72 Weeks of Operation and 7,045,237 Page Views (without a penny spent on marketing)
Lesson 54
From: Joe
(a) - I won't tell you who I am watching but my NFL team is ahead right now. But, I'm going to write this email and only watch the game every 10 minutes for about a minute. I guess I want you to pass more than I want to sit and watch a football team play.
(1) - At least in the United States, this coming Thursday is Thanksgiving Day. Wherever you live, it is not a bad idea to take a few moments and think about the many things you have to give thanks for. Somehow our society seems to have become obsessed with the problems of life. It is hard to turn on television or the radio or pick up a newspaper without having 20 different people telling us all the things that are wrong with life today. I am amazed by how many people make their livelihoods screaming about how bad things are.
You know, if you hear that enough, it is easy to start believing it.
Okay, I'm not naïve. I know that the world has problems and that each of us has our own problems. But, I'm not ready to spend 24 out of each day beating my head over those problems.
When I was growing up, I would often complain to my father about how bad things were in the world. His response was always the same: "I lived through the Great Depression where we had no money, little or no food, outdoor toilets, no running water, and most people died before they were 50. To me, life today doesn't seem all that bad."
Maybe that is the problem. Maybe we have so very much to be thankful for that we just take it for granted. So, on Thursday, don't take it for granted. Sit down and make a list of the 10 or 20 things that really make your life special.
You'll feel better. I guarantee it.
(2) - We here at www.CPAreviewforFREE.com are grateful for all of you guys. We moved over 7 million page views this past week. (7 million!!!!!) That's a lot of page hits in just 72 weeks (WITH NO ADVERTISING).
We could not have made the splash without you guys spreading the word. So:
THANKS!!!!!!
(3) - A couple of nice notes from several of our "customers:"
FROM BC: As evidence of the quality of your CPA review questions, I just made a 91 on the FAR. Didn't go to any of those review classes, just used two sources: your website, and the Wiley book. Thank you so much for your service and your inspirational emails. I will continue to use your website as I prepare for BEC, REG, and AUD.
FROM MH: Thank you for your dedication in helping us to pass the CPA exam. I am an international student from Mexico, I took classes in Belize Central America and it has been a long process to get approved to sit for the exam. My "big name" review is expiring - I am so thankful to have a good alternative to continue studying. Thank you. When I pass the CPA exam, you will be one of the first persons that will know. I hope you are well, thank you for sharing the chalk art by your son. It was fun!
FROM GS: I am currently working on the FAR exam and I noticed your questions and explanations seem to be better than the (big major CPA review program) material.
(4) - As always, just a reminder: if you want to unsubscribe from getting these CPA Review for FREE email lessons every week or so, just scroll to the bottom of this email and click on the link that is provided.
(5) - I am always fascinated by people who have been successful over a long period of time. A lot of people are successful once and then never again. Almost like it was an accident. But, in every profession, you find a few people who seem to be at the top consistently. Those are the people that I want to learn from.
I figure that they must have some kind of special secret and I am always looking for that secret.
Last week on National Public Radio, Roy Williams-who is the coach of the University of North Carolina basketball team-was interviewed. He is clearly one of the real winners in college basketball. His teams have done well for a long time. Although I went to a school that is a rival of UNC, I must admit that he knows how to build a winning program.
During the interview, he said two things that I thought showed why he was a winner. He made two points that I need to make to myself.
They asked him what his team yells whenever they break out of a huddle. It wasn't "win" or "beat them" or "go team." It was "HARD WORK!!" I think you can learn right there from Roy Williams what it takes to be good at something for a long period of time. If you can figure out how to make "Hard Work" your motto, I think you will have taken a giant step toward success.
If you have followed these email lessons for long, you probably know that my ultimate secret for passing is CPA Exam is always the same: "Hours Equal Points."
--Work all of the questions
--Work them again.
--Take notes
--Carry those notes with you and study them whenever you have a free moment.
What you need to do to pass the CPA Exam is not rocket science. The hard part is just doing it day in and day out. The hard part is doing it and not wasting time or losing focus.
That's why I am always so thrilled when someone writes to tell me that they have passed the CPA Exam; I know how hard they have worked. I know the time and energy they have sacrificed. I know how much they have done to gain those points. Hard work is never easy.
It is not about an expensive review course (or even a free review course), it is all about hard work. The willingness to do it.
Hard work is no guarantee that you will pass. However, if you don't put in the hard work, you are almost guaranteed that you will not pass.
The second thing that Coach Williams said that caught my attention was when he said that he always told his players not to come back to the locker room after the game wishing about what they had done differently. Do it right the first time. Do it to the best of your ability the first time. Win or lose, give it all you've got the first time.
If you are going to do it, if you are going to put in the hard work, then, do that work before you take the exam and don't wish about doing it after you take the exam.
Let's break it down to right now: How many hours can you legitimately spend studying for the CPA Exam over the next week?
Set up that goal. Make it a real, honest goal.
Okay - go do it!!!
(6) - I had an appointment this past week and I got to the place a bit early. So, I sat in the waiting room and they had a copy of Sports Illustrated from a couple of weeks back. To kill a few minutes, I opened it up. The very first thing I saw was this description of a professional basketball player (a guy named Chris Andersen-a person that I don't think I had ever heard of):
---"Here's a guy who plays harder than anyone on the court and he does it every night."
---"He swoops in for rebounds, pounces on loose balls and plays with an almost jarring amount of energy."
Wouldn't it be great to be known as:
--a guy who plays harder than anyone
--a guy who plays harder than anyone every night
--a guy who plays with an almost jarring amount of energy.
Okay, here is my question for YOU (yes, you) right now. If someone were watching you and how you study for the CPA Exam, what would that person say? How would they describe you? Would they call you someone who works harder than anyone every night, someone who studies with an almost jarring amount of energy?
When the people around you start saying this about you, your chances for success have gone sky high. And, the best thing: this does not require money or talent. No matter who you are; you are not at a disadvantage when it comes to working hard. It only requires you to get some energy into your life and do the work necessary to add those points.
That is something that everyone (yes, YOU) can do.
(7) - PRACTICE!!!!
FAR
The Seattle Company reports assets of $500,000 on January 1, Year One and liabilities of $100,000. However, one building with a book value of $150,000 and a remaining life of 10 years is really worth $270,000. The Polono Company acquires 30 percent of the outstanding shares of Seattle for $156,000. This ownership gives Polono the ability to apply significant influence to the operating and financing decisions of Seattle. At the end of Year One, Seattle reports net income of $130,000 and pays cash dividends of $40,000. What amount of income should Polono recognize as a result of its ownership?
A - $12,000
B - $27,000
C - $35,400
D - $39,000
Answer is C
Because Polono has the ability to apply significant influence, this investment is recorded by means of the equity method. That means that income recognized each year is the owner's share of the reported income less any amortization resulting from the purchase price. Seattle had a book value of $400,000 ($500,000 less $100,000). Polono bought 30 percent which equates to a price of $120,000. However, Polono paid an extra $36,000 ($156,000 less $120,000). That added price is explained by the building. It was worth $120,000 more than book value ($270,000 less $150,000). Since Polono bought 30 percent, the assumption is that an extra $36,000 was paid to compensate for the extra building value ($120,000 times 30 percent). The building has a ten-year life so Polono's cost is amortized at the rate of $3,600 per year. Thus, the owner recognizes $39,000 in income (30 percent of the $130,000 reported) less $3,600 in amortization on the extra payment because of the building or
a net amount of $35,400.
Auditing & Attestation
The CPA firms of Gibbs and Spurrier is auditing a large company located in New Jersey. One subsidiary is located in California and the CPA firm of Landry and Company audited this subsidiary. Landry and Company has a great reputation and is independent of the audit client. A partner in the firm of Gibbs and Spurrier flies to California to review the audit program followed by Landry and Company in auditing the subsidiary. What is the most likely reason for this trip?
A - Gibbs and Spurrier do not plan to make reference to the work of Landry and Company in the audit opinion of the consolidated company.
B - Gibbs and Spurrier must always make this type of trip when another audit firm has done part of the audit work.
C - Gibbs and Spurrier plan to make reference to the work of Landry and Company in the audit opinion of the consolidated company.
D - Gibbs and Spurrier should not have made this trip since each firm is responsible for their own work.
Answer is A
When another firm does part of the audit work, the firm that is going to provide the overall audit opinion on the consolidated statements must take several actions in connection with the other firm: make inquiries about its professional reputation, get representation that the firm is independent of the audit client, and make sure the other firm knows that the audited financial information will be included in the consolidated statements. However, if the audit firm that is going to issue the audit report does not plan to make reference to the other firm, several other actions should be considered including review of the audit program and the resulting working papers. They are not required but they should be considered.
Regulation
On a Form 1120, what is the purpose of Schedule M-2?
A - Reconciles net income to taxable income.
B - Reconciles unappropriated retained earnings from the beginning of year to the end.
C - Reconciles revenue per books to revenue reported on the tax return.
D - Reconciles total expenses on the financial statements to the ordinary and necessary expenses reported on the tax return.
Answer is B
Schedule M-1 on the form 1120 reconciles the income on the corporation's financial statements to the taxable income being reported. Then, Schedule M-2 analyzes the changes in unappropriated retained earnings from the first day of the year to the last.
BEC
A company is studying a possible investment opportunity. The company can spend $22,000 and then get $5,000 in cash at the end of each of the next 8 years. The company has a target rate on such investments of 6 percent per year. The present value of an annuity due of $1 per year at 6 percent annual interest for 8 years is 6.58. The present value of an ordinary annuity of $1 per year at 6 percent annual interest for 8 years is 6.21. Which of the following is true?
A - Company should buy the investment because it has a net present value of $9,050.
B - Company should buy the investment because it has a net present value of $10,900.
C - Company should buy the investment because the present value of 6.58 is larger than 6.0
D - Company should buy the investment because the present value of 6.21 is larger than 6.0.
Answer is A
Net present value is one technique used by some companies to evaluate the wisdom of an investment. Because payments are made at the end of each period, this is an ordinary annuity. The present value of the cash flows is $5,000 times 6.21 or $31,050. Because the cost is $22,000, the extra amount ($9,050 or $31,050 less $22,000) is called the net present value. Investments with a positive net present value are viewed as good choices.
HARD WORK!!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Wednesday, November 25, 2009
Sunday, November 15, 2009
Nine Tips for Taking the exam
71 Weeks of Operation and 6,851,220 Page Views (without a penny spent on marketing)
Lesson 53
From: Joe
(1) – I know a lot of you folks are putting on a last minute frantic push to pass one or more parts of the CPA Exam here at the end of the November window. The stress can be difficult and counter-productive. So, I want you to take 55 seconds and smile. Really, you will feel better. I think that will help you to do better. It will release some tension.
To encourage that smile: Go to the following URL and watch for all 55 seconds. If this doesn’t make you feel a bit better, a bit more rejuvenated, you may need to take the rest of the day off.
www.youtube.com/watch?v=XF_XJd7pLIY
By the way, the artist is my older son.
(2) – Good job on our survey question for last week:
“You are taking FAR on the CPA Exam. You have completed and submitted your first testlet. In the second testlet, the multiple-choice questions seem to have gotten harder. What does this mean?”
75 percent of you folks knew that this was great news. In Auditing, FAR, and Regulation, if you do well on the first testlet, the second testlet will be a bit harder. The same is true for the third testlet. So, if the questions seem to be getting harder, that means you have been doing well in the previous testlets which means that you are much more likely to pass.
(3) – Don’t forget: to unsubscribe, scroll to the bottom of this lesson and click on that link.
Don’t forget: to help someone pass the CPA Exam, forward this email along.
(4) – One of my former students was visiting last week. He is now a personal trainer at a gym. He made an interesting comment: “People pay me a lot of money to show them how to do exercises that they could easily download off the Internet for free. They must have too much money is all I can figure. But, I hope those people never catch on.”
Hmmm. People pay someone to give them help that they could get off the Internet for free. Does that sound familiar????
I know people who are paying $2,500 to large CPA Review Courses for information that we provide for free. Don’t you know that there are a lot of officials at those big review courses that are sitting around today with their fingers crossed saying “I hope those people never catch on.”
Before you spend that money, why not try out www.CPAreviewforFREE.com? Be a wise shopper. You worked hard for that money. Why give it away? Try us for one month. That’s all I ask. After that, if you still want to spend $2,500, the large programs already have their hands out.
(5) – For all of you folks who are going to be taking a section of the CPA Exam over the next two weeks, here are a list of last minute suggestions.
--First and foremost. Don’t overwork here at the end. It is not smart to go into the exam tired and burned out. As everyone knows, baseball season just ended and football season is in swing and basketball season is just beginning. You can learn a lot from smart athletes.
Athletes come into an important game having practiced hard but they really try to make sure (if they are smart) not to over train at the end. You want to be at your very strongest (in mind and body) on the day of the exam. So make sure that you get a normal amount of rest and that you get a normal amount of exercise (a brisk walk is always helpful to get the blood into your brain) and that you eat a normal amount of food. I cannot say this enough: do not work yourself into exhaustion and then wonder why you feel sluggish and slow and can’t seem to get going on the CPA Exam. College students do that all the time and then complain because they missed questions that they knew. Well???? Do not get into a weird routine at the last minute and then wonder why your mind does not react as it normally does.
The night before I took the CPA Exam, I went to a movie. It was a light comedy. I really wanted to walk into the exam (1) relaxed, (2) alert, and (3) focused. A good movie helps with all three.
--Second. As I have said many times, the CPA Exam is a mile wide and one inch deep so it really rewards the candidate who has some knowledge about all topics. Thus, no matter how you have prepared, go back through all of the topics one last time very quickly here at the end. Make sure that the essentials about each and every topic are fresh in your mind on test day. One of the difficulties of preparing for the CPA Exam is that the information tends to leak out of your brain pretty quickly. Things you knew well two weeks ago may start to seem foreign. Therefore, hit everything quickly one last time near the end.
--Third. Make a list of all the major topics and put them into order starting with your weakest area first. Take the top third of that list (the third where you are the weakest) and eliminate any minor topics (there are not many questions on prepaid rent or supplies). Then, spend 30-45 minutes of additional time on as many of those topics as you can. What you are trying to do is go to the areas where you are most likely to be able to add points to your score. Find big areas where you are weak; those are great places for last minute study. Remember, that we have hundreds of questions readily available for you at www.CPAreviewforFREE.com. Go to a topic and begin reading questions and reading answers. At the end, do that as fast as you can. Remember, you are not testing yourself; in your study, it is not important whether you get questions right or wrong. You are working to learn more and more. However, watch your time. It is more important to restrict yourself to
30 or so extra minutes on each of six major topics than spend three extra hours on one major topic.
--Fourth. Go to www.CPAreviewforFREE.com and under the section “CPA Exam Resources,” you should find an article titled “Structure of CPA Exam.” Read that article. Okay, you may well know some/much of this already. However, you might just pick up valuable points on what the exam is going to look like. You don’t want to walk into the exam site and be surprised by what you see.
--Fifth. Carefully, read all the information that you have been sent about the exam. The examination team has tried to anticipate everything you need to know in advance and they have included it with the “Notice To Schedule” they sent you. You do not want to waste time at the test site trying to figure out the rules that you are supposed to follow.
--Sixth. Plan in advance for time management. How much time is allowed on your exam and how are you going to allocate or make use of that time? Rushing through the exam and finishing early means that you have wasted time. Being slow and methodical and not finishing makes passing difficult. One key question: how much time do you plan to spend on each multiple-choice question? Everyone associated with the CPA Exam will tell you that you need to stay very aware of the time. To do that, know how much time you plan to spend on each question and then stick with it.
When I took the exam, there were actually five parts and I remember being so pleased that I finished each one with less than three minutes to spare. I might not have been the smartest candidate but I did a great job with time management.
--Seventh. As I indicate often, keep in mind that you do not have to be perfect. You do not have to get every question correct. You only want to pass. You only want to make 75. So, if you see a question that you do not know, eliminate as many answers as you can and take a guess. Then, don’t worry about it. If you see a question that is difficult, don’t let it get you rattled. You have no need for perfection. It is not the goal. You only want to pass.
--Eighth. During the exam, don’t let yourself get mentally tired and lazy. The perfect exam is where you are able to be as mentally “into the exam” on the last question as you were on the first. In college, students often get excited on a test and race out at a million miles an hour and then wear down and make all kinds of careless mistakes at the end. In sporting events, you have probably seen athletes who lead most of the game but just don’t have the stamina at the end and wind up losing. Just stay as consistent and careful as you go from the first minute to the last. Keep repeating: “be strong until it is over.”
In review courses, I often talk with the candidates about the five C’s as keys for success on the CPA Exam: calm, careful, consistent, confidence, and concentration. A pretty good recipe for success.
--Ninth. When it is over, forget about it. There is no reason to keep reliving the CPA Exam. The time to think about the CPA Exam is right now when there is something you can do to improve your score. Right now, you can study and prepare. After it is over, tell yourself that you did the best you could do at the time and put it out of your mind.
(6)—I once saw a big poster that said “Desire Creates Power.” I could not agree more. Success does not begin with power and knowledge and aptitude. Success begins with desire. Once you have the desire (to pass the CPA Exam, for example), then that desire will gradually help you develop the power, the knowledge, the confidence, and the understanding that you need to achieve success.
Without the desire, success is always difficult to achieve.
With desire, everyone can make it happen.
I cannot tell you that you are going to pass the CPA Exam before the end of November. I would love to say that but I don’t have a true basis for that assertion. However, I can tell you for sure that if you have the desire you will keep working and improving and getting better and more powerful and you will pass. Trust me---it will happen.
(7) – Time for some practice – time to add some points!!!
FAR
The Mozart Company is sued on December 31, Year One for $1 million. On that date, company officials believe it is reasonably possible that the loss will be $220,000. During Year Two, the situation gets worse. At the end of Year Two, officials for Beethoven now believe that is probable that the company will lose between $300,000 and $400,000. Every number in that range has an equal chance of being the actual loss. During Year Three, Beethoven settles the law suit for $410,000. What amount of loss is recognized in Year Three?
A - $10,000
B - $60,000
C - $110,000
D - $410,000
Answer is C
No amount of a contingency is recognized until (a) the loss is probable and (b) the amount is subject to a reasonable estimation. Hence, footnote disclosure is appropriate for Year One. In looking at Year Two, US GAAP specifies that when a contingent loss is probable but can only be estimated to within a range, the most likely number is recognized. If no number is most likely, the lowest number in that range is recognized. Therefore, in Year Two, a loss and liability of $300,000 are reported. When the actual amount turns out to be $410,000 in Year Three, an additional $110,000 is recognized.
Regulation
Brittani holds a 30 percent ownership interest in the Holden Partnership. She has an adjusted basis in this business of $13,000. The partnership conveys cash of $4,000 to her along with land that had a tax basis to the partnership of $10,000 but a fair value of $17,000. The partnership is not going out of business so this transfer is a nonliquidating distribution. Once Brittani receives the cash and the land, what is the tax basis of the land on her personal financial records?
A - $9,000
B - $10,000
C - $13,000
D - $17,000
Answer is A
Nonliquidating distributions from a partnership are normally tax free. They simply reduce the partner’s basis in the partnership. If they are tax free, tax basis usually remains the same. Normally, then, the basis of $10,000 would move with the land and become the basis to Brittani. Normally, the basis in the partnership is reduced by this same $10,000. One major exception exists and that can be seen here. Keeping the basis means that Brittani would record the cash at $4,000 and the land at $10,000 (the previous basis). That transfer would reduce her basis in the partnership to a negative amount ($1,000). The rules hold that her basis in the partnership can only be reduced to zero by such a distribution. That means the reduction in her basis in the partnership can only be $13,000 as a maximum (down to zero). Cash has to be recorded at $4,000 so the other $9,000 of the reduction is the basis picked up by the owner for the land received. This alternative is required
because keeping the old basis would drop her basis in the partnership to a negative.
Auditing and Attestation
The Ace Corporation has prepared financial statements for December 31, Year One and the year then ended. The statements are scheduled to be issued to the public on February 19, Year Two. The statements are being audited by Jurgeson and Huff CPAs. Which of the following is the audit firm most likely to do during February of Year Two?
A – Test important internal control procedures to ensure they are working efficiently.
B – Perform analytical review procedures
C – Mail out positive confirmations for large accounts receivable balances.
D – Make an assessment of the inherent risk involved with the larger balance sheet accounts.
Answer is B
Internal control testing and assessment of inherent risk are both typically performed early in an audit because they help the auditors judge how much substantive testing must be performed to reduce overall audit risk to an acceptably low level. Confirmations are also mailed out early in the audit because the responses and any needed follow up can take a long time. Analytical procedures are carried out early in an audit as part of the inherent risk assessment. However, they are also performed again near the very end of the audit to help make sure that nothing has changed in the company records that might indicate that a possible misstatement has popped up at the end of the audit. In this way, the auditor does one last overview to highlight any account, balance, or ratio that no longer appears to be an acceptable amount.
BEC
It takes 10 pounds of plastic to make a widget under normal conditions and plastic normally costs $2 per pound. This year, a company buys 100,000 pounds of plastic at $2.20 per pound and uses 73,000 pounds to make 7,000 widgets. In a standard cost accounting system, what is the material price variance?
A - $14,000 unfavorable
B - $14,600 unfavorable
C - $15,400 unfavorable
D - $20,000 unfavorable
Answer is D
In a standard cost accounting system, a company determines the material price variance when materials are bought (other variances are created during production). Here, the company bought 100,000 pounds of plastic and paid $.20 more than the standard price for each pound. That is an unfavorable price variance of $20,000 (100,000 pounds times $.20).
I want to leave you with just two words:
ADD POINTS!!!!!
Lesson 53
From: Joe
(1) – I know a lot of you folks are putting on a last minute frantic push to pass one or more parts of the CPA Exam here at the end of the November window. The stress can be difficult and counter-productive. So, I want you to take 55 seconds and smile. Really, you will feel better. I think that will help you to do better. It will release some tension.
To encourage that smile: Go to the following URL and watch for all 55 seconds. If this doesn’t make you feel a bit better, a bit more rejuvenated, you may need to take the rest of the day off.
www.youtube.com/watch?v=XF_XJd7pLIY
By the way, the artist is my older son.
(2) – Good job on our survey question for last week:
“You are taking FAR on the CPA Exam. You have completed and submitted your first testlet. In the second testlet, the multiple-choice questions seem to have gotten harder. What does this mean?”
75 percent of you folks knew that this was great news. In Auditing, FAR, and Regulation, if you do well on the first testlet, the second testlet will be a bit harder. The same is true for the third testlet. So, if the questions seem to be getting harder, that means you have been doing well in the previous testlets which means that you are much more likely to pass.
(3) – Don’t forget: to unsubscribe, scroll to the bottom of this lesson and click on that link.
Don’t forget: to help someone pass the CPA Exam, forward this email along.
(4) – One of my former students was visiting last week. He is now a personal trainer at a gym. He made an interesting comment: “People pay me a lot of money to show them how to do exercises that they could easily download off the Internet for free. They must have too much money is all I can figure. But, I hope those people never catch on.”
Hmmm. People pay someone to give them help that they could get off the Internet for free. Does that sound familiar????
I know people who are paying $2,500 to large CPA Review Courses for information that we provide for free. Don’t you know that there are a lot of officials at those big review courses that are sitting around today with their fingers crossed saying “I hope those people never catch on.”
Before you spend that money, why not try out www.CPAreviewforFREE.com? Be a wise shopper. You worked hard for that money. Why give it away? Try us for one month. That’s all I ask. After that, if you still want to spend $2,500, the large programs already have their hands out.
(5) – For all of you folks who are going to be taking a section of the CPA Exam over the next two weeks, here are a list of last minute suggestions.
--First and foremost. Don’t overwork here at the end. It is not smart to go into the exam tired and burned out. As everyone knows, baseball season just ended and football season is in swing and basketball season is just beginning. You can learn a lot from smart athletes.
Athletes come into an important game having practiced hard but they really try to make sure (if they are smart) not to over train at the end. You want to be at your very strongest (in mind and body) on the day of the exam. So make sure that you get a normal amount of rest and that you get a normal amount of exercise (a brisk walk is always helpful to get the blood into your brain) and that you eat a normal amount of food. I cannot say this enough: do not work yourself into exhaustion and then wonder why you feel sluggish and slow and can’t seem to get going on the CPA Exam. College students do that all the time and then complain because they missed questions that they knew. Well???? Do not get into a weird routine at the last minute and then wonder why your mind does not react as it normally does.
The night before I took the CPA Exam, I went to a movie. It was a light comedy. I really wanted to walk into the exam (1) relaxed, (2) alert, and (3) focused. A good movie helps with all three.
--Second. As I have said many times, the CPA Exam is a mile wide and one inch deep so it really rewards the candidate who has some knowledge about all topics. Thus, no matter how you have prepared, go back through all of the topics one last time very quickly here at the end. Make sure that the essentials about each and every topic are fresh in your mind on test day. One of the difficulties of preparing for the CPA Exam is that the information tends to leak out of your brain pretty quickly. Things you knew well two weeks ago may start to seem foreign. Therefore, hit everything quickly one last time near the end.
--Third. Make a list of all the major topics and put them into order starting with your weakest area first. Take the top third of that list (the third where you are the weakest) and eliminate any minor topics (there are not many questions on prepaid rent or supplies). Then, spend 30-45 minutes of additional time on as many of those topics as you can. What you are trying to do is go to the areas where you are most likely to be able to add points to your score. Find big areas where you are weak; those are great places for last minute study. Remember, that we have hundreds of questions readily available for you at www.CPAreviewforFREE.com. Go to a topic and begin reading questions and reading answers. At the end, do that as fast as you can. Remember, you are not testing yourself; in your study, it is not important whether you get questions right or wrong. You are working to learn more and more. However, watch your time. It is more important to restrict yourself to
30 or so extra minutes on each of six major topics than spend three extra hours on one major topic.
--Fourth. Go to www.CPAreviewforFREE.com and under the section “CPA Exam Resources,” you should find an article titled “Structure of CPA Exam.” Read that article. Okay, you may well know some/much of this already. However, you might just pick up valuable points on what the exam is going to look like. You don’t want to walk into the exam site and be surprised by what you see.
--Fifth. Carefully, read all the information that you have been sent about the exam. The examination team has tried to anticipate everything you need to know in advance and they have included it with the “Notice To Schedule” they sent you. You do not want to waste time at the test site trying to figure out the rules that you are supposed to follow.
--Sixth. Plan in advance for time management. How much time is allowed on your exam and how are you going to allocate or make use of that time? Rushing through the exam and finishing early means that you have wasted time. Being slow and methodical and not finishing makes passing difficult. One key question: how much time do you plan to spend on each multiple-choice question? Everyone associated with the CPA Exam will tell you that you need to stay very aware of the time. To do that, know how much time you plan to spend on each question and then stick with it.
When I took the exam, there were actually five parts and I remember being so pleased that I finished each one with less than three minutes to spare. I might not have been the smartest candidate but I did a great job with time management.
--Seventh. As I indicate often, keep in mind that you do not have to be perfect. You do not have to get every question correct. You only want to pass. You only want to make 75. So, if you see a question that you do not know, eliminate as many answers as you can and take a guess. Then, don’t worry about it. If you see a question that is difficult, don’t let it get you rattled. You have no need for perfection. It is not the goal. You only want to pass.
--Eighth. During the exam, don’t let yourself get mentally tired and lazy. The perfect exam is where you are able to be as mentally “into the exam” on the last question as you were on the first. In college, students often get excited on a test and race out at a million miles an hour and then wear down and make all kinds of careless mistakes at the end. In sporting events, you have probably seen athletes who lead most of the game but just don’t have the stamina at the end and wind up losing. Just stay as consistent and careful as you go from the first minute to the last. Keep repeating: “be strong until it is over.”
In review courses, I often talk with the candidates about the five C’s as keys for success on the CPA Exam: calm, careful, consistent, confidence, and concentration. A pretty good recipe for success.
--Ninth. When it is over, forget about it. There is no reason to keep reliving the CPA Exam. The time to think about the CPA Exam is right now when there is something you can do to improve your score. Right now, you can study and prepare. After it is over, tell yourself that you did the best you could do at the time and put it out of your mind.
(6)—I once saw a big poster that said “Desire Creates Power.” I could not agree more. Success does not begin with power and knowledge and aptitude. Success begins with desire. Once you have the desire (to pass the CPA Exam, for example), then that desire will gradually help you develop the power, the knowledge, the confidence, and the understanding that you need to achieve success.
Without the desire, success is always difficult to achieve.
With desire, everyone can make it happen.
I cannot tell you that you are going to pass the CPA Exam before the end of November. I would love to say that but I don’t have a true basis for that assertion. However, I can tell you for sure that if you have the desire you will keep working and improving and getting better and more powerful and you will pass. Trust me---it will happen.
(7) – Time for some practice – time to add some points!!!
FAR
The Mozart Company is sued on December 31, Year One for $1 million. On that date, company officials believe it is reasonably possible that the loss will be $220,000. During Year Two, the situation gets worse. At the end of Year Two, officials for Beethoven now believe that is probable that the company will lose between $300,000 and $400,000. Every number in that range has an equal chance of being the actual loss. During Year Three, Beethoven settles the law suit for $410,000. What amount of loss is recognized in Year Three?
A - $10,000
B - $60,000
C - $110,000
D - $410,000
Answer is C
No amount of a contingency is recognized until (a) the loss is probable and (b) the amount is subject to a reasonable estimation. Hence, footnote disclosure is appropriate for Year One. In looking at Year Two, US GAAP specifies that when a contingent loss is probable but can only be estimated to within a range, the most likely number is recognized. If no number is most likely, the lowest number in that range is recognized. Therefore, in Year Two, a loss and liability of $300,000 are reported. When the actual amount turns out to be $410,000 in Year Three, an additional $110,000 is recognized.
Regulation
Brittani holds a 30 percent ownership interest in the Holden Partnership. She has an adjusted basis in this business of $13,000. The partnership conveys cash of $4,000 to her along with land that had a tax basis to the partnership of $10,000 but a fair value of $17,000. The partnership is not going out of business so this transfer is a nonliquidating distribution. Once Brittani receives the cash and the land, what is the tax basis of the land on her personal financial records?
A - $9,000
B - $10,000
C - $13,000
D - $17,000
Answer is A
Nonliquidating distributions from a partnership are normally tax free. They simply reduce the partner’s basis in the partnership. If they are tax free, tax basis usually remains the same. Normally, then, the basis of $10,000 would move with the land and become the basis to Brittani. Normally, the basis in the partnership is reduced by this same $10,000. One major exception exists and that can be seen here. Keeping the basis means that Brittani would record the cash at $4,000 and the land at $10,000 (the previous basis). That transfer would reduce her basis in the partnership to a negative amount ($1,000). The rules hold that her basis in the partnership can only be reduced to zero by such a distribution. That means the reduction in her basis in the partnership can only be $13,000 as a maximum (down to zero). Cash has to be recorded at $4,000 so the other $9,000 of the reduction is the basis picked up by the owner for the land received. This alternative is required
because keeping the old basis would drop her basis in the partnership to a negative.
Auditing and Attestation
The Ace Corporation has prepared financial statements for December 31, Year One and the year then ended. The statements are scheduled to be issued to the public on February 19, Year Two. The statements are being audited by Jurgeson and Huff CPAs. Which of the following is the audit firm most likely to do during February of Year Two?
A – Test important internal control procedures to ensure they are working efficiently.
B – Perform analytical review procedures
C – Mail out positive confirmations for large accounts receivable balances.
D – Make an assessment of the inherent risk involved with the larger balance sheet accounts.
Answer is B
Internal control testing and assessment of inherent risk are both typically performed early in an audit because they help the auditors judge how much substantive testing must be performed to reduce overall audit risk to an acceptably low level. Confirmations are also mailed out early in the audit because the responses and any needed follow up can take a long time. Analytical procedures are carried out early in an audit as part of the inherent risk assessment. However, they are also performed again near the very end of the audit to help make sure that nothing has changed in the company records that might indicate that a possible misstatement has popped up at the end of the audit. In this way, the auditor does one last overview to highlight any account, balance, or ratio that no longer appears to be an acceptable amount.
BEC
It takes 10 pounds of plastic to make a widget under normal conditions and plastic normally costs $2 per pound. This year, a company buys 100,000 pounds of plastic at $2.20 per pound and uses 73,000 pounds to make 7,000 widgets. In a standard cost accounting system, what is the material price variance?
A - $14,000 unfavorable
B - $14,600 unfavorable
C - $15,400 unfavorable
D - $20,000 unfavorable
Answer is D
In a standard cost accounting system, a company determines the material price variance when materials are bought (other variances are created during production). Here, the company bought 100,000 pounds of plastic and paid $.20 more than the standard price for each pound. That is an unfavorable price variance of $20,000 (100,000 pounds times $.20).
I want to leave you with just two words:
ADD POINTS!!!!!
Tuesday, November 3, 2009
The Possibility of Having a Dream Come True
The Possibility of Having a Dream Come True
70 Weeks of Operation and 6,681,873 Page Views (without a penny spent on marketing)
Lesson 52
From: Joe
(1) – We crossed 6.6 million page views this past week and we are nearing our first major goal of averaging 100,000 page views per week. Considering that we had 1,920 page views in our first week of operation (and that we have spent absolutely nothing to date on marketing), that is quite a growth curve. Thanks for your continued help. We may not always say it but we always think it and hope you know how much we appreciate your willingness to aid our growth by passing along information about our site.
(2) – Our survey question last week was: What percentage of the multiple-choice questions on each part of the CPA Exam are actually graded and included in arriving at a grade? The survey results showed:
--80 percent – chosen by 36 percent of the respondents
--90 percent – chosen by 27 percent of the respondents
--75 percent – chosen by 21 percent of the respondents
--100 percent – chosen by 15 percent of the respondents
Good job: The answer is 80 percent. On all four of the sections, 20 percent of the multiple-choice questions are included solely so that the examiners can determine if they are statistically valid. If they prove to be valid, they will later be entered into the exam for real. But, at first, they are just being tested for future use. And, no, you cannot tell which ones count and which ones do not count.
However, I always tell candidates (and I think it is frequently true) that if you get a few questions that seem rather bizarre, they are probably the ones being tested so do not get too upset if you don’t know the answers. Those do not affect your grade.
Our next survey on the CPA Exam is in the upper left hand corner of this page.
Read it and give us your best guess for the answer. The more you know about the CPA Exam, the better off you are.
(3) – Always enjoy passing along emails that I get from our “customers” (is a person a customer if they don’t have to pay anything?):
FROM AE: Your efforts have been a great help to me! I have used your website along with a big name review course to help me pass the other three sections and plan to use it to help me prepare for FAR. And by-the-way, you're right about there not being many out there who are willing to truly help others pass the CPA exam. Rather there are many out there who are willing to take our money and then they want more if we're unable to complete their course in the allotted time...very frustrating!! Also, thank you for the encouraging e-mails. They have helped keep me going!
(4) – And, always remember: if you want to unsubscribe, it is easy. Go to the end of the email lesson and there is always a link that will allow you to unsubscribe.
(5) – I was talking with one of my students yesterday about a book she had read. She mentioned one of her favorite quotes from the book: “It’s the possibility of having a dream come true that makes life interesting.”
A lot of people talk with me about the CPA Exam. They always tend to ask the same questions:
--“What good is this going to do me?”
--“What if I fail?”
--“Is it really as much work as I’ve heard?”
--“How will I ever find time to do the studying?”
Those are very important questions and I always try to answer them as best as I can. But, they all miss a very essential point. Life is just more interesting if you are doing things that push you to be better. Life is more fun if you are willing to take up challenges. Life is more exciting if you risk a little bit. Life is just better all around if you have dreams that are pushing you forward. Even alone those are great reasons for taking the CPA Exam.
I know a lot of people who live wonderfully ho-hum lives.
--They never take any risks so they never have to worry about failure.
--They never try to squeeze in any adventure but, at the end of the day, their grass is mown and the dishes are washed.
Is that what you live for: mown grass and washed dishes? Is that what will be carved on your tombstone: “the grass was always mown; the dishes were always clean.”
Surely, there is more excitement to life than avoiding challenges. Surely, there is more fun than getting your bills paid at the same time every week.
You need a dream!! Yes, YOU do. Something that, when things get really quiet, you can think about and get your blood pumping. The book the student read was right: It is the mere possibility of having a dream come true that makes life interesting. That possibility gives us a reason to get up in the morning and a reason not to give up when the going gets tough.
I know for a lot of you, passing the CPA Exam is your current dream. You’ve probably heard about the CPA Exam since you were a sophomore in college and you’ve always wondered whether you could do the work necessary to pass.
It is a great time to start turning that dream into a reality.
It is time for the possibility of that dream to help make your life interesting again.
And, you cannot even use the old excuse: “I simply cannot afford to take a review course.” Yeah, up until 70 weeks ago, that was a genuine excuse. CPA Exam review courses have always been expensive (and often poorly organized and taught). They often provided more of an obstacle than a help.
Now, of course, www.CPAreviewforFREE.com offers you 2,100 great questions and well written answers. Hundreds of folks, just like you, have passed this way. So, can you.
It is time to stop making excuses. Excuses are easy. Excuses are cheap. It’s time to put away those excuses and shoot for a real dream. It is time to make life interesting again.
I know it will be hard work but you can do it. And, we are delighted to be here to help.
(6) – Speaking of former students, I joined Facebook some months ago. To date, I have not sent out any messages of my own but I do get to keep up with some of my former students. Yesterday (yeah, yesterday was a busy day for me), one of my former students posted the following quote from Booker T. Washington: “Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome.”
It seems to me that we spend too much worrying about whether we have achieved success. Oh sure, I guess we would all like to be someone like Bill Gates and have billions upon billions of dollars. But, at the end of the day, you should judge yourself by how far you have come and the obstacles you have conquered.
If there were no problems in life, success would be easy. But, in truth, there are problems. Some problems are minor and easy to get beyond but a lot of problems are truly serious and provide a real mountain for us to climb.
I have had students make 99. I have been pleased for them but they were often very bright people with a great education. I’m still pleased but those are not my favorite “success stories.”
I have also had students who have worked even harder and made just 75 but I was even more pleased for them because I knew the obstacles they had to overcome.
--I have seen people battle through sickness to take the CPA Exam.
--I have seen people have emergency appendectomies a few days before the exam and still pass.
--I have had people who were fired from their jobs two days before the exam and still managed to get back up and go in there and do well.
--I have had people whose spouses have left them right before the exam but who fought back and still took it and did fine.
--I have had people who have dealt with the death of a loved one right before the exam and still went in and gave it their best shots.
--I have had people have car wrecks on the way to the exam but still managed to get there and make 75s.
There are obstacles out there – you have to be ready to push through them.
Yeah, life can really throw obstacles at you. Win, lose, or draw, I’m always most proud of those people who don’t let those obstacles defeat them. They fought back despite overwhelming problems.
Those are the real winners. Those are the people that I really respect.
(7) – As always, time for a bit of practice. And, as usual, my FAR question comes from my intermediate accounting II course for tomorrow.
FAR
A company has a defined benefit pension plan with a projected benefit obligation of $4 million. On January 1, Year One, the plan is amended so that employees can begin to draw benefits at the age of 63 instead of 65. As a result, the projected benefit obligation goes up from $4 million to $4.7 million. The $700,000 jump is referred to as a prior service cost. Which of the following is true about the reporting of the prior service cost?
A – It is expensed immediately.
B – It is never expensed unless it becomes bigger than 10 percent of the projected benefit obligation.
C – It is placed into stockholders’ equity on January 1, Year One, and then systemically moved into pension expense over time.
D – The prior service cost is either recorded as a prior period adjustment or is charged to expense immediately depending on the type of change.
Answer is C
There is no immediate expense effect that comes from a prior service cost. Instead, the entire $700,000 is recorded within “accumulated other comprehensive income” which is a category within stockholders’ equity on the balance sheet. Over time, this amount is moved systematically from stockholders’ equity to pension expense which is reported on the income statement.
BEC
Dr. Jekyl and Dr. Kildare are two dentists who run a practice together as partners. Dr. Jekyl invested $300,000 to start the business while Dr. Kildare only invested $100,000. Dr. Jekyl works 20 hours per week for the business whereas Dr. Kildare works 40 hours per week. Dr. Jekyl charges $80 per hour for his dental services while Dr. Kildare charges $120 per hour for her dental services. In the first year of operation, the business made a profit of $200,000. No agreement has been established as to the allocation of income to the partners. What is the most likely allocation?
A - $150,000 to Jekyl and $50,000 to Kildare
B - $100,000 to Jekyl and $100,000 to Kildare
C - $66,667 to Jekyl and $133,333 to Kildare
D - $80,000 to Jekyl and $120,000 to Kildare
Answer is B
Partners have every right to allocate income in any way they see fit. Such systems often involve capital investments, amount of work each period, or their level of expertise. However, if no agreement is made, everyone should be uncomfortable trying to guess at the intent of the parties involved. Therefore, without an agreement, income is allocated evenly between the partners. If there is an agreement as to profits but no mention of losses, the agreement used for profits is assumed to apply to losses.
Regulation
What form must most private not-for-profit organizations file annually with the federal government as a result of their tax-exempt status?
A – Form 1065
B – Form 8-K
C – Form 990
D – Form 1120 NFP
Answer is C
The information form that a not-for-profit organization files with the government is the Form 990. A copy can be found at the following website to indicate the type of information that the organization must provide: www.irs.gov/pub/irs-pdf/f990.pdf
Auditing & Attestation
Which of the following sentences is found in the opening paragraph of an unqualified audit report?
A – An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements.
B – These financial statements are the responsibility of the company’s management.
C – We believe that our audit provides a reasonable basis for our opinion.
D – An audit includes assessing the accounting principles used and significant estimates made by management.
Answer is B
The opening or introductory paragraph indicates which financial statements were audited and the general responsibility of the management (for the financial statements) and the independent auditors. The other three statements in this question come from the second (or scope) paragraph which seeks to describe the general idea of an audit so that the reader will be aware of the level of activity that has been performed.
Have a great week – if you are moving close to taking a part of the exam, then remember that your responsibility is to work each day to add one or two points. Keep your goals reasonable and that is, I believe, a very reasonable goal.
If you need a study break and want to see something that I found both beautiful and amazing, go to:
www.youtube.com/watch?v=518XP8prwZo
It won’t add any points to your CPA Exam score but I still think it is worth 8 minutes and 33 seconds of your time.
70 Weeks of Operation and 6,681,873 Page Views (without a penny spent on marketing)
Lesson 52
From: Joe
(1) – We crossed 6.6 million page views this past week and we are nearing our first major goal of averaging 100,000 page views per week. Considering that we had 1,920 page views in our first week of operation (and that we have spent absolutely nothing to date on marketing), that is quite a growth curve. Thanks for your continued help. We may not always say it but we always think it and hope you know how much we appreciate your willingness to aid our growth by passing along information about our site.
(2) – Our survey question last week was: What percentage of the multiple-choice questions on each part of the CPA Exam are actually graded and included in arriving at a grade? The survey results showed:
--80 percent – chosen by 36 percent of the respondents
--90 percent – chosen by 27 percent of the respondents
--75 percent – chosen by 21 percent of the respondents
--100 percent – chosen by 15 percent of the respondents
Good job: The answer is 80 percent. On all four of the sections, 20 percent of the multiple-choice questions are included solely so that the examiners can determine if they are statistically valid. If they prove to be valid, they will later be entered into the exam for real. But, at first, they are just being tested for future use. And, no, you cannot tell which ones count and which ones do not count.
However, I always tell candidates (and I think it is frequently true) that if you get a few questions that seem rather bizarre, they are probably the ones being tested so do not get too upset if you don’t know the answers. Those do not affect your grade.
Our next survey on the CPA Exam is in the upper left hand corner of this page.
Read it and give us your best guess for the answer. The more you know about the CPA Exam, the better off you are.
(3) – Always enjoy passing along emails that I get from our “customers” (is a person a customer if they don’t have to pay anything?):
FROM AE: Your efforts have been a great help to me! I have used your website along with a big name review course to help me pass the other three sections and plan to use it to help me prepare for FAR. And by-the-way, you're right about there not being many out there who are willing to truly help others pass the CPA exam. Rather there are many out there who are willing to take our money and then they want more if we're unable to complete their course in the allotted time...very frustrating!! Also, thank you for the encouraging e-mails. They have helped keep me going!
(4) – And, always remember: if you want to unsubscribe, it is easy. Go to the end of the email lesson and there is always a link that will allow you to unsubscribe.
(5) – I was talking with one of my students yesterday about a book she had read. She mentioned one of her favorite quotes from the book: “It’s the possibility of having a dream come true that makes life interesting.”
A lot of people talk with me about the CPA Exam. They always tend to ask the same questions:
--“What good is this going to do me?”
--“What if I fail?”
--“Is it really as much work as I’ve heard?”
--“How will I ever find time to do the studying?”
Those are very important questions and I always try to answer them as best as I can. But, they all miss a very essential point. Life is just more interesting if you are doing things that push you to be better. Life is more fun if you are willing to take up challenges. Life is more exciting if you risk a little bit. Life is just better all around if you have dreams that are pushing you forward. Even alone those are great reasons for taking the CPA Exam.
I know a lot of people who live wonderfully ho-hum lives.
--They never take any risks so they never have to worry about failure.
--They never try to squeeze in any adventure but, at the end of the day, their grass is mown and the dishes are washed.
Is that what you live for: mown grass and washed dishes? Is that what will be carved on your tombstone: “the grass was always mown; the dishes were always clean.”
Surely, there is more excitement to life than avoiding challenges. Surely, there is more fun than getting your bills paid at the same time every week.
You need a dream!! Yes, YOU do. Something that, when things get really quiet, you can think about and get your blood pumping. The book the student read was right: It is the mere possibility of having a dream come true that makes life interesting. That possibility gives us a reason to get up in the morning and a reason not to give up when the going gets tough.
I know for a lot of you, passing the CPA Exam is your current dream. You’ve probably heard about the CPA Exam since you were a sophomore in college and you’ve always wondered whether you could do the work necessary to pass.
It is a great time to start turning that dream into a reality.
It is time for the possibility of that dream to help make your life interesting again.
And, you cannot even use the old excuse: “I simply cannot afford to take a review course.” Yeah, up until 70 weeks ago, that was a genuine excuse. CPA Exam review courses have always been expensive (and often poorly organized and taught). They often provided more of an obstacle than a help.
Now, of course, www.CPAreviewforFREE.com offers you 2,100 great questions and well written answers. Hundreds of folks, just like you, have passed this way. So, can you.
It is time to stop making excuses. Excuses are easy. Excuses are cheap. It’s time to put away those excuses and shoot for a real dream. It is time to make life interesting again.
I know it will be hard work but you can do it. And, we are delighted to be here to help.
(6) – Speaking of former students, I joined Facebook some months ago. To date, I have not sent out any messages of my own but I do get to keep up with some of my former students. Yesterday (yeah, yesterday was a busy day for me), one of my former students posted the following quote from Booker T. Washington: “Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome.”
It seems to me that we spend too much worrying about whether we have achieved success. Oh sure, I guess we would all like to be someone like Bill Gates and have billions upon billions of dollars. But, at the end of the day, you should judge yourself by how far you have come and the obstacles you have conquered.
If there were no problems in life, success would be easy. But, in truth, there are problems. Some problems are minor and easy to get beyond but a lot of problems are truly serious and provide a real mountain for us to climb.
I have had students make 99. I have been pleased for them but they were often very bright people with a great education. I’m still pleased but those are not my favorite “success stories.”
I have also had students who have worked even harder and made just 75 but I was even more pleased for them because I knew the obstacles they had to overcome.
--I have seen people battle through sickness to take the CPA Exam.
--I have seen people have emergency appendectomies a few days before the exam and still pass.
--I have had people who were fired from their jobs two days before the exam and still managed to get back up and go in there and do well.
--I have had people whose spouses have left them right before the exam but who fought back and still took it and did fine.
--I have had people who have dealt with the death of a loved one right before the exam and still went in and gave it their best shots.
--I have had people have car wrecks on the way to the exam but still managed to get there and make 75s.
There are obstacles out there – you have to be ready to push through them.
Yeah, life can really throw obstacles at you. Win, lose, or draw, I’m always most proud of those people who don’t let those obstacles defeat them. They fought back despite overwhelming problems.
Those are the real winners. Those are the people that I really respect.
(7) – As always, time for a bit of practice. And, as usual, my FAR question comes from my intermediate accounting II course for tomorrow.
FAR
A company has a defined benefit pension plan with a projected benefit obligation of $4 million. On January 1, Year One, the plan is amended so that employees can begin to draw benefits at the age of 63 instead of 65. As a result, the projected benefit obligation goes up from $4 million to $4.7 million. The $700,000 jump is referred to as a prior service cost. Which of the following is true about the reporting of the prior service cost?
A – It is expensed immediately.
B – It is never expensed unless it becomes bigger than 10 percent of the projected benefit obligation.
C – It is placed into stockholders’ equity on January 1, Year One, and then systemically moved into pension expense over time.
D – The prior service cost is either recorded as a prior period adjustment or is charged to expense immediately depending on the type of change.
Answer is C
There is no immediate expense effect that comes from a prior service cost. Instead, the entire $700,000 is recorded within “accumulated other comprehensive income” which is a category within stockholders’ equity on the balance sheet. Over time, this amount is moved systematically from stockholders’ equity to pension expense which is reported on the income statement.
BEC
Dr. Jekyl and Dr. Kildare are two dentists who run a practice together as partners. Dr. Jekyl invested $300,000 to start the business while Dr. Kildare only invested $100,000. Dr. Jekyl works 20 hours per week for the business whereas Dr. Kildare works 40 hours per week. Dr. Jekyl charges $80 per hour for his dental services while Dr. Kildare charges $120 per hour for her dental services. In the first year of operation, the business made a profit of $200,000. No agreement has been established as to the allocation of income to the partners. What is the most likely allocation?
A - $150,000 to Jekyl and $50,000 to Kildare
B - $100,000 to Jekyl and $100,000 to Kildare
C - $66,667 to Jekyl and $133,333 to Kildare
D - $80,000 to Jekyl and $120,000 to Kildare
Answer is B
Partners have every right to allocate income in any way they see fit. Such systems often involve capital investments, amount of work each period, or their level of expertise. However, if no agreement is made, everyone should be uncomfortable trying to guess at the intent of the parties involved. Therefore, without an agreement, income is allocated evenly between the partners. If there is an agreement as to profits but no mention of losses, the agreement used for profits is assumed to apply to losses.
Regulation
What form must most private not-for-profit organizations file annually with the federal government as a result of their tax-exempt status?
A – Form 1065
B – Form 8-K
C – Form 990
D – Form 1120 NFP
Answer is C
The information form that a not-for-profit organization files with the government is the Form 990. A copy can be found at the following website to indicate the type of information that the organization must provide: www.irs.gov/pub/irs-pdf/f990.pdf
Auditing & Attestation
Which of the following sentences is found in the opening paragraph of an unqualified audit report?
A – An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements.
B – These financial statements are the responsibility of the company’s management.
C – We believe that our audit provides a reasonable basis for our opinion.
D – An audit includes assessing the accounting principles used and significant estimates made by management.
Answer is B
The opening or introductory paragraph indicates which financial statements were audited and the general responsibility of the management (for the financial statements) and the independent auditors. The other three statements in this question come from the second (or scope) paragraph which seeks to describe the general idea of an audit so that the reader will be aware of the level of activity that has been performed.
Have a great week – if you are moving close to taking a part of the exam, then remember that your responsibility is to work each day to add one or two points. Keep your goals reasonable and that is, I believe, a very reasonable goal.
If you need a study break and want to see something that I found both beautiful and amazing, go to:
www.youtube.com/watch?v=518XP8prwZo
It won’t add any points to your CPA Exam score but I still think it is worth 8 minutes and 33 seconds of your time.
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