Lesson 31
From: Joe
(1) - I know a lot of you have watched my recent "Last Lecture" on YouTube (www.youtube.com/user/UniversityofRichmond). In that lecture, I talk about having a dream. I urge the audience to have a big dream and then to go for it. Don't shoot for mediocre: DREAM BIG. I use, as an example, a former student of mine who set out to be the youngest person in history to climb the tallest mountain in each of the seven continents (known as "the Seven Summits").
What a dream!! Can you imagine? He was about 20 and set out to climb Everest, Kilimanjaro, Elbrus, and all the rest. Win, lose, or draw he tried something that he could talk about for the rest of his life.
I personally believe that you need to have dreams. And, those dreams need to be BIG, dreams that are going to stretch you and make you a better person. I honestly think that it is very difficult to accomplish much in this life without some dreams.
I once dreamed of writing a textbook and I have now had the number one selling Advanced Accounting in the country for quite a number of years.
I once dreamed of starting a CPA Exam review course and I have now started three different programs that have all been successful.
I once dreamed of being a great college teacher and I was named the Virginia Professor of the Year in 2007.
I once dreamed of passing the CPA Exam and I managed to pass the whole thing at one time.
It all starts with a dream. Okay, I have had a number of dreams that I didn't manage to achieve. Life just works like that. You don't win them all. No one ever expects to win them all. But, I am convinced that you are never going to get anywhere in this life without serious dreams.
Passing the CPA Exam starts with a dream. For some, it is just a casual dream "if they will give me 75 points, I'd kind of like to pass." For many others, it is an absolutely serious dream "I'm willing to work as hard as I can to pass that CPA Exam. I want it to help my career and I want it to show myself that I'm as good as anyone. I WANT TO PASS THE CPA EXAM."
How BIG is your dream of passing the CPA Exam?
--If the dream is not very big, it is hard to do the work necessary to pass.
--If the dream is not very big, it is easy to get distracted from studying-night after night.
--If the dream is not very big, it is hard to stay on track when things get tough.
--If the dream is not very big, it is easy to give up when you have a bad day.
Probably ten times a day, you face a choice: do I study for the CPA Exam or do I do something else? How you answer that question probably tells whether you will be successful. How you answer that question probably depends on whether passing the CPA Exam is a true dream and not just a casual desire.
I sometimes think that once people get involved with all of the studying, they lose track of their dreams. Don't ever lose sight of your dream.
If you are tired and beginning to struggle, take some time off and have a serious talk with yourself. What was your dream when you first began? Were you serious about that dream or were you just pretending? Did you seriously want to pass or was it just a whim?
Keeping that dream first and foremost, right in front of you, is always a good strategy from the first day until the last. It is easy to get tired; it is easy to get discouraged. It is easy to choose to do something else. But like climbing a tall mountain, having YOUR dream squarely out in front of you can keep pushing you forward.
Okay, stop for a second. I don't want these email lessons to go in one ear and out the other. I'm not writing these to amuse me.
Take a sheet of paper and start writing down exactly why you want to pass the CPA Exam. Everyone has different reason. What is yours? List out as many as you can. Why is passing the CPA Exam a dream of yours? Don't give me vague reasons-be as specific and as honest as you can. List out all the reasons that apply to you. Then put that list in order of importance. Make sure to identify the number one reason why you dream of passing the CPA Exam. That needs to be constantly out in front. Type up the list and place a copy or two in the areas where you typically study. Make sure to put the list in a place where you can see it every day. Don't take for granted that you'll remember your dreams. Put them right in front of you.
Keeping that list visible will help you to push forward toward that goal.
You can do it.
(2) - If you have not seen my "Last Lecture," go to www.YouTube.com and type in Joe Hoyle at University of Richmond and it should pop up. You'll learn about Dreams and a number of other things that were on my mind that evening.
(3) - Five quick things:
--If you want to unsubscribe from getting these email lessons, just scroll down to the bottom of this lesson (or any lesson) and click on the unsubscribe button.
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--Last week was a major holiday and we still had our second biggest week in history. Thanks to all of you who use our site or recommend our site. To me, our growth is just phenomenal. The other programs have advertising, mailers, posters, paid representations. We have YOU. That's it. Without any paid advertising, we are helping more and more people each window to achieve their dream of passing the CPA Exam. Please pass along this message, especially to anyone who may be out of work or looking for a job.
--Don't forget that if you know someone who is looking into the CFA Exam, they can get 10 percent off on purchases of review materials at
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--And, finally, we get a lot of emails from people who want to know the best way to use www.CPAreviewforFREE.com. We always direct them to our website and tell them to look under "CPA Exam Resources" and then to read "Using CPAreviewforFREE" - there is no reason to guess. We tell you exactly how our program can get you to pass while you save $2,000-$3,000.
(4) - My students here at the University are in their last week of the semester. They have worked incredibly hard this semester. However, I noticed today in class that they had begun to slack off. Suddenly, you could just tell that they were NOT putting out the same energy level as previously. They were slowing down like they were stuck in molasses.
That always concerns me. I don't mind people getting some rest (in fact, in any CPA Review, I think you should schedule in one or two break days every week). I do mind people slowing down. Taking a break and slowing down are radically different.
Assume you are running a mile race or a 10K. You run the race and you are 100 yards from the finish line and you have a chance to win. Would you slow down? Of course NOT, that is ridiculous. The fact that you were getting close to a victory would spur you on and raise your energy levels. Almost without exception you would run the last 100 yards faster than you ran the first 100 yards. The excitement at the end will kick in and raise your adrenaline levels so you can accomplish more than you expected.
However, on the CPA Exam, the attitude seems to be exactly the opposite. If a person works hard and gets close to the finish line, there is a tendency to moan, complain, whine, feel self-pity, fuss, and just generally feel an obsessive need to slow way down.
It may be human nature but THAT MAKES NO SENSE.
When you are getting close to the finish, then is when you should be getting excited. That is when the thrill of possible victory should push you to work even harder.
IT IS ALL IN YOUR MIND.
You can tell yourself, I'm close to the finish, I'm tired, I'm going to slow down or quit.
Or
You can tell yourself, I'm close to the finish, I'm tired, but I really want to win so I'm going to keep on pushing myself until the very end.
That is clearly up to you. I do know you are tired. I have no argument with that. If you need to, take a break-get away from it all for a day or two.
It is your response that is important. You cannot blame that response on anyone else. Your response to being tired will either
(a) slow you down
Or
(b) speed you up.
That is up to YOU.
(5) - Practice Problems - See if you can work each of these in order to add one extra point to your scores.
FAR - as usual, this came from yesterday's intermediate accounting class.
The Sain Company has 100,000 shares of common stock on January 1, Year One but issued a 20 percent stock dividend on July 1 of that year. Cash dividends of $80,000 were paid on the common stock shares during the year. The company also had 30,000 shares of $100 preferred stock paying a 4 percent per year cumulative dividend. This year the company reported net income of $500,000. What should be reported as earnings per share? (round to the nearest penny)
A - $2.50
B - $2.73
C - $3.17
D - $3.45
Answer is C
Earnings per share is a common stock computation. The earnings figure is the net income of the company after preferred stock dividends have been removed to arrive at the residual number left over for the common stockholders. The preferred stock cash dividend is $100 times 4 percent or $4 per share times 30,000 shares or $120,000. The income for common stock is the $500,000 reported total less $120,000 distributed to preferred stock or $380,000. This amount is then divided by the weighted-average number of shares. A stock dividend or stock split is not the same as the issuance of new shares but rather is a division of old shares. Thus, for this computation, the previous shares (100,000 shares on 1/1) are assumed to now include the results of the division. Because of the 20 percent stock dividend, the 100,000 shares have literally become 120,000 shares. Those 120,000 are said to exist from the original January 1 date so the common shares for that year are 120,000 and
earnings per share is $380,000 divided by 120,000 shares or $3.17.
Regulation
For the current year, a partnership has sales revenue of $500,000, cost of goods sold of $300,000, capital gains of $60,000, salary expenses of $120,000, and charitable contributions of $30,000. If there are two equal partners, what does each report of their separate income tax returns?
A - Partnership income of $40,000, capital gains of $30,000, and charitable contributions of $15,000.
B - Partnership income of $25,000 and capital gain of $30,000.
C - Partnership income of $55,000
D - Partnership income of $70,000 and charitable contributions of $15,000
Answer is A
In a partnership, certain income and expense items (including capital gains and charitable contributions) are passed through directly to the partner's own individual tax return. All other items (such as revenues, cost of goods sold, and other expenses such as salary expense) are netted together to form the basic partnership income that is also allocated to the separate partners based on the appropriate ratio which, in this case, was 50-50.
Auditing and Attestation
One of the components of internal control that an independent auditor must come to understand about each audit client is "information and communication." What is meant by this term?
A - The ability of the management of the company to communicate its priorities to the appropriate staff levels within the organization.
B - The ability of the accounting system to generate reliable information and convey it in a timely manner to those parties within the organization that need it.
C - The ability of employees in a company to warn the independent auditor of fraudulent actions within the organization.
D - The ability of the internal auditor to communicate information about the various systems to people within the organization at an appropriate level of authority.
Answer is B
Internal control includes any policies and procedures within the company designed to ensure that the accounting systems are functioning effectively as designed by the management of the company. One general goal is to make sure that the information produced by the accounting system is reliable and reaches the correct party in time to be used in making appropriate decisions. In looking at a particular system and its internal control, the auditor evaluates the ability to generate information and then communicate it to the parties who can make use of it.
BEC
A company sells widgets for $100 each and demand is10,000 units per year. The company is thinking of raising the price to $102. Which of the following statements is true?
A - If 10,000 units are now demanded by customers, demand is said to be elastic.
B - If 9,900 units are now demanded by customers, demand is said to be inelastic.
C - If 9,800 units are now demanded by customers, demand is said to be inelastic.
D - If 9,700 units are now demanded by customers, demand is said to be inelastic.
Answer is B.
The price of the goods has gone up 2 percent ($2/$100). The fall in demand is 0 (10,000 units), 1 percent (9,900 units), 2 percent (9,800 units), or 3 percent (9,700 units). Demand elasticity is found by taking the change in quantity demand and dividing it by the change in price. If the ratio is greater than 1, demand is said to be elastic (people move to other products to avoid the increase). If the ratio is less than 1, demand is inelastic (people stick with the product despite the rise in prices). If the ratio is 1, demand is unitary. Since the price went up 2 percent, any drop of more than 2 percent gives a ratio of more than one and demand is elastic. Since the price went up 2 percent, any drop of less than 2 percent gives a ratio of less than one and demand is inelastic. (A) is less than 2 percent so the ratio is less than one and that is inelastic. (C) is exactly 2 percent so that is unitary. (D) is more than 2 percent which gives a ratio of more than one
and demand is elastic. (B) is the answer because demand fell only 1 percent which makes the ratio 1/2 or less than 1. Demand is inelastic; few people switched to other products despite the increase in price.
"You learn you can do your best even when it's hard, even when you're tired and maybe hurting a little bit. It feels good to show some courage."
Joe Namath
Have a great week - DREAM BIG!!!
Joe Hoyle
Co-Founder
CPA Review For FREE
Wednesday, April 22, 2009
Monday, April 13, 2009
Make Today Count
MAKE TODAY COUNT
Lesson 30
From: Joe
(1) - As I have mentioned in previous email lessons, I gave a speech this past Tuesday here on campus. In it, I talked about a person making the transition to greatness (and you can define the word "greatness" as you see fit). The speech went well (I thought). We had 300 chairs and well over 500 people. So, a lot of folks wound up sitting on the floor. Students are young, sitting on the floor is not a big deal to them.
If you are interested in seeing and hearing the speech, it is available at:
www.youtube.com/user/UniversityofRichmond
or, you can just go to www.YouTube.com and search for: Joe Hoyle University of Richmond and the speech should come up.
(2) - Last week, we had over 107,000 page views in that one week alone at www.CPAreviewforFREE.com. That is an amazing amount of points being earned FOR FREE. In addition, the number of people who visited our site was up 10.7 percent over our previous weekly high. That is just amazing to me. I was thrilled. It is neat when you can help so many people to work toward their goal.
Thanks to everyone who forwards our emails along to others. Our goal is to help EVERYONE. Not just the rich and famous; we want to help EVERYONE.
(3) - Several emails came to us in the last few days. Here are a couple. The first is from Sandra: "Thank you for posting the quote from the person whose goal is to pass the CPA exam when he or she turns 55. I am 55 and hope to pass the remaining 3 sections this year. Knowing that I am not the only 50+ out there is a real encouragement. Thank you for your website, to which I attribute my passing grade on the first attempt on the Audit and Attest section, and for your encouraging emails."
And from Beth: "Thank you for your inspiring emails and CPA review questions. I've been studying for the Exam for the past two years, and my hard work has finally paid off. I recently found out that I passed my last exam in the nick of time, and I am so excited!! I used your review questions along with another program, and it really helped. The toughest part for me was not letting myself get discouraged when I would repeatedly fail a part, but I refused to quit and believed in myself. Your inspirational emails helped encourage me along the way. My best advice to other candidates would be to not be afraid of failure. Through this process, I've learned that you have to be willing to deal with failure sometimes in order to reap the rewards of success. Overcoming my failed attempts has only made this victory sweeter! I like the reference that one motivational speaker, Willie Jolley, uses in regards to the role of failure: 'a setback is a setup for a comeback,' as it has
certainly been for me. Thanks again for your encouragement and support along my journey!"
(4) - As always, if you want to unsubscribe to these weekly (or so) email lessons, just scroll to the end of this email and click on the link that is provided.
Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree
(5) - I was in Manhattan this past Wednesday for an all-day meeting with the people at the AICPA who create and prepare the CPA Exam. Twice a year, they hold meetings with all the people who produce review materials for the CPA Exam so that they can keep us informed of upcoming changes. Nothing radical is going to happen to the exam for another 12-18 months and that is about as far out as they ever project.
However, in this meeting, they asked all of the review providers to pass along some tips to our candidates to ensure that everything runs smoothly. So, here are the tips that they wanted you to know as you prepare to take (and pass) the CPA Exam.
A - Schedule to take your exam well in advance and think about problems that might come up such as weather issues. They suggest scheduling at least 45 days in advance especially if you want one of the busy times (usually near the end of a window). They said to warn you that the July-August and October-November windows are the busiest and therefore require the most advance planning.
Their final advice was to look for testing sites that are close to you even if they are in another state. If you live in northern Virginia, for example, a Maryland site might well be much closer than many of the sites in Virginia. Once you have your notice to schedule (NTS), you can take the exam at any approved location. You don't have to stay inside your state of application.
B - Be ready when you come to the test center. You don't want to get to the site and have a problem. They strongly suggest that you read the candidate bulletin carefully in advance. It is available at the following URL: www.cpa-exam.org/cpa/bulletin.html.
Be sure to bring two forms of government issued identification. Apparently, one must have a picture and signature and the other a signature. Also make sure to bring your valid NTS (notice to schedule) because it identifies your launch code to start the computer program. They said that a lot of people who were retaking parts would accidently bring an old NTS and then have to return home to get the right one. Trust me: on that day, you want everything to work out with no stress or surprises.
They also said not to bring large bags, suitcases, or other large items to the test site. Lockers are provided at the facility for cell phones, purses, and jackets. A list of prohibited items is included in the candidate bulletin.
They indicated that the check-in process is as follows:
--Present NTS
--Present your two forms of identification
--Complete electronic finger printing process
--Have your digital image taken by a camera
--Sign the sign-in log
The AICPA also said to tell you that you could "test drive" the process in advance if you are concerned. Apparently, you can make an appointment with the Prometric test center for a 30 minute trial run just to make sure you are familiar with the process. If you are worried in the least, I would take advantage of that service. On the real test day, you want to arrive with nothing on your mind except getting questions correct.
C - When you get ready to start your exam, do not delay after entering your launch code into the computer. Apparently, you have to go through four opening screens before you officially start the test: welcome screen, confidentiality, copyright, and directions. When you go through the fourth screen, the exam then starts and your test time begins. However, you have a maximum of 10 minutes to go through those first four screens (they probably take a total of one minute or less). After 10 minutes, if you have not started, the exam shuts down and it is over. They said that occasionally people get to the first screen and pray or meditate and literally don't get through the first four screens in 10 minutes so that their exam is finished without ever getting started. (To my knowledge, I've never known anyone who had that problem so I personally don't think it is a huge risk but don't take 10 minutes.)
D - Learn all you can in advance about the exam so you know what you are going to see. Go to: www.cpa-exam.org/lrc/exam_tutorial_parallel.html for tutorial and sample questions.
Read all the information that you receive about the exam and make sure that you make some time to wander around at www.cpa-exam.org just to learn about the exam. Again, the candidate bulletin has a lot of helpful information that you should be aware of before you arrive at the site.
E - During the exam, read everything carefully. If a message pops up, they did that because they wanted you to read the message NOT IGNORE IT. They told a few stories about people who ignored messages and then encountered problems with the exam. (Again, this is a possible problem but I wouldn't worry much about it - just read the messages.)
There are virtually no computer glitches in the exam at the present time. They said that 99.9 percent of the candidates have no problems with the computers at all. Problems tend to occur only because candidates fail to read a message.
They did ask that candidates make sure to get their confirmation of attendance which apparently is printed out from the computer when you log off at the end of the exam. They urged everyone to read this confirmation because it has some helpful information on it.
When the CPA Exam first became computerized back in 2004, there was a fair amount of confusion and some problems. The AICPA has really worked hard to make the CPA Exam a nonstressful situation for candidates. They want you to pass or fail based of what you know and do not know rather than on how well you navigate the mechanics of the exam. I wouldn't have said this five years ago but, if you will read what they send you and follow what they tell you, your experience should work out fine. There is no guarantee and problems do arise but, if I were you, I would worry about learning the material and not about whether the test is going to work or not.
(6) - I was talking with someone recently who asked what advice I would give to a candidate if I could boil it all day to one single word? It is really an interesting question. What is the one word that you should think about when getting ready to pass the CPA Exam?
When pondering this question, I was reminded of John Ruskin who was an English social critic and author who was said to have a stone that lay on his desk with one word carved on it: Today.
I think that would be my one word of advice for most questions. You have one day and one day only when you can accomplish something. That one day is Today. That's true for the CPA Exam and everything else you want to accomplish.
When you wake up in the morning, you are being given a golden opportunity. About 16 hours later you go to bed and you have made something great or something small of Today. Success in life often hinges on how well you utilize Today.
I know a lot of people who dwell in the past. They talk about past victories, excitement in the past. They seem to be stuck in some previous era. Their triumphs and successes are gone, never to be revisited.
I know a lot other people who constantly plot and plan the future. All of their actions focus on getting ready to accomplish something in some future time. Plotting is more fun than doing. They would rather get everything lined up for future success than actually accomplish anything Today.
However, I do know people who are able to wake up with their concentration entirely on how to best utilize the time they have been given right now.
The only time you can add points is TODAY.
The only time you can learn something about a topic is TODAY.
The only time you can make progress is TODAY.
It is not easy to focus on today. I know that as well as anyone. It is easier and more fun to set up how you are going to do something and just not worry about doing it. Or, it is safer to think about past victories and not have to face the difficulty of today.
The brain is a funny thing. Thinking, working out problems, learning rules, figuring out processes is real work for the brain. Consequently, the brain (which is often lazy) wants you to think about something else, almost anything else, rather than the material at hand.
So, the brain tells you: "don't worry about computing that capitalized lease, let's think about how we did so well in high school. That will make us feel good without having to do any difficult work right now."
The brain tells you: "don't worry about determining earnings per share, we can do that tomorrow. It is always more fun to plan to do work than it is to do it. Deferral is the best way to prepare."
If you want to pass the CPA Exam and you want one word of advice that would be truly helpful, remember Today. I honestly cannot think of anything more important to dwell on. You absolutely have to make good use of Today if you are going to gain the points you need. And, that is not easy. Spending time locked away in the past or the future will make you smile and feel good but it won't get you those 75 points that you need for success.
The only time you can do that is TODAY.
(7) - Let's do a few quick practice problems.
Financial Accounting and Reporting. This first problem comes from my Intermediate Accounting class today.
A company has a defined benefit pension plan. On January 1, Year One, a contractual provision was changed and the projected benefit obligation increased at that moment by $400,000. Which of the following statements is true?
A - Pension expense is not affected on January 1, Year One, but is gradually increased over the next several years.
B - Pension expense is increased immediately by $400,000.
C - Pension expense is increased on January 1, Year One, by a portion of the $400,000 with the remaining amount added to pension expense over the next few years.
D - Pension expense is never affected because the $400,000 is retained within accumulated other comprehensive income on the balance sheet.
Answer is A.
This change in the projected benefit obligation (PBO) is known as a prior service cost and comes from a change in a contractual provision. In this case, the change makes the liability larger and should decrease net income by increasing pension expense. Because the PBO is a large estimation of questionable reliability, FASB chose not to drop the entire amount into pension expense immediately because that would cause a significant swing in reported net income. Instead, the entire prior service cost is amortized to expense over several years based on the length of employee service. This is accomplished by first recording the $400,000 in accumulated other comprehensive income on the balance sheet and then gradually moving it from that account into pension expense.
Auditing and Attestation
Blue Company hopes to sell 500,000 shares of its common stock to the public. The company has prepared the appropriate documentation for the Securities and Exchange Commission. When properly approved, the shares will be conveyed to Lance & Woodruff, an underwriting firm that will actually sell the shares to the public. Hammer and Dove CPAs is the firm that audits Blue Company. Hammer and Dove have been hired to provide a comfort letter. Which of the following is not true?
A - The comfort letter will be addressed to Lance & Woodruff, the underwriting firm.
B - The comfort letter is a restatement of the final audit report prepared for Blue Company.
C - The comfort letter is not included in the documentation provided to the public in connection with the sale of these securities.
D - The comfort letter is likely to include negative assurance on unaudited information in the materials given to the SEC.
Answer is B
The underwriter is legally required to get expert advice on the financial information presented by the issuing company. The comfort letter, addressed and provided to the underwriter, meets this requirement. It provides reasonable assurance on much of the financial information that is included by the client because an audit has been carried out. However, it also provides negative assurance ("nothing came to our attention that would indicate a material difference from US generally accepted accounting principles") on some information where an audit is not possible.
Regulation
Walters owns land with a tax basis of $125,000 but a value of $160,000. This land is traded for like-kind land with a value of $150,000. To even up the trade, cash of $10,000 is also conveyed to Walters. What taxable gain should Walters report on the exchange in filing his federal income taxes?
A - Zero
B - $10,000
C - $25,000
D - $35,000
Answer is B
Normally, the exchange of like-kind property is tax free. However, Walters also received boot (the $10,000 in cash) that was not like-kind. The receipt of boot changes the rule. Then, the taxable gain is the lower of the boot ($10,000) or the exchange gain. The exchange gain is the difference in the fair value received ($150,000 plus $10,000 or $160,000) and its tax basis ($125,000). The exchange gain is $35,000 ($160,000 less $125,000). That is more than the cash collected so the lower number (the $10,000 in cash) is the taxable gain.
BEC
On January 1, Year One, the Aragoni Company is given the opportunity to pay $50,000 today to get a four-year annuity paying $20,000 per year for four years with each payment made on December 31. The company has a desired rate of return of 8 percent per year. The present value of a four-year ordinary annuity of $1 at an 8 percent annual rate is 3.3121. The present value of a four-year annuity due of $1 at an 8 percent annual rate is 3.5771. The present value of $1in four years at an 8 percent annual rate is .7350. Aragoni believes this to be a good investment. Which of the following statements is true?
A - The net present value is a positive $8,800.
B - The net present value is a positive $16,242.
C - The net present value is a positive $21,542.
D - The net present value is a positive $30,000.
Answer is B.
Since the payments are made at the end of each year, this is an ordinary annuity and the present value of the future cash flows is $66,242 ($20,000 times 3.3121). Net present value is the difference in the cost of an investment ($50,000) and the present value of the future cash flows ($66,242) or $16,242. If the present value is larger, this net present value is said to be positive and the investment meets the investment criterion of the company.
Have a great week and make each Today count.
Joe Hoyle
Co-Founder
CPA Review for FREE
Lesson 30
From: Joe
(1) - As I have mentioned in previous email lessons, I gave a speech this past Tuesday here on campus. In it, I talked about a person making the transition to greatness (and you can define the word "greatness" as you see fit). The speech went well (I thought). We had 300 chairs and well over 500 people. So, a lot of folks wound up sitting on the floor. Students are young, sitting on the floor is not a big deal to them.
If you are interested in seeing and hearing the speech, it is available at:
www.youtube.com/user/UniversityofRichmond
or, you can just go to www.YouTube.com and search for: Joe Hoyle University of Richmond and the speech should come up.
(2) - Last week, we had over 107,000 page views in that one week alone at www.CPAreviewforFREE.com. That is an amazing amount of points being earned FOR FREE. In addition, the number of people who visited our site was up 10.7 percent over our previous weekly high. That is just amazing to me. I was thrilled. It is neat when you can help so many people to work toward their goal.
Thanks to everyone who forwards our emails along to others. Our goal is to help EVERYONE. Not just the rich and famous; we want to help EVERYONE.
(3) - Several emails came to us in the last few days. Here are a couple. The first is from Sandra: "Thank you for posting the quote from the person whose goal is to pass the CPA exam when he or she turns 55. I am 55 and hope to pass the remaining 3 sections this year. Knowing that I am not the only 50+ out there is a real encouragement. Thank you for your website, to which I attribute my passing grade on the first attempt on the Audit and Attest section, and for your encouraging emails."
And from Beth: "Thank you for your inspiring emails and CPA review questions. I've been studying for the Exam for the past two years, and my hard work has finally paid off. I recently found out that I passed my last exam in the nick of time, and I am so excited!! I used your review questions along with another program, and it really helped. The toughest part for me was not letting myself get discouraged when I would repeatedly fail a part, but I refused to quit and believed in myself. Your inspirational emails helped encourage me along the way. My best advice to other candidates would be to not be afraid of failure. Through this process, I've learned that you have to be willing to deal with failure sometimes in order to reap the rewards of success. Overcoming my failed attempts has only made this victory sweeter! I like the reference that one motivational speaker, Willie Jolley, uses in regards to the role of failure: 'a setback is a setup for a comeback,' as it has
certainly been for me. Thanks again for your encouragement and support along my journey!"
(4) - As always, if you want to unsubscribe to these weekly (or so) email lessons, just scroll to the end of this email and click on the link that is provided.
Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree
(5) - I was in Manhattan this past Wednesday for an all-day meeting with the people at the AICPA who create and prepare the CPA Exam. Twice a year, they hold meetings with all the people who produce review materials for the CPA Exam so that they can keep us informed of upcoming changes. Nothing radical is going to happen to the exam for another 12-18 months and that is about as far out as they ever project.
However, in this meeting, they asked all of the review providers to pass along some tips to our candidates to ensure that everything runs smoothly. So, here are the tips that they wanted you to know as you prepare to take (and pass) the CPA Exam.
A - Schedule to take your exam well in advance and think about problems that might come up such as weather issues. They suggest scheduling at least 45 days in advance especially if you want one of the busy times (usually near the end of a window). They said to warn you that the July-August and October-November windows are the busiest and therefore require the most advance planning.
Their final advice was to look for testing sites that are close to you even if they are in another state. If you live in northern Virginia, for example, a Maryland site might well be much closer than many of the sites in Virginia. Once you have your notice to schedule (NTS), you can take the exam at any approved location. You don't have to stay inside your state of application.
B - Be ready when you come to the test center. You don't want to get to the site and have a problem. They strongly suggest that you read the candidate bulletin carefully in advance. It is available at the following URL: www.cpa-exam.org/cpa/bulletin.html.
Be sure to bring two forms of government issued identification. Apparently, one must have a picture and signature and the other a signature. Also make sure to bring your valid NTS (notice to schedule) because it identifies your launch code to start the computer program. They said that a lot of people who were retaking parts would accidently bring an old NTS and then have to return home to get the right one. Trust me: on that day, you want everything to work out with no stress or surprises.
They also said not to bring large bags, suitcases, or other large items to the test site. Lockers are provided at the facility for cell phones, purses, and jackets. A list of prohibited items is included in the candidate bulletin.
They indicated that the check-in process is as follows:
--Present NTS
--Present your two forms of identification
--Complete electronic finger printing process
--Have your digital image taken by a camera
--Sign the sign-in log
The AICPA also said to tell you that you could "test drive" the process in advance if you are concerned. Apparently, you can make an appointment with the Prometric test center for a 30 minute trial run just to make sure you are familiar with the process. If you are worried in the least, I would take advantage of that service. On the real test day, you want to arrive with nothing on your mind except getting questions correct.
C - When you get ready to start your exam, do not delay after entering your launch code into the computer. Apparently, you have to go through four opening screens before you officially start the test: welcome screen, confidentiality, copyright, and directions. When you go through the fourth screen, the exam then starts and your test time begins. However, you have a maximum of 10 minutes to go through those first four screens (they probably take a total of one minute or less). After 10 minutes, if you have not started, the exam shuts down and it is over. They said that occasionally people get to the first screen and pray or meditate and literally don't get through the first four screens in 10 minutes so that their exam is finished without ever getting started. (To my knowledge, I've never known anyone who had that problem so I personally don't think it is a huge risk but don't take 10 minutes.)
D - Learn all you can in advance about the exam so you know what you are going to see. Go to: www.cpa-exam.org/lrc/exam_tutorial_parallel.html for tutorial and sample questions.
Read all the information that you receive about the exam and make sure that you make some time to wander around at www.cpa-exam.org just to learn about the exam. Again, the candidate bulletin has a lot of helpful information that you should be aware of before you arrive at the site.
E - During the exam, read everything carefully. If a message pops up, they did that because they wanted you to read the message NOT IGNORE IT. They told a few stories about people who ignored messages and then encountered problems with the exam. (Again, this is a possible problem but I wouldn't worry much about it - just read the messages.)
There are virtually no computer glitches in the exam at the present time. They said that 99.9 percent of the candidates have no problems with the computers at all. Problems tend to occur only because candidates fail to read a message.
They did ask that candidates make sure to get their confirmation of attendance which apparently is printed out from the computer when you log off at the end of the exam. They urged everyone to read this confirmation because it has some helpful information on it.
When the CPA Exam first became computerized back in 2004, there was a fair amount of confusion and some problems. The AICPA has really worked hard to make the CPA Exam a nonstressful situation for candidates. They want you to pass or fail based of what you know and do not know rather than on how well you navigate the mechanics of the exam. I wouldn't have said this five years ago but, if you will read what they send you and follow what they tell you, your experience should work out fine. There is no guarantee and problems do arise but, if I were you, I would worry about learning the material and not about whether the test is going to work or not.
(6) - I was talking with someone recently who asked what advice I would give to a candidate if I could boil it all day to one single word? It is really an interesting question. What is the one word that you should think about when getting ready to pass the CPA Exam?
When pondering this question, I was reminded of John Ruskin who was an English social critic and author who was said to have a stone that lay on his desk with one word carved on it: Today.
I think that would be my one word of advice for most questions. You have one day and one day only when you can accomplish something. That one day is Today. That's true for the CPA Exam and everything else you want to accomplish.
When you wake up in the morning, you are being given a golden opportunity. About 16 hours later you go to bed and you have made something great or something small of Today. Success in life often hinges on how well you utilize Today.
I know a lot of people who dwell in the past. They talk about past victories, excitement in the past. They seem to be stuck in some previous era. Their triumphs and successes are gone, never to be revisited.
I know a lot other people who constantly plot and plan the future. All of their actions focus on getting ready to accomplish something in some future time. Plotting is more fun than doing. They would rather get everything lined up for future success than actually accomplish anything Today.
However, I do know people who are able to wake up with their concentration entirely on how to best utilize the time they have been given right now.
The only time you can add points is TODAY.
The only time you can learn something about a topic is TODAY.
The only time you can make progress is TODAY.
It is not easy to focus on today. I know that as well as anyone. It is easier and more fun to set up how you are going to do something and just not worry about doing it. Or, it is safer to think about past victories and not have to face the difficulty of today.
The brain is a funny thing. Thinking, working out problems, learning rules, figuring out processes is real work for the brain. Consequently, the brain (which is often lazy) wants you to think about something else, almost anything else, rather than the material at hand.
So, the brain tells you: "don't worry about computing that capitalized lease, let's think about how we did so well in high school. That will make us feel good without having to do any difficult work right now."
The brain tells you: "don't worry about determining earnings per share, we can do that tomorrow. It is always more fun to plan to do work than it is to do it. Deferral is the best way to prepare."
If you want to pass the CPA Exam and you want one word of advice that would be truly helpful, remember Today. I honestly cannot think of anything more important to dwell on. You absolutely have to make good use of Today if you are going to gain the points you need. And, that is not easy. Spending time locked away in the past or the future will make you smile and feel good but it won't get you those 75 points that you need for success.
The only time you can do that is TODAY.
(7) - Let's do a few quick practice problems.
Financial Accounting and Reporting. This first problem comes from my Intermediate Accounting class today.
A company has a defined benefit pension plan. On January 1, Year One, a contractual provision was changed and the projected benefit obligation increased at that moment by $400,000. Which of the following statements is true?
A - Pension expense is not affected on January 1, Year One, but is gradually increased over the next several years.
B - Pension expense is increased immediately by $400,000.
C - Pension expense is increased on January 1, Year One, by a portion of the $400,000 with the remaining amount added to pension expense over the next few years.
D - Pension expense is never affected because the $400,000 is retained within accumulated other comprehensive income on the balance sheet.
Answer is A.
This change in the projected benefit obligation (PBO) is known as a prior service cost and comes from a change in a contractual provision. In this case, the change makes the liability larger and should decrease net income by increasing pension expense. Because the PBO is a large estimation of questionable reliability, FASB chose not to drop the entire amount into pension expense immediately because that would cause a significant swing in reported net income. Instead, the entire prior service cost is amortized to expense over several years based on the length of employee service. This is accomplished by first recording the $400,000 in accumulated other comprehensive income on the balance sheet and then gradually moving it from that account into pension expense.
Auditing and Attestation
Blue Company hopes to sell 500,000 shares of its common stock to the public. The company has prepared the appropriate documentation for the Securities and Exchange Commission. When properly approved, the shares will be conveyed to Lance & Woodruff, an underwriting firm that will actually sell the shares to the public. Hammer and Dove CPAs is the firm that audits Blue Company. Hammer and Dove have been hired to provide a comfort letter. Which of the following is not true?
A - The comfort letter will be addressed to Lance & Woodruff, the underwriting firm.
B - The comfort letter is a restatement of the final audit report prepared for Blue Company.
C - The comfort letter is not included in the documentation provided to the public in connection with the sale of these securities.
D - The comfort letter is likely to include negative assurance on unaudited information in the materials given to the SEC.
Answer is B
The underwriter is legally required to get expert advice on the financial information presented by the issuing company. The comfort letter, addressed and provided to the underwriter, meets this requirement. It provides reasonable assurance on much of the financial information that is included by the client because an audit has been carried out. However, it also provides negative assurance ("nothing came to our attention that would indicate a material difference from US generally accepted accounting principles") on some information where an audit is not possible.
Regulation
Walters owns land with a tax basis of $125,000 but a value of $160,000. This land is traded for like-kind land with a value of $150,000. To even up the trade, cash of $10,000 is also conveyed to Walters. What taxable gain should Walters report on the exchange in filing his federal income taxes?
A - Zero
B - $10,000
C - $25,000
D - $35,000
Answer is B
Normally, the exchange of like-kind property is tax free. However, Walters also received boot (the $10,000 in cash) that was not like-kind. The receipt of boot changes the rule. Then, the taxable gain is the lower of the boot ($10,000) or the exchange gain. The exchange gain is the difference in the fair value received ($150,000 plus $10,000 or $160,000) and its tax basis ($125,000). The exchange gain is $35,000 ($160,000 less $125,000). That is more than the cash collected so the lower number (the $10,000 in cash) is the taxable gain.
BEC
On January 1, Year One, the Aragoni Company is given the opportunity to pay $50,000 today to get a four-year annuity paying $20,000 per year for four years with each payment made on December 31. The company has a desired rate of return of 8 percent per year. The present value of a four-year ordinary annuity of $1 at an 8 percent annual rate is 3.3121. The present value of a four-year annuity due of $1 at an 8 percent annual rate is 3.5771. The present value of $1in four years at an 8 percent annual rate is .7350. Aragoni believes this to be a good investment. Which of the following statements is true?
A - The net present value is a positive $8,800.
B - The net present value is a positive $16,242.
C - The net present value is a positive $21,542.
D - The net present value is a positive $30,000.
Answer is B.
Since the payments are made at the end of each year, this is an ordinary annuity and the present value of the future cash flows is $66,242 ($20,000 times 3.3121). Net present value is the difference in the cost of an investment ($50,000) and the present value of the future cash flows ($66,242) or $16,242. If the present value is larger, this net present value is said to be positive and the investment meets the investment criterion of the company.
Have a great week and make each Today count.
Joe Hoyle
Co-Founder
CPA Review for FREE
Saturday, April 4, 2009
How Hard Are You Working
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www.CPAreviewforFREE.com
How Hard Are You Working
Lesson 29
From: Joe
(1) - Last week we had more visitors to our website than in any previous week in our history. Thanks so much to everyone who has recommended us. Without your help, we simply would not exist.
(2) - If you know anyone who wants to receive these free weekly email lessons, send their email address to Jhoyle@cpareviewforfree.com. We cannot add them automatically but we will send them a confirmation note that will allow them to subscribe if they wish.
(3) - Last week was a wonderful one for getting emails here at www.CPAreviewforFREE.com. Here are just a couple of the ones that I have received in the last four or five days.
From SL: "I just wanted to send you a quick 'thank you' note for your exceptional website. Prior to finding CPA Review For Free, I had failed Regulation twice, first with a 74 and then with a 72. I was using the (big name) courses in my preparation, . . . There was just something missing on REG. I felt prepared going in, and spent many hours viewing lectures, taking notes, rewriting notes, etc. The Multiple Choice practice left something to be desired, because each time I went in, I was caught off-guard by the types of questions they would ask.
"After finding out that I had failed REG the second time, I searched the Internet for alternative courses for preparation. I knew that tax was my weakest area, probably in the entire CPA Exam. I had avoided tax classes in undergrad as much as possible, and have exclusively worked on the audit side since joining a public firm. Once I found your website and signed up, I was struck by the variety of questions you provided for tax, and their similarity to those I had seen on the actual exam, not only in topical nature, but the form, the length, the types of possible answers, etc. I felt like I was actually practicing questions I would expect to find the next time I sat.
"I used CPA Review For Free along with re-reviewing my other materials this last time (January 2009). I answered all of the REG questions, and re-worked the sections that were difficult for me. Low and behold, your website must have over-prepared me - I received a 77 on REG and I have completed the CPA Exam! My only regret is that I did not know about your site until after I had started with the other program. Not only do I believe I would have been well-prepared for the tests, I would also be about $2,000 richer. Again, thank you for the services that your website provides. I have been passing along the website to any of my friends and staff people who are working on their CPA."
From GS: "Your insight and encouragement has helped to put the exam process into perspective. Understanding the nature of the exam's process is critical to passing. You brought to light the process by comparing the exam to a river that reaches a mile wide and an inch deep, that really makes perfect sense to me. Previously, I had a strong desire to drill down on every topic, curse at myself when a practice MC question was answered incorrectly, and fret over small details, all of which had contributed to failing exam sections.
"I understand that this testing process requires general knowledge of subject matter and only a grade of 75% to pass.
As a result of your insight and encouragement, this candidate has passed two sections, taken another section and can calmly approach the final section knowing that it too will be passed. I owe you a great deal and thank you for your FREE insight, and I hope to repay you somehow."
From EB: "First of all, let me say how much I appreciate the service that you are offering. I not only appreciate the review questions available on your website, I also want to thank you for the comments and the encouragement in your blog postings. I started pursuing a second degree in accountancy in 1999 and next month, after 10 years of classes, one class each semester, I will complete the coursework required to receive my bachelor's degree in accountancy. I will be 54 years old when I complete the class work and my goal is to pass the CPA exam during the year that I turn 55.
"I think that your comments are so worthwhile that I pass them along to my children. I hope I didn't violate any copyright laws when I cut and pasted your article about the Steve Martin book that you were reading into an e-mail to my children. "Perseverance is a great substitute for talent." What a great quote.
"And now for my request. You stated in your December 26th blog that you would pass on to anyone who requested it your 30 question final exam for your introductory financial accounting course. If that offer still stands, I would appreciate receiving the exam (and of course, the answers for it.) Once again, thanks so much for the service that you offer."
(4) - Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree
These are good folks and we are delighted to offer their products at this discount.
(5) - I have a few quotes that are really my all-time favorites. No matter how often that I hear them, they make me stop and do a few moments of real reflection. About 2 years ago, I was reading an article in Fortune magazine on what it takes to be great. This always intrigues me. Why is Tiger Woods such a great golfer? Why do certain basketball coaches always seem to win?
There was a quote in this article that I probably think about 3-4 times per week.
From: "What It Takes To Be Great," Fortune, October 30, 2006: "People learn quickly at first, then more slowly, and then stop developing completely. Yet a few do improve for years and even decades, and go on to greatness."
In many things in life, this is exactly what happens. People get excited and enthusiastic and start off any new task very well. They learn how things are done and they get better at them. They improve. But, all too often, they begin to slow down. The interest is not quite so intense. The ability to make sacrifices becomes more difficult. Finding time to do the necessary details becomes harder. Pretty soon, the things that were going so well become a bit more sloppy. The task at hand is no longer the number one priority.
And, eventually, most people simply stop improving. They kind of adopt the attitude: "this is the best I'm ever going to be; I might as well get used to it." Mediocrity sets in and that feeling just blankets everything that is done.
However, that doesn't always happen. Some people get a feeling of true excitement when they see themselves improving. That excitement provides fuel for the fire and they are actually able to work harder. I sometimes say "they smell the blood in the water and it spurs them forward."
CPA Review is a long process. Under the best of conditions, it takes months.
Most people, when they first begin the process, are intrigued by the possibility of getting those three letters after their name. They will set aside time every day or two for serious study. And, then they will make sure that time is spent wisely.
That initial euphoria lasts for a week or two or maybe even a bit longer. But it usually does fade. At some point, every candidate takes a step back with the realization "this is not fun; this is really work."
It is at that point that many people pass or fail the CPA Exam. It is not even about going to a Prometric Center. It is about what you do when preparing for the exam becomes more like work and less like fun.
Most people do not just quit. That is actually kind of rare. First, they begin to slow down. Instead of studying for 2 hours, they study for 45 minutes. Instead of studying 4-5 days per week, they study for 1-2 hours per week. Instead of studying in a quiet room, they have on television and their iPod. It is almost like they have given up shooting for 75 but now they are trying for 63.
However, obviously, other folks are not intimidated by the CPA Exam and the preparation that is needed. Yes, they still take breaks and, yes, they do not study every day. But that has never been necessary.
Instead, even when it becomes real work,
--the CPA Exam continues to be a serious priority in their lives.
--they make time for the CPA Exam on a regular schedule.
--when they start studying, that becomes their central focus. They don't let themselves get distracted.
You can be great and you can pass the CPA Exam. I am convinced of that. But you have to have the self-discipline that is needed when the task of preparation goes from being fun to that of being a real job. Every one of you can be great as long as you do not get stuck in being mediocre.
(6)-You are always able to unsubscribe from this service without problem. Just scroll to the bottom of this (or any other) email lessons and click on the Unsubscribe button. We are always glad to have you with us. However, it is your life and your time and if you are ready for the lessons to stop just follow those directions.
(7)-Ah, they are playing basketball this week-end in the Final Four. I must say something about that. Two of the best college players in the United States are Tyler Hansbrough (North Carolina) and Blake Griffin (Oklahoma). They are both so talented that it is just fun to watch them play. In fact, I almost never watch a basketball game that I do not wonder what it must feel like to have so much talent.
I was listening to the radio last Sunday and they were interviewing one of the coaches (I believe it was Oklahoma's coach) and he was talking about these two players and he had a very revealing quote that went something like: "what makes these guys so great is that they simply outwork everyone else."
No mention of talent. No mention of height.
They simply outwork everyone else.
Let's assume we took you and 99 other CPA candidates and, somehow, we ranked each of these people on how hard they are working to pass the CPA Exam. That is a quality where anyone can be ranked number one if they have the necessary desire and self-discipline. It is not based on IQ, it is not based on the college you went to, it is not based on how much money you have, it is not based on who your parents are.
If we were to rank 100 CPA candidates based on how hard they are working
WHERE WOULD YOU RANK??
I think that is a very valid question. Would you be number 25? Or, would you be 67? Or, maybe you would be number 4? Or, maybe you would be 94?
Okay, I will be honest with you. You don't have to be in the top 10 or even the top 20 to pass the CPA Exam. That is certainly not required. But, if I were taking the CPA Exam, I really would want to be in the top 30 or top 35. And, there is absolutely, positively no reason why you could not be in the top 35 percent of the people taking the CPA Exam when it comes to hard work. That just requires self-discipline, organization, desire, and focus. Something everyone is capable of having.
That is not a bad experiment. Look back on the past week and think of all of the people studying for the CPA Exam throughout the US and around the world. If it came down just to hard work, where would you rank? Be honest. There is no reason to fool yourself. Where would you rank? Would you be in the top 30-35 percent? If not, what would it take to get there? Are you willing to do that?
(8) - Here are a few practice questions - try to add a point. That should always be your goal: "I want to get one point better."
Regulation
A company issues 100,000 shares of common stock and 10,000 shares of preferred stock with a $2 cumulative dividend. In the first year, no dividends are paid or declared. Which of the following statements are true?
A - The company should report a $20,000 liability on its year-end balance sheet.
B - All dividends in arrears on the preferred stock must be paid before any dividends can be paid on common stock.
C - The preferred stockholders are guaranteed to receive this $20,000 at some point in the future.
D - By not paying the cumulative dividend, the company will be forced into bankruptcy within 90 days of the beginning of the new year.
Answer is B.
A cumulative preferred stock simply means that all dividends on the preferred stock must be paid as required before any dividends can be distributed to the owners of the common stock. The company is not obligated in any other way. There is no guarantee nor liability and failure to pay will not automatically lead to bankruptcy. However, if the board of directors ever formally declares these dividends, the liability must be reported.
Financial Accounting
A company has a red asset that it bought for $80,000 and has now depreciated down to a book value of $33,000. However, the asset has a fair value of $40,000. This asset is traded for a green asset that also is worth $40,000. The two assets are expected to generate the same future cash flows in terms of amounts, timing, and risk. Therefore, the trade is viewed as having no economic or commercial substance. In recording the trade, which of the following statements is true?
A - New asset is recorded at $33,000 and a $7,000 gain is reported.
B - New asset is recorded at $33,000 and no gain is reported.
C - New asset is recorded at $40,000 and a $7,000 gain is reported.
D - New asset is recorded at $40,000 and no gain is reported.
Answer is B.
The answer to any normal trade would be C. The new asset is recorded at the fair value of the asset given up and any difference between its book value and fair value is recorded as a gain or loss. However, there is one exception and this question looks at that exception. If there is no economic or commercial substance to a trade, then the assumption is that the trade was made solely in order to record a gain. If there is no commercial substance, there is no possible reason for having made the trade. That condition arises where the cash flows (in amount, timing, and risk) are not affected in any way by the trade. In that one situation, book value is retained and no income effect is recorded.
Business Environment and Concepts
A company produces a product in a long-series of automated steps that requires little direct material and direct labor but a lot of overhead. What costing system is the company most likely to use?
A - Job-order costing
B - Process costing
C - Activity-based costing
D - Just-in-time costing
Answer is C
In this situation, a company might use job-order costing or process costing. There is not enough information to tell if products are unique (where job-order costing is appropriate) or mass produced (where process costing is appropriate). However, in connection with either of these approaches, the company is likely to apply activity-based costing because there are many steps in the process and overhead is a significant cost. Activity-based costing breaks the process down into individual activities and determines a specific overhead cost driver for each of these activities. In that way, the costing is designed specifically for the process in use. Overhead for one activity might be applied based on machine hours if that is appropriate to the activity whereas overhead for another activity might be applied based on direct labor cost if that is appropriate.
Auditing and Attestation
A CPA is doing a compilation of financial statements for a client. Which of the following is most likely to be done by the CPA?
A - The physical inventory taken by the client must be observed by the CPA.
B - At least a few of company's accounts receivable must be confirmed by the CPA.
C - Analytical procedures must be carried out after all other work is performed.
D - The statements should be read for any obvious mistakes.
Answer is D.
A compilation means that client information is taken and put into the form of financial statements. There are no audit procedures performed and no assurance of any type is given. However, the CPA is required, at a minimum, to read the statements and make sure that no obvious errors are present. For example, if land is listed as a current asset, or if retained earnings is listed as a liability, the CPA does have to check that out because they both seem obviously incorrect.
And, finally, just a reminder for those of you who live near Richmond:
The University of Richmond is pleased to announce Joe Hoyle as the University's first "Last Lecturer." Professor Hoyle is an associate professor of accounting in the Robins School of Business. He has taught at the University of Richmond since 1979 and is a distinguished educator, receiving numerous awards and honors. Students nominated over seventy professors during the week of February 9th. Please join us on Tuesday, April 7th, 2009 at 7 p.m. in the Jepson Alumni Center to listen to Professor Hoyle's "Last Lecture." This event is part of the newly created Last Lecture Series at the University of Richmond in which students nominate professors they would like to hear deliver a speech based on the question "If you were to address students at the University of Richmond for the last time, what would you say?" Professor Hoyle's "Last Lecture" is free and open to the public.
www.CPAreviewforFREE.com
How Hard Are You Working
Lesson 29
From: Joe
(1) - Last week we had more visitors to our website than in any previous week in our history. Thanks so much to everyone who has recommended us. Without your help, we simply would not exist.
(2) - If you know anyone who wants to receive these free weekly email lessons, send their email address to Jhoyle@cpareviewforfree.com. We cannot add them automatically but we will send them a confirmation note that will allow them to subscribe if they wish.
(3) - Last week was a wonderful one for getting emails here at www.CPAreviewforFREE.com. Here are just a couple of the ones that I have received in the last four or five days.
From SL: "I just wanted to send you a quick 'thank you' note for your exceptional website. Prior to finding CPA Review For Free, I had failed Regulation twice, first with a 74 and then with a 72. I was using the (big name) courses in my preparation, . . . There was just something missing on REG. I felt prepared going in, and spent many hours viewing lectures, taking notes, rewriting notes, etc. The Multiple Choice practice left something to be desired, because each time I went in, I was caught off-guard by the types of questions they would ask.
"After finding out that I had failed REG the second time, I searched the Internet for alternative courses for preparation. I knew that tax was my weakest area, probably in the entire CPA Exam. I had avoided tax classes in undergrad as much as possible, and have exclusively worked on the audit side since joining a public firm. Once I found your website and signed up, I was struck by the variety of questions you provided for tax, and their similarity to those I had seen on the actual exam, not only in topical nature, but the form, the length, the types of possible answers, etc. I felt like I was actually practicing questions I would expect to find the next time I sat.
"I used CPA Review For Free along with re-reviewing my other materials this last time (January 2009). I answered all of the REG questions, and re-worked the sections that were difficult for me. Low and behold, your website must have over-prepared me - I received a 77 on REG and I have completed the CPA Exam! My only regret is that I did not know about your site until after I had started with the other program. Not only do I believe I would have been well-prepared for the tests, I would also be about $2,000 richer. Again, thank you for the services that your website provides. I have been passing along the website to any of my friends and staff people who are working on their CPA."
From GS: "Your insight and encouragement has helped to put the exam process into perspective. Understanding the nature of the exam's process is critical to passing. You brought to light the process by comparing the exam to a river that reaches a mile wide and an inch deep, that really makes perfect sense to me. Previously, I had a strong desire to drill down on every topic, curse at myself when a practice MC question was answered incorrectly, and fret over small details, all of which had contributed to failing exam sections.
"I understand that this testing process requires general knowledge of subject matter and only a grade of 75% to pass.
As a result of your insight and encouragement, this candidate has passed two sections, taken another section and can calmly approach the final section knowing that it too will be passed. I owe you a great deal and thank you for your FREE insight, and I hope to repay you somehow."
From EB: "First of all, let me say how much I appreciate the service that you are offering. I not only appreciate the review questions available on your website, I also want to thank you for the comments and the encouragement in your blog postings. I started pursuing a second degree in accountancy in 1999 and next month, after 10 years of classes, one class each semester, I will complete the coursework required to receive my bachelor's degree in accountancy. I will be 54 years old when I complete the class work and my goal is to pass the CPA exam during the year that I turn 55.
"I think that your comments are so worthwhile that I pass them along to my children. I hope I didn't violate any copyright laws when I cut and pasted your article about the Steve Martin book that you were reading into an e-mail to my children. "Perseverance is a great substitute for talent." What a great quote.
"And now for my request. You stated in your December 26th blog that you would pass on to anyone who requested it your 30 question final exam for your introductory financial accounting course. If that offer still stands, I would appreciate receiving the exam (and of course, the answers for it.) Once again, thanks so much for the service that you offer."
(4) - Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree
These are good folks and we are delighted to offer their products at this discount.
(5) - I have a few quotes that are really my all-time favorites. No matter how often that I hear them, they make me stop and do a few moments of real reflection. About 2 years ago, I was reading an article in Fortune magazine on what it takes to be great. This always intrigues me. Why is Tiger Woods such a great golfer? Why do certain basketball coaches always seem to win?
There was a quote in this article that I probably think about 3-4 times per week.
From: "What It Takes To Be Great," Fortune, October 30, 2006: "People learn quickly at first, then more slowly, and then stop developing completely. Yet a few do improve for years and even decades, and go on to greatness."
In many things in life, this is exactly what happens. People get excited and enthusiastic and start off any new task very well. They learn how things are done and they get better at them. They improve. But, all too often, they begin to slow down. The interest is not quite so intense. The ability to make sacrifices becomes more difficult. Finding time to do the necessary details becomes harder. Pretty soon, the things that were going so well become a bit more sloppy. The task at hand is no longer the number one priority.
And, eventually, most people simply stop improving. They kind of adopt the attitude: "this is the best I'm ever going to be; I might as well get used to it." Mediocrity sets in and that feeling just blankets everything that is done.
However, that doesn't always happen. Some people get a feeling of true excitement when they see themselves improving. That excitement provides fuel for the fire and they are actually able to work harder. I sometimes say "they smell the blood in the water and it spurs them forward."
CPA Review is a long process. Under the best of conditions, it takes months.
Most people, when they first begin the process, are intrigued by the possibility of getting those three letters after their name. They will set aside time every day or two for serious study. And, then they will make sure that time is spent wisely.
That initial euphoria lasts for a week or two or maybe even a bit longer. But it usually does fade. At some point, every candidate takes a step back with the realization "this is not fun; this is really work."
It is at that point that many people pass or fail the CPA Exam. It is not even about going to a Prometric Center. It is about what you do when preparing for the exam becomes more like work and less like fun.
Most people do not just quit. That is actually kind of rare. First, they begin to slow down. Instead of studying for 2 hours, they study for 45 minutes. Instead of studying 4-5 days per week, they study for 1-2 hours per week. Instead of studying in a quiet room, they have on television and their iPod. It is almost like they have given up shooting for 75 but now they are trying for 63.
However, obviously, other folks are not intimidated by the CPA Exam and the preparation that is needed. Yes, they still take breaks and, yes, they do not study every day. But that has never been necessary.
Instead, even when it becomes real work,
--the CPA Exam continues to be a serious priority in their lives.
--they make time for the CPA Exam on a regular schedule.
--when they start studying, that becomes their central focus. They don't let themselves get distracted.
You can be great and you can pass the CPA Exam. I am convinced of that. But you have to have the self-discipline that is needed when the task of preparation goes from being fun to that of being a real job. Every one of you can be great as long as you do not get stuck in being mediocre.
(6)-You are always able to unsubscribe from this service without problem. Just scroll to the bottom of this (or any other) email lessons and click on the Unsubscribe button. We are always glad to have you with us. However, it is your life and your time and if you are ready for the lessons to stop just follow those directions.
(7)-Ah, they are playing basketball this week-end in the Final Four. I must say something about that. Two of the best college players in the United States are Tyler Hansbrough (North Carolina) and Blake Griffin (Oklahoma). They are both so talented that it is just fun to watch them play. In fact, I almost never watch a basketball game that I do not wonder what it must feel like to have so much talent.
I was listening to the radio last Sunday and they were interviewing one of the coaches (I believe it was Oklahoma's coach) and he was talking about these two players and he had a very revealing quote that went something like: "what makes these guys so great is that they simply outwork everyone else."
No mention of talent. No mention of height.
They simply outwork everyone else.
Let's assume we took you and 99 other CPA candidates and, somehow, we ranked each of these people on how hard they are working to pass the CPA Exam. That is a quality where anyone can be ranked number one if they have the necessary desire and self-discipline. It is not based on IQ, it is not based on the college you went to, it is not based on how much money you have, it is not based on who your parents are.
If we were to rank 100 CPA candidates based on how hard they are working
WHERE WOULD YOU RANK??
I think that is a very valid question. Would you be number 25? Or, would you be 67? Or, maybe you would be number 4? Or, maybe you would be 94?
Okay, I will be honest with you. You don't have to be in the top 10 or even the top 20 to pass the CPA Exam. That is certainly not required. But, if I were taking the CPA Exam, I really would want to be in the top 30 or top 35. And, there is absolutely, positively no reason why you could not be in the top 35 percent of the people taking the CPA Exam when it comes to hard work. That just requires self-discipline, organization, desire, and focus. Something everyone is capable of having.
That is not a bad experiment. Look back on the past week and think of all of the people studying for the CPA Exam throughout the US and around the world. If it came down just to hard work, where would you rank? Be honest. There is no reason to fool yourself. Where would you rank? Would you be in the top 30-35 percent? If not, what would it take to get there? Are you willing to do that?
(8) - Here are a few practice questions - try to add a point. That should always be your goal: "I want to get one point better."
Regulation
A company issues 100,000 shares of common stock and 10,000 shares of preferred stock with a $2 cumulative dividend. In the first year, no dividends are paid or declared. Which of the following statements are true?
A - The company should report a $20,000 liability on its year-end balance sheet.
B - All dividends in arrears on the preferred stock must be paid before any dividends can be paid on common stock.
C - The preferred stockholders are guaranteed to receive this $20,000 at some point in the future.
D - By not paying the cumulative dividend, the company will be forced into bankruptcy within 90 days of the beginning of the new year.
Answer is B.
A cumulative preferred stock simply means that all dividends on the preferred stock must be paid as required before any dividends can be distributed to the owners of the common stock. The company is not obligated in any other way. There is no guarantee nor liability and failure to pay will not automatically lead to bankruptcy. However, if the board of directors ever formally declares these dividends, the liability must be reported.
Financial Accounting
A company has a red asset that it bought for $80,000 and has now depreciated down to a book value of $33,000. However, the asset has a fair value of $40,000. This asset is traded for a green asset that also is worth $40,000. The two assets are expected to generate the same future cash flows in terms of amounts, timing, and risk. Therefore, the trade is viewed as having no economic or commercial substance. In recording the trade, which of the following statements is true?
A - New asset is recorded at $33,000 and a $7,000 gain is reported.
B - New asset is recorded at $33,000 and no gain is reported.
C - New asset is recorded at $40,000 and a $7,000 gain is reported.
D - New asset is recorded at $40,000 and no gain is reported.
Answer is B.
The answer to any normal trade would be C. The new asset is recorded at the fair value of the asset given up and any difference between its book value and fair value is recorded as a gain or loss. However, there is one exception and this question looks at that exception. If there is no economic or commercial substance to a trade, then the assumption is that the trade was made solely in order to record a gain. If there is no commercial substance, there is no possible reason for having made the trade. That condition arises where the cash flows (in amount, timing, and risk) are not affected in any way by the trade. In that one situation, book value is retained and no income effect is recorded.
Business Environment and Concepts
A company produces a product in a long-series of automated steps that requires little direct material and direct labor but a lot of overhead. What costing system is the company most likely to use?
A - Job-order costing
B - Process costing
C - Activity-based costing
D - Just-in-time costing
Answer is C
In this situation, a company might use job-order costing or process costing. There is not enough information to tell if products are unique (where job-order costing is appropriate) or mass produced (where process costing is appropriate). However, in connection with either of these approaches, the company is likely to apply activity-based costing because there are many steps in the process and overhead is a significant cost. Activity-based costing breaks the process down into individual activities and determines a specific overhead cost driver for each of these activities. In that way, the costing is designed specifically for the process in use. Overhead for one activity might be applied based on machine hours if that is appropriate to the activity whereas overhead for another activity might be applied based on direct labor cost if that is appropriate.
Auditing and Attestation
A CPA is doing a compilation of financial statements for a client. Which of the following is most likely to be done by the CPA?
A - The physical inventory taken by the client must be observed by the CPA.
B - At least a few of company's accounts receivable must be confirmed by the CPA.
C - Analytical procedures must be carried out after all other work is performed.
D - The statements should be read for any obvious mistakes.
Answer is D.
A compilation means that client information is taken and put into the form of financial statements. There are no audit procedures performed and no assurance of any type is given. However, the CPA is required, at a minimum, to read the statements and make sure that no obvious errors are present. For example, if land is listed as a current asset, or if retained earnings is listed as a liability, the CPA does have to check that out because they both seem obviously incorrect.
And, finally, just a reminder for those of you who live near Richmond:
The University of Richmond is pleased to announce Joe Hoyle as the University's first "Last Lecturer." Professor Hoyle is an associate professor of accounting in the Robins School of Business. He has taught at the University of Richmond since 1979 and is a distinguished educator, receiving numerous awards and honors. Students nominated over seventy professors during the week of February 9th. Please join us on Tuesday, April 7th, 2009 at 7 p.m. in the Jepson Alumni Center to listen to Professor Hoyle's "Last Lecture." This event is part of the newly created Last Lecture Series at the University of Richmond in which students nominate professors they would like to hear deliver a speech based on the question "If you were to address students at the University of Richmond for the last time, what would you say?" Professor Hoyle's "Last Lecture" is free and open to the public.
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