How Hard Are You Working

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How Hard Are You Working

Lesson 29


From: Joe


(1) - Last week we had more visitors to our website than in any previous week in our history. Thanks so much to everyone who has recommended us. Without your help, we simply would not exist.


(2) - If you know anyone who wants to receive these free weekly email lessons, send their email address to Jhoyle@cpareviewforfree.com. We cannot add them automatically but we will send them a confirmation note that will allow them to subscribe if they wish.


(3) - Last week was a wonderful one for getting emails here at www.CPAreviewforFREE.com. Here are just a couple of the ones that I have received in the last four or five days.

From SL: "I just wanted to send you a quick 'thank you' note for your exceptional website. Prior to finding CPA Review For Free, I had failed Regulation twice, first with a 74 and then with a 72. I was using the (big name) courses in my preparation, . . . There was just something missing on REG. I felt prepared going in, and spent many hours viewing lectures, taking notes, rewriting notes, etc. The Multiple Choice practice left something to be desired, because each time I went in, I was caught off-guard by the types of questions they would ask.

"After finding out that I had failed REG the second time, I searched the Internet for alternative courses for preparation. I knew that tax was my weakest area, probably in the entire CPA Exam. I had avoided tax classes in undergrad as much as possible, and have exclusively worked on the audit side since joining a public firm. Once I found your website and signed up, I was struck by the variety of questions you provided for tax, and their similarity to those I had seen on the actual exam, not only in topical nature, but the form, the length, the types of possible answers, etc. I felt like I was actually practicing questions I would expect to find the next time I sat.

"I used CPA Review For Free along with re-reviewing my other materials this last time (January 2009). I answered all of the REG questions, and re-worked the sections that were difficult for me. Low and behold, your website must have over-prepared me - I received a 77 on REG and I have completed the CPA Exam! My only regret is that I did not know about your site until after I had started with the other program. Not only do I believe I would have been well-prepared for the tests, I would also be about $2,000 richer. Again, thank you for the services that your website provides. I have been passing along the website to any of my friends and staff people who are working on their CPA."


From GS: "Your insight and encouragement has helped to put the exam process into perspective. Understanding the nature of the exam's process is critical to passing. You brought to light the process by comparing the exam to a river that reaches a mile wide and an inch deep, that really makes perfect sense to me. Previously, I had a strong desire to drill down on every topic, curse at myself when a practice MC question was answered incorrectly, and fret over small details, all of which had contributed to failing exam sections.

"I understand that this testing process requires general knowledge of subject matter and only a grade of 75% to pass.
As a result of your insight and encouragement, this candidate has passed two sections, taken another section and can calmly approach the final section knowing that it too will be passed. I owe you a great deal and thank you for your FREE insight, and I hope to repay you somehow."


From EB: "First of all, let me say how much I appreciate the service that you are offering. I not only appreciate the review questions available on your website, I also want to thank you for the comments and the encouragement in your blog postings. I started pursuing a second degree in accountancy in 1999 and next month, after 10 years of classes, one class each semester, I will complete the coursework required to receive my bachelor's degree in accountancy. I will be 54 years old when I complete the class work and my goal is to pass the CPA exam during the year that I turn 55.

"I think that your comments are so worthwhile that I pass them along to my children. I hope I didn't violate any copyright laws when I cut and pasted your article about the Steve Martin book that you were reading into an e-mail to my children. "Perseverance is a great substitute for talent." What a great quote.

"And now for my request. You stated in your December 26th blog that you would pass on to anyone who requested it your 30 question final exam for your introductory financial accounting course. If that offer still stands, I would appreciate receiving the exam (and of course, the answers for it.) Once again, thanks so much for the service that you offer."


(4) - Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree

These are good folks and we are delighted to offer their products at this discount.


(5) - I have a few quotes that are really my all-time favorites. No matter how often that I hear them, they make me stop and do a few moments of real reflection. About 2 years ago, I was reading an article in Fortune magazine on what it takes to be great. This always intrigues me. Why is Tiger Woods such a great golfer? Why do certain basketball coaches always seem to win?

There was a quote in this article that I probably think about 3-4 times per week.

From: "What It Takes To Be Great," Fortune, October 30, 2006: "People learn quickly at first, then more slowly, and then stop developing completely. Yet a few do improve for years and even decades, and go on to greatness."

In many things in life, this is exactly what happens. People get excited and enthusiastic and start off any new task very well. They learn how things are done and they get better at them. They improve. But, all too often, they begin to slow down. The interest is not quite so intense. The ability to make sacrifices becomes more difficult. Finding time to do the necessary details becomes harder. Pretty soon, the things that were going so well become a bit more sloppy. The task at hand is no longer the number one priority.

And, eventually, most people simply stop improving. They kind of adopt the attitude: "this is the best I'm ever going to be; I might as well get used to it." Mediocrity sets in and that feeling just blankets everything that is done.

However, that doesn't always happen. Some people get a feeling of true excitement when they see themselves improving. That excitement provides fuel for the fire and they are actually able to work harder. I sometimes say "they smell the blood in the water and it spurs them forward."

CPA Review is a long process. Under the best of conditions, it takes months.

Most people, when they first begin the process, are intrigued by the possibility of getting those three letters after their name. They will set aside time every day or two for serious study. And, then they will make sure that time is spent wisely.

That initial euphoria lasts for a week or two or maybe even a bit longer. But it usually does fade. At some point, every candidate takes a step back with the realization "this is not fun; this is really work."

It is at that point that many people pass or fail the CPA Exam. It is not even about going to a Prometric Center. It is about what you do when preparing for the exam becomes more like work and less like fun.

Most people do not just quit. That is actually kind of rare. First, they begin to slow down. Instead of studying for 2 hours, they study for 45 minutes. Instead of studying 4-5 days per week, they study for 1-2 hours per week. Instead of studying in a quiet room, they have on television and their iPod. It is almost like they have given up shooting for 75 but now they are trying for 63.

However, obviously, other folks are not intimidated by the CPA Exam and the preparation that is needed. Yes, they still take breaks and, yes, they do not study every day. But that has never been necessary.

Instead, even when it becomes real work,
--the CPA Exam continues to be a serious priority in their lives.
--they make time for the CPA Exam on a regular schedule.
--when they start studying, that becomes their central focus. They don't let themselves get distracted.

You can be great and you can pass the CPA Exam. I am convinced of that. But you have to have the self-discipline that is needed when the task of preparation goes from being fun to that of being a real job. Every one of you can be great as long as you do not get stuck in being mediocre.


(6)-You are always able to unsubscribe from this service without problem. Just scroll to the bottom of this (or any other) email lessons and click on the Unsubscribe button. We are always glad to have you with us. However, it is your life and your time and if you are ready for the lessons to stop just follow those directions.


(7)-Ah, they are playing basketball this week-end in the Final Four. I must say something about that. Two of the best college players in the United States are Tyler Hansbrough (North Carolina) and Blake Griffin (Oklahoma). They are both so talented that it is just fun to watch them play. In fact, I almost never watch a basketball game that I do not wonder what it must feel like to have so much talent.

I was listening to the radio last Sunday and they were interviewing one of the coaches (I believe it was Oklahoma's coach) and he was talking about these two players and he had a very revealing quote that went something like: "what makes these guys so great is that they simply outwork everyone else."

No mention of talent. No mention of height.

They simply outwork everyone else.

Let's assume we took you and 99 other CPA candidates and, somehow, we ranked each of these people on how hard they are working to pass the CPA Exam. That is a quality where anyone can be ranked number one if they have the necessary desire and self-discipline. It is not based on IQ, it is not based on the college you went to, it is not based on how much money you have, it is not based on who your parents are.

If we were to rank 100 CPA candidates based on how hard they are working
WHERE WOULD YOU RANK??

I think that is a very valid question. Would you be number 25? Or, would you be 67? Or, maybe you would be number 4? Or, maybe you would be 94?

Okay, I will be honest with you. You don't have to be in the top 10 or even the top 20 to pass the CPA Exam. That is certainly not required. But, if I were taking the CPA Exam, I really would want to be in the top 30 or top 35. And, there is absolutely, positively no reason why you could not be in the top 35 percent of the people taking the CPA Exam when it comes to hard work. That just requires self-discipline, organization, desire, and focus. Something everyone is capable of having.

That is not a bad experiment. Look back on the past week and think of all of the people studying for the CPA Exam throughout the US and around the world. If it came down just to hard work, where would you rank? Be honest. There is no reason to fool yourself. Where would you rank? Would you be in the top 30-35 percent? If not, what would it take to get there? Are you willing to do that?


(8) - Here are a few practice questions - try to add a point. That should always be your goal: "I want to get one point better."


Regulation

A company issues 100,000 shares of common stock and 10,000 shares of preferred stock with a $2 cumulative dividend. In the first year, no dividends are paid or declared. Which of the following statements are true?

A - The company should report a $20,000 liability on its year-end balance sheet.
B - All dividends in arrears on the preferred stock must be paid before any dividends can be paid on common stock.
C - The preferred stockholders are guaranteed to receive this $20,000 at some point in the future.
D - By not paying the cumulative dividend, the company will be forced into bankruptcy within 90 days of the beginning of the new year.

Answer is B.

A cumulative preferred stock simply means that all dividends on the preferred stock must be paid as required before any dividends can be distributed to the owners of the common stock. The company is not obligated in any other way. There is no guarantee nor liability and failure to pay will not automatically lead to bankruptcy. However, if the board of directors ever formally declares these dividends, the liability must be reported.


Financial Accounting

A company has a red asset that it bought for $80,000 and has now depreciated down to a book value of $33,000. However, the asset has a fair value of $40,000. This asset is traded for a green asset that also is worth $40,000. The two assets are expected to generate the same future cash flows in terms of amounts, timing, and risk. Therefore, the trade is viewed as having no economic or commercial substance. In recording the trade, which of the following statements is true?

A - New asset is recorded at $33,000 and a $7,000 gain is reported.
B - New asset is recorded at $33,000 and no gain is reported.
C - New asset is recorded at $40,000 and a $7,000 gain is reported.
D - New asset is recorded at $40,000 and no gain is reported.

Answer is B.

The answer to any normal trade would be C. The new asset is recorded at the fair value of the asset given up and any difference between its book value and fair value is recorded as a gain or loss. However, there is one exception and this question looks at that exception. If there is no economic or commercial substance to a trade, then the assumption is that the trade was made solely in order to record a gain. If there is no commercial substance, there is no possible reason for having made the trade. That condition arises where the cash flows (in amount, timing, and risk) are not affected in any way by the trade. In that one situation, book value is retained and no income effect is recorded.


Business Environment and Concepts

A company produces a product in a long-series of automated steps that requires little direct material and direct labor but a lot of overhead. What costing system is the company most likely to use?

A - Job-order costing
B - Process costing
C - Activity-based costing
D - Just-in-time costing

Answer is C

In this situation, a company might use job-order costing or process costing. There is not enough information to tell if products are unique (where job-order costing is appropriate) or mass produced (where process costing is appropriate). However, in connection with either of these approaches, the company is likely to apply activity-based costing because there are many steps in the process and overhead is a significant cost. Activity-based costing breaks the process down into individual activities and determines a specific overhead cost driver for each of these activities. In that way, the costing is designed specifically for the process in use. Overhead for one activity might be applied based on machine hours if that is appropriate to the activity whereas overhead for another activity might be applied based on direct labor cost if that is appropriate.


Auditing and Attestation

A CPA is doing a compilation of financial statements for a client. Which of the following is most likely to be done by the CPA?

A - The physical inventory taken by the client must be observed by the CPA.
B - At least a few of company's accounts receivable must be confirmed by the CPA.
C - Analytical procedures must be carried out after all other work is performed.
D - The statements should be read for any obvious mistakes.

Answer is D.

A compilation means that client information is taken and put into the form of financial statements. There are no audit procedures performed and no assurance of any type is given. However, the CPA is required, at a minimum, to read the statements and make sure that no obvious errors are present. For example, if land is listed as a current asset, or if retained earnings is listed as a liability, the CPA does have to check that out because they both seem obviously incorrect.


And, finally, just a reminder for those of you who live near Richmond:

The University of Richmond is pleased to announce Joe Hoyle as the University's first "Last Lecturer." Professor Hoyle is an associate professor of accounting in the Robins School of Business. He has taught at the University of Richmond since 1979 and is a distinguished educator, receiving numerous awards and honors. Students nominated over seventy professors during the week of February 9th. Please join us on Tuesday, April 7th, 2009 at 7 p.m. in the Jepson Alumni Center to listen to Professor Hoyle's "Last Lecture." This event is part of the newly created Last Lecture Series at the University of Richmond in which students nominate professors they would like to hear deliver a speech based on the question "If you were to address students at the University of Richmond for the last time, what would you say?" Professor Hoyle's "Last Lecture" is free and open to the public.