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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