerous assumption in an accounting class.
So, on Friday, in the subsequent class, I brought in practice problems. I had changed a few of the words from Wednesday and some of the numbers and altered the situations slightly but the problems were not radically different than we had done a mere 48 hours before (with all smiles). This time, though, I did not lead them through the problems but rather let them go on their own. I put the students into teams of 2 or 3 and gave them the practice problems and told them that it was Friday and we could all go home when they had worked those questions successfully.
It was amazing how quickly those smiles turned into frowns. After 20 minutes, most of the students were completely lost. Some could not even get the problems started, let alone finished.
What happened? Did they all get stupid between Wednesday and Friday? Did they forget everything? Of course not.
I finally stopped the chaos and told them the following story that comes from 38 years of being a college professor.
--When you go over something, if it is well explained, it can be easy to follow. It is like following a well-worn path. That just proves that you can follow what someone else has done. It does not mean that you can do the problem yourself.
--After a topic is first covered, your knowledge is like a block of Swiss cheese. It looks solid; it looks substantial. However, it is full of holes. And, at first, those holes are gigantic. Any person who knows how to write a good test question can find those holes very easily.
--So, on Wednesday, the students thought they had solid knowledge but I needed for them to understand there were still a lot of holes in that knowledge. I needed for them to keep working rather than sit around congratulating themselves.
--Of course, my point was that every time they worked a problem, especially a slightly different problem, those holes begin to get smaller. If they keep practicing, quite quickly that Swiss cheese knowledge becomes completely solid. Every question they work helps to fill in a hole. It is not enough to follow an explanation; you have to know that you can do the problem yourself.
Unfortunately, college students have a tendency to quit too soon. They often move on before they get all the holes filled in. They then come to a test and the questions are written to find the holes. The students then come to my office, often in tears, with the following story: "I knew that material until I got to the test." I don't want to be mean but the truth is:
---their knowledge looked solid but really did have holes.
---I wrote questions that exposed those holes.
---If they had just worked more problems in advance, those holes would have gone away.
That is exactly why I wanted www.CPAreviewforFREE.com to have thousands of questions and answers. I firmly believe this is the best way to fill in the holes in your knowledge. Work problem and read the answers. Work problems and read the answers.
You can pass this exam. You can get the 75 points you need. But you cannot quit your study until you have knowledge without any serious holes. And, the only way to do that is keep working questions and keep reading those answers and keep taking 10 word notes on the ones you missed. That will do it.
Don't fool yourself. Don't walk into the testing center with Swiss cheese knowledge that has a whole lot of holes. If you seriously want to pass, you have to put in the hours of practice that are necessary to gain the knowledge that will eliminate the holes in your knowledge. Then, when you take the CPA Exam, it is NOT a question of luck. No matter what questions you get, you will be able to answer enough to get that magic grade of 75.
(6) - Time for some practice.
Financial Accounting and Reporting-it seems only fair that I give you a version of the question that I asked my intermediate accounting II students yesterday. With practice, they can get it and so can you.
On January 1, Year One, the Hermione Company leases a machine for $14,000 per year for five years with the first payment made immediately. The asset has an expected life of six years. At the end of five years, Hermione can buy the machine for $5,000 which is viewed as a bargain. The lessor's implicit interest rate (which is known by Hermione) is 10 percent per year. Hermione's own incremental borrowing rate is 6 percent. The present value of $1 in five years at 6 percent is .75 and at 10 percent is .62. The present value of an ordinary annuity of $1 for five years at 6 percent is 4.21 and at 10 percent is 3.79. The present value of an annuity due of $1 for five years at 6 percent is 4.47 and at 10 percent is 4.17. How much expense should Hermione recognize in Year One?
A-$14,000
B-$14,195
C-$15,035
D-$16,406
Answer is B
Because of the bargain purchase option, this a capital lease and the cash flows are recorded at present value. The incremental borrowing rate of 6 percent is used because it is lower than the implicit rate. The first payment is made immediately so the $14,000 payments represent an annuity due. The $5,000 purchase option is a single amount at the end of the fifth year. Present value is $14,000 times 4.47 or $62,580 plus $5,000 times .75 or $3,750 for a total present value of $66,330. Because of the bargain purchase option, depreciation each year will be $11,055 ($66,330/6 years). The lessee expects to use the asset for its entire life. The initial liability is $66,330 but that amount is reduced immediately by the first $14,000 payment to $52,330. When multiplied by the 6 percent annual rate, interest expense of $3,140 is reported for Year One. Total expense is $11,055 (depreciation) plus $3,140 (interest) for a total of $14,195.
Regulation
The Weasley Company had sales in Year One of $500,000 plus dividend income from other domestic corporations of $100,000. The company had ordinary and necessary business expenses of $400,000. All dividends came from companies in which Weasley held 8 percent ownership. The company also made charitable contributions of $40,000 during the year. What is its taxable income?
A-$90,000
B-$100,000
C-$110,000
D-$117,000
Answer is C
The company's operating income is $200,000 ($500,000 plus $100,000 less $400,000). However, the company also gets a deduction for charitable contributions even though it is not an ordinary and necessary business expense. The amount of that deduction in any one year is limited to 10 percent of this operating income figure or $20,000 in this problem (10 percent of $200,000). In addition, because Weasley holds ownership of less than 20 percent of the domestic companies paying dividends, a 70 percent dividends received deduction is available or $70,000. Thus, taxable income is $500,000 plus $100,000 less $400,000 less $20,000 less $70,000 or $110,000.
Auditing and Attestation
A CPA is performing an audit examination of Malfoy, Inc. The CPA has already done the work necessary to gain a general understanding of the company's internal control. The CPA is now looking at the internal control policies and procedures within the accounting system for accounts receivable. The CPA has decided to perform a test of controls in this area. Which is the following is least likely to be true?
A-The system contains an excess number of possible problems so that testing is required.
B-The system appears to be well designed.
C-The CPA hopes to reduce the amount of substantive testing to be necessary.
D-The CPA hopes to reduce overall audit time.
Answer is A
Once a general understanding of internal control has been obtained, the auditor only needs to test specific controls if it is efficient to do so. If the system is well designed, testing specific controls to verify their efficiency can lead to a reduction in the assessed level of control risk. Hopefully, the amount of substantive testing can then be reduced because the desired level of detection risk does not need to be so low. This decrease in substantive testing can lead, possibly, to an overall reduction in the time and cost of performing the audit. If the internal control appears to be weak, no benefit is gained by testing those controls further. It is not likely that the weaknesses can be overcome.
BEC
The Snape Corporation plans to raise $1 million for operating purposes by either issuing a number of bonds to the public or by issuing shares of common stock. Which of the following is not an advantage of issuing the bonds?
A-It is possible for owners to have an increase in profits without making any additional investment.
B-There is less risk associated with the bonds.
C-The cost of bonds is lowered because the resulting interest is deductible for tax purposes.
D-If inflation results between the date of issuance and the maturity date, the money paid back is worth less than the money originally received.
Answer is B
All debt raises the risk of company bankruptcy. If a cash flow problem arises and debts cannot be paid as they come due, the possibility of bankruptcy is always a possibility. However, debts do have advantages. If the company can use the money to increase income by more than the cost of the interest, this leveraging increases net income without any additional funds from the owners. Furthermore, interest expense is tax deductible so that its cost is reduced significantly (whereas dividend payouts are not tax deductible). Finally, if inflation takes place (which is common), the dollars that are eventually used to repay the bonds are worth less than the ones that were received on the day of issuance-a financial benefit.
Have a great week.
Believe in yourself (it really helps).
And
Go out there and help others to believe in themselves.
Joe Hoyle
Co-Founder
CPA Review for FREE
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