Over 2,100 FREE CPA Review Questions and Answers Available for YOU
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Lesson 86
From: Joe
(1) – Happy Holidays to each and every one of you from all of us here at CPAreviewforFREE. I hope 2010 has been great for you and that 2011 will be even better. You only live once – make it a life of joy with a willingness to help others.
One of our proudest accomplishments here at www.CPAreviewforFREE.com is that we have visitors to our site from all over the world. Last week alone, visitors from 97 different countries used our site to add points to their CPA Exam scores. Isn’t that neat! I know the world is just full of bad news where people cannot seem to get along but, at CPAreviewforFREE, we want to do our part to help all people, all the way around the globe.
Last week, as always, a majority of our traffic came from the US but the next biggest locations outside of the US were Canada, United Arab Emirates, India, Japan, and Philippines. We love being able to touch so many people in so many places.
Welcome to all of you wherever you may live!!!!!
**
And, we just passed two milestones this week: 20 million page views since we first started and 12 million page views in 2010 alone. I only have one thing to say: WOW!!!
(2) – As I mentioned in my last email, we are working feverishly to adapt our site to the January 2011 CPA Exam. If you want to see what is going to be on the new exam, go to www.cpa-exam.org and click on “CSOs/SSOs effective January 1, 2011.”
In the last few days, we have
--added Business Structures (Corporations, Partnerships, and LLCs) to our Regulation subscription service.
--added International Financial Reporting Standards (IFRS) to our FAR subscription service.
--added SEC material and accounting for trusts to our FAR subscription service.
--updated our subscription study guide for FAR and Regulation (remember, each subscription service is only $15 per month).
--got ready to expand the number of task-based simulations that are available in our subscription service.
--started finishing up the subscription services for BEC and Auditing.
(3) – As always, I am delighted to get emails from so many of you. Thanks for writing.
From WBS: “I wanted to say a HUGE thanks for all of your support. I used your materials to pass both FAR and REG, and I am now DONE with the exam! Initially, I was using CPA Review for Free as a supplement to the "expensive review course". As I became familiar with your format, it did not take long before your materials became my primary source of study. I graduated with my accounting degree in 1999, so, needless to say, I felt like I was way behind the power curve in preparing for the exam. Your materials provided a great pathway for an old guy like me to gain the confidence I needed to pass the exam. You are providing a great service, and I wanted to be sure to let you know of my deep gratitude for your tireless efforts to help us all succeed. I am referring as many people as possible to your website.”
From NI: “After 6 years of trying to pass the CPA exam, I am so happy to let you know that I have completed the exam. It seems like yesterday when I wrote my goal out for 2010. My main professional goal was to pass the CPA exam by the end of 2010. I promised to study 1 1/2 hours every day except Sundays and do as much of your multiple choice questions as I could. Thank you so much for all your encouraging emails and believing in me. You are such a great teacher, motivator and a fabulous person. Thank you for always picking me up and letting me know that I could always make it better the next day. I praise God for your gifts and please keep being the light that you are. Nothing beats hard work, a positive attitude while studying and your encouraging emails. Thank you, Thanks you and Thank you. This has been the best Christmas Gift for me and my family.”
From NJ: “Hi Joe! I don't know if you may remember me but I emailed you once regarding a question on equivalent units in BEC. I just wanted to say that I just saw my score and passed BEC on my first attempt! All the practice questions you offered on your website were incontrovertibly the best practice aides!! Thank you so much for continually pushing so many of us with your cheerful emails I absolutely love reading them! Happy holidays and onto the next stage now!”
From GH: “I have just registered on your cpa review for free website. What a great way to keep being a "good samaritan". I enjoyed your "last lecture" on YouTube - it was the best hour I've spent in a long time. Also, I have your text book on advanced accounting (9e). I never made the connection until tonight. I am a 50 year old studying for the CPA. I am in my own transition. God Bless you for your inspiration.”
From RK: “Good morning Joe! I just received my advisory score for REG and I passed with an 86%! Thank you so much for all your help! The study tips, the free questions, the encouragement - all that you do has been wonderful. Thank you, thank you! I have now passed all 4 parts. It's a great Christmas present!”
(4) – One day recently, Good Morning America, which is a television show on one of the major networks, challenged its viewers to come up with three words that conveyed a message about themselves. I thought that was a fascinating exercise – what three words would you use to describe your feelings/personality?
I stopped and did some reflection – what three words best describe Joe Hoyle?
It is not a bad exercise – can you boil down who you are to just three words, three words that really capture the very essence of being you.
For me, it was “Make It Happen.” I must admit that I love that phrase and what it conveys.
--To an extent, it reminds me that what we accomplish, what we become in life, is up to us. We are not pawns in the hands of fate but we are capable of creating our own destiny. Going back to my favorite lines from Shakespeare: “The fault, dear Brutus, is not in our stars, But in ourselves, that we are underlings.”
--Being willing to work hard is more important than money or talent or smarts or family connections or anything else. Yeah, there is always some limit to what you can accomplish purely by yourself. But there is not much of a limit. If you truly know what you want, you have the ability to make it happen.
What three words would you use to describe yourself?
“Gave Up, Quit”
“Needed A Nap”
“Everyone’s Against Me”
“Television’s More Important”
“Never Had Time”
“Will Work Tomorrow”
“Everything Distracts Me”
Some of these are funny but the truth is that we all know people who seem to have such mottos.
What was YOUR 3-word motto for 2010?
More importantly
What is going to be YOUR 3 word motto for 2011?
There is not much we can still do about 2010 but there are a million things you can accomplish in 2011.
Make It Happen!!!
PS – I challenged our friends on our Facebook page to give me their three word motto for 2011 – I’d love to hear yours if you are on Facebook.
(5) – We have to say the following legally: You can always unsubscribe from these email lessons that I write and mail out about every 7-14 days. Just scroll to the bottom of this email (or any email from us) and click on the link and you’ll immediately be removed. Cross my heart.
Now, we don’t have to say the following legally: We are delighted to have you with us. Please feel free to stay on as long as you like. Don’t hesitate to tell your friends and neighbors. Mention us to strangers you meet on the street. Leave anonymous notes in people’s mailboxes to tell them to subscribe. Since we spend nothing for advertising, we are like Blanche DuBois in A Street Car Named Desire in that we “always depend on the kindness of strangers.” Thanks for helping us spread the word.
(6) – We always get a lot of nice compliments around here about being Good Samaritans but you can be one too. Don’t leave that work up to us. Over this holiday season, make it a special point to be a Good Samaritan at least one time. Think how much better the world would be if we all did that just one time in the new few weeks.
A few days ago, my wife and elder daughter went through the drive-in at the local Arby’s to get a couple of sandwiches for their lunch. When they pulled up to the window to pay, they were informed that the person in the previous car (who had now driven away) had paid for their meal as a Christmas gesture. It was a neat gift from one anonymous person to another. Yeah, it cost a few bucks but it really made my wife smile. It was the essence of a pure gift with nothing expected in return. And, my wife will never know who the person was. Just some stranger who wanted to make her day better.
You don’t have to buy someone’s lunch but such gestures are what makes us all proud to be human beings. Don’t leave it to someone else – YOU do it.
(7) – In studying for the CPA Exam, it is always easy to get discouraged. There are many study days when you just miss an awful lot of questions. It is easy to feel lost and hopeless. Sometimes it feels like you are so far behind that you are never going to catch up.
Okay, I don’t follow either of these teams but I do know that the Eagles played the Giants in NFL football on Sunday. With 7 minutes and 30 seconds left in the game, the Giants were ahead by 31 to 10. I do know that in pro football being 21 points behind with 7 ½ minutes to play means that you might as well give up and start heading to the locker room. You just cannot score 21 points with that little time left. The game is lost so give up and quit and don’t get hurt.
Apparently, someone forgot to tell the Eagles because they managed to score four touchdowns in the last 7 ½ minutes and actually won the game by seven points. They scored 28 points in the final 7 ½ minutes. When all looked lost, they came back and won.
They could have folded their tents but they didn’t do that. All of a sudden things started turning their way and they began to make good things happen.
Too often, in studying for the CPA Exam, people get into a “I can’t possibly win this so I’m going to give up” mentality. They keep studying but the energy has drained completely out of them. They simply start expecting to lose.
When you expect to lose, it takes the edge off your work. No one ever puts out a 100 percent effort when they expect to get beaten.
I’m here to pass along yet another three word message – NEVER GIVE UP. There are times when things look bleak but no one gets anywhere in life by giving up. Some of the most exciting victories come when you get strong at the end and pull out a win that looked like a certain loss.
I know some of you have struggled with the CPA Exam in the past. But that was in the past. That was 2010. Forget about it. The exam you are going to see is the 2011 CPA Exam. There is no reason why you cannot pass the CPA Exam in 2011.
Keep Adding Points (yes, another 3 word message – they are everywhere).
As long as you keep adding points, you are going to get to 75 and you are going to pass that CPA Exam. Make it happen in 2011. Make this the year where you kick your career into high gear by passing the CPA Exam.
And, let us at www.CPAreviewforFREE.com help you in that quest.
(8) – Time to practice!!! Here are four questions – you should have one goal: when I see these questions again, I’ll be able to get them right.
FAR
Which of the following is filed with the SEC as an annual report to provide a comprehensive picture of a company’s performance, including aud¬ited financial statements?
A – Form 8-K
B – Form 10-K
C – Form 10-Q
D – Form S-1
Answer is B
The Form 8-K is filed with the SEC to provide information about material events that affect the company, such as mergers and acquisitions, changes in directors or CEO, other major changes in operations or status, changes in auditors, etc. The Form 10-K is the annual report filed with the SEC and includes sections such as a description of the business, risk factors, properties, legal proceedings, and submission of matters to a vote of security holders. The Form 10-Q is the quarterly report filed with the SEC. The Form S-1 is the common form filed in connection with the registration of new securities.
BEC
Wikipedia describes which of the following as “that element of a project that keeps it on-track, on-time and within budget?”
A – Project control
B – Project proposal management
C – Projection completion entitlement
D – Projection completion assurance (or PCA)
Answer is A
In the performance of a project, the ongoing comparison that measures actual progress to planned progress to serve as a control feature for every aspect of the job is known as project control.
Auditing and Attestation.
A CPA is auditing the financial statements of Yolandin Corporation. The CPA is concerned as to whether the accounts receivable being reported represent all of the amounts owed to the entity at the balance sheet date. Which of the following is the CPA most likely to perform to provide evidence about this concern?
A – Trace a sample of the balances reported as of the balance sheet date back to their source documentation.
B – Examine the list of receivables at the end of the year for especially large balances.
C – Examine the sales reported for the first few days of the subsequent period to ensure that each was recorded in the correct period.
D – Trace a sample of cash collections received prior to the end of the year to be sure that the proper balances were reduced.
Answer is C
The CPA is worried that some accounts receivable have been omitted at the balance sheet date so that the reported balance does not represent all of the amounts that are owed to the company. Answer A is a test of balances that have already been reported. Answer B is a test of balances that are reported. Answer D is a test to make sure balances have been properly removed. The only test that looks at the possible omission of accounts receivable is answer C. Sales reported shortly after the end of the year and recorded at that time might have actually taken place prior to the end of the year and were omitted from the reporting for that year. There are several reasons that might have taken place – often it is that the creation of the documents takes a few days to occur and be recorded so the event takes place in one year but is not recorded until the next.
Regulation
James and Madelyn Hogswealth discover an error in a previous year’s federal income tax return. They file an amended return and receive a refund of $1,933 plus an additional $17 as interest for a total amount of $1,950. In the year in which they receive this money, how does it impact their federal income tax return?
A – There is no impact on their current income tax return because the money related to an earlier year.
B - $17 increase in taxable income
C - $1,933 increase in taxable income
D - $1,950 increase in taxable income
Answer is B
Federal income taxes paid or received (as refunds) have no impact on a person’s federal taxable income. However, interest received on such a refund is viewed as taxable income and must be reported.
Stay warm.
Stay safe.
Do good work.
Joe Hoyle
President and Co-Founder
CPAreviewforFREE
Wednesday, December 22, 2010
Monday, December 6, 2010
Set a Goal and Make it Happen
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
126 Weeks of Operation and 19,645,481 Page Views (without a penny spent on marketing)
Lesson 85
From: Joe
(a) – We should go over 20 million page views in the next few days – WOW!!!!
(1) – The 2010 CPA Exam is officially over and we are going to use the next few weeks to switch everything on our site over to the 2011 CPA Exam. Here are some of the changes we want you to notice.
--We have added a bunch of IFRS multiple-choice questions for FAR in our free question and answer database. Probably the 2011 change that has been the most talked about is the addition of some IFRS questions in FAR. We have tried to pick out the questions that we believe are most likely to be used to test IFRS. You can do those questions (right now) at www.CPAreviewforFREE.com.
--As I type, we are in the process of moving our free Business Structure questions and answers from BEC to REG. The examiners decided that those subject areas (corporations and partnerships) were better suited under Regulation.
--We have added a whole bunch of free Corporate Governance questions and answers to our BEC database. The examiners moved Business Structure to REG and replaced it in BEC with Corporate Governance. Those questions and answers are now ready to go.
--In our subscription services for FAR and REG, we have removed all of the old-style simulations and replaced them with brand new task-based simulation questions and answers. We will soon have 10 or so task-based simulations in each of the subscription areas. On the CPA Exam, instead of having two very long simulations that include both research and written communications, each part of the CPA Exam (except BEC) will have 6-7 shorter task-based simulations. Research will still be tested here but the written communications questions will all move to BEC.
--In our subscription services for FAR and REG, we have updated our study programs to incorporate the changes that are being made.
Okay, that is the progress at the moment. We have more to do and I’ll give you that information in my next email less.
Our goal is quite simple: we want to do whatever is necessary to be the biggest CPA Exam Review program in the country by the end of 2011.
(2) – That is our goal for 2011. What is your goal for 2011? Where do you want to be one year from today? As I sometimes tell my students, you don’t need a map if you don’t know where you want to go. Life doesn’t happen as you want it by chance. What would you like to accomplish over the next year?
Hopefully, one of your goals is to get the CPA Exam passed, done, and out of your life.
--Whether you went to a big school or a tiny one, that is a reasonable goal. It just takes work.
--Whether you made a 4.0 in college or just barely passed, that is still a reasonable goal. It just takes work.
--Whether you were the smartest student in your class or the one who just squeaked by, that is still a reasonable goal. It just takes work.
Success doesn’t come by accident.
How soon do you want to pass the CPA Exam? What is reasonable?
Which part do you want to pass next?
How much time is it going to take?
What study materials will you use (hopefully, www.CPAreviewforFREE.com)?
The country (and I suppose the world) seem to be in a rut right now. It needs more people like you to get up and start accomplishing something. The world doesn’t get stronger by having its best and brightest people sit around and whine about our problems. It gets stronger by doing. Figure out what you want to do over the next 365 days and get on with the journey. If you know where you want to go, you can make it happen.
(3) – As always, we love the mail we get.
From KS: Just received my final CPA exam grade--passed FAR with a score of 91. I used your pay content almost exclusively for preparation. I had the XXXX review series, but it was overkill, and the book was way too thick to possibly get through (since I am also working full-time, am married and have two children). So thanks! Your review materials are spot on and prepared me well. I will keep spreading the word about your site!
From JK: I just wanted to say thank you for all of the information on your site! I found out this week that I passed FAR with an 83 after studying with the subscription review slides and free questions on your site. It is such a great resource and I have been using the site instead of doing a review program. Many people at work are surprised when I say I'm not going to a review class, but I really believe that your site is helpful in passing the test. Thank you again.
From Z: Just wanted to let you know that I passed FAR!! Got my scores in today. I made exactly what was needed to pass, a 75. I wanted to take a moment of your time to thank you for your encouraging emails and suggestions. I applied several of your techniques. I actually wrote out on a piece of paper that “every question I do gets me closer to a 75” and that has helped a lot. It truly worked out!
From NW: Before I unsubscribe, I want to thank you for your site – it helped me pass the CPA exam! Every time when I had trouble figuring out a concept, I checked out your site and learned the concept from a different perspective. I LOVED your thorough explanations, much better than the XXXX. I also enjoyed your encouraging periodic newsletters/e-mails. Those fun and positive messages kept me on track! Thank you SO very much!
From OP: Just a word to say thanks so much for your help in passing the CPA exam. I received notice that I passed the 4th part this week, but now I must retake REG in Jan 2011 because the 18 months time limit passed and I lost credit for REG that I initially took and passed in 01/09. Anyway, I am very thankful for all your timeless efforts to help old guys like myself to achieve their desires to excel. I am 58 now and began this endeavor around August 2008. After passing this last "hurdle" and fulfilling my experience requirement, I will launch my "new" career as a CPA!
Now--Picture your email right here – that’s what I want – to hear from YOU about how you used www.CPAreviewforFREE.com and passed that exam!!
(4) – My semester has just ended and I am in the middle of final exams. Last week one of the students came to me because she was disappointed with her grade. She had worked very hard throughout the semester but her test grades were not as good as she hoped they would be. She wanted some advice on how she could do better on the final exam.
I eventually wrote her a note with some advice. I thought that advice might be helpful to you even though you are not taking a final exam in “Introduction to Financial Accounting.”
To my student:
On a test, there are typically one (or more) out of several possible reasons for missing a question.
The first is that you don't read the question very well and don't even know what is being asked or the information that is available. You never get a good handle on the question. In the helter skelter of a test, students often start to "guess" at what the question wants before they have finished the first sentence. They are so pumped up that they want to get on with the job of answering the question before they even read the question. They'll often come back and say "I don't know how I could possibly have missed that. I knew that material and still got the question wrong."
And the most likely answer is that they never really understood what the question was asking. So, after you read the question, repeat it back to yourself. What am I supposed to determine? And, then ask yourself what information is needed to answer that question. Once you know the question, you should start thinking about the information you must obtain to address that question.
The second reason for mistakes is that accounting tests are often quantitative tests where you have a bunch of numbers or other information presented in a very random fashion. Those numbers and that other information must be processed in a particular order. You must provide order for the chaos. Somehow, students often never get the numbers and information ordered correctly. The information remains confused in the person’s head and the person can just not get things lined up to arrive at an answer. So, as you are studying, think about how the information is put together to arrive at a proper answer. Answers tend to be built: do this and then do this and then do this and you have the correct answer.
Students will say “I know I need this and this and this but I don’t see how they all go together—how do I put them together?” That is not a question you should be asking yourself during the test; that is a question you need to answer prior to the test.
The third reason for missing goes back to the learning process. The best way to learn something is to miss it and then have to figure out what went wrong. You need to work as many practice problems as you can and every time you miss one you need to get obsessed with figuring out what went wrong. There is absolutely no reason to practice if you are not going to learn from your mistakes. Too many students say “shucks” when they miss a question and then find a spot within the question that they missed and move on. To say “oh, it is six at that point rather than seven” doesn’t mean you know how to work the question. So, always ask yourself “if this question were asked again but the numbers were changed slightly and rearranged a bit, could I get it right the next time?” In many ways, that is the ultimate preparation question. Until your answer to that question is “absolutely yes,” you cannot move on -- you must still learn how to answer that question.
It takes patience and it takes perseverance but you must read the question carefully, you must understand how the information fits together, and you must learn from your mistakes. If you do that, there is no reason that you can’t knock the top out of that exam.
(5) – If you want to unsubscribe from these email lessons, it is easy. Just scroll to the bottom of this email lesson (or any email lesson) and click on the Unsubcribe link. We are delighted to have you with us. Please stay as long as you wish. Please forward these lessons to your friends, family, strangers, enemies, and creatures from other planets. But, when you are ready to go, you are certainly able to unsubscribe.
(6) – Let’s add some points. Here are four good questions – the chance to add four points to YOUR CPA Exam score.
FAR
A company borrows money on a long-term note payable. In the current year, the company pays the required $23,000 in interest expense. On a statement of cash flows, how is that payment reflected according to IFRS?
A. As an operating activity
B. As a financing activity
C. As either an operating activity or a financing activity
D. As either a financing activity or an investing activity
Answer is C
Under US GAAP, cash paid for interest expense is always reported as an operating activity. IFRS takes a different approach. Cash paid for interest expense can be reported as an operating activity on a statement of cash flows but company management can also show it as a financing activity (since it is directly related to a liability).
BEC
Which of the following is a requirement established by the New York Stock Exchange for the companies that are officially listed on that exchange?
A. A code of conduct must be adopted by the governing board and made public.
B. The company must have both common stock and preferred stock so that investors can have an available option.
C. The company must maintain a reasonable equity position as measured by its debt-to-equity ratio.
D. The company must have a history of paying out a minimum of five percent of its earnings in the form of cash dividends.
Answer is A
To help ensure that companies operate with some level of moral guidance, a code of conduct must be adopted. To help outsiders evaluate the company’s commitment to ethical principles that code of conduct must be made public. Most companies do not have a preferred stock and there are certainly no rules requiring its availability. Investors should judge the financial position and operations of the company for themselves by looking at benchmarks such as the debt-to-equity ratio and the dividend payout. The NYSE has no such requirements about preferred stock, the debt-to-equity ratio, or the dividend payout.
Auditing and Attestation
A CPA firm is planning to do an audit of a reporting entity located in a foreign country and the firm is required to follow the rules established by international auditing standards. What authoritative body establishes those standards?
A. The Public Oversight Board of Europe and Asia
B. The Auditing Development Board of the United Nations
C. The Auditing Standards Group of the World Bank
D. The International Federation of Accountants
Answer is D
The International Federation of Accountants (IFAC) produces international auditing standards. According to its website, “As the global organization for the accountancy profession, IFAC is committed to protecting the public interest by developing high-quality international standards, promoting strong ethical values, encouraging quality practice, and supporting the development of all sectors of the profession around the world.”
Regulation
The Jones Partnership has been in operation for a number of years and is run by Bill Jones and Phil Jones. Tom Smith has also put money into the business but is a silent 20 percent partner. He does not do any work in connection with the business and no one knows that he is a silent partner other that Bill and Phil Jones. Which of the following is true?
A. Tom Smith can only lose the amount of money that he has invested in the partnership.
B. Tom Smith can only be held for responsible for 20 percent of the liabilities of the partnership.
C. Tom Smith can only be held liable by individuals or companies that should have known that he was a partner.
D. Tom Smith has unlimited liability for the debts of the partnership despite serving as a silent partner.
Answer is D
The designation of Smith as a silent partner has no impact on his liability for the debts of a partnership. In a general partnership, all partners have this unlimited risk.
Have a great week – make wonderful things happen!!!!
Joe Hoyle
Co-Founder and President
CPA Review for FREE
www.CPAreviewforFREE.com
126 Weeks of Operation and 19,645,481 Page Views (without a penny spent on marketing)
Lesson 85
From: Joe
(a) – We should go over 20 million page views in the next few days – WOW!!!!
(1) – The 2010 CPA Exam is officially over and we are going to use the next few weeks to switch everything on our site over to the 2011 CPA Exam. Here are some of the changes we want you to notice.
--We have added a bunch of IFRS multiple-choice questions for FAR in our free question and answer database. Probably the 2011 change that has been the most talked about is the addition of some IFRS questions in FAR. We have tried to pick out the questions that we believe are most likely to be used to test IFRS. You can do those questions (right now) at www.CPAreviewforFREE.com.
--As I type, we are in the process of moving our free Business Structure questions and answers from BEC to REG. The examiners decided that those subject areas (corporations and partnerships) were better suited under Regulation.
--We have added a whole bunch of free Corporate Governance questions and answers to our BEC database. The examiners moved Business Structure to REG and replaced it in BEC with Corporate Governance. Those questions and answers are now ready to go.
--In our subscription services for FAR and REG, we have removed all of the old-style simulations and replaced them with brand new task-based simulation questions and answers. We will soon have 10 or so task-based simulations in each of the subscription areas. On the CPA Exam, instead of having two very long simulations that include both research and written communications, each part of the CPA Exam (except BEC) will have 6-7 shorter task-based simulations. Research will still be tested here but the written communications questions will all move to BEC.
--In our subscription services for FAR and REG, we have updated our study programs to incorporate the changes that are being made.
Okay, that is the progress at the moment. We have more to do and I’ll give you that information in my next email less.
Our goal is quite simple: we want to do whatever is necessary to be the biggest CPA Exam Review program in the country by the end of 2011.
(2) – That is our goal for 2011. What is your goal for 2011? Where do you want to be one year from today? As I sometimes tell my students, you don’t need a map if you don’t know where you want to go. Life doesn’t happen as you want it by chance. What would you like to accomplish over the next year?
Hopefully, one of your goals is to get the CPA Exam passed, done, and out of your life.
--Whether you went to a big school or a tiny one, that is a reasonable goal. It just takes work.
--Whether you made a 4.0 in college or just barely passed, that is still a reasonable goal. It just takes work.
--Whether you were the smartest student in your class or the one who just squeaked by, that is still a reasonable goal. It just takes work.
Success doesn’t come by accident.
How soon do you want to pass the CPA Exam? What is reasonable?
Which part do you want to pass next?
How much time is it going to take?
What study materials will you use (hopefully, www.CPAreviewforFREE.com)?
The country (and I suppose the world) seem to be in a rut right now. It needs more people like you to get up and start accomplishing something. The world doesn’t get stronger by having its best and brightest people sit around and whine about our problems. It gets stronger by doing. Figure out what you want to do over the next 365 days and get on with the journey. If you know where you want to go, you can make it happen.
(3) – As always, we love the mail we get.
From KS: Just received my final CPA exam grade--passed FAR with a score of 91. I used your pay content almost exclusively for preparation. I had the XXXX review series, but it was overkill, and the book was way too thick to possibly get through (since I am also working full-time, am married and have two children). So thanks! Your review materials are spot on and prepared me well. I will keep spreading the word about your site!
From JK: I just wanted to say thank you for all of the information on your site! I found out this week that I passed FAR with an 83 after studying with the subscription review slides and free questions on your site. It is such a great resource and I have been using the site instead of doing a review program. Many people at work are surprised when I say I'm not going to a review class, but I really believe that your site is helpful in passing the test. Thank you again.
From Z: Just wanted to let you know that I passed FAR!! Got my scores in today. I made exactly what was needed to pass, a 75. I wanted to take a moment of your time to thank you for your encouraging emails and suggestions. I applied several of your techniques. I actually wrote out on a piece of paper that “every question I do gets me closer to a 75” and that has helped a lot. It truly worked out!
From NW: Before I unsubscribe, I want to thank you for your site – it helped me pass the CPA exam! Every time when I had trouble figuring out a concept, I checked out your site and learned the concept from a different perspective. I LOVED your thorough explanations, much better than the XXXX. I also enjoyed your encouraging periodic newsletters/e-mails. Those fun and positive messages kept me on track! Thank you SO very much!
From OP: Just a word to say thanks so much for your help in passing the CPA exam. I received notice that I passed the 4th part this week, but now I must retake REG in Jan 2011 because the 18 months time limit passed and I lost credit for REG that I initially took and passed in 01/09. Anyway, I am very thankful for all your timeless efforts to help old guys like myself to achieve their desires to excel. I am 58 now and began this endeavor around August 2008. After passing this last "hurdle" and fulfilling my experience requirement, I will launch my "new" career as a CPA!
Now--Picture your email right here – that’s what I want – to hear from YOU about how you used www.CPAreviewforFREE.com and passed that exam!!
(4) – My semester has just ended and I am in the middle of final exams. Last week one of the students came to me because she was disappointed with her grade. She had worked very hard throughout the semester but her test grades were not as good as she hoped they would be. She wanted some advice on how she could do better on the final exam.
I eventually wrote her a note with some advice. I thought that advice might be helpful to you even though you are not taking a final exam in “Introduction to Financial Accounting.”
To my student:
On a test, there are typically one (or more) out of several possible reasons for missing a question.
The first is that you don't read the question very well and don't even know what is being asked or the information that is available. You never get a good handle on the question. In the helter skelter of a test, students often start to "guess" at what the question wants before they have finished the first sentence. They are so pumped up that they want to get on with the job of answering the question before they even read the question. They'll often come back and say "I don't know how I could possibly have missed that. I knew that material and still got the question wrong."
And the most likely answer is that they never really understood what the question was asking. So, after you read the question, repeat it back to yourself. What am I supposed to determine? And, then ask yourself what information is needed to answer that question. Once you know the question, you should start thinking about the information you must obtain to address that question.
The second reason for mistakes is that accounting tests are often quantitative tests where you have a bunch of numbers or other information presented in a very random fashion. Those numbers and that other information must be processed in a particular order. You must provide order for the chaos. Somehow, students often never get the numbers and information ordered correctly. The information remains confused in the person’s head and the person can just not get things lined up to arrive at an answer. So, as you are studying, think about how the information is put together to arrive at a proper answer. Answers tend to be built: do this and then do this and then do this and you have the correct answer.
Students will say “I know I need this and this and this but I don’t see how they all go together—how do I put them together?” That is not a question you should be asking yourself during the test; that is a question you need to answer prior to the test.
The third reason for missing goes back to the learning process. The best way to learn something is to miss it and then have to figure out what went wrong. You need to work as many practice problems as you can and every time you miss one you need to get obsessed with figuring out what went wrong. There is absolutely no reason to practice if you are not going to learn from your mistakes. Too many students say “shucks” when they miss a question and then find a spot within the question that they missed and move on. To say “oh, it is six at that point rather than seven” doesn’t mean you know how to work the question. So, always ask yourself “if this question were asked again but the numbers were changed slightly and rearranged a bit, could I get it right the next time?” In many ways, that is the ultimate preparation question. Until your answer to that question is “absolutely yes,” you cannot move on -- you must still learn how to answer that question.
It takes patience and it takes perseverance but you must read the question carefully, you must understand how the information fits together, and you must learn from your mistakes. If you do that, there is no reason that you can’t knock the top out of that exam.
(5) – If you want to unsubscribe from these email lessons, it is easy. Just scroll to the bottom of this email lesson (or any email lesson) and click on the Unsubcribe link. We are delighted to have you with us. Please stay as long as you wish. Please forward these lessons to your friends, family, strangers, enemies, and creatures from other planets. But, when you are ready to go, you are certainly able to unsubscribe.
(6) – Let’s add some points. Here are four good questions – the chance to add four points to YOUR CPA Exam score.
FAR
A company borrows money on a long-term note payable. In the current year, the company pays the required $23,000 in interest expense. On a statement of cash flows, how is that payment reflected according to IFRS?
A. As an operating activity
B. As a financing activity
C. As either an operating activity or a financing activity
D. As either a financing activity or an investing activity
Answer is C
Under US GAAP, cash paid for interest expense is always reported as an operating activity. IFRS takes a different approach. Cash paid for interest expense can be reported as an operating activity on a statement of cash flows but company management can also show it as a financing activity (since it is directly related to a liability).
BEC
Which of the following is a requirement established by the New York Stock Exchange for the companies that are officially listed on that exchange?
A. A code of conduct must be adopted by the governing board and made public.
B. The company must have both common stock and preferred stock so that investors can have an available option.
C. The company must maintain a reasonable equity position as measured by its debt-to-equity ratio.
D. The company must have a history of paying out a minimum of five percent of its earnings in the form of cash dividends.
Answer is A
To help ensure that companies operate with some level of moral guidance, a code of conduct must be adopted. To help outsiders evaluate the company’s commitment to ethical principles that code of conduct must be made public. Most companies do not have a preferred stock and there are certainly no rules requiring its availability. Investors should judge the financial position and operations of the company for themselves by looking at benchmarks such as the debt-to-equity ratio and the dividend payout. The NYSE has no such requirements about preferred stock, the debt-to-equity ratio, or the dividend payout.
Auditing and Attestation
A CPA firm is planning to do an audit of a reporting entity located in a foreign country and the firm is required to follow the rules established by international auditing standards. What authoritative body establishes those standards?
A. The Public Oversight Board of Europe and Asia
B. The Auditing Development Board of the United Nations
C. The Auditing Standards Group of the World Bank
D. The International Federation of Accountants
Answer is D
The International Federation of Accountants (IFAC) produces international auditing standards. According to its website, “As the global organization for the accountancy profession, IFAC is committed to protecting the public interest by developing high-quality international standards, promoting strong ethical values, encouraging quality practice, and supporting the development of all sectors of the profession around the world.”
Regulation
The Jones Partnership has been in operation for a number of years and is run by Bill Jones and Phil Jones. Tom Smith has also put money into the business but is a silent 20 percent partner. He does not do any work in connection with the business and no one knows that he is a silent partner other that Bill and Phil Jones. Which of the following is true?
A. Tom Smith can only lose the amount of money that he has invested in the partnership.
B. Tom Smith can only be held for responsible for 20 percent of the liabilities of the partnership.
C. Tom Smith can only be held liable by individuals or companies that should have known that he was a partner.
D. Tom Smith has unlimited liability for the debts of the partnership despite serving as a silent partner.
Answer is D
The designation of Smith as a silent partner has no impact on his liability for the debts of a partnership. In a general partnership, all partners have this unlimited risk.
Have a great week – make wonderful things happen!!!!
Joe Hoyle
Co-Founder and President
CPA Review for FREE
www.CPAreviewforFREE.com
Thursday, November 25, 2010
Keep Moving Forward
Try us FIRST before you spend your hard-earned money.
November 23, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
125 Weeks of Operation and 19,287,496 Page Views (without a penny spent on marketing)
Lesson 84
From: Joe
(a) – Have a great and joyous and wonderful Thanksgiving day on Thursday. Please do take time out of your busy and hectic day to reflect on all those many things that you have in your heart to be thankful for. I’m convinced that life goes better if your focus on what you are grateful for rather than stew on those things that tick you off. Too many people I know spend too much valuable time stewing.
(b) – And, here is one thing that we have to be thankful for – last week was our busiest week in our history!!! And, as always, it was done without advertising. Just think, if we had any money and could advertise like the big courses, we could really grow.
Just to put our growth into perspective, we measure a lot of things around here in page views. A page view is basically one person reading one question and one answer. So, it is a unit of measure that we can all understand. In our first week of existence, we had 1,920 page views and I was ecstatic. I thought that was unbelievable.
Last week, we had an average of 1,920 page views every 45 minutes round the clock, 24 hours per day for all 7 days of the week. That is close to a one-half million page views in that one week. (Or, as another way to look at it, we averaged 42.85 page views PER MINUTE for an entire week).
The average person stayed on our site for nearly 30 minutes and did 31.27 page views. That was THE AVERAGE PERSON.
So, don’t let the big courses kid you. We believe that 2011 will be the year where we become the most popular CPA Review program in the world. We have great plans that we will be rolling out during the next month. Stay tuned.
(c) – We get gazillions of emails and we always like to share a few with you. Speaking of those big, expensive courses, here is one that I got yesterday.
From EC: “I have to share some great news about your website. I just got my score from the BEC exam that I took on October 15. After four times of miserably failing the BEC section and after spending hundreds of dollars in mediocre CPA review materials such as XXXXXX, XXXXX XXXXXXXX, XXXX, and XXXXXX, I decided to give it a shot using your program. I did not have to spend more money I only needed to invest my time for the fifth time. I felt very comfortable during my last BEC exam but I did not want to have my hopes up since another failure would have devastated my self-esteem. I was pleasantly surprised when I saw I had passed BEC with 79. I was able to raise seven points with your program. The best I had done in the past was a 72, twice. Thank you very much for your commitment to help people like me who almost lost hope on passing BEC. I am now studying to sit for Audit on November 30, 2010, again since my credit expired last June due to the constant failure of not
passing BEC. I am now religiously studying the questions of your program. I will keep you posted as soon as I get my results. If I pass it, I will finally become a CPA and my name will be added to the CPA registry of the AICPA.” (You folks at home get points if you can figure out the four programs marked with the XXXs.)
Notes like this are what keep us working on CPAreviewforFREE.com
(1) – I love the note from EC above because the exam kept pushing him back but he wouldn’t let it get the best of him. He kept working and pushing forward and, at the end of the day, he got 79 points and he passed his nemesis – BEC.
Last Friday, in the Wall Street Journal, there was a quote from the movie Rocky Balboa:
“It ain’t how hard you hit, it’s how hard you can get hit and keep moving forward.”
Whether it is life or the CPA Exam, there are all kinds of barriers in our paths. All sorts of things that want to prevent us from succeeding. Yeah, it is easy to hit a barrier and quit and go home. The people I’m most proud of are those folks like EC who come close but fail several times and are willing to keep moving forward and doing it again until they make it happen!
If you are very smart and a great student and pass the CPA Exam pretty easily, that’s great for you. I really am pleased. But the exam didn’t truly put you to a serious test. The people I cheer for the most are those that work like dogs just to be average students. And, no matter how hard the CPA Exam pushes those folks back, they just keep moving forward and eventually they pass. And, that is truly wonderful. The CPA Exam has been a real test of their character and that character has proven to be rock solid. Now that is an accomplishment worth cheering about.
I liked the quote from the Rocky Balboa movie so well that I went to Google and found the whole quote. This quote is for all those people where the CPA Exam is truly a serious test of your intestinal fortitude. Don’t give up – don’t ever give up.
Rocky: “Let me tell you something you already know. The world ain't all sunshine and rainbows. It is a very mean and nasty place and I don't care how tough you are it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain't how hard you hit; it's about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That's how winning is done. Now, if you know what you're worth, now go out and get what you're worth. But you gotta be willing to take the hits, and not pointing fingers saying you ain't where you wanna be because of him, or her, or anybody. Cowards do that and that ain't you. You're better than that!”
If that doesn’t get you up off the couch to go do some problems on CPAreviewforFREE, you better have someone check your pulse.
(2) – Speaking of dynamic characters, we went on a short two-day vacation about ten days. We were staying in a bed and breakfast and we were staying in the “Theodore Roosevelt Room.” If you have ever read much about President Roosevelt, he may well have been one of the most dynamic figures in history. He once was scheduled to give an important speech in a hotel. He was shot in the chest right before he was to give the speech. He refused to go to the hospital until after he gave the speech. The speech lasted for nearly two hours. He almost passed out several times during the speech but he refused to let the gunman get the best of him.
In this Theodore Roosevelt Room, they had the following quote from TR framed at the top of the stairs:
“We shall make mistakes, and if we let these mistakes frighten us from our work, we shall show ourselves weaklings.”
Yes, you are going to miss questions.
Yes, you are going to get discouraged.
Yes, it is possible that you might fail some of the CPA Exam.
Yes, you simply cannot be perfect.
But you cannot let those mistakes frighten you into giving up or not putting in your best effort.
It is easy to live your life in fear but no one ever gets better by being afraid of mistakes.
What is holding you back from doing your very best on the CPA Exam? Is it simply that you are frightened by the possibility of not being perfect? Are you afraid that you will work hard and fail? We all fail at times. We all come up short at times.
And, yes, many people really do give up and quit. Don’t let that be you. When you win, you need to be gracious. When you lose, you need to be pugnacious.
I often tell the story about Vince Lombardi (the legendary coach) in his first pro football playoff game way back when he first started coaching. Apparently, his team lost the game right at the very end when they couldn’t score a touchdown that they really should have scored. As he walked off the field, he told someone something like “my teams will never lose another playoff game.” And, they didn’t.
Now, they did lose some regular season games but when things counted most at the end of the season, a Vince Lombardi team never lost another playoff game.
Think about it, what if that mistake in the first playoff game had made Coach Lombardi tentative or afraid of losing. No one would still remember Lombardi these days. However, hee wasn’t a person to be frightened by failure and, consequently, he is remembered as one of the greatest coaches of all time.
We make mistakes – how we do in life, in large part, depends on how we react to those mistakes. In my book, you need to be pugnacious.
(3) – As always, please know that you are allowed to unsubscribe from these lessons. We have a good number of people all the time who pass the exam and do unsubscribe. Super. To unsubscribe, go to the bottom of this email lesson and click on the unsubscribe button.
Want to help – just forward this email lesson to someone who is thinking about taking the CPA Exam. That would be such a help to us. Simply say “this guy helps to run www.CPAreviewforFREE.com and this email lessons will help you know how to pass. And, they are free.” It’s hard to beat free.
(4) – In just the time it took me to write this email lesson, I got the following two emails:
From MA: “I just wanted to make sure that you know that your free questions and paid content WORK!!! The only thing I supplemented this website with for FAR was an audiobook that I downloaded to listen to in the car and at work, and found out this morning that I got a 77 on FAR (Massachusetts). Thank you Joe!!!”
From JH: “You and your team are wonderful! I am happy to announce that I have officially passed all 4 parts, but I wasn't able to do it until I found your site. Thanks a million for all you are doing for us! I have passed your information along to those I know who are taking the exam. Keep up the good work and thanks again!”
(5) – Let’s do a bit of practice. Let’s add some points. Let’s learn some material. Let’s keep moving forward.
FAR
Near the end of the Year One, a company buys two derivatives that will come due in the next year. One of these derivatives was properly designed as a cash flow hedge. The other derivative was properly designed as a fair value hedge. By the end of the year, the fair value of both of these derivatives had increased. Where will these gains be reported?
A. In net income for both hedges
B. In accumulated other comprehensive income for both hedges
C. In net income for the fair value hedge and in accumulated other comprehensive income for the cash flow hedge.
D In net income for the cash flow hedge and in accumulated other comprehensive income for the fair value hedge.
Answer is C
The fair value hedge is bought to offset a possible loss from an asset or liability that is recorded at fair value. Since the account being hedged is recorded at fair value, its gain or loss will go into net income. Thus, the offsetting gain or loss on the hedge is also put into net income. A cash flow hedge is bought to ensure that an appropriate amount of cash is received or paid. There is not a reported gain or loss to be eliminated. Therefore, any gain or loss on a cash flow hedge is temporarily put into accumulated other comprehensive income (in stockholders’ equity) until it is terminated. In this case, the gain will go from accumulated other comprehensive income to net income in Year Two when the derivative comes due.
BEC
A company needs to obtain $2 million to build a new warehouse and is trying to decide whether to issue debt or issue equity to get the money. Which of the following statements is true about that decision?
A – Financial leverage is an advantage of issuing equity.
B – The tax effects are a disadvantage of debt.
C – The potential impact on future borrowing is a disadvantage of debt.
D – The possibility of bankruptcy is a disadvantage of equity.
Answer is C
If a company borrows money, it will cause a higher debt to equity ratio. As a company’s debt to equity ratio goes up, the ability to borrow money becomes more difficult and interest rates tend to escalate. Financial leverage (using other people’s money to make money for the owners) is a primary advantage of debt. Interest on debt is tax deductible while dividends paid on equity is not so that the advantage goes to the debt. Debt (and its periodic interest) must be paid or a company can be pushed into bankruptcy. No such requirement exists in connection with equity.
Auditing & Attestation
An independent auditor is concerned about her responsibility for uncovering illegal acts that have been committed by an audit client. Which of the following statements is not true?
A - A company records false sales in its financial statements in order to obtain a bank loan. Defalcation has occurred.
B - One reason that an auditor might not be expected to discover all client illegal acts is that some of these acts may involve nonfinancial problems.
C - One reason that an auditor might not be expected to discover all client illegal acts is that some of these acts may be well hidden from the auditors.
D – A reporting company is guilty of polluting the local river and will be subjected to a heavy monetary fine if caught. This is an example of an indirect illegal act.
Answer is A
The manipulation of information to make a company look different than it actually is should be referred to as “fraudulent financial reporting.” Defalcation is theft. An auditor is not expected to uncover all illegal acts for several reasons. For example, some problems (such as pollution) simply do not refer directly to financial reporting. In addition, the audit client will often make a concerted effort to hide illegal acts so that the auditor is unaware. Finally, a direct illegal act has already had an impact on the financial statements. An indirect illegal act will only impact the financial statements if the company is ever caught and punished.
Regulation
Mr. and Mrs. Wallace T. Briarwood have asked you to prepare their federal income taxes. They have listed the following charitable contributions. Which of these four may they include in determining their itemized deductions for this year?
A - Services donated to charity having a fair value of $2,000
B - Dues paid to the American Legion of $180
C - Out-of-pocket costs associated with donated services of $300
D - Donated cash to a political party of $500
Answer is C
Donated services to a qualified charitable organization are not tax deductible but related out-of-pocket expenses are. Dues to a fraternal organization such as the American Legion is not deductible and neither are political contributions.
We have a lot of new subscribers for our email lessons this week. If you are interested in the history of CPAreviewforFREE.com, here is a link to a story about us.
thecollegianur.com/2010/11/04/accounting-professor-creates-affordable-cpa-review-website/15405/
And, if you are interesting in watching one of my videos about education (skip the introductions – you guys know who I am already) here is the URL:
www.youtube.com/watch?v=LjwHxVbZq1o
HAPPY THANKSGIVING FROM ALL OF US HERE AT WWW.CPAREVIEWFORFREE.COM -- WE LOVE YOU GUYS!!!!!
Joe Hoyle
Co-Founder and President
CPA Review for FREE
November 23, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
125 Weeks of Operation and 19,287,496 Page Views (without a penny spent on marketing)
Lesson 84
From: Joe
(a) – Have a great and joyous and wonderful Thanksgiving day on Thursday. Please do take time out of your busy and hectic day to reflect on all those many things that you have in your heart to be thankful for. I’m convinced that life goes better if your focus on what you are grateful for rather than stew on those things that tick you off. Too many people I know spend too much valuable time stewing.
(b) – And, here is one thing that we have to be thankful for – last week was our busiest week in our history!!! And, as always, it was done without advertising. Just think, if we had any money and could advertise like the big courses, we could really grow.
Just to put our growth into perspective, we measure a lot of things around here in page views. A page view is basically one person reading one question and one answer. So, it is a unit of measure that we can all understand. In our first week of existence, we had 1,920 page views and I was ecstatic. I thought that was unbelievable.
Last week, we had an average of 1,920 page views every 45 minutes round the clock, 24 hours per day for all 7 days of the week. That is close to a one-half million page views in that one week. (Or, as another way to look at it, we averaged 42.85 page views PER MINUTE for an entire week).
The average person stayed on our site for nearly 30 minutes and did 31.27 page views. That was THE AVERAGE PERSON.
So, don’t let the big courses kid you. We believe that 2011 will be the year where we become the most popular CPA Review program in the world. We have great plans that we will be rolling out during the next month. Stay tuned.
(c) – We get gazillions of emails and we always like to share a few with you. Speaking of those big, expensive courses, here is one that I got yesterday.
From EC: “I have to share some great news about your website. I just got my score from the BEC exam that I took on October 15. After four times of miserably failing the BEC section and after spending hundreds of dollars in mediocre CPA review materials such as XXXXXX, XXXXX XXXXXXXX, XXXX, and XXXXXX, I decided to give it a shot using your program. I did not have to spend more money I only needed to invest my time for the fifth time. I felt very comfortable during my last BEC exam but I did not want to have my hopes up since another failure would have devastated my self-esteem. I was pleasantly surprised when I saw I had passed BEC with 79. I was able to raise seven points with your program. The best I had done in the past was a 72, twice. Thank you very much for your commitment to help people like me who almost lost hope on passing BEC. I am now studying to sit for Audit on November 30, 2010, again since my credit expired last June due to the constant failure of not
passing BEC. I am now religiously studying the questions of your program. I will keep you posted as soon as I get my results. If I pass it, I will finally become a CPA and my name will be added to the CPA registry of the AICPA.” (You folks at home get points if you can figure out the four programs marked with the XXXs.)
Notes like this are what keep us working on CPAreviewforFREE.com
(1) – I love the note from EC above because the exam kept pushing him back but he wouldn’t let it get the best of him. He kept working and pushing forward and, at the end of the day, he got 79 points and he passed his nemesis – BEC.
Last Friday, in the Wall Street Journal, there was a quote from the movie Rocky Balboa:
“It ain’t how hard you hit, it’s how hard you can get hit and keep moving forward.”
Whether it is life or the CPA Exam, there are all kinds of barriers in our paths. All sorts of things that want to prevent us from succeeding. Yeah, it is easy to hit a barrier and quit and go home. The people I’m most proud of are those folks like EC who come close but fail several times and are willing to keep moving forward and doing it again until they make it happen!
If you are very smart and a great student and pass the CPA Exam pretty easily, that’s great for you. I really am pleased. But the exam didn’t truly put you to a serious test. The people I cheer for the most are those that work like dogs just to be average students. And, no matter how hard the CPA Exam pushes those folks back, they just keep moving forward and eventually they pass. And, that is truly wonderful. The CPA Exam has been a real test of their character and that character has proven to be rock solid. Now that is an accomplishment worth cheering about.
I liked the quote from the Rocky Balboa movie so well that I went to Google and found the whole quote. This quote is for all those people where the CPA Exam is truly a serious test of your intestinal fortitude. Don’t give up – don’t ever give up.
Rocky: “Let me tell you something you already know. The world ain't all sunshine and rainbows. It is a very mean and nasty place and I don't care how tough you are it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain't how hard you hit; it's about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That's how winning is done. Now, if you know what you're worth, now go out and get what you're worth. But you gotta be willing to take the hits, and not pointing fingers saying you ain't where you wanna be because of him, or her, or anybody. Cowards do that and that ain't you. You're better than that!”
If that doesn’t get you up off the couch to go do some problems on CPAreviewforFREE, you better have someone check your pulse.
(2) – Speaking of dynamic characters, we went on a short two-day vacation about ten days. We were staying in a bed and breakfast and we were staying in the “Theodore Roosevelt Room.” If you have ever read much about President Roosevelt, he may well have been one of the most dynamic figures in history. He once was scheduled to give an important speech in a hotel. He was shot in the chest right before he was to give the speech. He refused to go to the hospital until after he gave the speech. The speech lasted for nearly two hours. He almost passed out several times during the speech but he refused to let the gunman get the best of him.
In this Theodore Roosevelt Room, they had the following quote from TR framed at the top of the stairs:
“We shall make mistakes, and if we let these mistakes frighten us from our work, we shall show ourselves weaklings.”
Yes, you are going to miss questions.
Yes, you are going to get discouraged.
Yes, it is possible that you might fail some of the CPA Exam.
Yes, you simply cannot be perfect.
But you cannot let those mistakes frighten you into giving up or not putting in your best effort.
It is easy to live your life in fear but no one ever gets better by being afraid of mistakes.
What is holding you back from doing your very best on the CPA Exam? Is it simply that you are frightened by the possibility of not being perfect? Are you afraid that you will work hard and fail? We all fail at times. We all come up short at times.
And, yes, many people really do give up and quit. Don’t let that be you. When you win, you need to be gracious. When you lose, you need to be pugnacious.
I often tell the story about Vince Lombardi (the legendary coach) in his first pro football playoff game way back when he first started coaching. Apparently, his team lost the game right at the very end when they couldn’t score a touchdown that they really should have scored. As he walked off the field, he told someone something like “my teams will never lose another playoff game.” And, they didn’t.
Now, they did lose some regular season games but when things counted most at the end of the season, a Vince Lombardi team never lost another playoff game.
Think about it, what if that mistake in the first playoff game had made Coach Lombardi tentative or afraid of losing. No one would still remember Lombardi these days. However, hee wasn’t a person to be frightened by failure and, consequently, he is remembered as one of the greatest coaches of all time.
We make mistakes – how we do in life, in large part, depends on how we react to those mistakes. In my book, you need to be pugnacious.
(3) – As always, please know that you are allowed to unsubscribe from these lessons. We have a good number of people all the time who pass the exam and do unsubscribe. Super. To unsubscribe, go to the bottom of this email lesson and click on the unsubscribe button.
Want to help – just forward this email lesson to someone who is thinking about taking the CPA Exam. That would be such a help to us. Simply say “this guy helps to run www.CPAreviewforFREE.com and this email lessons will help you know how to pass. And, they are free.” It’s hard to beat free.
(4) – In just the time it took me to write this email lesson, I got the following two emails:
From MA: “I just wanted to make sure that you know that your free questions and paid content WORK!!! The only thing I supplemented this website with for FAR was an audiobook that I downloaded to listen to in the car and at work, and found out this morning that I got a 77 on FAR (Massachusetts). Thank you Joe!!!”
From JH: “You and your team are wonderful! I am happy to announce that I have officially passed all 4 parts, but I wasn't able to do it until I found your site. Thanks a million for all you are doing for us! I have passed your information along to those I know who are taking the exam. Keep up the good work and thanks again!”
(5) – Let’s do a bit of practice. Let’s add some points. Let’s learn some material. Let’s keep moving forward.
FAR
Near the end of the Year One, a company buys two derivatives that will come due in the next year. One of these derivatives was properly designed as a cash flow hedge. The other derivative was properly designed as a fair value hedge. By the end of the year, the fair value of both of these derivatives had increased. Where will these gains be reported?
A. In net income for both hedges
B. In accumulated other comprehensive income for both hedges
C. In net income for the fair value hedge and in accumulated other comprehensive income for the cash flow hedge.
D In net income for the cash flow hedge and in accumulated other comprehensive income for the fair value hedge.
Answer is C
The fair value hedge is bought to offset a possible loss from an asset or liability that is recorded at fair value. Since the account being hedged is recorded at fair value, its gain or loss will go into net income. Thus, the offsetting gain or loss on the hedge is also put into net income. A cash flow hedge is bought to ensure that an appropriate amount of cash is received or paid. There is not a reported gain or loss to be eliminated. Therefore, any gain or loss on a cash flow hedge is temporarily put into accumulated other comprehensive income (in stockholders’ equity) until it is terminated. In this case, the gain will go from accumulated other comprehensive income to net income in Year Two when the derivative comes due.
BEC
A company needs to obtain $2 million to build a new warehouse and is trying to decide whether to issue debt or issue equity to get the money. Which of the following statements is true about that decision?
A – Financial leverage is an advantage of issuing equity.
B – The tax effects are a disadvantage of debt.
C – The potential impact on future borrowing is a disadvantage of debt.
D – The possibility of bankruptcy is a disadvantage of equity.
Answer is C
If a company borrows money, it will cause a higher debt to equity ratio. As a company’s debt to equity ratio goes up, the ability to borrow money becomes more difficult and interest rates tend to escalate. Financial leverage (using other people’s money to make money for the owners) is a primary advantage of debt. Interest on debt is tax deductible while dividends paid on equity is not so that the advantage goes to the debt. Debt (and its periodic interest) must be paid or a company can be pushed into bankruptcy. No such requirement exists in connection with equity.
Auditing & Attestation
An independent auditor is concerned about her responsibility for uncovering illegal acts that have been committed by an audit client. Which of the following statements is not true?
A - A company records false sales in its financial statements in order to obtain a bank loan. Defalcation has occurred.
B - One reason that an auditor might not be expected to discover all client illegal acts is that some of these acts may involve nonfinancial problems.
C - One reason that an auditor might not be expected to discover all client illegal acts is that some of these acts may be well hidden from the auditors.
D – A reporting company is guilty of polluting the local river and will be subjected to a heavy monetary fine if caught. This is an example of an indirect illegal act.
Answer is A
The manipulation of information to make a company look different than it actually is should be referred to as “fraudulent financial reporting.” Defalcation is theft. An auditor is not expected to uncover all illegal acts for several reasons. For example, some problems (such as pollution) simply do not refer directly to financial reporting. In addition, the audit client will often make a concerted effort to hide illegal acts so that the auditor is unaware. Finally, a direct illegal act has already had an impact on the financial statements. An indirect illegal act will only impact the financial statements if the company is ever caught and punished.
Regulation
Mr. and Mrs. Wallace T. Briarwood have asked you to prepare their federal income taxes. They have listed the following charitable contributions. Which of these four may they include in determining their itemized deductions for this year?
A - Services donated to charity having a fair value of $2,000
B - Dues paid to the American Legion of $180
C - Out-of-pocket costs associated with donated services of $300
D - Donated cash to a political party of $500
Answer is C
Donated services to a qualified charitable organization are not tax deductible but related out-of-pocket expenses are. Dues to a fraternal organization such as the American Legion is not deductible and neither are political contributions.
We have a lot of new subscribers for our email lessons this week. If you are interested in the history of CPAreviewforFREE.com, here is a link to a story about us.
thecollegianur.com/2010/11/04/accounting-professor-creates-affordable-cpa-review-website/15405/
And, if you are interesting in watching one of my videos about education (skip the introductions – you guys know who I am already) here is the URL:
www.youtube.com/watch?v=LjwHxVbZq1o
HAPPY THANKSGIVING FROM ALL OF US HERE AT WWW.CPAREVIEWFORFREE.COM -- WE LOVE YOU GUYS!!!!!
Joe Hoyle
Co-Founder and President
CPA Review for FREE
Tuesday, November 9, 2010
Hours Equal Points
November 9, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
123 Weeks of Operation and 18,488,959 Page Views (without a penny spent on marketing)
Lesson 83
From: Joe
(a) – As we mentioned yesterday on our Facebook page, the school newspaper did a story on www.CPAreviewforFREE.com. If you would like to learn our history and why we first got started in this great adventure, you can read the entire story at the following URL:
www.thecollegianur.com/2010/11/04/accounting-professor-creates-affordable-cpa-review-website/15405/
(b) – It is hard to believe that we have been offering the best possible questions and answers now for 123 weeks and, last week, was our second busiest week in history. We continue to grow as more and more people come to realize that they can pass the CPA Exam without spending thousands of dollars for mediocre materials.
(c) – I have a copy of all of our FAR questions and answers sitting beside of me right here on my desk. I was just reading through several pages and, once again, as I always note, these questions and answers are really well written. Each question and answer is potentially another point on your journey to get 75 and pass.
Remember, you can buy a download of all our questions and answers if that makes your study process easier and more efficient.
And, for FAR and Regulation (and soon for BEC and then Auditing), we have a subscription service that provides hundreds and hundreds of content slides (and, very soon, task-based simulations).
By buying these downloads and/or the subscription service, you add to the materials you can use and you help us pay for this website. And, we do appreciate it.
(1) – When you first get up in the morning, take a 3 by 5 card and write down the number of questions you want to work that day on www.CPAreviewforFREE.com. Pick a number that is challenging but realistic. Put the card in your pocket. Then, each time you work a question during the day, mark off the old number and write in the remaining number of questions to be done. For example, if you hope to do 30 questions today, write down 30. After you do the first question and read the answer, mark out the 30 and write in 29.
This does several things that help you.
--It gives you a goal right now that you can do something about. Making 75 on the CPA exam is a future goal—something you can worry about tomorrow if you wish. You want to avoid procrastination at all costs.
--It provides a sense of accomplishment. Watching those numbers drop off during each day is a clear cut indication that you are making progress. In fact, at the end of every day, tape the card to the wall above your desk. There is something about seeing all those cards that will just feel good. When you feel good about studying, it is easy to study more.
--It helps you focus on today. As you feel that card in your pocket, it will remind you that you have work to do today. One of the hardest things for any person trying to accomplish something is staying in the current moment. Today is the day you’ve got to make good things happen.
Try it – I think you’ll find that you will work more questions and feel better about the whole process.
(2) – A person that I met for about 45 minutes a few weeks ago on our campus sent me a book. I didn’t do anything to deserve a book but I was pleased to get it anyway. Never turn down a good book. The book is titled “Life Is Not A Game of Perfect.”
One of the early stories in this book is about a person who gets a scholarship to play football at a major college. Although he was a great player in high school, when he gets to college, he realizes that he is not the best—in fact, he is far from the best.
I often see this in the students in my college classes. They were great in high school without much effort but in college they are just average. How will that affect them? It is always interesting to see how a person reacts to challenges that they have not faced before. What caught my attention in this book was the reaction of the player on the football team because it is not a reaction that you often see. “I decided,” (he) remembers, “that I might get beat out, but no one would outwork me.”
“No one would outwork me” – how often can you say that, especially when you get into a real challenge? When it comes to the CPA Exam, how many people are outworking you? Often, we have exactly the opposite attitude, “if I can’t do well, why should I try so hard?”
Many of you are preparing for the CPA Exam right now. It is often a struggle. Few people ever face anything like the CPA Exam until they are actually preparing for it. It is often discouraging. Be honest—what is your attitude? How are you responding to this challenge? More importantly, are you letting other people outwork you?
“No one would outwork me” or “If I can’t do well, what should I try so hard?”
How you answer that question tells a lot about who you really are. Your answer depends a lot on how you think about the hard work of studying. If you think that studying is painful and something to be avoided, it is very hard to outwork anyone.
On the other hand, if you think that studying is rewarding because it makes your mind better, then outworking other people is not as hard as it might seem at first.
Everything starts with your attitude. All success comes back eventually to your attitude.
In the case of the CPA Exam, it all comes back to how you look at study time. If it is punishment. If it is tiring. If it is excruciating. Then, you have a real mountain to climb. Putting in the time will be quite difficult.
On the other hand, if you can adopt a different attitude, you’ll find that studying is not nearly as hard. If you view studying as getting a better brain. If you view studying as a game where you see whether you get more wins (correct answers) than losses (incorrect answers). If you view studying as an interesting mental exercise. Then, the ability to put in the necessary hours is just going to be so much easier.
When you compare yourself to all of the people around the world today who are studying for the CPA Exam, where is your attitude?
Is it with the group who says: “No one would outwork me”
Or, are you more aligned with that large body of people who sigh pathetically and doubt themselves by asking: “If I can’t do well, what should I try so hard?”
(3) – We are beginning to gear up for the 2011 CPA Exam. As always, we will continue to send out these email lessons every 1-2 weeks. We are delighted to have you with us. We hope we add points and provide encouragement. However, you do have the right to unsubscribe at any time that you wish. If you should want to unsubscribe, scroll to the bottom of this email lesson (or any email lesson) and click on the appropriate link.
(4) – I have the great good fortune on Thursday of leading a 3 1/2 hour teaching workshop for 150 brand new teachers in the Virginia Community College System. One of the things I hope to introduce them to is “Joe’s Theorem of Success.” In teaching, as well as in most other things in life such as the CPA Exam, I think this theorem is true:
If it takes X hours to be average at a task
Then it will take 2X hours to be good at that task
And 3X hours to be truly truly excellent
The question is not how to achieve excellence. We are all more than capable of achieving excellence. I am sure of that. The question is whether we want excellence badly enough to put in a sufficient amount of time.
Everyone on this email list can pass the CPA Exam. I’ve worked in this business for 30 years and I’ve never met anyone who couldn’t pass. The only question is whether you want to pass badly enough to put in sufficient time.
As I have said dozens of times in these email lessons - HOURS EQUAL POINTS
I can give you all kinds of helpful advice. In the end, the best thing I can tell you (quite honestly) is that the more time you spend, the better your grade will be.
Don’t procrastinate
Don’t put it off
Put in those hours and learn those questions and answers. In the long run, that is probably the best advice that anyone can give you.
(5) – Speaking of putting in the time, let’s do some practice. If you get these questions correct, then move on. If you miss them, turn that lack of knowledge into real knowledge because that is the only way you really add points on the CPA Exam.
FAR – I opened up my intermediate accounting textbook at random and wrote this question based on what I found on the first page I read.
Pepitone Corporation buys equipment for $900,000 on January 1, Year One. Depreciation for book purposes is $300,000 per year. However, for tax purposes, depreciation was $500,000 in Year One and $200,000 in Year Two and $200,000 in Year Three. The enacted tax rate is 30 percent for Year One and Year Two but 32 percent for Year Three. Which of the following is found on the company’s balance sheet at the end of Year One?
A. Deferred tax asset-current of $30,000 and deferred tax asset-noncurrent of $32,000
B. Deferred tax asset-noncurrent of $62,000
C. Deferred tax liability-current of $30,000 and deferred tax liability-noncurrent of $32,000
D. Deferred tax liability-noncurrent of $62,000
Answer is D
For tax purposes, this company will have $100,000 less depreciation expense in Year Two so taxable income will be $100,000 higher. At a 30 percent tax rate, that is a deferred tax liability of $30,000. For tax purposes, this company also will have $100,000 less depreciation expense in Year Three so taxable income will be $100,000 higher. At a 32 percent tax rate, that is a deferred tax liability of $32,000. The total liability is $62,000. Where that amount is shown on a balance sheet depends on what account caused the difference. Here, it was caused by the equipment that was depreciated. Equipment is a noncurrent account. Hence, all related deferred income tax liabilities or assets will also be reported as noncurrent.
Auditing and Attestation
The Wishton Corporation’s financial statements are audited by the CPA firm of Mansen and Dallas. Wishton has a subsidiary located 1,800 miles from the company’s headquarters. The financial statements of this subsidiary are consolidated with the statements of the parent for external reporting purposes. The subsidiary’s assets and revenues make up approximately 16 percent of the total for the consolidated entity. The subsidiary’s financial statements are audited by a local CPA firm and that audit report has now been forwarded to Mansen and Dallas. In providing the audit report for the consolidated financial statements, Mansen and Dallas has decided to make reference to the work done by the other CPA firm. Which of the following statements is true?
A. The audit report should make reference to the other auditors in the introductory paragraph only.
B. The audit report should make reference to the other auditors in the scope paragraph only.
C. The audit report should make reference to the other auditors in the introductory, scope, and opinion paragraphs only.
D. The audit report should make reference to the other auditors in a separate explanatory paragraph only.
Answer is C
When reference is made to other auditors, the introductory paragraph indicates that the principal auditors did not audit a portion of the consolidated statements and indicates the size of that portion by specifying the amount of assets and revenues audited by the other firm. The scope paragraph is changed to indicate that the principal auditor’s audit and the report of the other auditors provided a reasonable basis for opinion. The opinion paragraph indicates that the opinion being rendered is based on the principal auditor’s audit and the report of the other auditors.
Regulation
Matthews is a 40 percent partner in the WestBrook Partnership. Matthews has a tax basis (capital share) in the partnership of $45,000. Matthews has not loaned the partnership any money but is responsible for her share of the debts. The partnership has $100,000 in assets and $60,000 in liabilities. This year, the partnership reported an ordinary business loss of $120,000. What amount of that loss can Matthews deduct on her individual income tax return this year?
A. $40,000
B. $44,000
C. $45,000
D. $48,000
Answer is D
A partner can deduct the ownership percentage of any partnership ordinary business loss but only up to the person’s “at-risk balance.” The “at-risk balance” is the tax basis in the partnership ($45,000) plus any loans to the partnership (0) plus the owner’s share of the debts of the business (40 percent of $60,000 or $24,000). Here, the “at-risk balance” is a total of $69,000. That is more than this partner’s percentage of the loss. The partner can deduct the entire 40 percent of the $120,000 ordinary business loss (or $48,000).
BEC
The Lynch Company started the current year with 10,000 units in process that were 60 percent complete as to direct labor costs. As to direct labor, these units had a cost at that time of $45,000. During the year, another 50,000 units were started and direct labor cost for the period was $320,000. At the end of the year, the company had 4,000 units still in process which were 20 percent complete as to direct labor. If the company uses a FIFO system, what is the cost of a unit this year as to direct labor costs?
A. $5.63
B. $6.30
C. $6.40
D. $6.43
Answer is B
In a FIFO system, the cost per unit is the cost expended this period divided by the number of equivalent units created during the period. The current cost for direct labor is $320,000. The number of equivalent units starts with the number of units completed. Here, since no units are mentioned as being lost, that number must have been 56,000 (10,000 beginning plus 50,000 started less 4,000 ending working in process). Total direct labor done is 56,000 completed units plus 800 units still in ending working in process (4,000 units that are 20 percent complete) or a total of 56,800 units of work. To get the work done just in this current period (which is used by FIFO), the amount of work in beginning work in process is subtracted. That is 10,000 units times 60 percent completion or 6,000 units done last year. The amount of work done this period is 56,800 total minus 6,000 done last year to arrive at 50,800 units of work done this period. The cost per unit using
FIFO is $320,000/50,800 or $6.30.
GET THAT EXAM OUT OF YOUR WAY!!!
Joe Hoyle
Co-Founder and President
CPA Review for FREE
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
123 Weeks of Operation and 18,488,959 Page Views (without a penny spent on marketing)
Lesson 83
From: Joe
(a) – As we mentioned yesterday on our Facebook page, the school newspaper did a story on www.CPAreviewforFREE.com. If you would like to learn our history and why we first got started in this great adventure, you can read the entire story at the following URL:
www.thecollegianur.com/2010/11/04/accounting-professor-creates-affordable-cpa-review-website/15405/
(b) – It is hard to believe that we have been offering the best possible questions and answers now for 123 weeks and, last week, was our second busiest week in history. We continue to grow as more and more people come to realize that they can pass the CPA Exam without spending thousands of dollars for mediocre materials.
(c) – I have a copy of all of our FAR questions and answers sitting beside of me right here on my desk. I was just reading through several pages and, once again, as I always note, these questions and answers are really well written. Each question and answer is potentially another point on your journey to get 75 and pass.
Remember, you can buy a download of all our questions and answers if that makes your study process easier and more efficient.
And, for FAR and Regulation (and soon for BEC and then Auditing), we have a subscription service that provides hundreds and hundreds of content slides (and, very soon, task-based simulations).
By buying these downloads and/or the subscription service, you add to the materials you can use and you help us pay for this website. And, we do appreciate it.
(1) – When you first get up in the morning, take a 3 by 5 card and write down the number of questions you want to work that day on www.CPAreviewforFREE.com. Pick a number that is challenging but realistic. Put the card in your pocket. Then, each time you work a question during the day, mark off the old number and write in the remaining number of questions to be done. For example, if you hope to do 30 questions today, write down 30. After you do the first question and read the answer, mark out the 30 and write in 29.
This does several things that help you.
--It gives you a goal right now that you can do something about. Making 75 on the CPA exam is a future goal—something you can worry about tomorrow if you wish. You want to avoid procrastination at all costs.
--It provides a sense of accomplishment. Watching those numbers drop off during each day is a clear cut indication that you are making progress. In fact, at the end of every day, tape the card to the wall above your desk. There is something about seeing all those cards that will just feel good. When you feel good about studying, it is easy to study more.
--It helps you focus on today. As you feel that card in your pocket, it will remind you that you have work to do today. One of the hardest things for any person trying to accomplish something is staying in the current moment. Today is the day you’ve got to make good things happen.
Try it – I think you’ll find that you will work more questions and feel better about the whole process.
(2) – A person that I met for about 45 minutes a few weeks ago on our campus sent me a book. I didn’t do anything to deserve a book but I was pleased to get it anyway. Never turn down a good book. The book is titled “Life Is Not A Game of Perfect.”
One of the early stories in this book is about a person who gets a scholarship to play football at a major college. Although he was a great player in high school, when he gets to college, he realizes that he is not the best—in fact, he is far from the best.
I often see this in the students in my college classes. They were great in high school without much effort but in college they are just average. How will that affect them? It is always interesting to see how a person reacts to challenges that they have not faced before. What caught my attention in this book was the reaction of the player on the football team because it is not a reaction that you often see. “I decided,” (he) remembers, “that I might get beat out, but no one would outwork me.”
“No one would outwork me” – how often can you say that, especially when you get into a real challenge? When it comes to the CPA Exam, how many people are outworking you? Often, we have exactly the opposite attitude, “if I can’t do well, why should I try so hard?”
Many of you are preparing for the CPA Exam right now. It is often a struggle. Few people ever face anything like the CPA Exam until they are actually preparing for it. It is often discouraging. Be honest—what is your attitude? How are you responding to this challenge? More importantly, are you letting other people outwork you?
“No one would outwork me” or “If I can’t do well, what should I try so hard?”
How you answer that question tells a lot about who you really are. Your answer depends a lot on how you think about the hard work of studying. If you think that studying is painful and something to be avoided, it is very hard to outwork anyone.
On the other hand, if you think that studying is rewarding because it makes your mind better, then outworking other people is not as hard as it might seem at first.
Everything starts with your attitude. All success comes back eventually to your attitude.
In the case of the CPA Exam, it all comes back to how you look at study time. If it is punishment. If it is tiring. If it is excruciating. Then, you have a real mountain to climb. Putting in the time will be quite difficult.
On the other hand, if you can adopt a different attitude, you’ll find that studying is not nearly as hard. If you view studying as getting a better brain. If you view studying as a game where you see whether you get more wins (correct answers) than losses (incorrect answers). If you view studying as an interesting mental exercise. Then, the ability to put in the necessary hours is just going to be so much easier.
When you compare yourself to all of the people around the world today who are studying for the CPA Exam, where is your attitude?
Is it with the group who says: “No one would outwork me”
Or, are you more aligned with that large body of people who sigh pathetically and doubt themselves by asking: “If I can’t do well, what should I try so hard?”
(3) – We are beginning to gear up for the 2011 CPA Exam. As always, we will continue to send out these email lessons every 1-2 weeks. We are delighted to have you with us. We hope we add points and provide encouragement. However, you do have the right to unsubscribe at any time that you wish. If you should want to unsubscribe, scroll to the bottom of this email lesson (or any email lesson) and click on the appropriate link.
(4) – I have the great good fortune on Thursday of leading a 3 1/2 hour teaching workshop for 150 brand new teachers in the Virginia Community College System. One of the things I hope to introduce them to is “Joe’s Theorem of Success.” In teaching, as well as in most other things in life such as the CPA Exam, I think this theorem is true:
If it takes X hours to be average at a task
Then it will take 2X hours to be good at that task
And 3X hours to be truly truly excellent
The question is not how to achieve excellence. We are all more than capable of achieving excellence. I am sure of that. The question is whether we want excellence badly enough to put in a sufficient amount of time.
Everyone on this email list can pass the CPA Exam. I’ve worked in this business for 30 years and I’ve never met anyone who couldn’t pass. The only question is whether you want to pass badly enough to put in sufficient time.
As I have said dozens of times in these email lessons - HOURS EQUAL POINTS
I can give you all kinds of helpful advice. In the end, the best thing I can tell you (quite honestly) is that the more time you spend, the better your grade will be.
Don’t procrastinate
Don’t put it off
Put in those hours and learn those questions and answers. In the long run, that is probably the best advice that anyone can give you.
(5) – Speaking of putting in the time, let’s do some practice. If you get these questions correct, then move on. If you miss them, turn that lack of knowledge into real knowledge because that is the only way you really add points on the CPA Exam.
FAR – I opened up my intermediate accounting textbook at random and wrote this question based on what I found on the first page I read.
Pepitone Corporation buys equipment for $900,000 on January 1, Year One. Depreciation for book purposes is $300,000 per year. However, for tax purposes, depreciation was $500,000 in Year One and $200,000 in Year Two and $200,000 in Year Three. The enacted tax rate is 30 percent for Year One and Year Two but 32 percent for Year Three. Which of the following is found on the company’s balance sheet at the end of Year One?
A. Deferred tax asset-current of $30,000 and deferred tax asset-noncurrent of $32,000
B. Deferred tax asset-noncurrent of $62,000
C. Deferred tax liability-current of $30,000 and deferred tax liability-noncurrent of $32,000
D. Deferred tax liability-noncurrent of $62,000
Answer is D
For tax purposes, this company will have $100,000 less depreciation expense in Year Two so taxable income will be $100,000 higher. At a 30 percent tax rate, that is a deferred tax liability of $30,000. For tax purposes, this company also will have $100,000 less depreciation expense in Year Three so taxable income will be $100,000 higher. At a 32 percent tax rate, that is a deferred tax liability of $32,000. The total liability is $62,000. Where that amount is shown on a balance sheet depends on what account caused the difference. Here, it was caused by the equipment that was depreciated. Equipment is a noncurrent account. Hence, all related deferred income tax liabilities or assets will also be reported as noncurrent.
Auditing and Attestation
The Wishton Corporation’s financial statements are audited by the CPA firm of Mansen and Dallas. Wishton has a subsidiary located 1,800 miles from the company’s headquarters. The financial statements of this subsidiary are consolidated with the statements of the parent for external reporting purposes. The subsidiary’s assets and revenues make up approximately 16 percent of the total for the consolidated entity. The subsidiary’s financial statements are audited by a local CPA firm and that audit report has now been forwarded to Mansen and Dallas. In providing the audit report for the consolidated financial statements, Mansen and Dallas has decided to make reference to the work done by the other CPA firm. Which of the following statements is true?
A. The audit report should make reference to the other auditors in the introductory paragraph only.
B. The audit report should make reference to the other auditors in the scope paragraph only.
C. The audit report should make reference to the other auditors in the introductory, scope, and opinion paragraphs only.
D. The audit report should make reference to the other auditors in a separate explanatory paragraph only.
Answer is C
When reference is made to other auditors, the introductory paragraph indicates that the principal auditors did not audit a portion of the consolidated statements and indicates the size of that portion by specifying the amount of assets and revenues audited by the other firm. The scope paragraph is changed to indicate that the principal auditor’s audit and the report of the other auditors provided a reasonable basis for opinion. The opinion paragraph indicates that the opinion being rendered is based on the principal auditor’s audit and the report of the other auditors.
Regulation
Matthews is a 40 percent partner in the WestBrook Partnership. Matthews has a tax basis (capital share) in the partnership of $45,000. Matthews has not loaned the partnership any money but is responsible for her share of the debts. The partnership has $100,000 in assets and $60,000 in liabilities. This year, the partnership reported an ordinary business loss of $120,000. What amount of that loss can Matthews deduct on her individual income tax return this year?
A. $40,000
B. $44,000
C. $45,000
D. $48,000
Answer is D
A partner can deduct the ownership percentage of any partnership ordinary business loss but only up to the person’s “at-risk balance.” The “at-risk balance” is the tax basis in the partnership ($45,000) plus any loans to the partnership (0) plus the owner’s share of the debts of the business (40 percent of $60,000 or $24,000). Here, the “at-risk balance” is a total of $69,000. That is more than this partner’s percentage of the loss. The partner can deduct the entire 40 percent of the $120,000 ordinary business loss (or $48,000).
BEC
The Lynch Company started the current year with 10,000 units in process that were 60 percent complete as to direct labor costs. As to direct labor, these units had a cost at that time of $45,000. During the year, another 50,000 units were started and direct labor cost for the period was $320,000. At the end of the year, the company had 4,000 units still in process which were 20 percent complete as to direct labor. If the company uses a FIFO system, what is the cost of a unit this year as to direct labor costs?
A. $5.63
B. $6.30
C. $6.40
D. $6.43
Answer is B
In a FIFO system, the cost per unit is the cost expended this period divided by the number of equivalent units created during the period. The current cost for direct labor is $320,000. The number of equivalent units starts with the number of units completed. Here, since no units are mentioned as being lost, that number must have been 56,000 (10,000 beginning plus 50,000 started less 4,000 ending working in process). Total direct labor done is 56,000 completed units plus 800 units still in ending working in process (4,000 units that are 20 percent complete) or a total of 56,800 units of work. To get the work done just in this current period (which is used by FIFO), the amount of work in beginning work in process is subtracted. That is 10,000 units times 60 percent completion or 6,000 units done last year. The amount of work done this period is 56,800 total minus 6,000 done last year to arrive at 50,800 units of work done this period. The cost per unit using
FIFO is $320,000/50,800 or $6.30.
GET THAT EXAM OUT OF YOUR WAY!!!
Joe Hoyle
Co-Founder and President
CPA Review for FREE
Tuesday, November 2, 2010
Make the Resolution: I AM GOING TO PASS!!!
Try us FIRST before you spend your hard-earned money.
November 2, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
122 Weeks of Operation and 18,167,740 Page Views (without a penny spent on marketing)
Lesson 82
From: Joe
(1) – The big news in the world of the CPA Exam is that the exam will start to be given internationally in 2011.
I’ve pieced together two parts of their announcement to provide the basic information:
Beginning in the second half of 2011, candidates who qualify will be allowed to schedule their CPA Exam at select international locations. Initially, the CPA Examination will be offered in Japan, Bahrain, Kuwait, Lebanon and the United Arab Emirates. The international exam will be the same as the one offered in the U.S., using the same computerized format and administered in English. As in the U.S., the purpose of taking the examination will be to qualify for licensure as a CPA through U.S. state boards of accountancy.
It is my understanding that additional locations in additional countries will become available over time.
If you want more information, the AICPA has a Frequently Asked Questions site which can be accessed here
http://m1e.net/c?122902087-aSuUx1nMRL016%405871928-wo.JUcjMWFsYw
(2) – As probably everyone knows, the CPA Exam will be making several significant changes in 2011. Here are two of the most important:
--Each FAR, Regulation, and Auditing and Attestation exam will go from having two simulations to having 6-7 shorter task-based simulations.
--Written communications will drop out of FAR, Regulation, and Auditing and Attestation and only appear as three written communications questions in BEC.
Thus, as you can imagine, there is significant interest in (a) the new task-based simulations and (b) written communications questions (for BEC).
Consequently, over the past month, we have created 30 brand new task-based simulations (10 for FAR, 10 for Regulation, and 10 for Auditing and Attestation) and 35 written communications questions for BEC. We have tried to make these as picture perfect as we could get. The AICPA only gives hints about their actual appearance so we have tried to imagine what they are going to look like. I have been really pleased with the results. Over the next month or so, we will be loading all of these into our subscription service.
Currently, our subscription service is open for FAR and Regulation. Each is a mere $15 per month (50 cents per day). For that, you get access to a study guide and hundreds of content slides. Over the next few weeks, we will also open up subscription services for Auditing and Attestation and BEC. And, then, we will load in all of our new task-based simulations and written communications questions and answers.
However, always keep in mind that our 2,100 multiple-choice questions and answers continue and will always be free, free, free, and (free).
(3) – If you live in the United States, it is election day – go out and vote. It is one important way to keep democracy strong.
(4) – When we started CPAreviewforFREE, my first dream was to have 10 million page views in a single calendar year. I figured it would take us five years at a minimum. We are now early in our third year of operation. For 2010 alone, we went over 10 million page views during the month of October. I couldn’t believe it – thanks to you folks, we have been more successful than I could ever have dreamed/hoped/anticipated.
(5) – I drove by an exercise facility yesterday that had this sign upfront: “It is 60 days until New Year’s. Why not get a head start and make your resolutions today?” I always wonder how much better we really want to be if we only make improvement resolutions on one day out of each year. Doesn’t that just allow us to be lazy and under-productive the rest of the time? Why can’t we make “new week resolutions” at the start of each week? Or, even “new day resolutions” when we first awake each morning?
If you really want to make a change to get better, shouldn’t that be a conversation you have with yourself more often than once a year? No wonder so few new year’s resolutions are kept – if you only think about improvement once a year, you can’t be very serious about it.
So, let’s change that. When it comes to preparing for the CPA Exam, what changes do you want to make over the next three days? That’s a pretty good time period. You know what you have been doing in the past as you ready yourself to take that exam. What improvements would you like to see happen in your preparation over the next three days?
--You could study more hours.
--You could study in a different way – more problems, for example.
--You could study at times you are now wasting
You don’t have to wait for New Year’s Day to make a change.
It is so hard to make improvements if you don’t stop to assess what you have been doing and how you would like to see things be different.
One specific change that I would like to see you consider is your attitude. Usually, when people start studying, they have an “I really want this” feeling. They have an “I can do it” attitude. Those types of attitudes can give you fuel to push your study forward at the beginning. However, it is easy to get caught up in the day-to-day work and let your attitude lag. Don’t do that!!! Getting up in the morning and saying to yourself “I AM going to pass that exam!!” provides an ongoing push. If you find that you are beginning to slow down, if you are beginning to wear out, if you are getting tired of this, perhaps it is your attitude that you need to consider. Let that be your November 2 resolution: I’ll push myself more; I’m remind myself of why I want to pass; I’ll envision the excitement of getting that passing score.
I watched a bit of the World Series this past week. San Francisco just barely got into the playoffs and then they were not expected to go too far. However, the players seemed to have this great “we can do this” attitude that pushed them on to become the world champions. When the last out was made last night, I enjoyed watching how thrilled those young men were. They ran and jumped and piled up together.
There is something wonderfully exciting about taking on a true challenge and then making victory happen. That is exactly what I want you to experience. That same thrill will be yours when you get those passing scores.
So, what is your resolution for today?
(6) – Speaking of passing the CPA Exam and having that wonderful feeling, here are a few recent emails. This is exactly the thrill that I’m talking about. I want this to be YOU.
From IB: “Almost 18 years after finishing school, I'm finally a CPA! For one reason or another, I never sat for the exam until this year. You and your website made me believe that obtaining my CPA was truly an achievable goal, and you set out a plan to accomplish that goal. Using your website primarily (but also some secondary reference materials from Wiley), I was able to pass all 4 sections of the exam the first time over a period of 4 months. I cannot tell you how happy I am, after all this time, to finally be able to add those 3 initials after my name, and I have to thank you for your generosity in supplying such an outstanding (free!) resource to CPA candidates. Your site was especially valuable to me as someone who has been unemployed for almost a year...I couldn't have done it any other way. Thank you so much, Joe, for everything you've made available to us. Take care, and best of luck with everything you choose to do.”
From NV: “Thank You! Thank You! Thank You! I have finally cleared all four parts of the CPA Exam. Your free questions have helped me understand the concepts much better. If not for your site I would have been still taking these tests again and again. You are God sent! Once again thank you for helping me pass the CPA exam.
From MS: “I want to say thank you, thank you, thank you! I have finally passed all 4 parts of the CPA exam and will receive my license in the State of Ohio today October 22, 2010. I first took the CPA exam back when it was on paper and you took all parts over two days! I think I took an 8-10 year break from taking the exam and began taking it again when it was computerized. I went back to school to obtain a MBA and finally passed FAR and BEC in January 2009. I strictly used your website CPAreviewforFree and some flash cards I purchased online. I was totally exhilarated. I then took Auditing and Reg later in 2009 and failed both of them. As 2010 rolled around I realized my time to pass the other two parts was winding down before I would lose credit for the 1st two parts. I again strictly did self study using your website and the flashcards. I took Auditing in May of 2010 and received a score of 68. I was very disappointed with myself and realized I had to commit myself more! I spent the summer practicing you 500 plus questions from the website and even creating a MS word file of the answers explanations. I took Reg on Aug 5th and only had 3 weeks to study Auditing taking that on Aug 30th. I scored an 80 on the Reg exam and an 82 on the Auditing (which by the way is my least favorite part). I owe it all to your many questions that I had access to for free. I really appreciate your dedication in helping CPA candidates pass the CPA exam!”
(7) – If you would like to unsubscribe from these emails, you can scroll down to the bottom of this email and click on the appropriate link. I have been busy writing task-based simulations so I have not been sending out email lessons as often as I want. However, I do plan to get back to my normal routine of a lesson every week or two. Hope you’ll stay with us.
(8) – We have a Facebook account for CPAreviewforFREE so I’m on Facebook every day or two. I am absolutely amazed by how much time some people spend on Facebook. It not only eats up their time; it must also eat up their attention and their mental energy.
What eats up your time?
--Facebook
--Twitter
--YouTube
--Email
--Television
There must be a million things that will suck up the minutes in your day.
Okay, I’m not going to tell you to give up email or Facebook or the like. I don’t want you to become miserable. But, I do have a challenge for you. On a piece of paper (right now), list out the top four non-productive things that eat up your time. You know what they are. It is those things that you choose to do rather than study. They are always calling to you to come play.
Here’s my challenge. With those four, try to cut down your usage by half. So, instead of checking your email every hour, do it every two hours. Instead of posting something on Facebook every two hours, make it every four hours (no matter how exciting the current message is). Instead of watching two hours of television per night, stop at one hour.
I think you’ll be amazed at how much time starts to open up for study. You want to get control over the distracters in your life. Yeah, they are all interesting but they are really just distracters that keep you from making serious accomplishments with your life. They are the type of things that keep you from showing your true talents; they are the type of things that hold you back from greatness.
You don’t need to eliminate the distracters but you really do need to (1) be aware of them and (2) control them enough that you can cut the time you give them in half. The less distraction in your life, the more likely it is that you will pour your energy into passing the CPA Exam. And, if you do that, you can pass.
(9) – Let’s add some points. Let’s do some practice. Read each question below. If you get it right, then you know this area—so move on. If you miss it, read the answer very carefully so you can be successful the next time you see a similar question.
FAR
The Redstone Corporation ended Year One with sales of $800,000, bad debt expense of $30,000, accounts receivable of $200,000, and an allowance for doubtful accounts (credit balance) of $10,000. In Year Two, the company made another $900,000 in sales on credit but collected only $600,000 in cash from those accounts. During the year, one customer who owed $13,000 declared bankruptcy and that account was written off as uncollectible. At the end of Year Two, the company’s accountants believed that 2 percent of ending receivables will eventually prove to be uncollectible. What is bad debt expense?
A. $9,740
B. $12,000
C. $12,740
D. $13,000
Answer is C
At the end of Year Two, the allowance for doubtful accounts has a $3,000 debit balance ($10,000 beginning balance less the $13,000 account written off as uncollectible). Accounts receivable is now $487,000 ($200,000 beginning balance plus $900,000 in sales less $600,000 in collections less the $13,000 account written off). The company estimates that 2 percent of receivables will prove uncollectible. That amount is $9,740 or 2 percent of $487,000. The allowance has a $3,000 debit balance but needs a $9,740 credit balance. To reach the desired figure, an expense of $12,740 is recognized for the period.
Auditing and Attestation
The CPA firm of Toe and Nail is performing an audit of the annual financial statements produced by the North Wilderness Corporation. The audit team is currently testing the accounts receivable balance for evidence of any material misstatements. One of the staff members of the audit firm was assigned to look through the subsidiary ledger for amounts due from officers. What was the most likely objective of this work?
A. Determine that the accounts receivable balance is properly reduced to net realizable value.
B. Determine that the reported accounts receivable balance represents all of the amounts owed to North Wilderness as of the balance sheet date and that no accounts have been omitted.
C. North Wilderness holds ownership of all of the reported accounts receivable at the balance sheet date.
D. The accounts receivable are properly presented in the financial statements.
Answer is D
Officers are viewed as related parties and, thus, those balances need to be disclosed as part of a proper presentation. The staff auditor is looking for evidence that any such receivables exist but have not been separately disclosed by the reporting company.
Regulation
Mr. and Mrs. William Singler are married and plan to file a joint tax return. This year, an investment in land that cost the taxpayers $100,000 (but that is currently worth $310,000) is traded for another investment in land that is worth approximately $340,000. To conclude the trade, the taxpayers also had to pay cash of $29,000. What is the taxable gain or loss on this exchange?
A. No taxable gain or loss
B. $29,000 gain
C. $210,000 gain
D. $211,000 gain
Answer is A
This is an exchange of like-kind property. In a like-kind exchange, a gain is only reported for tax purposes if boot (nonlike-kind property, such as cash) is also received. Here, the boot is paid. As a like-kind exchange with no boot being received, there is no taxable gain or loss.
BEC
The San Francisco Corporation is highly automated with many transactions from its subsidiaries around the world processed immediately through the company’s computer system. Company officials have become concerned about the possibility of a disaster such as an earthquake knocking out its computer system. A disaster recovery corporation was invited to visit the company and put forth a proposal. This outside vendor talked about creating a hot site for the company. What is meant by a hot site?
A. It is a facility owned by the vendor that is a fully equipped data center and can be up and running in a matter of hours by bringing in trained personnel.
B. It is a space that is rented so that it can become a data center but no actual hardware or software is in place—only specified plans for obtaining these items are available.
C. It is a functioning data center that mirrors all work done by the company so that operations can be switched over immediately if need be.
D. It is a site within the company where all of the data records are kept in a disaster proof location.
Answer is A.
A hot site is in a separate location from the company’s data center and has all of the hardware and software needed to begin operations. A plan for getting needed personnel is on file. If a disaster occurs, the personnel are brought in as quickly as possible so that computer operations can begin running within a matter of hours.
Have a great week. Make that resolution.
Joe Hoyle
President – CPA review for FREE
www.CPAreviewforFREE.com
The only place where you can get 2,100 high quality questions and answers for FREE.
November 2, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
122 Weeks of Operation and 18,167,740 Page Views (without a penny spent on marketing)
Lesson 82
From: Joe
(1) – The big news in the world of the CPA Exam is that the exam will start to be given internationally in 2011.
I’ve pieced together two parts of their announcement to provide the basic information:
Beginning in the second half of 2011, candidates who qualify will be allowed to schedule their CPA Exam at select international locations. Initially, the CPA Examination will be offered in Japan, Bahrain, Kuwait, Lebanon and the United Arab Emirates. The international exam will be the same as the one offered in the U.S., using the same computerized format and administered in English. As in the U.S., the purpose of taking the examination will be to qualify for licensure as a CPA through U.S. state boards of accountancy.
It is my understanding that additional locations in additional countries will become available over time.
If you want more information, the AICPA has a Frequently Asked Questions site which can be accessed here
http://m1e.net/c?122902087-aSuUx1nMRL016%405871928-wo.JUcjMWFsYw
(2) – As probably everyone knows, the CPA Exam will be making several significant changes in 2011. Here are two of the most important:
--Each FAR, Regulation, and Auditing and Attestation exam will go from having two simulations to having 6-7 shorter task-based simulations.
--Written communications will drop out of FAR, Regulation, and Auditing and Attestation and only appear as three written communications questions in BEC.
Thus, as you can imagine, there is significant interest in (a) the new task-based simulations and (b) written communications questions (for BEC).
Consequently, over the past month, we have created 30 brand new task-based simulations (10 for FAR, 10 for Regulation, and 10 for Auditing and Attestation) and 35 written communications questions for BEC. We have tried to make these as picture perfect as we could get. The AICPA only gives hints about their actual appearance so we have tried to imagine what they are going to look like. I have been really pleased with the results. Over the next month or so, we will be loading all of these into our subscription service.
Currently, our subscription service is open for FAR and Regulation. Each is a mere $15 per month (50 cents per day). For that, you get access to a study guide and hundreds of content slides. Over the next few weeks, we will also open up subscription services for Auditing and Attestation and BEC. And, then, we will load in all of our new task-based simulations and written communications questions and answers.
However, always keep in mind that our 2,100 multiple-choice questions and answers continue and will always be free, free, free, and (free).
(3) – If you live in the United States, it is election day – go out and vote. It is one important way to keep democracy strong.
(4) – When we started CPAreviewforFREE, my first dream was to have 10 million page views in a single calendar year. I figured it would take us five years at a minimum. We are now early in our third year of operation. For 2010 alone, we went over 10 million page views during the month of October. I couldn’t believe it – thanks to you folks, we have been more successful than I could ever have dreamed/hoped/anticipated.
(5) – I drove by an exercise facility yesterday that had this sign upfront: “It is 60 days until New Year’s. Why not get a head start and make your resolutions today?” I always wonder how much better we really want to be if we only make improvement resolutions on one day out of each year. Doesn’t that just allow us to be lazy and under-productive the rest of the time? Why can’t we make “new week resolutions” at the start of each week? Or, even “new day resolutions” when we first awake each morning?
If you really want to make a change to get better, shouldn’t that be a conversation you have with yourself more often than once a year? No wonder so few new year’s resolutions are kept – if you only think about improvement once a year, you can’t be very serious about it.
So, let’s change that. When it comes to preparing for the CPA Exam, what changes do you want to make over the next three days? That’s a pretty good time period. You know what you have been doing in the past as you ready yourself to take that exam. What improvements would you like to see happen in your preparation over the next three days?
--You could study more hours.
--You could study in a different way – more problems, for example.
--You could study at times you are now wasting
You don’t have to wait for New Year’s Day to make a change.
It is so hard to make improvements if you don’t stop to assess what you have been doing and how you would like to see things be different.
One specific change that I would like to see you consider is your attitude. Usually, when people start studying, they have an “I really want this” feeling. They have an “I can do it” attitude. Those types of attitudes can give you fuel to push your study forward at the beginning. However, it is easy to get caught up in the day-to-day work and let your attitude lag. Don’t do that!!! Getting up in the morning and saying to yourself “I AM going to pass that exam!!” provides an ongoing push. If you find that you are beginning to slow down, if you are beginning to wear out, if you are getting tired of this, perhaps it is your attitude that you need to consider. Let that be your November 2 resolution: I’ll push myself more; I’m remind myself of why I want to pass; I’ll envision the excitement of getting that passing score.
I watched a bit of the World Series this past week. San Francisco just barely got into the playoffs and then they were not expected to go too far. However, the players seemed to have this great “we can do this” attitude that pushed them on to become the world champions. When the last out was made last night, I enjoyed watching how thrilled those young men were. They ran and jumped and piled up together.
There is something wonderfully exciting about taking on a true challenge and then making victory happen. That is exactly what I want you to experience. That same thrill will be yours when you get those passing scores.
So, what is your resolution for today?
(6) – Speaking of passing the CPA Exam and having that wonderful feeling, here are a few recent emails. This is exactly the thrill that I’m talking about. I want this to be YOU.
From IB: “Almost 18 years after finishing school, I'm finally a CPA! For one reason or another, I never sat for the exam until this year. You and your website made me believe that obtaining my CPA was truly an achievable goal, and you set out a plan to accomplish that goal. Using your website primarily (but also some secondary reference materials from Wiley), I was able to pass all 4 sections of the exam the first time over a period of 4 months. I cannot tell you how happy I am, after all this time, to finally be able to add those 3 initials after my name, and I have to thank you for your generosity in supplying such an outstanding (free!) resource to CPA candidates. Your site was especially valuable to me as someone who has been unemployed for almost a year...I couldn't have done it any other way. Thank you so much, Joe, for everything you've made available to us. Take care, and best of luck with everything you choose to do.”
From NV: “Thank You! Thank You! Thank You! I have finally cleared all four parts of the CPA Exam. Your free questions have helped me understand the concepts much better. If not for your site I would have been still taking these tests again and again. You are God sent! Once again thank you for helping me pass the CPA exam.
From MS: “I want to say thank you, thank you, thank you! I have finally passed all 4 parts of the CPA exam and will receive my license in the State of Ohio today October 22, 2010. I first took the CPA exam back when it was on paper and you took all parts over two days! I think I took an 8-10 year break from taking the exam and began taking it again when it was computerized. I went back to school to obtain a MBA and finally passed FAR and BEC in January 2009. I strictly used your website CPAreviewforFree and some flash cards I purchased online. I was totally exhilarated. I then took Auditing and Reg later in 2009 and failed both of them. As 2010 rolled around I realized my time to pass the other two parts was winding down before I would lose credit for the 1st two parts. I again strictly did self study using your website and the flashcards. I took Auditing in May of 2010 and received a score of 68. I was very disappointed with myself and realized I had to commit myself more! I spent the summer practicing you 500 plus questions from the website and even creating a MS word file of the answers explanations. I took Reg on Aug 5th and only had 3 weeks to study Auditing taking that on Aug 30th. I scored an 80 on the Reg exam and an 82 on the Auditing (which by the way is my least favorite part). I owe it all to your many questions that I had access to for free. I really appreciate your dedication in helping CPA candidates pass the CPA exam!”
(7) – If you would like to unsubscribe from these emails, you can scroll down to the bottom of this email and click on the appropriate link. I have been busy writing task-based simulations so I have not been sending out email lessons as often as I want. However, I do plan to get back to my normal routine of a lesson every week or two. Hope you’ll stay with us.
(8) – We have a Facebook account for CPAreviewforFREE so I’m on Facebook every day or two. I am absolutely amazed by how much time some people spend on Facebook. It not only eats up their time; it must also eat up their attention and their mental energy.
What eats up your time?
--YouTube
--Television
There must be a million things that will suck up the minutes in your day.
Okay, I’m not going to tell you to give up email or Facebook or the like. I don’t want you to become miserable. But, I do have a challenge for you. On a piece of paper (right now), list out the top four non-productive things that eat up your time. You know what they are. It is those things that you choose to do rather than study. They are always calling to you to come play.
Here’s my challenge. With those four, try to cut down your usage by half. So, instead of checking your email every hour, do it every two hours. Instead of posting something on Facebook every two hours, make it every four hours (no matter how exciting the current message is). Instead of watching two hours of television per night, stop at one hour.
I think you’ll be amazed at how much time starts to open up for study. You want to get control over the distracters in your life. Yeah, they are all interesting but they are really just distracters that keep you from making serious accomplishments with your life. They are the type of things that keep you from showing your true talents; they are the type of things that hold you back from greatness.
You don’t need to eliminate the distracters but you really do need to (1) be aware of them and (2) control them enough that you can cut the time you give them in half. The less distraction in your life, the more likely it is that you will pour your energy into passing the CPA Exam. And, if you do that, you can pass.
(9) – Let’s add some points. Let’s do some practice. Read each question below. If you get it right, then you know this area—so move on. If you miss it, read the answer very carefully so you can be successful the next time you see a similar question.
FAR
The Redstone Corporation ended Year One with sales of $800,000, bad debt expense of $30,000, accounts receivable of $200,000, and an allowance for doubtful accounts (credit balance) of $10,000. In Year Two, the company made another $900,000 in sales on credit but collected only $600,000 in cash from those accounts. During the year, one customer who owed $13,000 declared bankruptcy and that account was written off as uncollectible. At the end of Year Two, the company’s accountants believed that 2 percent of ending receivables will eventually prove to be uncollectible. What is bad debt expense?
A. $9,740
B. $12,000
C. $12,740
D. $13,000
Answer is C
At the end of Year Two, the allowance for doubtful accounts has a $3,000 debit balance ($10,000 beginning balance less the $13,000 account written off as uncollectible). Accounts receivable is now $487,000 ($200,000 beginning balance plus $900,000 in sales less $600,000 in collections less the $13,000 account written off). The company estimates that 2 percent of receivables will prove uncollectible. That amount is $9,740 or 2 percent of $487,000. The allowance has a $3,000 debit balance but needs a $9,740 credit balance. To reach the desired figure, an expense of $12,740 is recognized for the period.
Auditing and Attestation
The CPA firm of Toe and Nail is performing an audit of the annual financial statements produced by the North Wilderness Corporation. The audit team is currently testing the accounts receivable balance for evidence of any material misstatements. One of the staff members of the audit firm was assigned to look through the subsidiary ledger for amounts due from officers. What was the most likely objective of this work?
A. Determine that the accounts receivable balance is properly reduced to net realizable value.
B. Determine that the reported accounts receivable balance represents all of the amounts owed to North Wilderness as of the balance sheet date and that no accounts have been omitted.
C. North Wilderness holds ownership of all of the reported accounts receivable at the balance sheet date.
D. The accounts receivable are properly presented in the financial statements.
Answer is D
Officers are viewed as related parties and, thus, those balances need to be disclosed as part of a proper presentation. The staff auditor is looking for evidence that any such receivables exist but have not been separately disclosed by the reporting company.
Regulation
Mr. and Mrs. William Singler are married and plan to file a joint tax return. This year, an investment in land that cost the taxpayers $100,000 (but that is currently worth $310,000) is traded for another investment in land that is worth approximately $340,000. To conclude the trade, the taxpayers also had to pay cash of $29,000. What is the taxable gain or loss on this exchange?
A. No taxable gain or loss
B. $29,000 gain
C. $210,000 gain
D. $211,000 gain
Answer is A
This is an exchange of like-kind property. In a like-kind exchange, a gain is only reported for tax purposes if boot (nonlike-kind property, such as cash) is also received. Here, the boot is paid. As a like-kind exchange with no boot being received, there is no taxable gain or loss.
BEC
The San Francisco Corporation is highly automated with many transactions from its subsidiaries around the world processed immediately through the company’s computer system. Company officials have become concerned about the possibility of a disaster such as an earthquake knocking out its computer system. A disaster recovery corporation was invited to visit the company and put forth a proposal. This outside vendor talked about creating a hot site for the company. What is meant by a hot site?
A. It is a facility owned by the vendor that is a fully equipped data center and can be up and running in a matter of hours by bringing in trained personnel.
B. It is a space that is rented so that it can become a data center but no actual hardware or software is in place—only specified plans for obtaining these items are available.
C. It is a functioning data center that mirrors all work done by the company so that operations can be switched over immediately if need be.
D. It is a site within the company where all of the data records are kept in a disaster proof location.
Answer is A.
A hot site is in a separate location from the company’s data center and has all of the hardware and software needed to begin operations. A plan for getting needed personnel is on file. If a disaster occurs, the personnel are brought in as quickly as possible so that computer operations can begin running within a matter of hours.
Have a great week. Make that resolution.
Joe Hoyle
President – CPA review for FREE
www.CPAreviewforFREE.com
The only place where you can get 2,100 high quality questions and answers for FREE.
Monday, October 11, 2010
Go After That Exam Boldly
Try us FIRST before you spend your hard-earned money.
October 10, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
118 Weeks of Operation and 16,960,979 Page Views (without a penny spent on marketing)
Lesson 81
From: Joe
(A) - Great News - last week was the second biggest week in our history in terms of the number of visitors. More and more people seem to be finding out about the 2,100 excellent and FREE questions and answers to be found at www.CPAreviewforFREE.com. Just out of curiosity, I went back exactly one year to see how much we had grown in that time. In the last year, the weekly number of visitors to come to our website is up by over 57 percent.
And, as we always say, we do this without spending one penny on marketing. Just think how good XXX review program or YYY review program could be if they would stop spending so much money on marketing and spent it, instead, on improving their materials.
(B) - And, the number of people using our subscription services for FAR and Regulation grows and grows. Each program is only $15 per month and, together, they provide you with over 1,400 slides including all of the the content you could ever want. You really don't need to spend $2,500 for materials. A slightly more reasonable price is $15 per month.
Remember - if you do sign up for one of our subscription services, come all the way down to the bottom of the table of contents and you'll find the study program. Please read that first so you will know what to do.
We are working madly on BEC and Auditing. We will have those subscription services up and available as quickly as possible.
(1) - One of my partners sent along the following note which I thought was very helpful. If you have not taken the exam before, this might be a good way to spend 7 minutes, just to get a feel for how the check-in process at the Prometrics site works.
Joe - Below is a video produced by Prometrics on what the candidate can expect when they arrive to take the exam. I thought you might want to pass this along to the candidates as it might take away some of their pretest anxiety. Lynn
www.youtube.com/watch?v=9DZTVuGgLh8
(2) - And, here are a couple of recent emails from our candidates. I want YOU to pass and then write a letter just like one of these.
From SL: "I'm writing ecstatically, because I just got my score for FAR... an 81! I passed on my first try!!! I will have you know that I used your 'content' slides almost exclusively in my preparation... with a bit of help from XX books (supplemental MC questions, or further discussion for confusing topics). I am SO overjoyed. I seriously wanted to cry when I got done with that exam, and for weeks have been expecting a score of between 60 and 70. I could NOT believe my eyes when I first saw it. I screamed so loud, I probably woke the neighbors! Thanks so much for all the hard work you put into those subscription content slides and all the free MC questions on your site -- seriously, I don't think I could have done it my first try without you!"
From BP: "Thanks to your site I passed all 4 parts of the exam. This site is amazing and as an adjunct professor for fraud, I inform my students of this site and explain to them how this has helped me. Of course the school pushes (big course) review. I told them I bought self-study books for 140 dollars and this site and was able to pass no problem. Thank you again, I could not have done it without you."
(3) - I went to Washington DC yesterday to pick apples with two of my grandchildren. On the way back to Richmond last night, I was listening to one of the baseball playoff games on the radio. The Tampa Bay team had lost the first two games and really looked dead. If they lost again last night, they were out; their season was finished. One of the reporters asked a coach or player before the game how they were going to be able to come back and win three straight games.
The person who responded gave the perfect answer. "We are not even thinking about winning three straight. We are thinking about winning TONIGHT. This is the ONLY game we can play right now. Tomorrow, we will worry about tomorrow."
In studying for the CPA Exam, it is easy to get caught up in "how can I get 75 points?" "how can I ever learn all of this material?" "how can I ever pass all four of these parts and get this exam finished?"
Those are all the wrong questions. Those questions just waste your time and energy and make you feel lost and hopeless. Focus on what you can accomplish right now. What are the right questions? Easy?
--What can I learn from this question I'm working right now?
--As soon as I finish this question, how can I make sure I work another question and don't get distracted?
--How much time should I study today and how can I make sure I actually make use of that much time?
--How many points should I add today and how can I make sure to do the work necessary?
Now, those are great questions.
There are a lot of good questions that you should be considering but none of them have to do with the entire CPA Exam. They all have to do with NOW - a time that you really can use to add points. You need to be in the moment.
So, as you study, make sure you are asking yourself the right questions. Make sure you are not wasting your time worrying about things that you cannot control. Focus your attention on adding points today.
By the way - Tampa Bay has now won two straight games and they will play in the next day or two to see which team moves on to the next round. I don't personally care whether Tampa Bay or Texas wins but I do find it interesting that Tampa Bay has managed to come back by taking it one game at a time.
(4) - I was reading something the other day and saw a line that I really liked. I am not even sure who said it: "You can't be a winner and be afraid to lose." As you can imagine, I talk with a lot of people about the CPA Exam. You hear all kinds of attitudes. There are some that I really love "I'm just doing my work each and every day." "I'm adding points - that's my goal." "I'm learning to enjoy working those questions; it is like exercise-it actually starts to feel good."
There are some, though, that I prefer not to hear "I'm so afraid that I am going to fail," "I worry about letting my friends and family down" and "I just know that I cannot make it."
I know it is sometimes hard to do but you cannot play afraid. It ties you into knots. It puts too much pressure on you. It makes you timid and afraid. It takes away your confidence.
Yeah, you can fail the CPA Exam. And, yeah, that won't make you happy. But it is not the end of the world. A lot of people who are truly successful in the accounting profession took awhile to get all the parts passed.
If you study with the fear of failure on your mind, it is ever so hard to make the most of your talents. If you are constantly worried about not passing, it is hard to put in the effort that you need. You can't live afraid and flourish. You can't be timid and conquer your goals.
So, ask yourself: when you think about the CPA Exam, what comes into your mind first: the thrill of knocking out that monster or the fear of not passing? I genuinely hope that there is a thrill to this process for you. I really hope that you can get excited about knocking out those questions one after another and getting that passing grade. It is just so much easier to do the work necessary and become a winner if you are not scared to death of the possibility of failure.
(5) - As always, do realize that you have the right to unsubscribe from these lessons. We are delighted to have you with us and we really appreciate you passing along the good word to other folks you know who are taking the CPA Exam. However, if you are tired of getting these email lessons every week or two, just scroll down to the bottom of this lesson and click on the appropriate link.
(6) - PRACTICE TIME
Let's see if we can't add a point or two to your CPA Exam score. A point or two per day will get you to 75 before you know it.
If you get the questions right, that tells you that you already have the knowledge needed in those areas. If you miss a question, that tells you that you have a wonderful opportunity to read the answer carefully and work on getting this correct the next time. And, of course, it might well be the next time that actually counts.
FAR
The Gibbs Construction Company is in the process of building an 80 story office building for a client. The job should take approximately three years. The first year has just been completed. Because of uncertainty around this job, accountants for Gibbs do not believe that they can make reasonable estimates about the degree of completion that has been achieved in this job to date. What method of accounting must Gibbs use under US GAAP and what method must Gibbs use under IFRS?
A. Percentage of completion under US GAAP and completed contract under IFRS
B. Completed contract under US GAAP and cost recovery under IFRS
C. Cost recovery under US GAAP and percentage of completion under IFRS
D Completed contract under US GAAP and completed contract under IFRS
Answer is B
In both US GAAP and IFRS, the percentage of completion method is used as long as the reporting company can make reliable estimates of the amount of the work that has been completed as well as the costs that remain to be incurred. Under US GAAP, if those estimates cannot be made, then the completed contract method is used. Only if collection of the money from the customer is significantly uncertain is the cost recovery method required. Under IFRS, if the estimates cannot be made, then the cost recovery method must be used. IFRS does not recognize the completed contract method because it waits until the last day to recognize all of the profit on the job.
Auditing
A CPA firm is auditing a client that sells merchandise on credit to a wide variety of customers. Last year, the accounts receivable turnover ratio was 5.9 but this year it has fallen to 4.1. The auditor is concerned by the significance of that change and hopes to find a logical explanation. Which of the following is most likely to explain the cause of that change?
A - The company has dropped its sales prices but shortened the length of time a customer is given to pay before a late charge is assessed.
B - The company accountant has fraudulently tried to boost reported net income by debiting inventory and crediting sales when no transaction took place.
C - The company is making a higher percentage of its sales for cash.
D - The company started making sales on consignment this year and recording those transactions as credit sales at the time of shipment to the consignee although no cash has yet been collected.
Answer is D
The accounts receivable turnover ratio is found by taking sales and dividing it by accounts receivable. For example, sales of $590,000 and accounts receivable of $100,000 lead to a 5.9 ratio. In D, both the sales and accounts receivable figures are incorrectly inflated because a consignment sale does not occur at the time of shipment but only when the goods are actually sold by the consignee. For example, if those sales were recorded at $60,000 and no sale to a third party has yet occurred, sales would be $650,000 ($60,000 too high) and accounts receivable would be $160,000. The accounts receivable turnover ratio would drop to 650,000/160,000 or 4.1. In A, the customers will pay quicker and the turnover ratio will increase rather than decrease. In B, the sales figure is increased but not accounts receivable and that will also cause the turnover ratio to rise. In C, sales stays the same but accounts receivable goes down which, once again, makes the turnover
ratio larger rather than smaller.
BEC
A company has revenues of $700,000, operating expenses of $400,000, interest expense of $60,000, and income tax expense of $50,000. What is this company's times-interest-earned ratio?
A - 3.2
B - 3.8
C - 4.2
D - 5.0
Answer is D
The formula for calculating the times-interest-earned ratio is the earnings figure (before both interest expense and income tax expense are subtracted) is divided by the amount reported for interest expense. Thus, income for this computation is $300,000 ($700,000 less $400,000) which is divided by $60,000 to arrive at 5.0
Regulation
John Clancey owns 20 acres of land that has a book value of $400,000 and a fair value of $700,000. He trades this land for 3 acres of land that are closer to the city and, therefore, worth more per acre. The land he gets is worth at total of $640,000. To even up the trade, Clancey also collects cash of $60,000. For tax purposes, what gain, if any, should Clancey recognize?
A - Zero
B - $60,000
C - $240,000
D - $300,000
Answer is B
In a like-kind exchange such as this one, there is normally no reported gain or loss. However, Clancey also received cash (boot) of $60,000. In that case, the taxpayer reports the gain made on the trade or the boot, whichever is less. Clancey gave up property with a book value of $400,000 and collected property with a fair value of $700,000 ($640,000 + $60,000). That is a gain of $300,000. The taxable gain is the $60,000 boot or $300,000 gain whichever is less. Thus, the $60,000 is taxable income. This rule applies when boot (an extra amount added in to even up the trade) is collected in a like-kind exchange.
Have a great day.
Make the most of the day that you have been given.
Put in the time and add those points and let's get the CPA Exam finished and out of your way.
Joe Hoyle
President - CPAreviewforFREE
www.CPAreviewforFREE.com
October 10, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
118 Weeks of Operation and 16,960,979 Page Views (without a penny spent on marketing)
Lesson 81
From: Joe
(A) - Great News - last week was the second biggest week in our history in terms of the number of visitors. More and more people seem to be finding out about the 2,100 excellent and FREE questions and answers to be found at www.CPAreviewforFREE.com. Just out of curiosity, I went back exactly one year to see how much we had grown in that time. In the last year, the weekly number of visitors to come to our website is up by over 57 percent.
And, as we always say, we do this without spending one penny on marketing. Just think how good XXX review program or YYY review program could be if they would stop spending so much money on marketing and spent it, instead, on improving their materials.
(B) - And, the number of people using our subscription services for FAR and Regulation grows and grows. Each program is only $15 per month and, together, they provide you with over 1,400 slides including all of the the content you could ever want. You really don't need to spend $2,500 for materials. A slightly more reasonable price is $15 per month.
Remember - if you do sign up for one of our subscription services, come all the way down to the bottom of the table of contents and you'll find the study program. Please read that first so you will know what to do.
We are working madly on BEC and Auditing. We will have those subscription services up and available as quickly as possible.
(1) - One of my partners sent along the following note which I thought was very helpful. If you have not taken the exam before, this might be a good way to spend 7 minutes, just to get a feel for how the check-in process at the Prometrics site works.
Joe - Below is a video produced by Prometrics on what the candidate can expect when they arrive to take the exam. I thought you might want to pass this along to the candidates as it might take away some of their pretest anxiety. Lynn
www.youtube.com/watch?v=9DZTVuGgLh8
(2) - And, here are a couple of recent emails from our candidates. I want YOU to pass and then write a letter just like one of these.
From SL: "I'm writing ecstatically, because I just got my score for FAR... an 81! I passed on my first try!!! I will have you know that I used your 'content' slides almost exclusively in my preparation... with a bit of help from XX books (supplemental MC questions, or further discussion for confusing topics). I am SO overjoyed. I seriously wanted to cry when I got done with that exam, and for weeks have been expecting a score of between 60 and 70. I could NOT believe my eyes when I first saw it. I screamed so loud, I probably woke the neighbors! Thanks so much for all the hard work you put into those subscription content slides and all the free MC questions on your site -- seriously, I don't think I could have done it my first try without you!"
From BP: "Thanks to your site I passed all 4 parts of the exam. This site is amazing and as an adjunct professor for fraud, I inform my students of this site and explain to them how this has helped me. Of course the school pushes (big course) review. I told them I bought self-study books for 140 dollars and this site and was able to pass no problem. Thank you again, I could not have done it without you."
(3) - I went to Washington DC yesterday to pick apples with two of my grandchildren. On the way back to Richmond last night, I was listening to one of the baseball playoff games on the radio. The Tampa Bay team had lost the first two games and really looked dead. If they lost again last night, they were out; their season was finished. One of the reporters asked a coach or player before the game how they were going to be able to come back and win three straight games.
The person who responded gave the perfect answer. "We are not even thinking about winning three straight. We are thinking about winning TONIGHT. This is the ONLY game we can play right now. Tomorrow, we will worry about tomorrow."
In studying for the CPA Exam, it is easy to get caught up in "how can I get 75 points?" "how can I ever learn all of this material?" "how can I ever pass all four of these parts and get this exam finished?"
Those are all the wrong questions. Those questions just waste your time and energy and make you feel lost and hopeless. Focus on what you can accomplish right now. What are the right questions? Easy?
--What can I learn from this question I'm working right now?
--As soon as I finish this question, how can I make sure I work another question and don't get distracted?
--How much time should I study today and how can I make sure I actually make use of that much time?
--How many points should I add today and how can I make sure to do the work necessary?
Now, those are great questions.
There are a lot of good questions that you should be considering but none of them have to do with the entire CPA Exam. They all have to do with NOW - a time that you really can use to add points. You need to be in the moment.
So, as you study, make sure you are asking yourself the right questions. Make sure you are not wasting your time worrying about things that you cannot control. Focus your attention on adding points today.
By the way - Tampa Bay has now won two straight games and they will play in the next day or two to see which team moves on to the next round. I don't personally care whether Tampa Bay or Texas wins but I do find it interesting that Tampa Bay has managed to come back by taking it one game at a time.
(4) - I was reading something the other day and saw a line that I really liked. I am not even sure who said it: "You can't be a winner and be afraid to lose." As you can imagine, I talk with a lot of people about the CPA Exam. You hear all kinds of attitudes. There are some that I really love "I'm just doing my work each and every day." "I'm adding points - that's my goal." "I'm learning to enjoy working those questions; it is like exercise-it actually starts to feel good."
There are some, though, that I prefer not to hear "I'm so afraid that I am going to fail," "I worry about letting my friends and family down" and "I just know that I cannot make it."
I know it is sometimes hard to do but you cannot play afraid. It ties you into knots. It puts too much pressure on you. It makes you timid and afraid. It takes away your confidence.
Yeah, you can fail the CPA Exam. And, yeah, that won't make you happy. But it is not the end of the world. A lot of people who are truly successful in the accounting profession took awhile to get all the parts passed.
If you study with the fear of failure on your mind, it is ever so hard to make the most of your talents. If you are constantly worried about not passing, it is hard to put in the effort that you need. You can't live afraid and flourish. You can't be timid and conquer your goals.
So, ask yourself: when you think about the CPA Exam, what comes into your mind first: the thrill of knocking out that monster or the fear of not passing? I genuinely hope that there is a thrill to this process for you. I really hope that you can get excited about knocking out those questions one after another and getting that passing grade. It is just so much easier to do the work necessary and become a winner if you are not scared to death of the possibility of failure.
(5) - As always, do realize that you have the right to unsubscribe from these lessons. We are delighted to have you with us and we really appreciate you passing along the good word to other folks you know who are taking the CPA Exam. However, if you are tired of getting these email lessons every week or two, just scroll down to the bottom of this lesson and click on the appropriate link.
(6) - PRACTICE TIME
Let's see if we can't add a point or two to your CPA Exam score. A point or two per day will get you to 75 before you know it.
If you get the questions right, that tells you that you already have the knowledge needed in those areas. If you miss a question, that tells you that you have a wonderful opportunity to read the answer carefully and work on getting this correct the next time. And, of course, it might well be the next time that actually counts.
FAR
The Gibbs Construction Company is in the process of building an 80 story office building for a client. The job should take approximately three years. The first year has just been completed. Because of uncertainty around this job, accountants for Gibbs do not believe that they can make reasonable estimates about the degree of completion that has been achieved in this job to date. What method of accounting must Gibbs use under US GAAP and what method must Gibbs use under IFRS?
A. Percentage of completion under US GAAP and completed contract under IFRS
B. Completed contract under US GAAP and cost recovery under IFRS
C. Cost recovery under US GAAP and percentage of completion under IFRS
D Completed contract under US GAAP and completed contract under IFRS
Answer is B
In both US GAAP and IFRS, the percentage of completion method is used as long as the reporting company can make reliable estimates of the amount of the work that has been completed as well as the costs that remain to be incurred. Under US GAAP, if those estimates cannot be made, then the completed contract method is used. Only if collection of the money from the customer is significantly uncertain is the cost recovery method required. Under IFRS, if the estimates cannot be made, then the cost recovery method must be used. IFRS does not recognize the completed contract method because it waits until the last day to recognize all of the profit on the job.
Auditing
A CPA firm is auditing a client that sells merchandise on credit to a wide variety of customers. Last year, the accounts receivable turnover ratio was 5.9 but this year it has fallen to 4.1. The auditor is concerned by the significance of that change and hopes to find a logical explanation. Which of the following is most likely to explain the cause of that change?
A - The company has dropped its sales prices but shortened the length of time a customer is given to pay before a late charge is assessed.
B - The company accountant has fraudulently tried to boost reported net income by debiting inventory and crediting sales when no transaction took place.
C - The company is making a higher percentage of its sales for cash.
D - The company started making sales on consignment this year and recording those transactions as credit sales at the time of shipment to the consignee although no cash has yet been collected.
Answer is D
The accounts receivable turnover ratio is found by taking sales and dividing it by accounts receivable. For example, sales of $590,000 and accounts receivable of $100,000 lead to a 5.9 ratio. In D, both the sales and accounts receivable figures are incorrectly inflated because a consignment sale does not occur at the time of shipment but only when the goods are actually sold by the consignee. For example, if those sales were recorded at $60,000 and no sale to a third party has yet occurred, sales would be $650,000 ($60,000 too high) and accounts receivable would be $160,000. The accounts receivable turnover ratio would drop to 650,000/160,000 or 4.1. In A, the customers will pay quicker and the turnover ratio will increase rather than decrease. In B, the sales figure is increased but not accounts receivable and that will also cause the turnover ratio to rise. In C, sales stays the same but accounts receivable goes down which, once again, makes the turnover
ratio larger rather than smaller.
BEC
A company has revenues of $700,000, operating expenses of $400,000, interest expense of $60,000, and income tax expense of $50,000. What is this company's times-interest-earned ratio?
A - 3.2
B - 3.8
C - 4.2
D - 5.0
Answer is D
The formula for calculating the times-interest-earned ratio is the earnings figure (before both interest expense and income tax expense are subtracted) is divided by the amount reported for interest expense. Thus, income for this computation is $300,000 ($700,000 less $400,000) which is divided by $60,000 to arrive at 5.0
Regulation
John Clancey owns 20 acres of land that has a book value of $400,000 and a fair value of $700,000. He trades this land for 3 acres of land that are closer to the city and, therefore, worth more per acre. The land he gets is worth at total of $640,000. To even up the trade, Clancey also collects cash of $60,000. For tax purposes, what gain, if any, should Clancey recognize?
A - Zero
B - $60,000
C - $240,000
D - $300,000
Answer is B
In a like-kind exchange such as this one, there is normally no reported gain or loss. However, Clancey also received cash (boot) of $60,000. In that case, the taxpayer reports the gain made on the trade or the boot, whichever is less. Clancey gave up property with a book value of $400,000 and collected property with a fair value of $700,000 ($640,000 + $60,000). That is a gain of $300,000. The taxable gain is the $60,000 boot or $300,000 gain whichever is less. Thus, the $60,000 is taxable income. This rule applies when boot (an extra amount added in to even up the trade) is collected in a like-kind exchange.
Have a great day.
Make the most of the day that you have been given.
Put in the time and add those points and let's get the CPA Exam finished and out of your way.
Joe Hoyle
President - CPAreviewforFREE
www.CPAreviewforFREE.com
Thursday, September 30, 2010
Have an Incentive to Study!
Try us FIRST before you spend your hard-earned money.
September 29, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
117 Weeks of Operation and 16,649,869 Page Views (without a penny spent on marketing)
Lesson 80
From: Joe
(a) – VERY SPECIAL ANNOUNCEMENT: SUBSCRIPTION SERVICE FOR REGULATION IS NOW AVAILABLE. As most of you know, we started offering a subscription service for FAR several weeks ago and quite a number of you have taken advantage of that program and its 620 slides.
Now, for Regulation, we have created over 880 slides that you can view over the Internet that tells you exactly what we believe you need to know—this material covers the basics in law and tax and gets you ready to make 75 and pass that part of the CPA Exam.
As with FAR, a subscription for Regulation will be $15 per month or $30 for three months. What else can you possibly get for $15 per month? That’s 50 cents per day to get over 880 slides explaining the topics covered in the Regulation part of the CPA Exam. That’s less than 2 cents per slide for a month.
Of course, our 2,100 free questions and answers will always stay free. The subscription service provides the content you need to supplement those questions and answers.
--To gain access, go to www.CPAreviewforFREE.com. Click on “Store” at the top right of the home page, click on “here” under the “Essential Content,” log into your account (or register if you have not registered previously), and Click on “Paid Content.” Then, purchase one month of online access for $15 or 3 months for $30.
--When you subscribe – read my study program first. You certainly can proceed in any manner that you wish but I would prefer for you to see how I envisioned this program before you get started.
--And, one final thing, we've listened to our users and now offer our content in a printable form! If you have already purchased the online subscription but would like to print out the content, you can upgrade your subscription and purchase the printable version under "Paid Content" after logging into your account. OR, if you have never purchased the Essential content, you can purchase the online subscription and print it as needed.
(b) – I think one of the things that is most helpful when you are preparing for the CPA Exam is to hear about other people JUST LIKE YOU who have passed the exam. That is very reassuring. We’ve gotten a gazillion emails recently from candidates. Wish I had space to print them all. Here are just a few that were emailed in or posted on our Facebook page:
From DT: "I want to thank you for your help in passing the exam. I just found out my final grade this morning and it was all thanks to your site. Prior to using CPA review for free I purchased a $1600 review package. Your site was better than anything I could have purchased. Thanks again!!!!!”
From SL: “Your subscription content for FAR helped me pass on my first try! I GOT AN 81!!!”
From LQ: "Just found out I passed BEC! I did the questions on CPA Review for Free only. I went into an old college textbook just to cover 2 topics I felt weak in. But this site was primarily the source to get me over 75! Thank you"
From LP: "Thanks for this site and all of your encouragement! I received my last score yesterday and passed with three 99's and an 89 on BEC! I took all four parts in four months, so if anyone reading this site has the opportunity to study full time in between graduation and starting work, I encourage them to do so =)"
From OO: “Thank you CPAreviewforFREE. I passed Audit with 82. I used your questions for my final review. Your tips and motivational e-mails are really helpful and much appreciated.”
From RK: “Thank you! I just got my results for FAR and I passed with an 88%! Using CPA review for free was a wonderful resource for me. The multiple choice questions helped me learn the ground rules for each subject. I made flash cards just like you suggested to help review those concepts. I will now be studying for REG (my last test) and hopefully I will be sending you another thank you note around Christmas time with more successful results. I would also like to add that it has been 19 years since I received my accounting degree. I am saying this to encourage others who may have taken some time to pursue other goals. It takes incredible perseverance but it's highly possible to pass. And I think it's going to be worth it.”
From PL: “I recently passed all four parts of the CPA exam. I found your site after I took the first two sections, so I only had the benefit of it for the last two. The practice questions really helped me study. I only wish I had discovered them earlier. I heartily endorse your website and your advice to study at least one hour per day and take as many practice tests as you can.”
From MK: “I just wanted to let you know that I passed FAR with a 95! I found out this morning and still cannot believe that it's finally over. When I walked out of the exam, I thought that there was no possible way that I passed - the exam questions concentrated on only a few areas vs. covering the surface of everything; I had multiple questions that were very similar/identical to one another; and I had a lot of very obscure questions. But I guess I wasn't the only one that felt this way. That being said, I wanted to say thank you for everything you have done. Whenever I started to doubt myself, think that I couldn't study for one more minute, or that there was no way that I could pass, I would read one of your inspirational emails. Your emails would restore my confidence and help me think 'I CAN DO THIS!'. I would then sit down and go through all of your questions, read the explanations, and slowly a light would come on. Thus, I do not think that I would have passed
without your fabulous questions and touching emails. Bottom line, thank you for taking the time to care, you truly are a hero and an inspiration to us all.”
From ME: “I would like to express my deepest appreciation to your website and to you as its creator. I received my FAR score a few days ago, 82. I finally passed after three unsuccessful attempts (66, 72, and 73)! First time I used a (big course) review (big mistake!), it did not help me at all, but the software expired...lost time and money. The FAR exam was a very big challenge for me. English is my second language. I earned a degree in Accounting, but did not deeply understand a lot of the transactions and events. The questions provided on "CPA for Free" web site explain a lot of very complicated topics from a different point of view compared to other CPA review courses. You have absolutely excellent questions for a lot of financial accounting concepts, such as different types of leases, income tax calculating, governmental and non-for-profit organization, etc. I tried to complete at least 1 quiz each lunch break every day. I enjoyed your inspiring e-mails and
used it as guidance for my preparation.”
Okay – make it your goal to write me a letter just like these within the next year!!! That is a reasonable goal – one that you can accomplish!!! Go for it.
(1) – Larry Bird was one of the greatest basketball players to ever play the game. He just had the knack. We often think that people like that are just born with great talent but Larry Bird once said: “When I was young, I never wanted to leave the court until I got things exactly correct.”
Most of us have exactly the opposite attitude—we cannot wait to get finished. We hurry up so we can quit. We are dying to finish so we get to stop. But notice what Bird says “I never WANTED to leave the court until I got things exactly correct.”
How would your study be different each day if you started by saying “I don’t want to quit this topic until I can get the questions correct.” “I don’t want to stop working on leases until I know how to do capitalized leases.”
What is your attitude?
Is it: “I hate it but I have to study” or “I am going to force myself to sit here until I learn this stuff” or “this is painful but I must study.”
Those are such negative attitudes. That just cannot be helpful. No wonder people hate to study if that is how they feel. Who wants to feel like that?
But just imagine -- what if your attitude was “I want to sit here and figure out how to do earnings per share” or “I never learned bonds in college but I really do want to know how they work” or “I want to be an accountant because I like accounting so I am looking forward to learning more accounting tonight.”
I think society causes us a problem because there is a general feeling that working to learn is painful, dull, and boring. No -- watching television is painful, dull, and boring – learning stuff makes us smarter and helps us to know more. That should be exciting. That should feel good.
Let me make a suggestion. If you are having trouble putting in the time that you need, step back and assess your attitude. How do you view upcoming study sessions? If you think of them as misery to be endured then you are talking yourself into failure. If you can convince yourself that studying and learning are actually interesting endeavors, you will have taken a great first step toward getting those 75 points that you need to pass.
(2) – As always if you wish to unsubscribe from these email lessons, scroll to the bottom of this lesson and click on unsubscribe. We’ll miss you but you honestly do have that right.
(3) – I was listening to NPR (national public radio) a few weeks back and they were talking and some expert made an astute comment: “incentives make a difference.” His comment was based on a story of how to get people to do what you want them to do. He made the obvious comment that we all have incentives for what we do. If you make those incentives the right one, people will do amazing things. If you make that incentive wrong, people will do virtually nothing. It is not you that is holding yourself down but the incentives that you have set.
If you have followed these lessons for long, you already know that I tend to push focusing on today because that is the only day where you can make a difference in your grade. So, what is your incentive for studying today? I think that is a great question. I think that is a question you should address every day. I think that can make a big difference in your progress. Why do you want to study today?
Of course, there are the obvious answers: I want to pass the CPA Exam, I want to be a professional accountant, I want to be recognized as a Certified Public Accountant. Those are good but none of them focus your attention on today. Those are big picture incentives. I want to focus on today.
So, before you start studying, think of an incentive for today. Personalize them as much as you can. You are trying to push yourself to have a great today.
--If I answer 40 questions today on www.CPAreviewforFREE.com, I’ll buy myself an ice cream cone.
--If I study for two hours without taking a break, I’ll go for a swim in the pool.
--If I prepare 35 flash cards, I’ll spend ten minutes emailing by friends.
Each person is different. There are incentives that will push you to accomplish much. The secret is to figure out what they are. Every day, when you start to study, consider setting a goal with an incentive. Because incentives really do make a difference.
(4) – Practice – always a good time to answer some questions. The first one comes from my intermediate accounting class today.
FAR
The Winslet Company issues a four-year $80,000, 5 percent serial bond on January 1, Year One. Each December 31, starting on December 31, Year One, the company will pay $20,000 plus interest of 5 percent on the unpaid face value for that year. The bond is issued for 90 percent of face value ($72,000) to yield an annual rate of 8 percent. What is the interest expense to be recognized for Year Two?
A - $4,301
B - $4,621
C - $5,901
D - $6,221
Answer is A
Interest expense the first year is $72,000 times 8 percent or $5,760. However, the company pays interest of only $4,000 ($80,000 times 5 percent). The unpaid portion of the interest ($5,760 - $4,000 or $1,760) must be compounded (added to the principal balance). In addition, a $20,000 payment is also made on the face value. That reduces the liability. Therefore, the liability balance for Year Two is $72,000 + $1,760 - $20,000 or $53,760. At 8 percent, the interest for the second year is $4,301 ($53,760 times 8 percent).
Regulation
The Asimov Corporation has revenues of $300,000, ordinary and necessary expenses of $200,000, a long-term capital gain of $4,000, and a short-term capital loss of $5,000. What is its taxable income?
A - $97,000
B - $99,000
C - $100,000
D - $104,000
Answer is C
This corporation has a net capital-loss for the year of $1,000. However, corporations are not allowed to deduct capital losses. Therefore, the only tax effects come from the revenues and the expenses that net to $100,000. The $1,000 net loss can be carried back for three years and forward for five years to reduce taxable capital gains.
Auditing
Auditors are examining the financial statements for the Haynesworth Corporation. The company maintains a checking account with the Second National Bank. The auditors request and get a bank cut-off statement to verify the checks that cleared in the first few days of the subsequent year. Which of the following is the most likely reason for carrying out this procedure?
A – The company is trying to overstate its cash balance.
B – The company is trying to understate its liability balance.
C – The company is trying to overstate its revenue balance.
D – The company is trying to understate its expense balance.
Answer is B.
If the checks clear in a reasonable period of time, there is no problem at all. If they do not clear in a reasonable period of time, it means the payment was recorded but possibly was not sent to the recipient. Why would that be? What is the possible benefit of recording a payment but not mailing the check? The company gets to reduce its liability balance so that it reports a lower amount of liabilities without actually losing any of its cash.
BEC
The Acme Washing Company was owned by the Winslow Group. It was sold to a team of five of Acme’s vice-presidents for a total price for $34.6 million. The vice-presidents put up $600,000 in cash and borrowed the remainder from a group of three banks. The assets of Acme were pledged as security for the loan. Which of the following terms is used to describe this transaction?
A – Reverse acquisition
B – Pooling of interests
C – Leveraged buyout
D – Congeneric merger
Answer is C
A leveraged buyout is a transaction that is mostly financed by taking on debt with little money being contributed by the owners. Here, they only put up $600,000 to buy a $34.6 million company. Pooling of interests is an old accounting term that is no longer used for new acquisitions. A congeneric merger a type of merger where two companies operate in related industries but do not offer the same products.
Okay, go out and focus on today and let’s start adding some points and move up to that 75 point level.
September 29, 2010
CPA Review for FREE
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Lesson 80
From: Joe
(a) – VERY SPECIAL ANNOUNCEMENT: SUBSCRIPTION SERVICE FOR REGULATION IS NOW AVAILABLE. As most of you know, we started offering a subscription service for FAR several weeks ago and quite a number of you have taken advantage of that program and its 620 slides.
Now, for Regulation, we have created over 880 slides that you can view over the Internet that tells you exactly what we believe you need to know—this material covers the basics in law and tax and gets you ready to make 75 and pass that part of the CPA Exam.
As with FAR, a subscription for Regulation will be $15 per month or $30 for three months. What else can you possibly get for $15 per month? That’s 50 cents per day to get over 880 slides explaining the topics covered in the Regulation part of the CPA Exam. That’s less than 2 cents per slide for a month.
Of course, our 2,100 free questions and answers will always stay free. The subscription service provides the content you need to supplement those questions and answers.
--To gain access, go to www.CPAreviewforFREE.com. Click on “Store” at the top right of the home page, click on “here” under the “Essential Content,” log into your account (or register if you have not registered previously), and Click on “Paid Content.” Then, purchase one month of online access for $15 or 3 months for $30.
--When you subscribe – read my study program first. You certainly can proceed in any manner that you wish but I would prefer for you to see how I envisioned this program before you get started.
--And, one final thing, we've listened to our users and now offer our content in a printable form! If you have already purchased the online subscription but would like to print out the content, you can upgrade your subscription and purchase the printable version under "Paid Content" after logging into your account. OR, if you have never purchased the Essential content, you can purchase the online subscription and print it as needed.
(b) – I think one of the things that is most helpful when you are preparing for the CPA Exam is to hear about other people JUST LIKE YOU who have passed the exam. That is very reassuring. We’ve gotten a gazillion emails recently from candidates. Wish I had space to print them all. Here are just a few that were emailed in or posted on our Facebook page:
From DT: "I want to thank you for your help in passing the exam. I just found out my final grade this morning and it was all thanks to your site. Prior to using CPA review for free I purchased a $1600 review package. Your site was better than anything I could have purchased. Thanks again!!!!!”
From SL: “Your subscription content for FAR helped me pass on my first try! I GOT AN 81!!!”
From LQ: "Just found out I passed BEC! I did the questions on CPA Review for Free only. I went into an old college textbook just to cover 2 topics I felt weak in. But this site was primarily the source to get me over 75! Thank you"
From LP: "Thanks for this site and all of your encouragement! I received my last score yesterday and passed with three 99's and an 89 on BEC! I took all four parts in four months, so if anyone reading this site has the opportunity to study full time in between graduation and starting work, I encourage them to do so =)"
From OO: “Thank you CPAreviewforFREE. I passed Audit with 82. I used your questions for my final review. Your tips and motivational e-mails are really helpful and much appreciated.”
From RK: “Thank you! I just got my results for FAR and I passed with an 88%! Using CPA review for free was a wonderful resource for me. The multiple choice questions helped me learn the ground rules for each subject. I made flash cards just like you suggested to help review those concepts. I will now be studying for REG (my last test) and hopefully I will be sending you another thank you note around Christmas time with more successful results. I would also like to add that it has been 19 years since I received my accounting degree. I am saying this to encourage others who may have taken some time to pursue other goals. It takes incredible perseverance but it's highly possible to pass. And I think it's going to be worth it.”
From PL: “I recently passed all four parts of the CPA exam. I found your site after I took the first two sections, so I only had the benefit of it for the last two. The practice questions really helped me study. I only wish I had discovered them earlier. I heartily endorse your website and your advice to study at least one hour per day and take as many practice tests as you can.”
From MK: “I just wanted to let you know that I passed FAR with a 95! I found out this morning and still cannot believe that it's finally over. When I walked out of the exam, I thought that there was no possible way that I passed - the exam questions concentrated on only a few areas vs. covering the surface of everything; I had multiple questions that were very similar/identical to one another; and I had a lot of very obscure questions. But I guess I wasn't the only one that felt this way. That being said, I wanted to say thank you for everything you have done. Whenever I started to doubt myself, think that I couldn't study for one more minute, or that there was no way that I could pass, I would read one of your inspirational emails. Your emails would restore my confidence and help me think 'I CAN DO THIS!'. I would then sit down and go through all of your questions, read the explanations, and slowly a light would come on. Thus, I do not think that I would have passed
without your fabulous questions and touching emails. Bottom line, thank you for taking the time to care, you truly are a hero and an inspiration to us all.”
From ME: “I would like to express my deepest appreciation to your website and to you as its creator. I received my FAR score a few days ago, 82. I finally passed after three unsuccessful attempts (66, 72, and 73)! First time I used a (big course) review (big mistake!), it did not help me at all, but the software expired...lost time and money. The FAR exam was a very big challenge for me. English is my second language. I earned a degree in Accounting, but did not deeply understand a lot of the transactions and events. The questions provided on "CPA for Free" web site explain a lot of very complicated topics from a different point of view compared to other CPA review courses. You have absolutely excellent questions for a lot of financial accounting concepts, such as different types of leases, income tax calculating, governmental and non-for-profit organization, etc. I tried to complete at least 1 quiz each lunch break every day. I enjoyed your inspiring e-mails and
used it as guidance for my preparation.”
Okay – make it your goal to write me a letter just like these within the next year!!! That is a reasonable goal – one that you can accomplish!!! Go for it.
(1) – Larry Bird was one of the greatest basketball players to ever play the game. He just had the knack. We often think that people like that are just born with great talent but Larry Bird once said: “When I was young, I never wanted to leave the court until I got things exactly correct.”
Most of us have exactly the opposite attitude—we cannot wait to get finished. We hurry up so we can quit. We are dying to finish so we get to stop. But notice what Bird says “I never WANTED to leave the court until I got things exactly correct.”
How would your study be different each day if you started by saying “I don’t want to quit this topic until I can get the questions correct.” “I don’t want to stop working on leases until I know how to do capitalized leases.”
What is your attitude?
Is it: “I hate it but I have to study” or “I am going to force myself to sit here until I learn this stuff” or “this is painful but I must study.”
Those are such negative attitudes. That just cannot be helpful. No wonder people hate to study if that is how they feel. Who wants to feel like that?
But just imagine -- what if your attitude was “I want to sit here and figure out how to do earnings per share” or “I never learned bonds in college but I really do want to know how they work” or “I want to be an accountant because I like accounting so I am looking forward to learning more accounting tonight.”
I think society causes us a problem because there is a general feeling that working to learn is painful, dull, and boring. No -- watching television is painful, dull, and boring – learning stuff makes us smarter and helps us to know more. That should be exciting. That should feel good.
Let me make a suggestion. If you are having trouble putting in the time that you need, step back and assess your attitude. How do you view upcoming study sessions? If you think of them as misery to be endured then you are talking yourself into failure. If you can convince yourself that studying and learning are actually interesting endeavors, you will have taken a great first step toward getting those 75 points that you need to pass.
(2) – As always if you wish to unsubscribe from these email lessons, scroll to the bottom of this lesson and click on unsubscribe. We’ll miss you but you honestly do have that right.
(3) – I was listening to NPR (national public radio) a few weeks back and they were talking and some expert made an astute comment: “incentives make a difference.” His comment was based on a story of how to get people to do what you want them to do. He made the obvious comment that we all have incentives for what we do. If you make those incentives the right one, people will do amazing things. If you make that incentive wrong, people will do virtually nothing. It is not you that is holding yourself down but the incentives that you have set.
If you have followed these lessons for long, you already know that I tend to push focusing on today because that is the only day where you can make a difference in your grade. So, what is your incentive for studying today? I think that is a great question. I think that is a question you should address every day. I think that can make a big difference in your progress. Why do you want to study today?
Of course, there are the obvious answers: I want to pass the CPA Exam, I want to be a professional accountant, I want to be recognized as a Certified Public Accountant. Those are good but none of them focus your attention on today. Those are big picture incentives. I want to focus on today.
So, before you start studying, think of an incentive for today. Personalize them as much as you can. You are trying to push yourself to have a great today.
--If I answer 40 questions today on www.CPAreviewforFREE.com, I’ll buy myself an ice cream cone.
--If I study for two hours without taking a break, I’ll go for a swim in the pool.
--If I prepare 35 flash cards, I’ll spend ten minutes emailing by friends.
Each person is different. There are incentives that will push you to accomplish much. The secret is to figure out what they are. Every day, when you start to study, consider setting a goal with an incentive. Because incentives really do make a difference.
(4) – Practice – always a good time to answer some questions. The first one comes from my intermediate accounting class today.
FAR
The Winslet Company issues a four-year $80,000, 5 percent serial bond on January 1, Year One. Each December 31, starting on December 31, Year One, the company will pay $20,000 plus interest of 5 percent on the unpaid face value for that year. The bond is issued for 90 percent of face value ($72,000) to yield an annual rate of 8 percent. What is the interest expense to be recognized for Year Two?
A - $4,301
B - $4,621
C - $5,901
D - $6,221
Answer is A
Interest expense the first year is $72,000 times 8 percent or $5,760. However, the company pays interest of only $4,000 ($80,000 times 5 percent). The unpaid portion of the interest ($5,760 - $4,000 or $1,760) must be compounded (added to the principal balance). In addition, a $20,000 payment is also made on the face value. That reduces the liability. Therefore, the liability balance for Year Two is $72,000 + $1,760 - $20,000 or $53,760. At 8 percent, the interest for the second year is $4,301 ($53,760 times 8 percent).
Regulation
The Asimov Corporation has revenues of $300,000, ordinary and necessary expenses of $200,000, a long-term capital gain of $4,000, and a short-term capital loss of $5,000. What is its taxable income?
A - $97,000
B - $99,000
C - $100,000
D - $104,000
Answer is C
This corporation has a net capital-loss for the year of $1,000. However, corporations are not allowed to deduct capital losses. Therefore, the only tax effects come from the revenues and the expenses that net to $100,000. The $1,000 net loss can be carried back for three years and forward for five years to reduce taxable capital gains.
Auditing
Auditors are examining the financial statements for the Haynesworth Corporation. The company maintains a checking account with the Second National Bank. The auditors request and get a bank cut-off statement to verify the checks that cleared in the first few days of the subsequent year. Which of the following is the most likely reason for carrying out this procedure?
A – The company is trying to overstate its cash balance.
B – The company is trying to understate its liability balance.
C – The company is trying to overstate its revenue balance.
D – The company is trying to understate its expense balance.
Answer is B.
If the checks clear in a reasonable period of time, there is no problem at all. If they do not clear in a reasonable period of time, it means the payment was recorded but possibly was not sent to the recipient. Why would that be? What is the possible benefit of recording a payment but not mailing the check? The company gets to reduce its liability balance so that it reports a lower amount of liabilities without actually losing any of its cash.
BEC
The Acme Washing Company was owned by the Winslow Group. It was sold to a team of five of Acme’s vice-presidents for a total price for $34.6 million. The vice-presidents put up $600,000 in cash and borrowed the remainder from a group of three banks. The assets of Acme were pledged as security for the loan. Which of the following terms is used to describe this transaction?
A – Reverse acquisition
B – Pooling of interests
C – Leveraged buyout
D – Congeneric merger
Answer is C
A leveraged buyout is a transaction that is mostly financed by taking on debt with little money being contributed by the owners. Here, they only put up $600,000 to buy a $34.6 million company. Pooling of interests is an old accounting term that is no longer used for new acquisitions. A congeneric merger a type of merger where two companies operate in related industries but do not offer the same products.
Okay, go out and focus on today and let’s start adding some points and move up to that 75 point level.
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