Nine Tips for Taking the exam

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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!!!!!