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December 22, 2009
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www.CPAreviewforFREE.com
Congratulations on All Your Work in 2009
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Lesson 58
From: Joe
(1) – Happy Holidays!!! from all of us here at www.CPAreviewforFREE.com. We hope you have a great and wonderful holiday season and that 2010 turns out to be the very best year of your entire life. Go for it!!!
I am actually sitting here in Richmond looking out my window on most of the 15 inches of snow that we had this past week-end (which appears to be very intent on hanging around). It is amazing how much work you can get accomplished if you cannot get your car down your very steep driveway.
(2) – FACEBOOK - I just finished posting my 17th tip in my “30 tips in 30 days” program on Facebook. This one was on Joe’s own “Four C’s for Success on the CPA Exam.” If you are interested in signing up to get these, go to www.facebook.com and search for CPAreviewforFREE and sign up.
(3) – TEXTBOOK - I have written some over the past few months about my new textbook that will be coming out in just the next few days. It is a free on-line book. If you are a college student or a college professor and want to learn more, here is a story about my writing of this book.
news.richmond.edu/features/article/www/690/award-winning-accounting-professor-keeps-teaching-fresh-after-30-years.html
If you are interested in actual information about the textbook itself, you can go to (tell your teachers to have a look):
www.flatworldknowledge.com/printed-book/1638
I have poured three years of my life into that book – I’ll let you decide whether that was a good allocation of time or not.
(4) – UNSUBSCRIBE – If you should ever decide that you are ready to stop hearing from us, you can scroll to the bottom of this lesson (or any other email lesson) and click on the box and unsubscribe. We certainly love having you but we’ll leave it up to you as to how long you stick around (have you ever noticed that most emails hide the “unsubscribe message” so that you can barely find it – we want you to stay only as long as you want to).
(5) – WHO STUDIES THE MOST – We get weekly statistics about the traffic on our site. We typically have visitors from about 80 locations every week. The 50 states of the United States make up one location and then we get traffic from many other locations around the world. We always get extra information about the traffic from the top 10 locations each week. One of my habits is to look and see which of those top locations actually studies the most. For some reason, that seems interesting to me. I figure that indicates who is really most interested in learning the material and passing.
Last week, the winner was the Philippines. The average person from the Philippines stayed on www.CPAreviewforFREE.com for 39 minutes and 8 seconds each time they visited. That was following closely by Puerto Rico with an excellent 34 minutes and 28 seconds. The United States was a respectable 21 minutes and 51 seconds.
Okay, if you are not from one of those three locations, spend some extra time this week on the site so that you can get your area into our “who studies the most” designation.
(6) – SALUTE – I want to pause for a moment here as we near the end of 2009 to raise a salute to every single one of you who studied for the CPA Exam this year whether you have taken it yet or not. It takes an incredible amount of time, energy, and perseverance to get yourself ready for this exam. In some ways, it is like preparing for the Olympics. You should be very pleased about all that you have been able to accomplish this year. No one ever gets as much done as they would like but you took a good shot at it. Anyone can talk about preparing – you did it. I realize that the one and only goal is to pass the CPA Exam but I just have to tell you how pleased I am that you have worked so hard in 2009.
Whether you pass or fail, the CPA Exam is an incredible challenge. One of the hard parts is that so few people really understand how difficult it is – until you have done it, you cannot appreciate the amount of effort you have to expend to prepare. Well, I did that preparation myself and I do understand. So, I want to pass along my praise.. You have taken on a real challenge and you have not backed down. Good for you!!!!
One of my all-time favorite quotes comes from President Theodore Roosevelt. I was reminded of this quote because it was mentioned in Time magazine this week. I have used this quote often and it really does mirror my feelings. It applies to all of you who have worked to make yourselves better this year so that you can pass the CPA Exam.
From President Roosevelt: “The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again… who spends himself in a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who at the worst, if he fails, at least he fails while daring greatly.”
Strive valiantly, my friends.
This is a worthy cause.
What more could I possibly add?
(7) – PRACTICE
FAR
Company A buys Company B and pays $5 million more than the fair value of the identifiable assets and liabilities. The $5 million was recorded as Goodwill. Which of the following statements is true?
A – Goodwill is amortized to expense over 40 years.
B – The rules have changed so that goodwill is now expensed immediately.
C – Goodwill must be checked for impairment periodically and reduced if impaired.
D – Goodwill is amortized over an appropriate period of 40 years or less.
Answer is C
Goodwill is no longer amortized. It is recorded as an intangible asset on a consolidated balance sheet. This reported balance must then be checked periodically for possible impairment. If impaired, it is reduced and a loss recognized.
BEC
A company has seven divisions. The Blue Division is very slow at sending out invoices so that cash collections are delayed. The management of the Blue Division looks at the invoice systems operating within the other six divisions and discovers that the Green Division has the best practices in this area of the business. Therefore, where practical, they adopt some of these practices for use by the Blue Division. What is this process called?
A – Maximization of Time
B – Benchmarking
C – Quantum Time Theory
D – Hagler’s Theory of Routine Processes
Answer is B
Company officials should always be looking for better ways to do things so that their own organization is able to become more efficient on a continuous basis. Comparisons should be made between the way that activities are executed by the organization and the procedures carried out by others, in other divisions and even in other companies. The process of discovering weaknesses and using the results obtained from others to create improvement is known as benchmarking.
Auditing and Attestation
The Waynesboro Corporation has recently installed a new computer payroll processing program. Before the program is used to compute actual payroll checks for the employees, test data is going to be run through the computer to see how it would be processed. Which of the following is least likely to be tested in this manner?
A – Two checks requested for the same employee
B – A check requested for an employee who quit two months earlier.
C – A check requested for an employee working more than 60 hours per week.
D – A check requested for an employee paid an hourly rate of $12 per hour.
Answer is D
Test data hopes to verify that the computer will produce an error report where there is a problem (such as in A and B) or a potential problem (such as in C) that must be cleared before actual processing proceeds. The fact that some employees are paid hourly wages is not a problem and there is nothing suspicious about a rate of $12 per hour (roughly $24,000 per year).
Regulation
Jay Wilkinson serves as the host at a fancy restaurant in New Orleans. As such, he wears a nice jacket so that he has an appropriate professional look. However, he must pay $30 per week to have the jacket cleaned and looking nice. How much of the cleaning costs can he deduct as a miscellaneous itemized deduction on his income tax return?
A – Zero
B – 20 percent of the amount spent
C – 50 percent of the amount spent
D – 100 percent of the amount spent
Answer is A
If these costs were incurred as ordinary and necessary expenses of traveling away from home for the person’s business, profession, or job, they are deductible. However, this expense here was not during business travel and is, therefore, not deductible. Most employees are expected to wear clean clothes while at work but no deduction is allowed for that cleaning. The fact that it was a nice jacket worn at a fancy restaurant is not important to the tax laws.
Have a wonderful and happy holiday!!!
Hug, at least one person you love – in fact, hug a lot of people that you love.
Joe Hoyle
Co-Founder
CPA Review for FREE
Wednesday, December 30, 2009
Tuesday, December 22, 2009
You Have a Wonderful Opportunity
You Have a Wonderful Opportunity
76 Weeks of Operation and 7,631,253 Page Views (without a penny spent on marketing)
Lesson 57
From: Joe
(1) – FACEBOOK We have now sent out 10 tips in our 30 Tips in 30 Days program on Facebook. After the 30 days are up, I’d like to continue to do something
similar 2-3 times per week. Or maybe we’ll just go for a 60 Tips in 60 Days program.
If you want to receive our daily tips on Facebook, here are the directions: If you are already a member of Facebook, type in "CPAreviewforFREE" in
the search box to get to our page. If you are not a member, go to www.facebook.com and create an account. Apparently it is easy (even for an older time like
me) because we are adding fans at a very nice pace.
(If you have any trouble signing up because you are not a Facebook person, hit reply and we’ll have our Facebook expert contact you about getting started.)
(2) – Whenever you get ready to stop receiving these weekly email lessons, you can unsubscribe by scrolling to the bottom of any lesson. Click on the link and
you’ll be off.
However, if it were up to us, we’d just as soon have you stay. We are well over 10,000 subscribers and I can hardly wait to have 20,000 or even 100,000. The
cost is the same for us. So, stay for as long as you wish.
And, tell your friends. In fact, if you are looking for just the perfect holiday gift for a loved one, remember that a subscription to our email lessons
might just be the thing that would brighten up that person’s life. Plus, the cost is excellent (free).
(3) – My wife was working last Saturday so I took my two daughters to see the movie: The Princess and the Frog. Okay, it is a cartoon so it probably is not
going to rival The Godfather. But, it did have an excellent message: “You can do anything that you set your mind on.” The heroine was a child who was very
poor but wanted to start a restaurant of her own and that was the message her father kept pushing. So, she worked double and triple shifts to make that dream
come true.
Well, in all honesty, I do not know that you can do every single thing that you set your mind on. There are a few dreams (a friend of mine dreams of swimming
in the Olympics, for example) that are a bit unlikely. However, I will tell you exactly what I do believe:
--If you don’t want something badly enough to set your mind on it, you don’t really want it.
--If you don’t want something badly enough to do the work, you don’t really want it.
--If you don’t want something badly enough, you are probably not going to get it.
So, the question I would pose to you, today, on December 14, 2009, is: how badly do you want to pass the CPA Exam? Simply question but the answer can be
complicated. Everyone will say that they are dying to pass but that is just “lip service” – how badly do you really want to pass?
I can tell you two ways that you can find out for yourself.
First, there are times every day when you can study or you can do something that is more interesting.
You can study or you can watch television.
You can study or you can read a magazine.
You can study or you can go to a movie.
Count how often each day “You can study” wins. If it is 80 percent or more of the time, then you are probably serious about passing the CPA Exam. It doesn’t
have to be 100 percent of the time but it ought to be a solid majority. Study needs to win very frequently.
When faced with temptation, if you choose to study most of the time that is a great sign that you really have set your mind on passing.
Second, I have said often in these email lessons that you should plan out how many hours per day (on the average) that you want to study. Are you able to
study one hour each day, 90 minutes each day, two hours each day or what? In your life, what is a reasonable goal?
Then, of course, keep track of the number of days that you are able to hit that goal. Again, it doesn’t have to be 100 percent of the time but if you are not
able to meet the hourly goal at least 70-80 percent of the time, it may be that you just think you want to pass the CPA Exam but you have not really set your
mind on passing.
“You can do anything that you set your mind on.”
(4) – Over the years in these email lessons, I have written several times about Thomas Edison, one of the most successful people in history and, apparently,
one of the hardest working people in history (hmm, could there be a connection?).
Someone must have read those previous lessons and remembered them because I received the following Thomas Edison quote in an email:
“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
I love the idea that the CPA Exam represents an “opportunity.” I often hear the CPA Exam described in negative terms such as “painful,” “torturous,” “cruel,”
and the like. But that makes the whole process seem like drudgery. And, I think you are so much better off if you can adopt a different mindset.
Participating in the Olympics would be an opportunity.
Playing in the Super Bowl would be an opportunity.
Taking the field in the World Series would be an opportunity.
So, why is the CPA Exam not an “opportunity” – it gives you the chance to pit yourself against the best known accounting exam in the history of the world. It
is an exam that you can pass but only if you do your best. It is an exam that is recognized throughout the world as the pinnacle of achievement in the
accounting profession.
Yeah, it really does qualify as an opportunity.
But, as Edison says, people often miss their greatest opportunities because they “look like work.” I know we all love to play and have fun but some of the
greatest thrills in my life have come from taking on a challenging opportunity—one that required the best of me every day, one that required me to put in some
serious work.
Work on your mindset. Every single morning ask yourself to describe the CPA Exam in just one word. That is not a bad exercise. That one word may not
always be “opportunity” depending on how you are feeling on that day but, hopefully, you will view it as an opportunity on most days.
That is always a good start to any day.
(5) – Now for a little practice. Work these questions today and see how you do. Wait 7 days and try them again. Obviously, what you want is a higher
score the second time. That is what you want: progress.
Good luck – go get them!!!
FAR
You buy two investments in equity securities. Each one cost $7,000 and each one goes up to $10,000 in value by the end of the year. One was a trading
security and one was available-for-sale. Each company declared a cash dividend on December 1 of the current year, payable to owners on record as of December
26. You received two dividend checks of $400 each on January 8 of the following year. Which of the following statements is true? (Assume that you have
not chosen to account for the available-for-sale security as if it were a trading security.)
A – Your net income goes up a total of $3,000 because of each investment.
B – Your net income goes up a total of $3,400 because of each investment.
C – Your net income goes up $3,400 because of the trading security but $400 because of the available-for-sale security.
D – Your net income goes up $3,000 because of the trading security but is unchanged because of the available-for-sale security.
Answer is C
The dividend received on both investments is recognized as revenue in the current period because the date of record (December 26) is in the current period. In
addition, the $3,000 increase in value of the trading security is also recognized within net income (for a total of $3,400). However, the increase in value
of the available-for-sale security is reported within accumulated other comprehensive income that appears in stockholders’ equity and not within net income.
Only the dividend affects net income in connection with the available-for-sale security.
Auditing and Attestation
A CPA firm is auditing the financial statements prepared by the Lion Corporation for the year ending December 31, Year One. The auditors are concerned that a
number of accounts payable were not included in the year-end liabilities. Which of the following audit procedures would help the auditors make certain that
the accounts payable balance is not understated?
A – Confirm a sample of the year-end accounts payable balances.
B – Review the cause for the cash disbursements made in the first month or two of Year Two.
C – Compare the balances in accounts payable to receiving reports created by the company.
D – Check the math and extensions on the accounts payable balances recorded during the last month of Year One.
Answer is B
A, C, and D involve the examination of balances that were already recorded prior to the end of Year One. However, that is not the problem that is suspected
by the auditors. The auditors are concerned about payable balances that were omitted in Year One. Only answer B looks at transactions that might not have
been recorded appropriately in Year One. The auditors will look at cash disbursements in Year Two and determine when the liability was created and whether it
was recorded in the correct time period.
Regulation
James Miller operates a wine shop as a sole proprietorship. On a Wednesday evening, he holds a meeting with several of his suppliers. The meeting lasts for
several hours as they discuss various wines that will become available during the following year. After the meeting, Miller takes the entire group to a
local minor league baseball game and pays for the entire event. How much of this cost can he deduct for income tax purposes?
A – Zero
B – Twenty percent
C – Fifty percent
D – All of it
Answer is C
Fifty percent of entertainment expenses can be deducted for tax purposes as long as it is directly related or associated with the active conduct of the
taxpayer’s trade or business. This rule is met if the entertainment precedes or follows a substantial business discussion. That rule is met in this
situation.
BEC
Lenit Corporation recently acquired widgets from a company in the country of Becktle where the currency is the romtag. Each romtag is currently worth $.40
and Lenit must pay 100,000 romtags in 60 days (value of $40,000). The treasurer for Lenit believes that the value of the romtag is going to go up over the
next 60 days so that a more valuable currency will have to be paid and money will be lost. What action is the treasurer most likely to take?
A - Acquire a forward exchange contract that allows the company to buy 100,000 romtags in 60 days for exactly $.41.
B - Sell the widgets in the U. S. as quickly as possible even if they must be sold at a loss.
C - Buy the next batch of widgets in some other country.
D - Begin production of widgets in the U. S.
Answer is A.
The fluctuation of currency values is always a concern but one that can be managed through a hedging arrangement. The company has a 100,000 romtag payable.
To create a hedge, the company needs to establish a 100,000 romtag receivable. The forward exchange contract is set up here so that the company will get
100,000 romtags in 60 days. That is a receivable. Any change in the value of the romtag will cause equal and offsetting changes in the receivable and the
payable. Thus, a gain on one cancels out a loss on the other. The company does have to pay $41,000 for the romtags that will be received which is $1,000
more than the current value of the liability. That is the cost of establishing the hedge. The company knows that amount and has judged it to be more
reasonable than the uncertainty of waiting to see what paying 100,000 romtags will cost the company in 60 days.
Have a great week
Work hard
Accomplish everything you set out to do.
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
76 Weeks of Operation and 7,631,253 Page Views (without a penny spent on marketing)
Lesson 57
From: Joe
(1) – FACEBOOK We have now sent out 10 tips in our 30 Tips in 30 Days program on Facebook. After the 30 days are up, I’d like to continue to do something
similar 2-3 times per week. Or maybe we’ll just go for a 60 Tips in 60 Days program.
If you want to receive our daily tips on Facebook, here are the directions: If you are already a member of Facebook, type in "CPAreviewforFREE" in
the search box to get to our page. If you are not a member, go to www.facebook.com and create an account. Apparently it is easy (even for an older time like
me) because we are adding fans at a very nice pace.
(If you have any trouble signing up because you are not a Facebook person, hit reply and we’ll have our Facebook expert contact you about getting started.)
(2) – Whenever you get ready to stop receiving these weekly email lessons, you can unsubscribe by scrolling to the bottom of any lesson. Click on the link and
you’ll be off.
However, if it were up to us, we’d just as soon have you stay. We are well over 10,000 subscribers and I can hardly wait to have 20,000 or even 100,000. The
cost is the same for us. So, stay for as long as you wish.
And, tell your friends. In fact, if you are looking for just the perfect holiday gift for a loved one, remember that a subscription to our email lessons
might just be the thing that would brighten up that person’s life. Plus, the cost is excellent (free).
(3) – My wife was working last Saturday so I took my two daughters to see the movie: The Princess and the Frog. Okay, it is a cartoon so it probably is not
going to rival The Godfather. But, it did have an excellent message: “You can do anything that you set your mind on.” The heroine was a child who was very
poor but wanted to start a restaurant of her own and that was the message her father kept pushing. So, she worked double and triple shifts to make that dream
come true.
Well, in all honesty, I do not know that you can do every single thing that you set your mind on. There are a few dreams (a friend of mine dreams of swimming
in the Olympics, for example) that are a bit unlikely. However, I will tell you exactly what I do believe:
--If you don’t want something badly enough to set your mind on it, you don’t really want it.
--If you don’t want something badly enough to do the work, you don’t really want it.
--If you don’t want something badly enough, you are probably not going to get it.
So, the question I would pose to you, today, on December 14, 2009, is: how badly do you want to pass the CPA Exam? Simply question but the answer can be
complicated. Everyone will say that they are dying to pass but that is just “lip service” – how badly do you really want to pass?
I can tell you two ways that you can find out for yourself.
First, there are times every day when you can study or you can do something that is more interesting.
You can study or you can watch television.
You can study or you can read a magazine.
You can study or you can go to a movie.
Count how often each day “You can study” wins. If it is 80 percent or more of the time, then you are probably serious about passing the CPA Exam. It doesn’t
have to be 100 percent of the time but it ought to be a solid majority. Study needs to win very frequently.
When faced with temptation, if you choose to study most of the time that is a great sign that you really have set your mind on passing.
Second, I have said often in these email lessons that you should plan out how many hours per day (on the average) that you want to study. Are you able to
study one hour each day, 90 minutes each day, two hours each day or what? In your life, what is a reasonable goal?
Then, of course, keep track of the number of days that you are able to hit that goal. Again, it doesn’t have to be 100 percent of the time but if you are not
able to meet the hourly goal at least 70-80 percent of the time, it may be that you just think you want to pass the CPA Exam but you have not really set your
mind on passing.
“You can do anything that you set your mind on.”
(4) – Over the years in these email lessons, I have written several times about Thomas Edison, one of the most successful people in history and, apparently,
one of the hardest working people in history (hmm, could there be a connection?).
Someone must have read those previous lessons and remembered them because I received the following Thomas Edison quote in an email:
“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
I love the idea that the CPA Exam represents an “opportunity.” I often hear the CPA Exam described in negative terms such as “painful,” “torturous,” “cruel,”
and the like. But that makes the whole process seem like drudgery. And, I think you are so much better off if you can adopt a different mindset.
Participating in the Olympics would be an opportunity.
Playing in the Super Bowl would be an opportunity.
Taking the field in the World Series would be an opportunity.
So, why is the CPA Exam not an “opportunity” – it gives you the chance to pit yourself against the best known accounting exam in the history of the world. It
is an exam that you can pass but only if you do your best. It is an exam that is recognized throughout the world as the pinnacle of achievement in the
accounting profession.
Yeah, it really does qualify as an opportunity.
But, as Edison says, people often miss their greatest opportunities because they “look like work.” I know we all love to play and have fun but some of the
greatest thrills in my life have come from taking on a challenging opportunity—one that required the best of me every day, one that required me to put in some
serious work.
Work on your mindset. Every single morning ask yourself to describe the CPA Exam in just one word. That is not a bad exercise. That one word may not
always be “opportunity” depending on how you are feeling on that day but, hopefully, you will view it as an opportunity on most days.
That is always a good start to any day.
(5) – Now for a little practice. Work these questions today and see how you do. Wait 7 days and try them again. Obviously, what you want is a higher
score the second time. That is what you want: progress.
Good luck – go get them!!!
FAR
You buy two investments in equity securities. Each one cost $7,000 and each one goes up to $10,000 in value by the end of the year. One was a trading
security and one was available-for-sale. Each company declared a cash dividend on December 1 of the current year, payable to owners on record as of December
26. You received two dividend checks of $400 each on January 8 of the following year. Which of the following statements is true? (Assume that you have
not chosen to account for the available-for-sale security as if it were a trading security.)
A – Your net income goes up a total of $3,000 because of each investment.
B – Your net income goes up a total of $3,400 because of each investment.
C – Your net income goes up $3,400 because of the trading security but $400 because of the available-for-sale security.
D – Your net income goes up $3,000 because of the trading security but is unchanged because of the available-for-sale security.
Answer is C
The dividend received on both investments is recognized as revenue in the current period because the date of record (December 26) is in the current period. In
addition, the $3,000 increase in value of the trading security is also recognized within net income (for a total of $3,400). However, the increase in value
of the available-for-sale security is reported within accumulated other comprehensive income that appears in stockholders’ equity and not within net income.
Only the dividend affects net income in connection with the available-for-sale security.
Auditing and Attestation
A CPA firm is auditing the financial statements prepared by the Lion Corporation for the year ending December 31, Year One. The auditors are concerned that a
number of accounts payable were not included in the year-end liabilities. Which of the following audit procedures would help the auditors make certain that
the accounts payable balance is not understated?
A – Confirm a sample of the year-end accounts payable balances.
B – Review the cause for the cash disbursements made in the first month or two of Year Two.
C – Compare the balances in accounts payable to receiving reports created by the company.
D – Check the math and extensions on the accounts payable balances recorded during the last month of Year One.
Answer is B
A, C, and D involve the examination of balances that were already recorded prior to the end of Year One. However, that is not the problem that is suspected
by the auditors. The auditors are concerned about payable balances that were omitted in Year One. Only answer B looks at transactions that might not have
been recorded appropriately in Year One. The auditors will look at cash disbursements in Year Two and determine when the liability was created and whether it
was recorded in the correct time period.
Regulation
James Miller operates a wine shop as a sole proprietorship. On a Wednesday evening, he holds a meeting with several of his suppliers. The meeting lasts for
several hours as they discuss various wines that will become available during the following year. After the meeting, Miller takes the entire group to a
local minor league baseball game and pays for the entire event. How much of this cost can he deduct for income tax purposes?
A – Zero
B – Twenty percent
C – Fifty percent
D – All of it
Answer is C
Fifty percent of entertainment expenses can be deducted for tax purposes as long as it is directly related or associated with the active conduct of the
taxpayer’s trade or business. This rule is met if the entertainment precedes or follows a substantial business discussion. That rule is met in this
situation.
BEC
Lenit Corporation recently acquired widgets from a company in the country of Becktle where the currency is the romtag. Each romtag is currently worth $.40
and Lenit must pay 100,000 romtags in 60 days (value of $40,000). The treasurer for Lenit believes that the value of the romtag is going to go up over the
next 60 days so that a more valuable currency will have to be paid and money will be lost. What action is the treasurer most likely to take?
A - Acquire a forward exchange contract that allows the company to buy 100,000 romtags in 60 days for exactly $.41.
B - Sell the widgets in the U. S. as quickly as possible even if they must be sold at a loss.
C - Buy the next batch of widgets in some other country.
D - Begin production of widgets in the U. S.
Answer is A.
The fluctuation of currency values is always a concern but one that can be managed through a hedging arrangement. The company has a 100,000 romtag payable.
To create a hedge, the company needs to establish a 100,000 romtag receivable. The forward exchange contract is set up here so that the company will get
100,000 romtags in 60 days. That is a receivable. Any change in the value of the romtag will cause equal and offsetting changes in the receivable and the
payable. Thus, a gain on one cancels out a loss on the other. The company does have to pay $41,000 for the romtags that will be received which is $1,000
more than the current value of the liability. That is the cost of establishing the hedge. The company knows that amount and has judged it to be more
reasonable than the uncertainty of waiting to see what paying 100,000 romtags will cost the company in 60 days.
Have a great week
Work hard
Accomplish everything you set out to do.
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
Friday, December 11, 2009
Getting Stronger
Try us FIRST before you spend your hard-earned money.
December 10, 2009
Getting Stronger
75 Weeks of Operation and 7,521,309 Page Views (without a penny spent on marketing)
Lesson 56
From: Joe
(1) - FACEBOOK We have started our 30 Tips in 30 Days program on Facebook. Tip Five went out today and was as follows:
When I took the CPA Exam years ago, the pass rate on each part was about 33 percent. This meant that no matter how hard you studied, you had serious trouble passing. The CPA Exam was universally viewed as a "killer." In the 3rd quarter of 2009, the pass rate on each part was above 51 percent (Auditing-51.5%, FAR-51.1%, BEC-52.3%, and Regulation-52.4%). The exam is still very tough but it is no longer the same type of killer exam. You need to realize that fact before you start studying. We could debate the reasons for this increase in pass rate but the important issue is that everyone can pass the computerized exam if they do they work. It is no longer just for the A students. If you work enough practice problems and put in the time to learn from your mistakes, you can pass this exam regardless of your job or college grade point average. This should give you confidence: "if I do the work, I have a legitimate shot at making this happen." On our site, we
recommend doing 10-20 questions per day and taking 10 word notes on the ones you missed. Then, review those notes every two weeks. That approach gives you a great shot at passing.
If you would like to get these daily tips on Facebook, here are the directions that I sent out last week: "How do you find us? If you are already a member of Facebook, type in "CPAreviewforFREE" in the search box for our page. If you are not a member, go to www.facebook.com and create an account. It's fast and easy!"
(2) EMAILS Several neat emails were received in the last few days. I love hearing from every one.
FROM JJ in OHIO: Just a quick testament to your website. I tend to be a bit of a cheapskate so I eschewed expensive CPA review courses, etc. I bought some used study guides off of Ebay and tried to do it alone. The bottom line is I went 0 for 4 on all four parts. I found your site and combined it with the study guides. Resultantly, I went 4 for 5 over my next five attempts and have now passed all parts!
FROM LK: I just wanted to write and tell you that your materials are extremely helpful! I was struggling with passing my first section (REG) and I came upon your website a week before the test. The materials were relevant and timely. I then used your materials prior to taking FAR and have now successfully passed both parts with high scores. I can't wait to earn my initials (CPA) and your website has been a large part of my success. Thank you!
FROM RM: I just wanted to check in with you and let you know that I took the auditing section of the CPA exam today. I felt well prepared due to the questions provided with your free review. My employer paid for (big expensive course) and I used that in conjunction with your review. I think the exam went pretty well and hopefully I am on my way to passing the CPA exam.
(3) UNSUBSCRIBE Yes, regrettably, you can unsubscribe whenever you wish. We love having everyone (even if you have already passed the CPA Exam and gone on to fame, wealth, and happiness). But, if you decide you can do without our weekly email lessons, just scroll to the bottom of this email and click on the link.
In truth, we would much prefer that you forward this email to every person (accountant or nonaccountant) that you know in the entire world with the recommendation: "you really should go to www.CPAreviewforFREE.com and register so that Joe will send you these emails every week or so to bring joy, excitement, and enlightenment to your life." (hey, it works for me.)
(4) FOURTH QUARTER Both the pro and college football seasons are winding down and we are beginning to get a feel for the teams that are really good this year. The winners are starting to separate from the losers. There is one quality that I love to see in a football team. That is when they play harder in the fourth quarter than they did in the first quarter. Anyone can be great in the first quarter. The true winners are those who can still be great when they are completely exhausted in the fourth quarter.
I used to have a saying when I ran live CPA Review courses here in Richmond: "everyone loves to do the work for the first week or two." That is so true. When they first start, everyone gets excited and rushes home and studies like crazy. For many, that excitement lasts about a week or two and then "the fade" starts.
In the fade, people start skipping days and then cutting back hours and pretty soon, study becomes a relatively rare event. More and more often they find "good" excuses not to study. Pretty soon, as my college roommate used to say, "if you really don't want to do it, then any excuse is good enough."
But, for some, there is a wonderful consistency to their preparation. They start out strong and steady. They put in their time. They put in their time virtually every day. They create smart study techniques so that study can cause as little disruption in their lives as possible. They are just very efficient. Steady is the word that I use to describe these people. If they are answering 15 questions per day and taking notes than they are just methodical at it. It is a solid 15 questions every day come rain or snow or whatever other distraction pops up.
Then, when the exam gets close, instead of just seeming thoroughly exhausted, they actually start to get stronger. There is a point when a realization hits. That is a realization that you want to see hit a candidate about 10-14 days before they are scheduled to go take the exam: "hey, you know, I really have a chance to pass this exam." "I have a chance"-those are beautiful words. When that realization hits, it is like a second wind. The candidates start finding time they didn't know they had. Their focus is as keen as a surgeon's. They forget about being tired and they become obsessed with adding one or more points every day. They leave no stone unturned looking for points.
Are you a first quarter candidate: one who studies hard until the first problem arises and that knocks you off course.
Or,
Are you a fourth quarter candidate: one who stays steady for the first three quarters and then puts on a strong push in the fourth quarter to blow away the opponent.
The answer to that question may truly tell you your chances of passing the CPA Exam.
(5) - PRACTICE
FAR - I gave a final exam this past Tuesday. Here is one of the questions that I asked my own intermediate accounting students. They did well on this question.
At the end of the current year, a company with a defined benefit pension plan has a projected benefit obligation of $375,000, plan assets of $311,000, pension expense of $175,000, prior service cost-OCI of $41,000, and unrecognized loss-OCI of $11,000. Funding for the year was $91,000 and the service cost was $116,000. What liability is reported by the company on its balance sheet?
A - $52,000
B - $64,000
C - $75,000
D - $116,000
Answer is B
These are end-of-year figures so no further changes or adjustments need to be made. The amount reported on the balance sheet is the net of the projected benefit obligation (the liability) and the plan assets. The $375,000 less the $311,000 give a net liability balance of $64,000. The expense figure is reported in the income statement. The prior service cost and the unrecognized (or deferred) loss are reported within "accumulated other comprehensive income" in the stockholders' equity section of the balance sheet.
BEC
A company starts off the current year with accounts receivable of $32,000. During the year, inventory costing $93,000 is bought and sold on credit for $120,000. Cash of $112,000 is collected. This money is used to pay a dividend ($30,000) and decrease long-term liabilities ($72,000). What is the receivable turnover ratio for this period?
A- 3.33
B - 3.50
C - 3.60
D - 3.75
Answer is A
The receivable turnover ratio is computed by taking net sales ($120,000 here since no discounts or allowances are mentioned) and dividing that figure by the average receivable balance for the year. The beginning balance ($32,000) goes up by $120,000 and down by $112,000 leaving an ending balance of $40,000. The average balance for the period is $36,000 ([$32,000 + $40,000] divided by 2). The receivable turnover ratio is $120,000 divided by $36,000 or 3.33.
Regulation
One of your tax clients comes to you with a tax problem. She is 38 years old and has a traditional IRA. She wants to pull out $12,000 in cash this year for personal reasons and wants to know the tax implications. Without this $12,000, she will have taxable income of $200,000 and pay an income tax of $50,000. She is in the 33 percent tax bracket. How much more income tax will she have to pay if she does take out this $12,000?
A - $3,000
B - $3,960
C - $5,160
D - $5,480
Answer is C.
Since she is in the 33 percent tax bracket, the $12,000 is simply taxed at that rate for an additional charge of $3,960. In addition, because she is taking the money out before she reaches 59 ½ (and none of the exceptions in the law are mentioned as being applicable), she must also pay a 10 percent penalty or $1,200. Her additional income tax is $3,960 plus $1,200 or $5,160.
Auditing and Attestation
The CPA firm of Right & Wrong is looking at the internal control procedures utilized by one of their clients in connection with the cash balance. All of the control procedures look wonderful but the auditors are aware that internal control always has certain inherent limitations. Which of the following would be an example of that type of inherent limitation?
A - Bank reconciliations are performed by a party independent of the cash account.
B - Check requests for over $1,500 must go through a special approval process which often requires several days.
C - The company's president can request checks made out to cash although that is not allowed by the stated procedures.
D - Cash balances of over $22,000 are invested in government short-term bonds with a maturity of less than 60 days.
Answer is C.
The term "inherent limitation" when applied to internal control means that a problem or potential risk exists that no amount of control can completely eliminate. A and B are both good internal control procedures. They are not limitations. D is a wise business move that does not necessarily impact control risk. However, it is difficult for any control system to completely eliminate potential problems created by management authority. Because they have power over the people applying the procedures, rules cannot always be enforced. Here, although a rule exists against checks made out to cash, the president has the ability to hire and fire employees. Thus, the person who writes the checks faces the possibility of job loss if the rule is obeyed. That fear might lead them to break the rules. That is an inherent limitation of internal control; there is virtually no way to completely eliminate one person using his or her authority to get another person to break the
rules.
Study hard - see you on FACEBOOK!!!!
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
December 10, 2009
Getting Stronger
75 Weeks of Operation and 7,521,309 Page Views (without a penny spent on marketing)
Lesson 56
From: Joe
(1) - FACEBOOK We have started our 30 Tips in 30 Days program on Facebook. Tip Five went out today and was as follows:
When I took the CPA Exam years ago, the pass rate on each part was about 33 percent. This meant that no matter how hard you studied, you had serious trouble passing. The CPA Exam was universally viewed as a "killer." In the 3rd quarter of 2009, the pass rate on each part was above 51 percent (Auditing-51.5%, FAR-51.1%, BEC-52.3%, and Regulation-52.4%). The exam is still very tough but it is no longer the same type of killer exam. You need to realize that fact before you start studying. We could debate the reasons for this increase in pass rate but the important issue is that everyone can pass the computerized exam if they do they work. It is no longer just for the A students. If you work enough practice problems and put in the time to learn from your mistakes, you can pass this exam regardless of your job or college grade point average. This should give you confidence: "if I do the work, I have a legitimate shot at making this happen." On our site, we
recommend doing 10-20 questions per day and taking 10 word notes on the ones you missed. Then, review those notes every two weeks. That approach gives you a great shot at passing.
If you would like to get these daily tips on Facebook, here are the directions that I sent out last week: "How do you find us? If you are already a member of Facebook, type in "CPAreviewforFREE" in the search box for our page. If you are not a member, go to www.facebook.com and create an account. It's fast and easy!"
(2) EMAILS Several neat emails were received in the last few days. I love hearing from every one.
FROM JJ in OHIO: Just a quick testament to your website. I tend to be a bit of a cheapskate so I eschewed expensive CPA review courses, etc. I bought some used study guides off of Ebay and tried to do it alone. The bottom line is I went 0 for 4 on all four parts. I found your site and combined it with the study guides. Resultantly, I went 4 for 5 over my next five attempts and have now passed all parts!
FROM LK: I just wanted to write and tell you that your materials are extremely helpful! I was struggling with passing my first section (REG) and I came upon your website a week before the test. The materials were relevant and timely. I then used your materials prior to taking FAR and have now successfully passed both parts with high scores. I can't wait to earn my initials (CPA) and your website has been a large part of my success. Thank you!
FROM RM: I just wanted to check in with you and let you know that I took the auditing section of the CPA exam today. I felt well prepared due to the questions provided with your free review. My employer paid for (big expensive course) and I used that in conjunction with your review. I think the exam went pretty well and hopefully I am on my way to passing the CPA exam.
(3) UNSUBSCRIBE Yes, regrettably, you can unsubscribe whenever you wish. We love having everyone (even if you have already passed the CPA Exam and gone on to fame, wealth, and happiness). But, if you decide you can do without our weekly email lessons, just scroll to the bottom of this email and click on the link.
In truth, we would much prefer that you forward this email to every person (accountant or nonaccountant) that you know in the entire world with the recommendation: "you really should go to www.CPAreviewforFREE.com and register so that Joe will send you these emails every week or so to bring joy, excitement, and enlightenment to your life." (hey, it works for me.)
(4) FOURTH QUARTER Both the pro and college football seasons are winding down and we are beginning to get a feel for the teams that are really good this year. The winners are starting to separate from the losers. There is one quality that I love to see in a football team. That is when they play harder in the fourth quarter than they did in the first quarter. Anyone can be great in the first quarter. The true winners are those who can still be great when they are completely exhausted in the fourth quarter.
I used to have a saying when I ran live CPA Review courses here in Richmond: "everyone loves to do the work for the first week or two." That is so true. When they first start, everyone gets excited and rushes home and studies like crazy. For many, that excitement lasts about a week or two and then "the fade" starts.
In the fade, people start skipping days and then cutting back hours and pretty soon, study becomes a relatively rare event. More and more often they find "good" excuses not to study. Pretty soon, as my college roommate used to say, "if you really don't want to do it, then any excuse is good enough."
But, for some, there is a wonderful consistency to their preparation. They start out strong and steady. They put in their time. They put in their time virtually every day. They create smart study techniques so that study can cause as little disruption in their lives as possible. They are just very efficient. Steady is the word that I use to describe these people. If they are answering 15 questions per day and taking notes than they are just methodical at it. It is a solid 15 questions every day come rain or snow or whatever other distraction pops up.
Then, when the exam gets close, instead of just seeming thoroughly exhausted, they actually start to get stronger. There is a point when a realization hits. That is a realization that you want to see hit a candidate about 10-14 days before they are scheduled to go take the exam: "hey, you know, I really have a chance to pass this exam." "I have a chance"-those are beautiful words. When that realization hits, it is like a second wind. The candidates start finding time they didn't know they had. Their focus is as keen as a surgeon's. They forget about being tired and they become obsessed with adding one or more points every day. They leave no stone unturned looking for points.
Are you a first quarter candidate: one who studies hard until the first problem arises and that knocks you off course.
Or,
Are you a fourth quarter candidate: one who stays steady for the first three quarters and then puts on a strong push in the fourth quarter to blow away the opponent.
The answer to that question may truly tell you your chances of passing the CPA Exam.
(5) - PRACTICE
FAR - I gave a final exam this past Tuesday. Here is one of the questions that I asked my own intermediate accounting students. They did well on this question.
At the end of the current year, a company with a defined benefit pension plan has a projected benefit obligation of $375,000, plan assets of $311,000, pension expense of $175,000, prior service cost-OCI of $41,000, and unrecognized loss-OCI of $11,000. Funding for the year was $91,000 and the service cost was $116,000. What liability is reported by the company on its balance sheet?
A - $52,000
B - $64,000
C - $75,000
D - $116,000
Answer is B
These are end-of-year figures so no further changes or adjustments need to be made. The amount reported on the balance sheet is the net of the projected benefit obligation (the liability) and the plan assets. The $375,000 less the $311,000 give a net liability balance of $64,000. The expense figure is reported in the income statement. The prior service cost and the unrecognized (or deferred) loss are reported within "accumulated other comprehensive income" in the stockholders' equity section of the balance sheet.
BEC
A company starts off the current year with accounts receivable of $32,000. During the year, inventory costing $93,000 is bought and sold on credit for $120,000. Cash of $112,000 is collected. This money is used to pay a dividend ($30,000) and decrease long-term liabilities ($72,000). What is the receivable turnover ratio for this period?
A- 3.33
B - 3.50
C - 3.60
D - 3.75
Answer is A
The receivable turnover ratio is computed by taking net sales ($120,000 here since no discounts or allowances are mentioned) and dividing that figure by the average receivable balance for the year. The beginning balance ($32,000) goes up by $120,000 and down by $112,000 leaving an ending balance of $40,000. The average balance for the period is $36,000 ([$32,000 + $40,000] divided by 2). The receivable turnover ratio is $120,000 divided by $36,000 or 3.33.
Regulation
One of your tax clients comes to you with a tax problem. She is 38 years old and has a traditional IRA. She wants to pull out $12,000 in cash this year for personal reasons and wants to know the tax implications. Without this $12,000, she will have taxable income of $200,000 and pay an income tax of $50,000. She is in the 33 percent tax bracket. How much more income tax will she have to pay if she does take out this $12,000?
A - $3,000
B - $3,960
C - $5,160
D - $5,480
Answer is C.
Since she is in the 33 percent tax bracket, the $12,000 is simply taxed at that rate for an additional charge of $3,960. In addition, because she is taking the money out before she reaches 59 ½ (and none of the exceptions in the law are mentioned as being applicable), she must also pay a 10 percent penalty or $1,200. Her additional income tax is $3,960 plus $1,200 or $5,160.
Auditing and Attestation
The CPA firm of Right & Wrong is looking at the internal control procedures utilized by one of their clients in connection with the cash balance. All of the control procedures look wonderful but the auditors are aware that internal control always has certain inherent limitations. Which of the following would be an example of that type of inherent limitation?
A - Bank reconciliations are performed by a party independent of the cash account.
B - Check requests for over $1,500 must go through a special approval process which often requires several days.
C - The company's president can request checks made out to cash although that is not allowed by the stated procedures.
D - Cash balances of over $22,000 are invested in government short-term bonds with a maturity of less than 60 days.
Answer is C.
The term "inherent limitation" when applied to internal control means that a problem or potential risk exists that no amount of control can completely eliminate. A and B are both good internal control procedures. They are not limitations. D is a wise business move that does not necessarily impact control risk. However, it is difficult for any control system to completely eliminate potential problems created by management authority. Because they have power over the people applying the procedures, rules cannot always be enforced. Here, although a rule exists against checks made out to cash, the president has the ability to hire and fire employees. Thus, the person who writes the checks faces the possibility of job loss if the rule is obeyed. That fear might lead them to break the rules. That is an inherent limitation of internal control; there is virtually no way to completely eliminate one person using his or her authority to get another person to break the
rules.
Study hard - see you on FACEBOOK!!!!
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
Friday, December 4, 2009
Get More Efficient
Try us FIRST before you spend your hard-earned money.
December 3, 2009
CPA Review for FREE
www.CPAreviewforFREE.com
Get More Efficient
74 Weeks of Operation and 7,429,924 Page Views (without a penny spent on marketing)
Lesson 55
From: Joe
(1) - SOMETHING NEW FROM CPAreviewforFREE: We here at CPA review for FREE are constantly working om new ways to be helpful in your quest to pass the CPA Exam. The other review courses seem to think it is still 1959 while we are trying to use the technological advantages of 2009.
Soooo, we are going to try a 30 day experiment. Starting in about a week (after I get all of my final exams written), we are going to use www.Facebook.com to post a short message every day for 30 days. Some days it will be a problem and explanation, some days a short message of encouragement, some days a testing or preparation hint. We'll try to post a short and helpful message every day for 30 days. After that, we'll see whether we want to continue the idea or not. I like to experiment and see what works well.
I'm not an expert at Facebook so here is a message from one of my partners: "How do you find us? If you are already a member of Facebook, type in "CPAreviewforFREE" in the search box for our page. If you are not a member, go to www.facebook.com and create an account. It's fast and easy!"
(2) - A GOAL ACHIEVED Last week we went over 7.4 million page views. That was our 74th week of operation. So, www.CPAreviewforFREE is now officially averaging over 100,000 page views each and every week since we first began in the summer of 2008. What is even more impressive (at least to me) is that we did not even achieve 100,000 page views until our 40th week. It took 40 weeks to get to 100,000 page views in a single week and then only 34 more weeks to the point where we are averaging 100,000 page views per week.
Think we can get to an average of 200,000 page views per week by April 1????
(3) - THANKS I received the nicest letter last week from JD in Pennsylvania. I am used to getting emails but a personal letter was really unique. My favorite lines: "At the times I was feeling down or found it difficult to pick up the book and study, I would receive one of your emails and I really took those to heart and wrote down your tips and several quotes. I have quotes from your emails taped all over my computer at work, my refrigerator at home and at my table where I study."
I have this wonderful mental picture of my quotes taped all over her house.
Whatever helps you get up the energy to do the work that is needed is fine by me.
(4) - UNSUBSCRIBE We currently have over 10,000 subscribers who get these email lessons. And we love having every single one of you (yeah, YOU). Whether you are using our free questions and answers or are paying good money to someone else, we are glad to be as much help as possible. We want YOU to pass.
However, if you are ever ready to unsubscribe, it is easy to do. Scroll to the bottom of the email and click on the appropriate link.
(5) - PREPARATION When I was studying for the CPA Exam, I was a full-time student in college trying to pass enough courses to graduate. I was getting married in just a few months and I was preparing to start my first professional job with a regional CPA firm. Plus, there was a war going on (Vietnam) and I was concerned about being drafted. I had a lot on my mind and not much time on my hands.
There is never a good time to study for the CPA Exam.
I knew I wanted to pass as quickly as possible for several reasons. I think it is very important to know why you want to pass. During those long hours of study, you need to have a reason. It is not fun to sit there, all alone, and study hour after hour. If you are doing it without a good reason, it is simply hard to make the sacrifice.
---First, I'm very competitive. I don't like competing unless I play to win. To me, this was just a big sporting event and it brought out my competitive nature.
---Second, I wanted to win so that my parents and my girl friend would be proud of me. They believed in me and I didn't want to let them down.
---Third, I sincerely did not want to do that exam again. I was ready to get on with my life and my career. I wanted the exam to be over.
Your reasons may be radically different - these were mine. You do need to think about why you are putting yourself through this.
However, I made a big mistake. I waited too long to start studying. There were no review books or review courses in those days so no one told me how long I needed to study. I had to take all four exams in a 2 ½ day period. That is a lot of material to get into your head and then keep in your head. I simply did not realize how much material there was and how much time would be needed.
Almost from the first day, I realized that I had not left myself enough time. Instead of beating my head against a wall, I started trying to figure out how I could (a) make more time for study and (b) become more efficient.
What did I do? This is nearly 40 years ago but I remember it quite well.
---Every night before I went to bed, I would write out exactly what I wanted to do the next day and how long it would take and when I would do it. I literally had my entire day scheduled out to the minute. When I woke up each morning, I didn't have to stop and think-I just started working.
---I started getting up 30-45 minutes earlier every day and I spent that time studying. I often set the books beside my bed at night and then studied for 30 minutes before I even got up. I didn't want to lose too much sleep and stay groggy all the time but I figured that I could cut down on my sleep that much.
---I started keeping all my notes on index cards that I carried with me everywhere I went. If I had even 5 free seconds, I would go through a card or two. You would be amazed how much free time there is in a day. I remember sitting on a bus just reading those cards to myself as we bounced down the highway.
---I started eating my meals alone so that I could study while I ate. If you rise 30 minutes early every day and you study while you eat, you can easily add 2 hours per day with no serious change in your life. I wouldn't want to live like that 365 days per year but I was only doing this during those weeks while I was studying for the CPA Exam.
---I realized that I was going to wear down so I started running one mile a day just to get my heart pumping. I also needed to release the tension that was building up. I have never been an exercise person---I find it terribly boring. But, during those weeks, I made an exception. I would do my running and go right back to work.
---I told my girl friend/fiancé that I could only see her on Saturday afternoon and evening. I felt like I was making an investment in our future and I needed the time to study. She was very understanding. In fact, I can remember a number of Saturday nights sitting in my room at college as she would read study questions to me so that I could recite the answers.
---I found a room (more like a closet) in the basement of the college library that no one seemed to know about. I would go there and study so that I was not distracted. True story: it did not have a desk but it did have a large peach basket that was turned over and I used as a table.
Did I pass? I barely passed. I averaged 78 on the four parts. But, I didn't care. I had passed. I danced and sang when the letter came. I had waited too late and had to compensate but, nearly 40 years later, I am still proud that I passed the CPA Exam-what's a few weeks of hard study in comparison?
Okay, the exam is significantly different today. But the challenges of preparing are still there.
Do you know why you want to pass?
What have you done to make yourself a more efficient learner?
What have you done to make better use of your time?
Have you made studying a true priority?
Are you just working automatically without focus or have you considered how to get those points you need to pass?
Forty years from now, you want to look back and say "wow, I worked hard and it was a pain in the neck but I did it the right way and I passed and to this day, I am still delighted."
(6) - TIME FOR SOME PRACTICE
FAR
A company has a defined benefit pension plan. On January 1, Year One, employees threaten to strike and, as a result, a change is made in the pension plan to allow them to draw retirement benefits a year earlier. As a result, the projected benefit obligation increases by $300,000. At that time, employees are expected to work for an average of five years. When financial statements are to be prepared at the end of Year One, which is true for this $300,000 amount?
A - It is reported within pension expense for that year.
B - It is reported as a pension asset at the end of that year.
C - $60,000 is reported as pension expense with the remainder shown as accumulated other comprehensive income within stockholders' equity.
D - $240,000 is reported as pension expense with the remainder shown as accumulated other comprehensive income within stockholders' equity.
Answer is C.
When the projected benefit obligation increases as a result of a contractual amendment or change in the contract, the entire amount is initially recorded within accumulated other comprehensive income in the stockholders' equity section of the balance sheet. It is then amortized from stockholders' equity into pension expense. That amortization can be done a couple of ways but the most common is straight-line over the expected work period of the employees. Over five years, the $300,000 will be moved to pension expense at the rate of $60,000 per year.
Auditing & Attestation
The CPA firm of George and Ringo is currently assessing control risk at an audit client. They are looking at one particularly important control procedure in hopes of determining whether the company has been efficiently following its own requirements. The auditors are going to examine a sample of the related documents to determine how often the process is not followed properly. The auditors expect to find that errors occur 1 percent of the time. However, they can tolerate a rate as high as 3 percent. At the last minute, the partner in charge of the engagement lowers the tolerable rate to 2 percent because the procedure is so important. What is the impact of this decision?
A - Statistical sampling can no longer be used.
B - There is no effect on the sample.
C - The appropriate sample size will be lower.
D - The appropriate sample size will be greater.
Answer is D.
In statistical sampling, if the auditor seeks to determine a percentage, such as an error rate, attribute sampling is applied. Lowering the tolerable rate means that the auditor needs a more precise answer from the sample drawn. They expect 1 percent but can only tolerate 2 percent rather than 3 percent. That narrowing down of the auditor's needs requires them to examine a larger sample.
Regulation
John Doe bought five shares of JBH Corporation for $100 per share. By December 1, Year One, the stock price had fallen to $70 per share and John Doe sold three of the shares. However, on December 26, Year One, Mr. Doe acquired two shares of the same company for $50 per share. For income tax purposes, what loss does Mr. Doe have on the sale of shares of JBH Corporation?
A - Zero
B - $30
C - $90
D - $150
Answer is B.
The original loss was clearly $30 per share or $90 for all three shares. However, for income tax purposes, a loss is not allowed if substantially identical stock is purchased within 30 days before or after the loss transaction. Two shares were bought back within 30 days so the loss on two shares cannot be taken. Only the loss on the one share that was not replaced is allowed. That loss was $100 less $70 or $30.
BEC
A company has three investments. The first cost $1,000 and earns $180. The second cost $2,000 and earns $290. The third cost $3,000 and earns $400. The company seeks a rate of return of 10 percent on all investments. Which of these investments has the highest amount of residual income?
A - The one costing $1,000
B - The one costing $2,000
C - The one costing $3,000
D - Residual income cannot be determined based on the information provided
Answer is C.
Residual income is the amount of income earned in excess of a desired level. The desired level for the first investment is $100 (10 percent of $1,000) so the residual income is $80 ($180 less $100). The desired level for the second investment is $200 (10 percent of $2,000) so the residual income is $90 ($290 less $200). The desired level for the first investment is $300 (10 percent of $3,000) so the residual income is $100 ($400 less $300). The highest level of residual income is the $100 earned by the last investment.
Use your time wisely - be an efficient CPA Exam candidate.
Joe Hoyle
Co-Founder
CPA Review for FREE
December 3, 2009
CPA Review for FREE
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Lesson 55
From: Joe
(1) - SOMETHING NEW FROM CPAreviewforFREE: We here at CPA review for FREE are constantly working om new ways to be helpful in your quest to pass the CPA Exam. The other review courses seem to think it is still 1959 while we are trying to use the technological advantages of 2009.
Soooo, we are going to try a 30 day experiment. Starting in about a week (after I get all of my final exams written), we are going to use www.Facebook.com to post a short message every day for 30 days. Some days it will be a problem and explanation, some days a short message of encouragement, some days a testing or preparation hint. We'll try to post a short and helpful message every day for 30 days. After that, we'll see whether we want to continue the idea or not. I like to experiment and see what works well.
I'm not an expert at Facebook so here is a message from one of my partners: "How do you find us? If you are already a member of Facebook, type in "CPAreviewforFREE" in the search box for our page. If you are not a member, go to www.facebook.com and create an account. It's fast and easy!"
(2) - A GOAL ACHIEVED Last week we went over 7.4 million page views. That was our 74th week of operation. So, www.CPAreviewforFREE is now officially averaging over 100,000 page views each and every week since we first began in the summer of 2008. What is even more impressive (at least to me) is that we did not even achieve 100,000 page views until our 40th week. It took 40 weeks to get to 100,000 page views in a single week and then only 34 more weeks to the point where we are averaging 100,000 page views per week.
Think we can get to an average of 200,000 page views per week by April 1????
(3) - THANKS I received the nicest letter last week from JD in Pennsylvania. I am used to getting emails but a personal letter was really unique. My favorite lines: "At the times I was feeling down or found it difficult to pick up the book and study, I would receive one of your emails and I really took those to heart and wrote down your tips and several quotes. I have quotes from your emails taped all over my computer at work, my refrigerator at home and at my table where I study."
I have this wonderful mental picture of my quotes taped all over her house.
Whatever helps you get up the energy to do the work that is needed is fine by me.
(4) - UNSUBSCRIBE We currently have over 10,000 subscribers who get these email lessons. And we love having every single one of you (yeah, YOU). Whether you are using our free questions and answers or are paying good money to someone else, we are glad to be as much help as possible. We want YOU to pass.
However, if you are ever ready to unsubscribe, it is easy to do. Scroll to the bottom of the email and click on the appropriate link.
(5) - PREPARATION When I was studying for the CPA Exam, I was a full-time student in college trying to pass enough courses to graduate. I was getting married in just a few months and I was preparing to start my first professional job with a regional CPA firm. Plus, there was a war going on (Vietnam) and I was concerned about being drafted. I had a lot on my mind and not much time on my hands.
There is never a good time to study for the CPA Exam.
I knew I wanted to pass as quickly as possible for several reasons. I think it is very important to know why you want to pass. During those long hours of study, you need to have a reason. It is not fun to sit there, all alone, and study hour after hour. If you are doing it without a good reason, it is simply hard to make the sacrifice.
---First, I'm very competitive. I don't like competing unless I play to win. To me, this was just a big sporting event and it brought out my competitive nature.
---Second, I wanted to win so that my parents and my girl friend would be proud of me. They believed in me and I didn't want to let them down.
---Third, I sincerely did not want to do that exam again. I was ready to get on with my life and my career. I wanted the exam to be over.
Your reasons may be radically different - these were mine. You do need to think about why you are putting yourself through this.
However, I made a big mistake. I waited too long to start studying. There were no review books or review courses in those days so no one told me how long I needed to study. I had to take all four exams in a 2 ½ day period. That is a lot of material to get into your head and then keep in your head. I simply did not realize how much material there was and how much time would be needed.
Almost from the first day, I realized that I had not left myself enough time. Instead of beating my head against a wall, I started trying to figure out how I could (a) make more time for study and (b) become more efficient.
What did I do? This is nearly 40 years ago but I remember it quite well.
---Every night before I went to bed, I would write out exactly what I wanted to do the next day and how long it would take and when I would do it. I literally had my entire day scheduled out to the minute. When I woke up each morning, I didn't have to stop and think-I just started working.
---I started getting up 30-45 minutes earlier every day and I spent that time studying. I often set the books beside my bed at night and then studied for 30 minutes before I even got up. I didn't want to lose too much sleep and stay groggy all the time but I figured that I could cut down on my sleep that much.
---I started keeping all my notes on index cards that I carried with me everywhere I went. If I had even 5 free seconds, I would go through a card or two. You would be amazed how much free time there is in a day. I remember sitting on a bus just reading those cards to myself as we bounced down the highway.
---I started eating my meals alone so that I could study while I ate. If you rise 30 minutes early every day and you study while you eat, you can easily add 2 hours per day with no serious change in your life. I wouldn't want to live like that 365 days per year but I was only doing this during those weeks while I was studying for the CPA Exam.
---I realized that I was going to wear down so I started running one mile a day just to get my heart pumping. I also needed to release the tension that was building up. I have never been an exercise person---I find it terribly boring. But, during those weeks, I made an exception. I would do my running and go right back to work.
---I told my girl friend/fiancé that I could only see her on Saturday afternoon and evening. I felt like I was making an investment in our future and I needed the time to study. She was very understanding. In fact, I can remember a number of Saturday nights sitting in my room at college as she would read study questions to me so that I could recite the answers.
---I found a room (more like a closet) in the basement of the college library that no one seemed to know about. I would go there and study so that I was not distracted. True story: it did not have a desk but it did have a large peach basket that was turned over and I used as a table.
Did I pass? I barely passed. I averaged 78 on the four parts. But, I didn't care. I had passed. I danced and sang when the letter came. I had waited too late and had to compensate but, nearly 40 years later, I am still proud that I passed the CPA Exam-what's a few weeks of hard study in comparison?
Okay, the exam is significantly different today. But the challenges of preparing are still there.
Do you know why you want to pass?
What have you done to make yourself a more efficient learner?
What have you done to make better use of your time?
Have you made studying a true priority?
Are you just working automatically without focus or have you considered how to get those points you need to pass?
Forty years from now, you want to look back and say "wow, I worked hard and it was a pain in the neck but I did it the right way and I passed and to this day, I am still delighted."
(6) - TIME FOR SOME PRACTICE
FAR
A company has a defined benefit pension plan. On January 1, Year One, employees threaten to strike and, as a result, a change is made in the pension plan to allow them to draw retirement benefits a year earlier. As a result, the projected benefit obligation increases by $300,000. At that time, employees are expected to work for an average of five years. When financial statements are to be prepared at the end of Year One, which is true for this $300,000 amount?
A - It is reported within pension expense for that year.
B - It is reported as a pension asset at the end of that year.
C - $60,000 is reported as pension expense with the remainder shown as accumulated other comprehensive income within stockholders' equity.
D - $240,000 is reported as pension expense with the remainder shown as accumulated other comprehensive income within stockholders' equity.
Answer is C.
When the projected benefit obligation increases as a result of a contractual amendment or change in the contract, the entire amount is initially recorded within accumulated other comprehensive income in the stockholders' equity section of the balance sheet. It is then amortized from stockholders' equity into pension expense. That amortization can be done a couple of ways but the most common is straight-line over the expected work period of the employees. Over five years, the $300,000 will be moved to pension expense at the rate of $60,000 per year.
Auditing & Attestation
The CPA firm of George and Ringo is currently assessing control risk at an audit client. They are looking at one particularly important control procedure in hopes of determining whether the company has been efficiently following its own requirements. The auditors are going to examine a sample of the related documents to determine how often the process is not followed properly. The auditors expect to find that errors occur 1 percent of the time. However, they can tolerate a rate as high as 3 percent. At the last minute, the partner in charge of the engagement lowers the tolerable rate to 2 percent because the procedure is so important. What is the impact of this decision?
A - Statistical sampling can no longer be used.
B - There is no effect on the sample.
C - The appropriate sample size will be lower.
D - The appropriate sample size will be greater.
Answer is D.
In statistical sampling, if the auditor seeks to determine a percentage, such as an error rate, attribute sampling is applied. Lowering the tolerable rate means that the auditor needs a more precise answer from the sample drawn. They expect 1 percent but can only tolerate 2 percent rather than 3 percent. That narrowing down of the auditor's needs requires them to examine a larger sample.
Regulation
John Doe bought five shares of JBH Corporation for $100 per share. By December 1, Year One, the stock price had fallen to $70 per share and John Doe sold three of the shares. However, on December 26, Year One, Mr. Doe acquired two shares of the same company for $50 per share. For income tax purposes, what loss does Mr. Doe have on the sale of shares of JBH Corporation?
A - Zero
B - $30
C - $90
D - $150
Answer is B.
The original loss was clearly $30 per share or $90 for all three shares. However, for income tax purposes, a loss is not allowed if substantially identical stock is purchased within 30 days before or after the loss transaction. Two shares were bought back within 30 days so the loss on two shares cannot be taken. Only the loss on the one share that was not replaced is allowed. That loss was $100 less $70 or $30.
BEC
A company has three investments. The first cost $1,000 and earns $180. The second cost $2,000 and earns $290. The third cost $3,000 and earns $400. The company seeks a rate of return of 10 percent on all investments. Which of these investments has the highest amount of residual income?
A - The one costing $1,000
B - The one costing $2,000
C - The one costing $3,000
D - Residual income cannot be determined based on the information provided
Answer is C.
Residual income is the amount of income earned in excess of a desired level. The desired level for the first investment is $100 (10 percent of $1,000) so the residual income is $80 ($180 less $100). The desired level for the second investment is $200 (10 percent of $2,000) so the residual income is $90 ($290 less $200). The desired level for the first investment is $300 (10 percent of $3,000) so the residual income is $100 ($400 less $300). The highest level of residual income is the $100 earned by the last investment.
Use your time wisely - be an efficient CPA Exam candidate.
Joe Hoyle
Co-Founder
CPA Review for FREE
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