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