ry us FIRST before you spend your hard-earned money.
August 25, 2009
CPA Review for FREE
Forget Luck – It Takes Work and Belief
www.CPAreviewforFREE.com
60 Weeks of Operation/No Marketing/ 5,040,926 Page Views (and that’s an awful lot of added points)
Lesson 44
From: Joe
(1) – It has been a great week here at CPA Review for FREE (www.CPAreviewforFREE.com).
---First, the number of our visitors last week was 9.7 percent higher than in any of our previous 59 weeks. That is a lot of growth in just one week.
---Second, we crossed over 5 million page views. I am so pleased by the number of people who are using our questions and answers to pass the CPA Exam. I went back and checked and the very first week we were in business we had 1,920 page views. Now, we have averaged nearly 85,000 page views per week for our entire time in existence. We could not have achieved that type of success without you guys spreading the word. Thanks!!!!
---Third, we got a whole bunch of wonderful emails from you folks. Here are just a couple. As I always say: if these folks can do it, so can you!!! They did not do a single thing that you cannot do. As you read these emails, picture yourself writing them. It is always great to have a real sense of what success is going to feel like. You want to have that taste of success.
From DC: I just found out that I passed FAR with a score of 94! You were one of the first people that I wanted to tell because I owe it in large part to you. In studying for it, I used CPA Review for Free (which was so helpful!). I also took “big name CPA Review program” (mainly because my company paid for it), but I still found that your questions hit more areas or explained them in a better way, and definitely would not have been as prepared without them. Your weekly emails are so great, especially when I don't think I can study anymore. I'm taking Audit on Monday, so hopefully that goes as well!
From US: I am very very happy to inform you that I cleared Regulation exam with an 84 score. Thanks a trillion to CPAReviewforfree for the wonderful guidance I got. This time, as I was busy with my office work, I did not find much time to work online. Hence, I paid for your pdf print version and got the whole set of questions printed. I read them while flying to the US from Mumbai. On reaching the US, for the 3 days before the exam, I went through each and every question of CPAReviewforfree very carefully. On the actual exam, the MCQs were very tough - testing our basic understanding of the concepts - and I spent a good amount of time on them. I was left with just 50 minutes to complete the simulations. I hurried through them and the last communication question was answered in under 5 minutes. I was worried and felt helpless at the end of the exam. Honestly, I kept my fingers crossed as to the result as the MCQs were tough and I had not done full justice to the
simulation questions. I still got a score of 84! That shows that I had done very well in the MCQ! That could not have happened without CPAReviewforfree.com. Once again, thanks a lot.
From KH: Wanted to pass on some news I just got back about the CPA exam. So far I have taken BEC and REG and I just found out that I passed both! I felt okay with BEC, but I left REG feeling very unsure, especially with the simulations. As you can expect, I was incredibly relieved to see my score tonight. I got an 86 in BEC and a 95 in REG (never would have predicted that) - now I am thinking that I could have studied a few less hours and spent some time enjoying the July 4th weekend. I am taking FAR on Saturday and AUD on the 28th. These scores have given me a lot more motivation to push through this last week and a half. As always, thank you for all of your help, especially through cpareviewforfree. Your emails always serve as inspiration, and the explanations to questions on your website are very informative.
Okay, such notes should inspire everyone to work just a bit harder and knock out that exam. They did it—so can you.
(2) – One of my all-time favorite quotes comes from Thomas Jefferson (although I have seen it attributed to other folks – I’m not 100 percent sure who actually said it first):
“I'm a great believer in luck, and I find the harder I work, the more I have of it.”
The harder I work; the luckier I get. How could anything seem more true?
I started my fall classes Monday (yesterday) here at the University of Richmond. I have 64 students, 62 of whom are new to my classes. Students really do want to do well but they often seem bewildered by how to achieve success in class.
I want to do well; I’m just not sure how is a constant comment.
Students often seem to believe that there is some secret ingredient for success. If they only were lucky enough to know that secret, they would be at the top of the class.
Therefore, my goal in our first meeting is to convince them that everyone can do well (even in Intermediate Accounting II). If I cannot convince them that they can do well, I may well have lost them for the semester. “I’ve taught this class for nearly 40 years. I’m convinced that you and everyone else in this room can make an A if you do a few relatively simple things. You need to put in a reasonable amount of time, you need to focus on your goal, you need to prepare/study, you need to practice what we go over, and you need consistency.”
And, then, I stop and ask “Okay, who doesn’t have one or more of those five? Speak up now.
reasonable time,
focus,
preparation,
practice, and
consistency.”
Not surprisingly, every student knows they really do have those five—all of them. It is now their job to make use of them. I never tell them that they have to be brilliant. That’s not even interesting to me. There are not many brilliant people in the world and I’m not too sure how truly successful they are.
I just need those five. The things you need for success are in your own hands.
Those five--reasonable time, focus, preparation, practice, and consistency—are what it really takes. But you start losing points really fast if you let one (or more) of those get away from you. If you start cutting corners, the points begin to fall. If you start taking things for granted, you lose ground.
In my classes, I want everyone to make an A which means I want everyone to have all five.
In CPAreviewforFREE, I want everyone to pass the exam which means I want everyone to have all five.
Do you have those five? Sure, you certainly have the potential to do all five. There is nothing standing in your way to having all five.
Forget luck – if you will give me those five things, and then use CPA Review for FREE in the manner that I suggest, I believe you can pass and you can do so for absolutely no money at all.
(3) – Remember that you can always unsubscribe from these email lessons at any time you wish just by scrolling to the bottom of any lesson and clicking on the unsubscribe button. We have over 8,000 subscribers and we love having you but, when you are ready to go, feel free to unsubscribe.
(4) – A lot of people take the CPA Exam at the end of August. If you know someone, other than yourself, who is getting ready to take the exam, call them up or send them an email and wish them luck. It is easy to get very self-absorbed as you study to pass the CPA Exam. But life always works better if you open your eyes and notice the needs of others and try to help them out. Call someone this evening and tell them “I know you are getting ready for the CPA Exam. You’ve worked hard; I just know you’ll be successful.”
That will make that person feel better and it will make you feel better also.
(5) – Speaking of luck (I must be in a mood to point up that you don’t need luck, you just need to utilize the talents you have).
A few weeks back I went to see the relatively new Harry Potter movie. (For those of you who don’t know, Harry Potter is a boy wizard who goes to school at a wizard school). There was one scene that I found very interesting. Harry has a friend who plays on a sports team and plays rather poorly. He gets depressed about it and plays worse. He is so nervous about doing well that he gets all tight and does poorly in the first couple of games. We’ve probably all felt that way.
Harry has a vial of Liquid Luck (remember, he is a boy wizard). Right before the big sports match of the season, Harry pretends to pour the liquid luck into a glass that his friend is about to drink. The friend thinks he has consumed the liquid luck. The friend immediately goes out and plays the match of a lifetime. He is the star of the game and helps his team win. He goes from being a poor player to being a star. He is convinced that he has been lucky because of the potion. His success was all because of Liquid Luck.
But, of course, Harry Potter had fooled him. He had NOT really poured the liquid luck into the glass. The friend just thought he had.
So, luck had absolutely nothing to do with his success. Once, he believed in himself then that belief drove him to succeed. Simple concept.
This is just a quick comment. I am not going to beat this to death. If you believe in yourself, you have the chance to leap tall buildings with a single bound. However, if you truly have doubts, if you don’t really believe in yourself, your challenge is going to be so much harder. It is hard to win if you think you will lose.
Let’s do a quick test. And, you have to tell the truth. If I were to look you in the eyes and ask “on a scale of 1 to 10, how confident are you that you are going to pass the CPA Exam by this time next year?” what would you answer? Would you say that you are very confident—a 9 or a 10? Or, would you say that you are full of fear and trepidation and are closer to a 2 or 3?
How can you improve your odds? Improve that number.
This just may be the advice that you can use to add some serious points to your CPA Exam score. How can you raise your self-confidence level by JUST ONE POINT? Just that change in self-confidence will help amazingly. That could be so very important to you. If you are a 5, how could you become a six?
Well, you don’t get more confident by wishing it so. I’m sorry; it doesn’t work that way. If you are setting there, saying “geez, I really do want to have more self-confidence” that is nice but it probably doesn’t add a point.
You get more confident by doing stuff. You get more into the rhythm, you see how things tie together.
The more you work; the stronger you get. If you really want more confidence, go back to my previous list of the Big Five:
reasonable time,
focus,
preparation,
practice, and
consistency
Now, pick one of these five, and for the next week, work hard to get better at doing that one thing. Spend more time each day or work more days in the week or whenever you practice do 10 percent more questions than you used to do. Pick one of these five and get better at it this week.
At the end of just one week, if you have managed to get better at one of those Big Five, I would be willing to bet that your confidence level will be higher. Okay, you won’t go from a 1 to a 10. But, in just one week, by working on that one thing and getting better at it, you can (and will) go up in confidence.
And, as Harry Potter’s friend discovered, just adding some confidence, really does make all the difference in the world.
(6) – Time to Practice: Let’s see how you do on a couple of practice problems.
FAR
A company’s income statement shows salary expense for the current year of $400,000. The company also reported salary payable of $13,000 as of the beginning of the year but $28,000 at the end. If the company uses the direct method of reporting operating activity cash flows, what is reported in connection with this salary?
A – An addition of $15,000 to net income
B – A subtraction of $15,000 from net income
C – Salary paid to employees of $415,000.
D – Salary paid to employees of $385,000
Answer is D
If the company uses the indirect method, net income is adjusted for changes in operational assets and liabilities such as the salary payable. Since the liability went up, the company paid less and the answer would be A because of the cash savings. However, if (as is the case here) the company uses the direct method, the actual amount of cash paid or collected is shown. The expense was $400,000 but the related liability went up by $15,000. Thus, less was actually paid. The company only paid cash to its employees during the year of $385,000.
Regulation
Vikontra Corporation is having financial difficulties and is not paying its bills as they come due. The company owes Jack Winslow $11,000. He wants to push the company into Chapter7 bankruptcy by filing an involuntary petition. Which of the following is true?
A—If Vikontra has less than 12 creditors, then Jack Winslow alone can force the company into bankruptcy by filing an involuntary petition.
B—If Vikontra has 12 or more creditors, then Jack Winslow alone can force the company into bankruptcy by filing an involuntary petition.
C—If Vikontra has less than 12 creditors, then Jack Winslow alone can force the company into bankruptcy but the debt must be larger.
D—If Vikontra has 12 or more creditors, then Jack Winslow alone can force the company into bankruptcy but the debt must be larger.
Answer is C
If there are less than 12 creditors (Answers A and C), then only one creditor needs to sign the petition but that person must have a debt of $13,475. If there are 12 or more creditors (Answers B and D), then three creditors must sign but, again, the total of those debts must be at least $13,475. The $13,475 figure goes up slightly every three years, the next time in 2010. Notice, though, that the exact amount of that standard is not relevant to this question. The speculation is that the CPA Exam avoids asking questions that will change as the numbers change over time.
Auditing & Attestation
The CPA firm of Terry & Francona is auditing the financial statements of Fenway International Corporation. Fenway owns a number of unique investments where the market value is difficult to determine. The CPA firm hires a specialist in investment analysis to help determine the market value of these assets. Which of the following statements is true?
A—This investment analyst must be independent of the client company.
B—The hiring of this analyst means that the firm must provide a qualified audit opinion.
C—The hiring of this analyst means that the firm must add an extra paragraph to the end of the audit report to alert readers to the work of the specialist.
D—The firm must assess the qualifications of the specialist as part of the audit process.
Answer is D
The CPA firm is required to ensure that the specialist is truly capable of making the assessments that are being asked. The qualifications must be assessed carefully. If the analyst is not independent, the CPA firm can still make use of the information provided by the specialist but should consider carefully the impact of the relationship with the client in making that assessment. Finally, use of a specialist is a normal audit technique and does not require any change in the audit report. However, the CPA firm does have the right to make mention that a specialist was used if that information is viewed as helpful.
BEC
Able, Baker, and Cannon are partners. Able gets 70 percent of the profits and losses and has a capital balance of $100,000. Baker gets 20 percent of the profits and losses and has a capital balance of $60,000. Cannon gets 10 percent of the profits and losses and has a capital balance of $10,000. The partnership has $170,000 in assets but no liabilities. The partnership is being liquidated. Assets of $70,000 are sold for $40,000 in cash. Which of the partners gets this available cash?
A – Able gets $28,000, Baker gets $8,000, and Cannon gets $4,000
B – Able gets $13,333, Baker gets $13,333, and Cannon gets $13,334
C – Able gets $6,667 and Baker gets $33,333
D – Able gets $20,000 and Baker gets $20,000
Answer is C
The actual sale of these assets created a $30,000 loss ($70,000 less $40,000). That loss is assigned 70 percent to Able ($21,000 bringing the capital down to $79,000), 20 percent to Baker ($6,000 bringing the capital down to $54,000), and 10 percent to Cannon ($3,000 bringing the capital down to $7,000). To decide what to do with the available cash, the partnership must assume that the remaining $100,000 in assets ($170,000 less $70,000) are a total loss. In that case, this $100,000 anticipated loss is assigned 70 percent to Able ($70,000 bringing the capital down to $9,000), 20 percent to Baker ($20,000 bringing the capital down to $34,000), and 10 percent to Cannon ($10,000 bringing the capital down to a negative $3,000). Then, finally, the remaining negative $3,000 balance in Cannon’s capital must be divided between Able and Baker based on their relative profit and loss ratios or 70/90 of the $3,000 to Able or $2,333 and 20/90 of the $3,000 to Baker or $667. This
final allocation reduces Able’s capital from $9,000 to $6,667 and Baker’s capital from $34,000 to $33,333. That is how the available cash is distributed.
And, now a final quote from Thomas Jefferson that really does, in my mind, apply to all of you folks taking the CPA Exam in the final few days of August:
“Nothing gives one person so much advantage over another as to remain always cool and unruffled under all circumstances.”
Joe Hoyle
Co-Founder
CPA Review for FREE
Tuesday, September 22, 2009
Wednesday, September 16, 2009
Our Own Joe Hoyle Named toTop 100 Accounting People
Accounting Today's list of the top 100 most influential people in accounting in 2009 named our own CPAreviewforFREE co-founder Joe Ben Hoyle as a recipient of this pretigious award. Joe was named for his work as Co-Founder of CPAreviewforFREE. Kudos to you Joe for your amazing leadership, drive, compassion and dedication to the field of education and accounting.
To see the Top 100 list, visit here
How is that for amazing! Share the good news!
To see the Top 100 list, visit here
How is that for amazing! Share the good news!
Wednesday, September 9, 2009
Fight The Good Fight
Fight The Good Fight
62 Weeks of Operation/No Marketing/ 5,351,494 Page Views
Lesson 46
From: Joe
(1) – MY FAVORITE PARTS I get a lot of enjoyment out of doing CPA Review for FREE (which is good since we make no money). One of my favorite parts each week is to look at where our “customers” come from. Obviously, a vast majority come to us from the United States but we are able to teach a lot of people around the world. Last week, alone, we had visitors from 81 countries. The most common were:
The Philippines
Canada
India
South Korea
Puerto Rico
Japan
Egypt
The United Arab Emirates
Australia
The previous week, one of our most popular countries was Djibouti. I must confess that I had to go to my globe to locate Djibouti.
I really love the idea that we are all working together around the world for one goal: to get you through the CPA Exam. So, whether you come from Richmond, Virginia (my hometown ) or New York City or Australia or Djibouti, WELCOME. Get those points and pass that exam.
(2) – MY FAVORITE PARTS (PART II) Okay, there is one other thing that I really enjoy. Getting emails from the people we help. Here are just a few that we have received recently. I wish I had the space necessary to print them all.
FROM AJ: “I just wanted to take a little time out of my evening to thank you. I recently passed all 4 parts of the CPA using the questions that you provided on your website. I took REG in October 2008 and passed with a 78 using another program. I then went on to fail BEC by 1 point, FAR by 1 point and AUD by 2 points all using that same program. I almost gave up on earning my title, especially since the software that I purchased (from the other program) was only a few days away from expiring. So I did an internet search for cheaper CPA review material and came across CPAREVIEWFORFREE.COM. I really did not want to dish out another couple of thousands on this. I convinced myself to give it one more try using the free material. I did every single question that you released. I also took notes on the questions that I missed. I wrote BEC in April and passed with an 85. I then wrote FAR in May and passed with a 77 and finally wrote AUD in July and passed with an 83. I only have
the ethics exam left and then I will officially be a CPA.”
FROM AK: “I used your website over the last 5 months to pass the exam, and I wanted to say thank you. I had taken (big, expensive course) a couple of years ago but never took the tests until recently. Thanks to your free questions, I was able to supplement my review materials. Thanks again!”
FROM EW: “I was very excited when I found your website last week. Your website is just like a lighthouse flashing in the distance, giving me more hope. I am going through all the resources that you have and am saving all your published lessons in my computer like my treasure. Your encouraging words give me more confidence. Thank you and your team very much. I really appreciate your unselfish endeavor to help all people who want to reach their goal. Thanks again.”
(3) – SOME GOOD ADVICE I have been doing these email lessons for well over a decade and, as you can imagine, I always avoid politics because that is not my purpose. Whether you are liberal or conservative, I want you to pass the CPA Exam. I encourage humans to pass (all humans) and I don’t worry about your politics.
Today, though, I did watch President Obama’s speech to the school children. He made an interesting point at the beginning when he said something like “we can encourage everyone else but, in the end, your success is up to you.”
Of course, that sounds like my feelings. We provide the materials. We even provide our materials for free. But, it is up to you to invest the time and energy. It is up to you to manage your lives so that you can put in the required hours. It is up to you to provide the self-discipline. No matter how much we do, it is ultimately up to you.
So, I actually sat down and listened to his entire speech. And, toward the end, he said a few things and I said to myself “I wish all the CPA Exam candidates could hear this part.” With the wonders of modern technology, I found the speech on the Internet and here is the part that I thought was relevant to YOU. I full realize that you are not in elementary school or middle school or high school but you face a really serious academic challenge. So, in some ways, you are like the school students.
And, of course, encouragement and challenging words are always helpful.
From President Obama:
“Whatever you resolve to do, I want you to commit to it. I want you to really work at it.
“I know that sometimes, you get the sense from TV that you can be rich and successful without any hard work -- that your ticket to success is through rapping or basketball or being a reality TV star, when chances are, you're not going to be any of those things.
“But the truth is, being successful is hard. You won't love every subject you study. You won't click with every teacher. Not every homework assignment will seem completely relevant to your life right this minute. And you won't necessarily succeed at everything the first time you try.
“That's OK. Some of the most successful people in the world are the ones who've had the most failures. JK Rowling's first Harry Potter book was rejected twelve times before it was finally published. Michael Jordan was cut from his high school basketball team, and he lost hundreds of games and missed thousands of shots during his career. But he once said, ‘I have failed over and over and over again in my life. And that is why I succeed.’
“These people succeeded because they understand that you can't let your failures define you - you have to let them teach you. You have to let them show you what to do differently next time. If you get in trouble, that doesn't mean you're a troublemaker, it means you need to try harder to behave. If you get a bad grade, that doesn't mean you're stupid, it just means you need to spend more time studying.
“No one's born being good at things, you become good at things through hard work. You're not a varsity athlete the first time you play a new sport. You don't hit every note the first time you sing a song. You've got to practice. It's the same with your schoolwork. You might have to do a math problem a few times before you get it right, or read something a few times before you understand it, or do a few drafts of a paper before it's good enough to hand in.
“Don't be afraid to ask questions. Don't be afraid to ask for help when you need it. I do that every day. Asking for help isn't a sign of weakness, it's a sign of strength. It shows you have the courage to admit when you don't know something, and to learn something new. So find an adult you trust - a parent, grandparent or teacher; a coach or counselor - and ask them to help you stay on track to meet your goals.
“And even when you're struggling, even when you're discouraged, and you feel like other people have given up on you - don't ever give up on yourself. Because when you give up on yourself, you give up on your country.
“The story of America isn't about people who quit when things got tough. It's about people who kept going, who tried harder, who loved their country too much to do anything less than their best.”
And, my own addition to the president’s words: I have not given up on you so don’t you ever give up on yourself.
(4) – As always, you are free to unsubscribe to these email lessons. Just scroll to the bottom of this (or any other) lesson and click on the appropriate link.
(5) – Do us a favor. We have about 8,000 readers – we’d love 8,000 more. Forward this email to an accountant or an accounting student or someone who is thinking about taking the CPA Exam or someone who just failed the CPA Exam and is very discouraged. Tell them: this guy has a website that can help you pass the CPA Exam and, believe it or not, it is free. Register at www.cpareviewforfree.com and you’ll get these email lessons every week or two.
(6) – PRACTICE -- Let’s add some points.
FAR – I was working on my new textbook today and was explaining the handling of foreign currency. I used a question much like this one.
A US company has the US dollar as its functional currency. It buys inventory on February 1 from Japan for 10 million yen to be paid on April 1. One yen can be exchanged for $.01 on February 1 and one yen can be exchanged for $.012 on April 1. The inventory is sold in this country on March 31 for $210,000. On April 1, the company pays the 10 million yen that were owed. When the US company reports its financial statements, which of the following is not true?
A – Cost of goods sold is reported as $120,000.
B – A loss of $20,000 is reported in connection with the payable for the inventory
C – No gain is reported in connection with the inventory that was held.
D – The company should report a gross profit of $110,000.
Answer is A
This is a remeasurement because the company is dealing in transactions denominated in a currency outside of its normal currency (its functional currency). Both the inventory and the accounts payable are initially recorded at $100,000, the exchange value at that time (10 million yen times $.01). In a remeasurement, cash, receivables, and payables are remeasured up or down whenever the exchange rate changes. Here, the rate changes so the payable is increased to $120,000 (10 million yen times $.012). The rise in the payable creates a $20,000 loss. However, the inventory is not cash, a receivable, or a payable so it stays at $100,000. Eventually, when sold, it becomes cost of goods sold of $100,000. The gross profit is the $210,000 sales price less the $100,000 cost of goods sold or $110,000.
Regulation
A corporation gives an owner a nonliquidating distribution. It gives the owner land with a basis of $11,000 and a fair market value of $19,000. What is the tax effect to the corporation and to the owner?
A – Neither party has a tax effect
B – The owner has $11,000 in taxable income and the corporation has an $11,000 tax deduction.
C – The owner has $19,000 in taxable income and the corporation has a $19,000 tax deduction.
D – The owner has $19,000 in taxable income and the corporation has $8,000 in taxable income.
Answer is D
The owner reports dividend income of $19,000 which is the fair market value of the property received. The land then has a basis of $19,000 to the owner. The corporation reports a taxable gain of $8,000. If the corporation had sold the property, it would have had an $8,000 gain ($19,000 value minus tax basis of $11,000). That gain cannot be avoided simply by giving the property away to an owner.
Auditing & Attestation
In the early stages of an audit engagement, the independent CPA must obtain a general understanding of internal control. Which of the following is not studied as part of that step in the audit process?
A – Control environment
B – Risk assessment
C – Control activities
D – Internal independence
Answer is D
The five areas to be studied in gaining a general understanding of internal control are the control environment, risk assessment, control activities, information and communications, and monitoring.
BEC
A company produces bottles of orange juice. This year the company spent $30,000 to produce 21,000 bottles of orange juice. However, 1,000 bottles of juice were lost when a valve on a machine broke. So, only 20,000 bottles of juice were actually shipped to the stores. Of that amount, 18,000 bottles were sold and 2,000 bottles remain on the shelf. The company believes that breakage and loss of up to 10 percent of the final output is normal. Any breakage and loss of above 10 percent is viewed as abnormal. What is the cost of the company’s ending inventory?
A - $2,857
B - $2,943
C - $2,988
D - $3,000
Answer is D
The company only lost 5 percent of its output (1,000 bottles versus 20,000 bottles as final output). That is within the normal range and is viewed as a cost of producing the good units. The cost of lost units is only separated and put into a loss account if it is viewed as abnormal. Here, 20,000 units cost $30,000 to produce which is $1.50 per bottle. The company still has 2,000 bottles left. At $1.50 per bottle, that is an ending inventory of $3,000.
I will do something a bit different today. I will leave you with a Bible verse. In the end, when you walk out of that exam center, this is how I want you to feel. It comes from Second Timothy, chapter 4, verse 7:
"I have fought the good fight,
I have finished the race,
I have kept the faith."
Have a great week!!! Add points!!!!
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
62 Weeks of Operation/No Marketing/ 5,351,494 Page Views
Lesson 46
From: Joe
(1) – MY FAVORITE PARTS I get a lot of enjoyment out of doing CPA Review for FREE (which is good since we make no money). One of my favorite parts each week is to look at where our “customers” come from. Obviously, a vast majority come to us from the United States but we are able to teach a lot of people around the world. Last week, alone, we had visitors from 81 countries. The most common were:
The Philippines
Canada
India
South Korea
Puerto Rico
Japan
Egypt
The United Arab Emirates
Australia
The previous week, one of our most popular countries was Djibouti. I must confess that I had to go to my globe to locate Djibouti.
I really love the idea that we are all working together around the world for one goal: to get you through the CPA Exam. So, whether you come from Richmond, Virginia (my hometown ) or New York City or Australia or Djibouti, WELCOME. Get those points and pass that exam.
(2) – MY FAVORITE PARTS (PART II) Okay, there is one other thing that I really enjoy. Getting emails from the people we help. Here are just a few that we have received recently. I wish I had the space necessary to print them all.
FROM AJ: “I just wanted to take a little time out of my evening to thank you. I recently passed all 4 parts of the CPA using the questions that you provided on your website. I took REG in October 2008 and passed with a 78 using another program. I then went on to fail BEC by 1 point, FAR by 1 point and AUD by 2 points all using that same program. I almost gave up on earning my title, especially since the software that I purchased (from the other program) was only a few days away from expiring. So I did an internet search for cheaper CPA review material and came across CPAREVIEWFORFREE.COM. I really did not want to dish out another couple of thousands on this. I convinced myself to give it one more try using the free material. I did every single question that you released. I also took notes on the questions that I missed. I wrote BEC in April and passed with an 85. I then wrote FAR in May and passed with a 77 and finally wrote AUD in July and passed with an 83. I only have
the ethics exam left and then I will officially be a CPA.”
FROM AK: “I used your website over the last 5 months to pass the exam, and I wanted to say thank you. I had taken (big, expensive course) a couple of years ago but never took the tests until recently. Thanks to your free questions, I was able to supplement my review materials. Thanks again!”
FROM EW: “I was very excited when I found your website last week. Your website is just like a lighthouse flashing in the distance, giving me more hope. I am going through all the resources that you have and am saving all your published lessons in my computer like my treasure. Your encouraging words give me more confidence. Thank you and your team very much. I really appreciate your unselfish endeavor to help all people who want to reach their goal. Thanks again.”
(3) – SOME GOOD ADVICE I have been doing these email lessons for well over a decade and, as you can imagine, I always avoid politics because that is not my purpose. Whether you are liberal or conservative, I want you to pass the CPA Exam. I encourage humans to pass (all humans) and I don’t worry about your politics.
Today, though, I did watch President Obama’s speech to the school children. He made an interesting point at the beginning when he said something like “we can encourage everyone else but, in the end, your success is up to you.”
Of course, that sounds like my feelings. We provide the materials. We even provide our materials for free. But, it is up to you to invest the time and energy. It is up to you to manage your lives so that you can put in the required hours. It is up to you to provide the self-discipline. No matter how much we do, it is ultimately up to you.
So, I actually sat down and listened to his entire speech. And, toward the end, he said a few things and I said to myself “I wish all the CPA Exam candidates could hear this part.” With the wonders of modern technology, I found the speech on the Internet and here is the part that I thought was relevant to YOU. I full realize that you are not in elementary school or middle school or high school but you face a really serious academic challenge. So, in some ways, you are like the school students.
And, of course, encouragement and challenging words are always helpful.
From President Obama:
“Whatever you resolve to do, I want you to commit to it. I want you to really work at it.
“I know that sometimes, you get the sense from TV that you can be rich and successful without any hard work -- that your ticket to success is through rapping or basketball or being a reality TV star, when chances are, you're not going to be any of those things.
“But the truth is, being successful is hard. You won't love every subject you study. You won't click with every teacher. Not every homework assignment will seem completely relevant to your life right this minute. And you won't necessarily succeed at everything the first time you try.
“That's OK. Some of the most successful people in the world are the ones who've had the most failures. JK Rowling's first Harry Potter book was rejected twelve times before it was finally published. Michael Jordan was cut from his high school basketball team, and he lost hundreds of games and missed thousands of shots during his career. But he once said, ‘I have failed over and over and over again in my life. And that is why I succeed.’
“These people succeeded because they understand that you can't let your failures define you - you have to let them teach you. You have to let them show you what to do differently next time. If you get in trouble, that doesn't mean you're a troublemaker, it means you need to try harder to behave. If you get a bad grade, that doesn't mean you're stupid, it just means you need to spend more time studying.
“No one's born being good at things, you become good at things through hard work. You're not a varsity athlete the first time you play a new sport. You don't hit every note the first time you sing a song. You've got to practice. It's the same with your schoolwork. You might have to do a math problem a few times before you get it right, or read something a few times before you understand it, or do a few drafts of a paper before it's good enough to hand in.
“Don't be afraid to ask questions. Don't be afraid to ask for help when you need it. I do that every day. Asking for help isn't a sign of weakness, it's a sign of strength. It shows you have the courage to admit when you don't know something, and to learn something new. So find an adult you trust - a parent, grandparent or teacher; a coach or counselor - and ask them to help you stay on track to meet your goals.
“And even when you're struggling, even when you're discouraged, and you feel like other people have given up on you - don't ever give up on yourself. Because when you give up on yourself, you give up on your country.
“The story of America isn't about people who quit when things got tough. It's about people who kept going, who tried harder, who loved their country too much to do anything less than their best.”
And, my own addition to the president’s words: I have not given up on you so don’t you ever give up on yourself.
(4) – As always, you are free to unsubscribe to these email lessons. Just scroll to the bottom of this (or any other) lesson and click on the appropriate link.
(5) – Do us a favor. We have about 8,000 readers – we’d love 8,000 more. Forward this email to an accountant or an accounting student or someone who is thinking about taking the CPA Exam or someone who just failed the CPA Exam and is very discouraged. Tell them: this guy has a website that can help you pass the CPA Exam and, believe it or not, it is free. Register at www.cpareviewforfree.com and you’ll get these email lessons every week or two.
(6) – PRACTICE -- Let’s add some points.
FAR – I was working on my new textbook today and was explaining the handling of foreign currency. I used a question much like this one.
A US company has the US dollar as its functional currency. It buys inventory on February 1 from Japan for 10 million yen to be paid on April 1. One yen can be exchanged for $.01 on February 1 and one yen can be exchanged for $.012 on April 1. The inventory is sold in this country on March 31 for $210,000. On April 1, the company pays the 10 million yen that were owed. When the US company reports its financial statements, which of the following is not true?
A – Cost of goods sold is reported as $120,000.
B – A loss of $20,000 is reported in connection with the payable for the inventory
C – No gain is reported in connection with the inventory that was held.
D – The company should report a gross profit of $110,000.
Answer is A
This is a remeasurement because the company is dealing in transactions denominated in a currency outside of its normal currency (its functional currency). Both the inventory and the accounts payable are initially recorded at $100,000, the exchange value at that time (10 million yen times $.01). In a remeasurement, cash, receivables, and payables are remeasured up or down whenever the exchange rate changes. Here, the rate changes so the payable is increased to $120,000 (10 million yen times $.012). The rise in the payable creates a $20,000 loss. However, the inventory is not cash, a receivable, or a payable so it stays at $100,000. Eventually, when sold, it becomes cost of goods sold of $100,000. The gross profit is the $210,000 sales price less the $100,000 cost of goods sold or $110,000.
Regulation
A corporation gives an owner a nonliquidating distribution. It gives the owner land with a basis of $11,000 and a fair market value of $19,000. What is the tax effect to the corporation and to the owner?
A – Neither party has a tax effect
B – The owner has $11,000 in taxable income and the corporation has an $11,000 tax deduction.
C – The owner has $19,000 in taxable income and the corporation has a $19,000 tax deduction.
D – The owner has $19,000 in taxable income and the corporation has $8,000 in taxable income.
Answer is D
The owner reports dividend income of $19,000 which is the fair market value of the property received. The land then has a basis of $19,000 to the owner. The corporation reports a taxable gain of $8,000. If the corporation had sold the property, it would have had an $8,000 gain ($19,000 value minus tax basis of $11,000). That gain cannot be avoided simply by giving the property away to an owner.
Auditing & Attestation
In the early stages of an audit engagement, the independent CPA must obtain a general understanding of internal control. Which of the following is not studied as part of that step in the audit process?
A – Control environment
B – Risk assessment
C – Control activities
D – Internal independence
Answer is D
The five areas to be studied in gaining a general understanding of internal control are the control environment, risk assessment, control activities, information and communications, and monitoring.
BEC
A company produces bottles of orange juice. This year the company spent $30,000 to produce 21,000 bottles of orange juice. However, 1,000 bottles of juice were lost when a valve on a machine broke. So, only 20,000 bottles of juice were actually shipped to the stores. Of that amount, 18,000 bottles were sold and 2,000 bottles remain on the shelf. The company believes that breakage and loss of up to 10 percent of the final output is normal. Any breakage and loss of above 10 percent is viewed as abnormal. What is the cost of the company’s ending inventory?
A - $2,857
B - $2,943
C - $2,988
D - $3,000
Answer is D
The company only lost 5 percent of its output (1,000 bottles versus 20,000 bottles as final output). That is within the normal range and is viewed as a cost of producing the good units. The cost of lost units is only separated and put into a loss account if it is viewed as abnormal. Here, 20,000 units cost $30,000 to produce which is $1.50 per bottle. The company still has 2,000 bottles left. At $1.50 per bottle, that is an ending inventory of $3,000.
I will do something a bit different today. I will leave you with a Bible verse. In the end, when you walk out of that exam center, this is how I want you to feel. It comes from Second Timothy, chapter 4, verse 7:
"I have fought the good fight,
I have finished the race,
I have kept the faith."
Have a great week!!! Add points!!!!
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
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