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
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