Lesson 35
From: Joe
(1) - Request-I'm giving a speech next month to a large group of juniors in college who are majoring in accounting. The speech is about the CPA Exam and what they should know. So, I am trying to figure out what I should tell them. Many of them have not even had a tax or an auditing course yet. However, they have already heard a lot about the CPA Exam and I want to help them put all of that into context so they are headed in the right direction.
There are so many rumors and myths about the CPA Exam that I want to give them good, truthful information. I often say that the CPA Exam is made to seem like a terrible old haunted house. Everyone tells you that it is something frightening and scary and that you need to be very afraid. Such nonsense.
What would you suggest that I tell them? Send me an email at Jhoyle@cpareviewforfree.com and let me know. Just a sentence or two or three. What would you have liked for someone to have told you about the CPA Exam when you were a junior in college?
What I hope to do is type up the responses ("I got all of these from the readers of my email lessons - they are taking the CPA Exam right now so their advice is probably worth hearing.") and hand them out at the session. It'll will give you a chance to help someone else-never a bad goal.
No need to include your name but it would be nice if you would include your location.
(2) - It is the very end of the April-May testing window and I know that a lot of you are gearing up to take an exam here at the end of this window. So, here are a few last minute suggestions.
---As I have said often in these email lessons, think seriously about your time management. How long do you have and how are you going to allocate that time? Here is something I want you to write down and remember: in the last day or two, you can probably only add 1 or 2 more points to your score but you can easily lose 10 points by managing your time wrong on the exam. Not thinking about how to allocate your time is just plain dumb.
---If you have not taken the exam before, go to www.cpa-exam.org and look at the tutorial and sample tests. The more you feel comfortable with what you are going to see, the better off you are.
--Make sure to read everything carefully that they send to you about the test and what you can bring with you and do. You absolutely do not want to get there and find that you have left something essential at home.
--Keep in mind that if you have spent a decent amount of time studying, you probably know enough to pass. The key is getting it out of your brain during the test. Stay calm and stay confident. Don't let yourself get flustered.
--You only want to pass. Don't spend too long on any one question. Once you have looked at it for awhile, eliminate all the answers you can and take a guess. You have to keep moving.
--Remember that the communications questions are graded based on the use of the English language. Make sure it is on topic but, after that, don't worry too much about getting it exactly correct. Use small words in small and simple sentences.
--Realize that everyone gets tired and careless as the time passes. Don't let yourself start thinking "tired." You want to get as many of the questions right at the end as you did at the beginning of the test. That alone can add a lot of points to your score.
(3) - Random Information:
---As we always announce, you can unsubscribe from these email lessons by scrolling to the bottom and clicking on the link. Stay with us as long as you are getting benefit but, after that, feel free to unsubscribe.
---Our number of visitors hit YET ANOTHER all time high last week as the number went up 4.1 percent from the previous record.
---Don't forget that all of our questions and answers are free at www.CPAreviewforFREE.com. In addition, if you wish, you can pay a small fee and download the questions so that you can take them with you and study every chance that you get. Just go to the site and click on "Store" in the upper right hand corner.
---I got the following message from one of our readers recently. This email points up an entirely different way that www.CPAreviewforFREE.com can be used: by college students. My own students use the site in this way and I'm glad to see that it is catching on.
"I have advocated your site within my classes at school and have certainly come up against some skeptics (nothing worth anything is free) but there are still those coming around. I hope to send more and more to the site to learn and study as much as they can.
"I am proud to say that anything is possible including the dreaded CPA Exam... I just got my results back from a comprehensive final in Accounting and I had the only !100! in the class. You never expect a perfect score on a comprehensive exam, but with diligence and hard work it is still possible...
"While I realize a single college accounting course does not hold the merit the CPA exam does - I challenge others to knock out a perfect score! I'm not trying to brag just trying to motivate... when you work hard, results will come!
"Thanks for the site and the emails that keep coming...!"
(4) - I was in New York City for Memorial Day. We decided to go to Ellis Island. Seemed like a very appropriate thing to be doing. After you buy your ticket for the ferry, you have to stand in line in Battery Park for about an hour. It was a pleasant day and we chatted and had fun. While we were in line, we passed by a number of street vendors. One was selling posters (the Statue of Liberty and John Lennon in a New York City shirt). However, one poster caught my attention.
This poster shows a little kitten staring into a mirror. But what the kitten was seeing in the reflection was a fierce lion. The caption under the picture said:
What really matters
Is how you look at yourself
I was struck by how true that saying is. How do you see yourself?
---I'm a person preparing to pass the CPA Exam.
---I'm a person who has signed up for the CPA Exam but it is not going well.
---I'm a person who manages to study 90 minutes most evenings.
---I'm a person who just can't seem to find the time to study.
---I'm a person who learns from my mistakes.
---I'm a person who just seems to make the same mistakes over and over.
---I'm a person who is working to cut down on my careless errors.
---I'm a person who always makes the dumbest mistakes.
Tell me, truthfully, haven't you heard people say virtually all of these at one time or another. And, don't they send completely different messages. 1, 3, 5, 7 say "I'm getting there. I am going to keep pushing until I make it. I'm taking responsibility for myself and my success." 2, 4, 6, 8 all say "I have no real control over my life. Everything is out of my hands. Things happen to me and I have no power to take control."
What really matters
Is how you look at yourself
Do an experiment. Start listening to what you say about yourself. Are you challenging yourself to get better? Or, are you accepting the idea that you have no way to get any better?
I honestly think that is one of the most important determinations that you can make in life. Not just about the CPA Exam but about everything. Oh, sure, we are never going to be in complete control of everything. That is impossible. But we are not destined to fail. I just cannot believe that. There has to be the ability to take control and improve.
What really matters
Is how you look at yourself.
Figure that out first and then decide whether your self-image is pushing you forward or holding you back. If it is holding you back, you need to start working to make a change.
(5) - I just finished reading Outliers by Malcolm Gladwell. I am certainly not alone in making that statement because it has been a huge best seller. It is all about the things that make a person a success. On page 246 of the copy that I got from the library, I found a statement that I thought was quite interesting: "Success is a function of persistence and doggedness and the willingness to work hard."
---Persistence
---Doggedness
---The willingness to work hard
That sounds reasonable. Now, here is the important question: which of those do you have when it comes to the CPA Exam and which do you not have? Well, the obvious answer is that you can have all three. They are not forbidden. There is nothing that prevents any of us (you or me) from having persistence, doggedness, and the willingness to work hard. Those are not characteristics like being 6' 7" to play basketball or weigh 320 pounds to play football.
You and I both can have the three elements needed for success.
--Everyone can be persistent
--Everyone can have doggedness
--Everyone can have the willingness to work hard.
We often look around for magic answers, tricks, shortcuts, or other secrets that will lead us to success. I'm sorry, unless you happen to win the lottery, success doesn't happen that way. You need all three: persistence, doggedness, and willingness to work hard.
And that should be very reassuring because there is nothing there to prevent YOU from becoming successful.
(6) - A few quick practice problems to help add a point or two.
Financial Accounting
A company buys inventory on credit on December 9, Year One for 10,000 vilsecks, the local currency of the seller. The inventory is paid for on January 10, Year Two. On December 9, Year One, one vilseck is worth $.50, on December 31, Year One, one vilseck is worth $.60, and on January 10, Year Two, one vilseck is worth $.68. The functional currency of the company is the US dollar. This might be a translation or it might be a remeasurement. What is the income effect on the Year One income statement?
A - In a translation, there is no income effect; in a remeasurement, there is no income effect.
B - In a translation, there is no income effect; in a remeasurement, there is a $1,000 loss.
C - In a translation, there is a $1,000 loss; in a remeasurement, there is no income effect.
D - In a translation, there is a $1,000 loss; in a remeasurement, there is a $1,000 loss.
Answer is B
A translation is used whenever a foreign subsidiary is being consolidated with a US parent. All assets and liabilities are initially recorded at the exchange rate in effect when created. They are then updated to the new exchange rate when financial statements are to be produced. Both the inventory and accounts payable are initially recorded at $5,000 (10,000 x .50/1). On December 31, both are adjusted to $6,000 (10,000 x .60/1). The asset went up $1,000; the liability went up $1,000 so that no net gain or loss is created.
A remeasurement is used whenever a company has individual transactions in a foreign currency. All assets and liabilities are initially recorded at the exchange rate in effect when created. After that, all monetary assets and liabilities (cash, balances to be paid or received in cash, and accounts at fair value) are adjusted based on new exchange rates. Thus, the inventory balance is $5,000 and stays at $5,000 so that no gain or loss is recorded. It is not a monetary asset. The account payable, though, is first recorded at $5,000 and then, when the statements are to be prepared, is adjusted to $6,000. The $1,000 increase in the reported liability creates a $1,000 loss to be recognized. It is a monetary liability because it will be paid in cash.
Auditing and Attestation
Mr. A makes a $3,000 payment on Monday to Acme Company. The money is stolen by one of Acme's employees. On Friday, Ms. B makes a $3,000 payment to Acme Company. The same employee credits this payment to Mr. A's account (rather than to Ms. B's account) so that a second bill will not be sent to him. Several days later, a payment is received from Mr. C and it is posted to Ms. B's account. What is this type of theft known as?
A - Posting Fraud
B - Reconciliation Shortage
C - Lapping
D - Receivable Management Deficiency (RMD)
Answer is C
The term "lapping" has long referred to the coverage of theft by using amounts received from one customer to cover earlier balances received from other customers and then stolen. If lapping is not performed, the original customer will receive a second invoice and any subsequent complaint by the customer will alert management to the problem.
BEC
Heinline starts a business and invites his friend Walsingham to work with him. Heinline makes the following statement: "let's just share profits 50-50." That is all that is ever said. Which of the following is true?
A - This is a partnership unless evidence to the contrary exists.
B - This is not a partnership because the agreement was not in writing.
C - This is not a partnership because the agreement was incomplete-it did not specify the handling of losses.
D - This is not a partnership because Heinline did not specifically mention the word "partner" or "partnership."
Answer is A
A partnership agreement can be very informal and does not have to be in writing or any other specified form. Simply agreeing to split profits is normally an indication that a partnership has been formed. If no statement is made as to losses, the same ratio used for profits is also used for any subsequent losses.
Regulation
A partnership is formed when A contributes $70,000 in cash and B contributes $50,000. The partners share all profits and losses evenly. The partnership borrows $10,000 from the bank. What is partner A's at-risk balance?
A - $60,000
B - $65,000
C - $70,000
D - $75,000
Answer is D
The at-risk balance of a partnership is the maximum amount of loss that a partner can deduct on his or her own income tax return as a result of losses incurred by the partnership. It is the capital balance of the partner plus the portion of any partnership debt that the person is responsible for in case the business fails. Partner A has contributed $70,000 so that is the capital amount. The partnership has a $10,000 liability. Unless some arrangement was made, the partners are responsible for that debt if the business is unable to repay. Because they split profits and losses on an even basis, that means Partner A could have to contribute an additional $5,000 for a total at-risk balance of $70,000 plus $5,000 or $75,000.
Closing Quote from Peter Marshall: "Small deeds done are better than great deeds planned."
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
Saturday, May 30, 2009
Monday, May 11, 2009
Visit our store See upper right hand corner
POSITIVE EVOLUTION IS WHAT YOU NEED
Lesson 32
From: Joe
SPECIAL ANNOUNCEMENT: From the day that CPA Review for FREE first opened, we have had candidates who wanted to buy copies of our questions and answers so they could study when not on-line. On-line is convenient for most candidates but not all.
So, starting a few days ago, you can now buy and download hard copies of every question and answer in our database. Yes, the questions on line are STILL FREE. Please feel free to use them all. However, if you want to download a copy, you can go to www.CPAreviewforFREE.com and click on "Store" in the upper right hand corner and follow the simply directions.
Or, you can go directly to www.CPAreviewforFREE.com/store.cfm if you wish.
Like so many Internet businesses these days, we do accept PayPal.
We hope this offer makes it even easier for you to study and pass the CPA Exam. Just keep in mind that there are a lot of questions in our database. Thus, these are big files and will take some time to download. We designed the printed page to be folded in half lengthwise so that you can work the question without seeing the answer. I thought that would be an easier way to use the questions.
Always remember, though, that our questions are still on-line and still FREE FREE FREE - we just want to give you a way to download the questions and answers if that is more convenient for your studies.
(1) - Thanks to everyone for helping us pass along good words about our site:
--In our most recent weekly statistics, we had 5.5 percent more hits to www.CPAreviewforFREE.com than in any previous week of our existence.
--In our most recent weekly statistics, we had 8.7 percent more page views to www.CPAreviewforFREE.com than in any previous week of our existence. We are now up to approximately 2.7 million page views. That is a LOT of added points.
--We have now had over 3,300 views to my lecture on dreams and heroes and deciding what you really want to do in life and then GOING FOR IT. That video can be viewed at:
www.youtube.com/user/UniversityofRichmond
or
www.youtube.com/watch?v=LjwHxVbZq1o
If you have already watched the video, you'll know why I have had an incredible number of people walk into my office (many that I did not know) to tell me: "I want to see the dagger that you got as a gift." Yeah, it is right there on the wall.
(2) - And, now for the legal requirement: if you want to unsubscribe to these occasional email lessons, please scroll to the end of this email and hit the Unsubscribe button.
However, even if we were not legally required to do that, we do want you to know that you can stop getting these email lessons any time you wish. We love to help but we understand that you may eventually be ready to stop receiving them. Stay as long as you want; leave when you are ready.
(3) - Here is a nice email that I received last week. I love getting emails that indicate that www.CPAreviewforFREE.com is making a real difference in people's lives.
"FAR exam went very well. It was simpler and easier than I had anticipated. I feel good. CPAReviewforfree had prepared me so well, I found the exam easy. Over the last 3 months (from the time I decided to take the CPA exam and started the registration process), I have been using CPAReviewforfree for all the 4 papers. It has been a great experience using the website as well as getting my issues clarified by you. I am hoping to have cleared all 4 parts and I will communicate to you the result when I get! I think I am going to miss using CPAReviewforfree but tomorrow onwards!"
(4) - I had a busy week-end and here are two quick episodes from my last couple of days.
Story One: I have just begun to read the book "Outliers" that has become such a phenomenally popular book. The book has the sub-title "The Story of Success" which gives you a good reason why I have been so interested in reading it. It investigates the real reason that people become successful.
It took me all the way to page 38 to find the one sentence that I had been expecting. Whenever I read about success, this sentence always seems to pop up early and often. In fact, I am not sure I have ever read anything at all on success that has not stressed this one sentence. If I were going to write a book on success, this would be my theme from page one:
"The closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play."
I could not agree more. If you are willing to prepare, you have already taken the single biggest step you will ever take toward passing the CPA Exam.
People worry about the wrong things. They set up walls that keep them from succeeding:
--I didn't get good grades in college.
--I am not a good test taker.
--I did not go to a big name university.
--I always seem to freeze up on tests.
Those are just excuses and probably have nothing to do with whether you will be successful on the CPA Exam. Instead, you should ask yourself one question and one question only: am I willing to do the work necessary to pass (probably a total of 250-400 hours for all four parts)?
That's all you need to know - any other issue is just a wall to slow you down. What you need is a willingness, a dedication that will allow you to prepare for the exam. If you do the work, you can eventually pass the CPA Exam-hopefully the very first time.
Many times people will come to me and say. "I really want to pass the CPA Exam. I am willing to do the work but . . ." And, I stop them right there!!!! I am not the least bit interested in what comes after the word "but." I don't want to hear anything after the word "but." If those candidates are willing to do the work, that is good enough for me. Anything after the word "but" is probably just noise that is going to distract them from the true goal.
"The closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play."
Story Two: I have been giving final exams and awarding grades. I had one student in one class who made low B's on her first two tests during the semester. However, she made a very high A grade on the third test of the semester and also on the final exam and made an A for the semester. She was thrilled. I was impressed by how much improvement she had made. I asked her about that in an email and she responded with "Oh, I finally figured out what you wanted us to learn and decided it really was worth the extra effort."
I sometimes refer to that type of change as "positive evolution" where a student genuinely gets better during the semester. Many students come in as C or B students and walk out three months later as C or B students. No real change. They did not get one bit better the entire semester. No evolution took place at all. There was no improvement. As a teacher, that is frustrating.
A few students, though, like the one above, walk in on the first day as a C or B students and walk out as A students. Now that makes my job feel great.
That never happens by accident. The student makes some significant change; they evolve. Usually, like this student, they come to see what I want them to learn and decide that the material is more interesting and useful than they had expected. Thus, their work just improves, often almost overnight.
As you use www.CPAreviewforFREE.com, that is what I want to see from you: positive evolution. I want you to get better and stronger as the course of your study progresses. I want you to come in as a person who cannot pass and walk out as a 75.
That usually happens because candidates work question after question and begin to see how to read and think about the questions and how to put the answers together to gain understanding. Then, there comes a point when they say to themselves "you know, I CAN pass this exam." At that point, putting in the hours of preparation gets much easier. They have two good reasons to prepare: first, they begin to see how to prepare in a way that is effective and efficient for them and, second, they begin to see the chance for positive results.
There is nothing like realizing that you have a chance to win to make you play harder.
As you prepare today for the CPA Exam, are you getting to that point of personal evolution?
(5) - As always, here is a little practice. In case you are interested, the first question comes directly from my final exam in Intermediate Accounting II that I gave last week. Of course, the students had a big advantage in that they had just studied this material in depth.
FAR
On April 26, Year Four, Harding Corporation owes the local bank $700,000 on an 8 percent note plus $120,000 in accrued interest. The note itself comes due in exactly six more years. Because Harding is undergoing severe financial difficulties, the two parties restructure the note on that date. The accrued interest is eliminated and the principal of the note is reduced to $400,000 which is now due in exactly 10 years. The annual interest rate drops from 8 percent to 5 percent although the current interest rate on such questionable loans is 15 percent. Assume that the present value of these future cash flows at 5 percent interest is $400,000 and at 8 percent is $270,000 and at 15 percent is $160,000. What gain should Harding recognize on this troubled debt restructuring?
A. -0-
B. $220,000
C. $420,000
D. $550,000
Answer is B.
The accounting rule for a debtor (Harding) in a troubled debt restructuring such as this are completely different from that which applies to the creditor (the bank). The debtor starts with the current amount of the debt ($820,000 or $700,000 plus $120,000) and compares that number to the total cash that will ever be received under the new agreement. Here, that amount is $400,000 plus $20,000 per year ($400,000 times 5 percent) for 10 years or $200,000. The total to be paid is $600,000. If that amount is greater than the current debt ($820,000), the debtor recognizes no gain. If that amount is less, the reduction is recognized immediately as a gain. That reduction is $220,000 ($820,000 current debt less $600,000 in total payments). The debtor does not use present value although the creditor (the bank) does in its own computation.
REGULATION
Jeremiah Wilson died on January 11, Year One. The value of several large pieces of estate property fell sharply shortly after his death. Consequently, the executor of his estate chose the alternative valuation date for estate and other tax purposes. The property was all conveyed to the proper recipients on February 9, Year Two. On what date was the property valued?
A. Six months after death
B. December 31, Year One
C. One year after death
D. February 9, Year Two
Answer is A
The executor has the right to choose the alternative valuation date to reduce taxes on the estate. That date is the date of conveyance or six months after death, whichever comes first.
BEC
The Jiminez Corporation buys 10,000 shares of Warrington Corporation at $23 per share because the CEO of Jiminez expects the price of Warrington to rise sharply over the next few months. However, the CEO is concerned that economic conditions might also cause the price of the shares to fall quickly and sharply. He is concerned about explaining a big loss if that might happen. How is Jiminez most likely to protect itself from any such severe market drops?
A. Jiminez could also buy stock warrants in Warrington.
B. Jiminez could also buy a call option for 10,000 shares of Warrington at a properly designated price.
C. Jiminez could also buy a put option for 10,000 shares of Warrington at a properly designated price.
D. Jiminez could also buy convertible bonds issued by Warrington.
Answer is C
A put option allows Jiminez to sell the stock at a specified price. For example, if the put option is for $22, then Jiminez can sell the stock at that price even if it drops much lower. Although there is a cost for the put option, the loss is limited to a specified amount. All of the other possibilities (warrants, call option, and convertible bonds) allow for the acquisition of more shares which does little (unless the conversion price is extremely low) to help protect against a severe fall in stock price. They are all considered strategies to be used when stock prices are expected to rise.
Auditing and Attestation
The Othello Corporation buys and sells widgets. In Year One, the average number of days that it took to sell a widget was 18. In Year Two, because of the downturn in the economy, the average number of days that it took to sell a widget rose to 27. Which of management's assertions about the balance being reported as inventory on the company's balance sheet would be of most concern to the independent auditor?
A. Presentation
B. Valuation
C. Existence
D. Completeness
Answer is B
As inventory gets older, the chance that its value will fall below cost goes up. As goods get older, they tend to get damaged or show other signs of age that may require them to be sold at a reduced amount. Inventory is reported at the lower of cost or market. The increase in age might be a cause for the market value to decline so that a reduction in the reported balance will be necessary.
HAVE A GREAT WEEK - WORK FOR EVERY POSSIBLE POINT. IT MIGHT WELL BE THE ONE THAT GETS YOU TO 75!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Lesson 32
From: Joe
SPECIAL ANNOUNCEMENT: From the day that CPA Review for FREE first opened, we have had candidates who wanted to buy copies of our questions and answers so they could study when not on-line. On-line is convenient for most candidates but not all.
So, starting a few days ago, you can now buy and download hard copies of every question and answer in our database. Yes, the questions on line are STILL FREE. Please feel free to use them all. However, if you want to download a copy, you can go to www.CPAreviewforFREE.com and click on "Store" in the upper right hand corner and follow the simply directions.
Or, you can go directly to www.CPAreviewforFREE.com/store.cfm if you wish.
Like so many Internet businesses these days, we do accept PayPal.
We hope this offer makes it even easier for you to study and pass the CPA Exam. Just keep in mind that there are a lot of questions in our database. Thus, these are big files and will take some time to download. We designed the printed page to be folded in half lengthwise so that you can work the question without seeing the answer. I thought that would be an easier way to use the questions.
Always remember, though, that our questions are still on-line and still FREE FREE FREE - we just want to give you a way to download the questions and answers if that is more convenient for your studies.
(1) - Thanks to everyone for helping us pass along good words about our site:
--In our most recent weekly statistics, we had 5.5 percent more hits to www.CPAreviewforFREE.com than in any previous week of our existence.
--In our most recent weekly statistics, we had 8.7 percent more page views to www.CPAreviewforFREE.com than in any previous week of our existence. We are now up to approximately 2.7 million page views. That is a LOT of added points.
--We have now had over 3,300 views to my lecture on dreams and heroes and deciding what you really want to do in life and then GOING FOR IT. That video can be viewed at:
www.youtube.com/user/UniversityofRichmond
or
www.youtube.com/watch?v=LjwHxVbZq1o
If you have already watched the video, you'll know why I have had an incredible number of people walk into my office (many that I did not know) to tell me: "I want to see the dagger that you got as a gift." Yeah, it is right there on the wall.
(2) - And, now for the legal requirement: if you want to unsubscribe to these occasional email lessons, please scroll to the end of this email and hit the Unsubscribe button.
However, even if we were not legally required to do that, we do want you to know that you can stop getting these email lessons any time you wish. We love to help but we understand that you may eventually be ready to stop receiving them. Stay as long as you want; leave when you are ready.
(3) - Here is a nice email that I received last week. I love getting emails that indicate that www.CPAreviewforFREE.com is making a real difference in people's lives.
"FAR exam went very well. It was simpler and easier than I had anticipated. I feel good. CPAReviewforfree had prepared me so well, I found the exam easy. Over the last 3 months (from the time I decided to take the CPA exam and started the registration process), I have been using CPAReviewforfree for all the 4 papers. It has been a great experience using the website as well as getting my issues clarified by you. I am hoping to have cleared all 4 parts and I will communicate to you the result when I get! I think I am going to miss using CPAReviewforfree but tomorrow onwards!"
(4) - I had a busy week-end and here are two quick episodes from my last couple of days.
Story One: I have just begun to read the book "Outliers" that has become such a phenomenally popular book. The book has the sub-title "The Story of Success" which gives you a good reason why I have been so interested in reading it. It investigates the real reason that people become successful.
It took me all the way to page 38 to find the one sentence that I had been expecting. Whenever I read about success, this sentence always seems to pop up early and often. In fact, I am not sure I have ever read anything at all on success that has not stressed this one sentence. If I were going to write a book on success, this would be my theme from page one:
"The closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play."
I could not agree more. If you are willing to prepare, you have already taken the single biggest step you will ever take toward passing the CPA Exam.
People worry about the wrong things. They set up walls that keep them from succeeding:
--I didn't get good grades in college.
--I am not a good test taker.
--I did not go to a big name university.
--I always seem to freeze up on tests.
Those are just excuses and probably have nothing to do with whether you will be successful on the CPA Exam. Instead, you should ask yourself one question and one question only: am I willing to do the work necessary to pass (probably a total of 250-400 hours for all four parts)?
That's all you need to know - any other issue is just a wall to slow you down. What you need is a willingness, a dedication that will allow you to prepare for the exam. If you do the work, you can eventually pass the CPA Exam-hopefully the very first time.
Many times people will come to me and say. "I really want to pass the CPA Exam. I am willing to do the work but . . ." And, I stop them right there!!!! I am not the least bit interested in what comes after the word "but." I don't want to hear anything after the word "but." If those candidates are willing to do the work, that is good enough for me. Anything after the word "but" is probably just noise that is going to distract them from the true goal.
"The closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play."
Story Two: I have been giving final exams and awarding grades. I had one student in one class who made low B's on her first two tests during the semester. However, she made a very high A grade on the third test of the semester and also on the final exam and made an A for the semester. She was thrilled. I was impressed by how much improvement she had made. I asked her about that in an email and she responded with "Oh, I finally figured out what you wanted us to learn and decided it really was worth the extra effort."
I sometimes refer to that type of change as "positive evolution" where a student genuinely gets better during the semester. Many students come in as C or B students and walk out three months later as C or B students. No real change. They did not get one bit better the entire semester. No evolution took place at all. There was no improvement. As a teacher, that is frustrating.
A few students, though, like the one above, walk in on the first day as a C or B students and walk out as A students. Now that makes my job feel great.
That never happens by accident. The student makes some significant change; they evolve. Usually, like this student, they come to see what I want them to learn and decide that the material is more interesting and useful than they had expected. Thus, their work just improves, often almost overnight.
As you use www.CPAreviewforFREE.com, that is what I want to see from you: positive evolution. I want you to get better and stronger as the course of your study progresses. I want you to come in as a person who cannot pass and walk out as a 75.
That usually happens because candidates work question after question and begin to see how to read and think about the questions and how to put the answers together to gain understanding. Then, there comes a point when they say to themselves "you know, I CAN pass this exam." At that point, putting in the hours of preparation gets much easier. They have two good reasons to prepare: first, they begin to see how to prepare in a way that is effective and efficient for them and, second, they begin to see the chance for positive results.
There is nothing like realizing that you have a chance to win to make you play harder.
As you prepare today for the CPA Exam, are you getting to that point of personal evolution?
(5) - As always, here is a little practice. In case you are interested, the first question comes directly from my final exam in Intermediate Accounting II that I gave last week. Of course, the students had a big advantage in that they had just studied this material in depth.
FAR
On April 26, Year Four, Harding Corporation owes the local bank $700,000 on an 8 percent note plus $120,000 in accrued interest. The note itself comes due in exactly six more years. Because Harding is undergoing severe financial difficulties, the two parties restructure the note on that date. The accrued interest is eliminated and the principal of the note is reduced to $400,000 which is now due in exactly 10 years. The annual interest rate drops from 8 percent to 5 percent although the current interest rate on such questionable loans is 15 percent. Assume that the present value of these future cash flows at 5 percent interest is $400,000 and at 8 percent is $270,000 and at 15 percent is $160,000. What gain should Harding recognize on this troubled debt restructuring?
A. -0-
B. $220,000
C. $420,000
D. $550,000
Answer is B.
The accounting rule for a debtor (Harding) in a troubled debt restructuring such as this are completely different from that which applies to the creditor (the bank). The debtor starts with the current amount of the debt ($820,000 or $700,000 plus $120,000) and compares that number to the total cash that will ever be received under the new agreement. Here, that amount is $400,000 plus $20,000 per year ($400,000 times 5 percent) for 10 years or $200,000. The total to be paid is $600,000. If that amount is greater than the current debt ($820,000), the debtor recognizes no gain. If that amount is less, the reduction is recognized immediately as a gain. That reduction is $220,000 ($820,000 current debt less $600,000 in total payments). The debtor does not use present value although the creditor (the bank) does in its own computation.
REGULATION
Jeremiah Wilson died on January 11, Year One. The value of several large pieces of estate property fell sharply shortly after his death. Consequently, the executor of his estate chose the alternative valuation date for estate and other tax purposes. The property was all conveyed to the proper recipients on February 9, Year Two. On what date was the property valued?
A. Six months after death
B. December 31, Year One
C. One year after death
D. February 9, Year Two
Answer is A
The executor has the right to choose the alternative valuation date to reduce taxes on the estate. That date is the date of conveyance or six months after death, whichever comes first.
BEC
The Jiminez Corporation buys 10,000 shares of Warrington Corporation at $23 per share because the CEO of Jiminez expects the price of Warrington to rise sharply over the next few months. However, the CEO is concerned that economic conditions might also cause the price of the shares to fall quickly and sharply. He is concerned about explaining a big loss if that might happen. How is Jiminez most likely to protect itself from any such severe market drops?
A. Jiminez could also buy stock warrants in Warrington.
B. Jiminez could also buy a call option for 10,000 shares of Warrington at a properly designated price.
C. Jiminez could also buy a put option for 10,000 shares of Warrington at a properly designated price.
D. Jiminez could also buy convertible bonds issued by Warrington.
Answer is C
A put option allows Jiminez to sell the stock at a specified price. For example, if the put option is for $22, then Jiminez can sell the stock at that price even if it drops much lower. Although there is a cost for the put option, the loss is limited to a specified amount. All of the other possibilities (warrants, call option, and convertible bonds) allow for the acquisition of more shares which does little (unless the conversion price is extremely low) to help protect against a severe fall in stock price. They are all considered strategies to be used when stock prices are expected to rise.
Auditing and Attestation
The Othello Corporation buys and sells widgets. In Year One, the average number of days that it took to sell a widget was 18. In Year Two, because of the downturn in the economy, the average number of days that it took to sell a widget rose to 27. Which of management's assertions about the balance being reported as inventory on the company's balance sheet would be of most concern to the independent auditor?
A. Presentation
B. Valuation
C. Existence
D. Completeness
Answer is B
As inventory gets older, the chance that its value will fall below cost goes up. As goods get older, they tend to get damaged or show other signs of age that may require them to be sold at a reduced amount. Inventory is reported at the lower of cost or market. The increase in age might be a cause for the market value to decline so that a reduction in the reported balance will be necessary.
HAVE A GREAT WEEK - WORK FOR EVERY POSSIBLE POINT. IT MIGHT WELL BE THE ONE THAT GETS YOU TO 75!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
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