Fight The Good Fight

Fight The Good Fight

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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