Doing Ordinary Things Extraordinarily Well--CPA Review for FREE

Doing Ordinary Things Extraordinarily Well--CPA Review for FREE

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October 20, 2009

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Lesson 51

From: Joe

(1) - How is the CPA Exam graded? That is always an important question.
The more you know about grading, the better off you are. So, we have a
brand new survey on-line this week at

www.cpareviewforfree.blogspot.com/

Our survey question for this week relates to how the CPA exam is actually
graded. Go to the URL, read the question and put in your answer and I'll
provide you with the real answer in my next email lesson.

How much do you really know about the grading?


(2) - The top five countries using our website last week were as follows (as
well as the amount of time that the average visitor spent on our website):

---United States - 26 minutes and 57 seconds
---Philippines - 30 minutes and 35 seconds
---Canada - 31 minutes and 49 seconds
---India - 18 minutes and 11 seconds
---Saudi Arabia - 34 minutes and 45 seconds

Congratulations to the future CPAs in Saudi Arabia. You folks did the most
work (or at least spent the most time) on our site last week of the top
five. And, all of you future CPAs in India need to answer a few more
questions and read a few more answers before you log off. It's a free
site-stay awhile longer with us.

(3) - Some emails - don't think I've shared these with you yet.

FROM EG: "I just wanted to mention that I used CPAreviewforfree extensively
in my preparation for the CPA examination. I cleared all four sections in my
first attempt. I did not take any review courses. My college text books, a
CPA review book, and CPAreviewforfree are what helped me to prepare for
these exams. Thank you for this wonderful website."

FROM BS: "Thank you so much. Just received my Reg result, which is my final
exam, I passed. That means I passed all the exams within 6 months with my
first attempt. Your website helped me a lot. Thank you for all your
encouraging and memorable words."


(4) - If you need to unsubscribe, scroll to the end of this email and just
click on the indicated link.


(5) - I was visiting a relative in the hospital on Saturday. There were
some posters on the wall and one of them caught my attention immediately:
"Excellence is doing ordinary things extraordinarily well"
a statement that was attributed to John Gardner.

We often think that excellence only comes from extraordinary people: the
Van Goghs and the William Faulkners and Tiger Woods of the world. That's
nonsense. There are very few people who are truly extraordinary. If we
wait around for them, we'll never get anywhere. We are all basically
ordinary people. But, we are all capable of achieving excellence. You, me,
and everyone else. We can be excellent.

As I was standing in that hospital room, I just had to agree with the quote
on the wall.
--If we cook dinner and we take care and do it extraordinarily well, we have
achieved excellence.
--If we take photographs and we do it extraordinarily well, we have achieved
excellence.
--If we go to work and we do it extraordinarily well, we have achieved
excellence.

You don't have to climb Mt. Everest or swim the English Channel to be
excellent. Take every small thing you do and work to do it extraordinarily
well and you will experience the joy of excellence.

What could be more ordinary in life than studying
accounting/auditing/tax/law/finance? You read a problem, you try to work
it, you read the answer, and you make a note on how to do it better next
time. It is very slow and very methodical. It is just plain ordinary.

--However, you can do that process about as poorly as possible. You can be
unfocused and bored and let your mind wander and waste a lot of time. You
can realize after 10 minutes, you don't remember the last 10 minutes.

Or, you can do that process extraordinarily well.

You can think about the question. What information is being given?
What are they asking? What rules come into play here and how do I apply
them? Are there any tricks that might catch you off guard?
You can read the answer very carefully. What did I get right? What
did I get wrong? What can I learn from this answer? How should I have
handled the question differently? How could this question be asked in
a different way next time? What should I watch for more closely?

Studying for the CPA Exam is just one ordinary step after another.

But, you have a choice.
--You can do those ordinary steps poorly.
--Or, you can do those ordinary steps extraordinarily well.

When you get to where the most ordinary event is done extraordinarily well,
you will know that you have achieved excellence.

When you work to answer questions extraordinarily well, you will be headed
toward excellence on the CPA Exam.


(6) - Practice - every question should help you add a point.

FAR - As usual, here's something we will be doing in intermediate accounting
tomorrow.

A company reports a warranty expense in Year One of $300,000 that is not
deductible for tax purposes until Year Four. The enacted tax rate is 30
percent. Which of the following is true?

A - It must be more likely than not that the company will have income to
reduce in Year Four before a deferred income tax asset of $90,000 is
recognized in Year One.
B - Because the benefit will not take place until Year Four, there is no
deferred tax asset recognized in Year One.
C - It must be certain that the company will have income to reduce in Year
Four before a deferred income tax asset of $90,000 is recognized in Year
One.
D - In all cases, a deferred tax asset of $90,000 should be recognized in
Year One.


Answer is A

The ability to deduct the $300,000 from taxable income in Year Four is a
temporary tax difference that leads to a deferred income tax asset of
$90,000 based on the 30 percent rate. However, accounting is conservative
and only allows companies to recognize that asset if it is more likely than
not that the benefit will be received by having income to reduce for tax
purposes in Year Four. We sometimes refer to that as the "51 percent rule"
because that is the level at which it becomes more likely than not.


Auditing & Attestation

The CPA firm of Jeter and Cano is auditing the Angel Corporation.
Currently, the auditors are looking at current liabilities that were
recording shortly after the end of the fiscal year. They are concerned that
some of these liabilities were actually owed by the reporting company at the
end of the year under audit. Which financial statement assertion are the
auditors most likely to be attempting to substantiate?

A - Existence
B - Disclosure
C - Completeness
D - Allocation


Answer is C

Whenever the auditor is concerned that transactions have been left out of an
account balance, it is the completeness assertion that is most likely being
tested. Here, the auditors are concerned that the liabilities reported on
the year-end balance sheet are not complete because some of these amounts
were not recorded until the subsequent period.


Regulation

A taxpayer is studying both a traditional individual retirement account
(IRA) and a Roth IRA. Which of the following is true?

A - Contributions to both are tax deductible when made.
B - Distributions from both are tax free when received.
C - Contributions to a traditional IRA are tax deductible but eventual
distributions are taxable while contributions to a Roth IRA are not tax
deductible but eventual distributions are tax free.
D - Contributions to a Roth IRA are tax deductible but eventual
distributions are taxable while contributions to a traditional IRA are not
tax deductible but eventual distributions are tax free.


Answer is C

For a traditional IRA, contributions reduce taxable income in the current
year. However, when the money is eventually received as a distribution, it
is taxable income. For a Roth IRA, there is no reduction in taxable income
when the contribution is made. But, when the money is eventually received
as a distribution, it is nontaxable income. (As with most tax laws, some
exceptions do exist in both cases.)


BEC

A company spends $200,000 and produces 10,000 pounds of product X and 20,000
pounds of product Y. The joint cost will be allocated between these two
based on units produced. The company also produced 1,000 pounds of
product Z that can be sold for $6 per pound after spending $1 per pound to
put into appropriate packages. Product Z is viewed as a by-product and
recorded at net realizable value. What portion of the joint cost is
allocated to product X?

A - $60,000
B - $64,250
C - $65,000
D - $66,667


Answer is C

The by-product must be handled first. This company records it at net
realizable value-the net amount of cash that can be received. Each pound is
sold for $6 after spending $1 so the net realizable value is $5 per pound or
$5,000 for the entire 1,000 pounds. That part of the $200,000 is recorded
for the by-product. That leaves $195,000 to be split between product X
and product Y. According to the information, the company allocates this
joint cost based on units. One-third of the units (10,000 pounds out of
a total of 30,000 pounds for the two major products) comes from product X.
So, 1/3 of the joint cost or $65,000 (1/3 times $195,000) is assigned to
product X.

Have a great week.

Shoot for excellence in everything you do.


Joe Hoyle

Co-Founder
CPA Review for FREE

www.CPAreviewforFREE.com