January 27, 2010
CPA Review for FREE
The Flesh Needs To Be Strong
82 Weeks of Operation and 8,625,929 Page Views (without a penny spent on marketing)
Lesson 61
From: Joe
(a) – I want to wish my lovely wife Sarah a happy birthday on Sunday. While I have aged terribly, you haven’t changed one bit since we got married in 1970. I’m a truly lucky guy.
(b) – We are supposed to have a big snowstorm this week-end. If you are in an area where snow is predicted, make sure that you have all of your books and notes available. If you get stuck in your home, you want to be prepared to get in a lot of great study hours. For the CPA Exam, snow storms can be great. You can wrap up in warm blankets and drink hot chocolate and study all day.
(1) – Okay, I’ve got a challenge for you right from the start. I don’t care if you’ve never used our site; stop reading this email right now. Go to www.CPAreviewforFREE.com. Pick the section that you are planning to take next (even if it is in two years). Take one of our random exam tests. Right now. Stop putting it off. Take 20 minutes. Answer the questions as quickly as you can. Read the answers and, for those you missed, see if you can figure out what you needed to do differently to get it right.
Come back in 20 minutes and you should be at least one point closer to passing the CPA Exam. In these emails, I can tell you all kinds of things to be encouraging. However, if you don’t (a) read the questions, (b) work out your answer, and (c) and most importantly, try to learn from your mistakes, then these emails don’t do you any good.
--I want YOU to pass.
--I want YOU to read those questions and read those answers.
--These emails are merely a means to get to an end. The end is working enough questions and reading enough answers so that you can pass.
So, stop reading and go work 20 questions. When you come back, you’ll already be closer to passing.
(2) – I have really been enjoying sending out tips on Facebook. In case you don’t follow our Facebook page (CPA Review for FREE), here is the tip that I sent out this morning.
www.CPAreviewforFREE.com – Tip Thirty-Nine – Today is moving day here in my classes at the University of Richmond. I find that after about 2-3 weeks even the most enthusiastic student starts to get a bit lethargic. There is something about every day looking the same that eventually gets to be a grind. And, learning is never efficient if it feels like a grind.
So, when I sense a drain in energy from my students, I come in and move everyone in class around. I move the ones on the left to the right and the ones on the front to the back and so on. Usually, I feel an immediate surge of enthusiasm. All of a sudden, things feel new again. It won’t last forever but for another 2-3 weeks, the students should do better.
If your preparation is beginning to feel like a grind, you might try switching to a new room when you work: from the study to the kitchen, from the living room to the dining room. Or, take your study space and rearrange the furniture a bit. Anything so that it will have a different feel. Candidates often turn preparation into a type of death march: “I’m going to head down this path and I’m not going to look right or left until I pass or pass out.” The psychology of that approach is just horrible. Think of ways to keep your energy and enthusiasm up. Be your own cheerleader. Create rewards for yourself if you study for a couple of hours. Or, as with my students, shake up your environment a little bit—move yourself or your furniture around. You may be surprised by how much better it feels to study. Joe Hoyle –President, www.CPAreviewforFREE.com
(3) – Another thing I like about our Facebook page is that candidates get to talk to other candidates about their study. Here is one that was posted by one of the candidates a few days ago. I must admit that this person studies more hours per day than I probably would but, what is most important is that she has organized her work into something that really seems to be working for her:
“When I first heard of this website I was skeptical, so I ignored it for a while, but then I got desperate so I checked it out. I have found that each time I go over a question from www.cpareviewforfree.com that I get a stronger grasp over the topic that I already thought I knew inside out.
“If you work, I would recommend that you head over to a library, one that stays open late (i.e. a college campus library) and try to do about 4-6 hours a day during the week and the weekends try to put in another 8 hours. Like Joe says, every hour you add to studying adds a point to your exam. I would recommend that you be consistent with the time that you set aside to study and that each time you study you make an index card for the rule that the question is testing. His questions are straight to the point, so it would behoove you to note the reason why you got the answer right. Joe gave us a tip where he said to limit your flash cards to 10 words, for the most part that has worked for me and it has helped to keep the old material that I have studied fresh in my mind. I used (big course) in conjunction with this website, however I have found that his questions test you on everything that the exam can ask you conceptually. So even if you purchase videos from (big course)
and also text from them, ultimately it is practicing questions over and over that will get you to pass the test and increasing the speed with which you answer questions.”
(4) – If you need to unsubscribe from these free email lessons, just scroll to the bottom of this lesson and click on the link provided. Personally, I’d rather for you to forward it to all of your friends and neighbors but I do understand if you need to unsubscribe.
(5) – I give teaching presentations occasionally (as well as maintain a teaching blog . When I stand in front of a group of teachers, I often start my program with a Bible verse. It comes from the 26th chapter of the book of Matthew, verse 41: “the spirit indeed is willing, but the flesh is weak.”
Whenever I read that verse, the college teachers will all smile and nod their heads. Why is that? Well, the reason is that every teacher knows that virtually every student who walks into their class really does want to learn the material. Sure, the spirit is indeed willing. If you could just pour the knowledge into their heads; if you could just type the information into their DNA, every student would love that. They want to succeed. No one wants to fail; no one wants to do poorly.
However, when you ask students to do the work in order to succeed, you quickly find that their flesh can be awfully weak. For a college teacher, Matthew could have been translated: “Students really do want to do well; they just have a tough time doing the work it takes to do well.”
Okay, let’s take an assessment, how is your spirit? How much do you really want to pass the CPA Exam? Is it an aching hungry? Is it a drive pushing you to the final goal? On a scale of 1-10, how much do you really want to pass the CPA Exam? Honestly, if it is not about a 7 or so, you might want to reconsider the whole idea. It is hard to pass if you lack the spirit.
Now, how is your flesh? How willing are you to sit there and answer those questions and read those answers and take those notes? Why did I start this email with “go work a random question test?” Most people need a little push to do the work because the flesh can be weak.
It is human nature, I am convinced. For a whole lot of people taking the CPA Exam: “the spirit indeed is willing, but the flesh is weak.”
There is no magic cure so how can you go about putting a little push into your flesh.
--Remind yourself every single morning why you want to pass. It is a hard road to travel if you don’t know why you are doing it. “Okay, it is Monday morning and I want to pass the CPA Exam because . . .”
--Set a time goal “I want to pass the CPA Exam by….” Nothing creates urgency like a shortage of time.
--Reward yourself when you do a good job of studying. That makes the rewards for doing the work more immediate. If your only reward is that you’ll take a test in six weeks and hopefully get a passing score in a more weeks, the reward is too far into the future.
Yeah, we are all human. It is always easy, I think, for the spirit to be willing. But it is a much bigger challenge to get the flesh to get up and do the work that is necessary. Don’t let yourself be the kind of person who fails into the trap of “all want and no do.” Wanting is great but the doing is what gets you the points you need.
(5) – Practice – Okay, let’s see if we can add another point to your score, right here.
FAR
You are studying a set of financial statements prepared for the city of Wichita. You find an asset listed as a building which is reported as $2.4 million. The statement also shows accumulated depreciation of $700,000 for a book value of $1.7 million. In which of the following are you not looking as you study the statements for the city of Wichita?
a. Fund-based financial statements for governmental funds
b. Government-wide financial statements for business-type activities
c. Government-wide financial statements for governmental activities
d. Fund-based financial statements for proprietary funds
Answer is A
Government-wide financial statements report all economic resources including all assets (such as a building). That is true for both governmental activities (like the police department) and business-type activities (like a bus service). The fund-based statements for the proprietary funds are reported in the same manner. The accounting for proprietary funds (the bus service, for example, or an internal print shop) are very similar in the government-wide financial statements and the fund-based financial statements. However, the fund-based statements for governmental funds (such as a police department or fire department) only report current financial resources. A building is not a current financial resource and is not reported in those statements.
Auditing
The Machieto Corporation produces a set of financial statements according to United States generally accepted accounting principles. However, by an accident, the accountant reported the book value of the company’s warehouse (as a fixed asset) using a method that was not appropriate under GAAP. The accountant has created a misstatement in which of the following assertions?
a. Existence
b. Presentation
c. Completeness
d. Valuation
Answer is D
The completeness assertion states no transactions or balances have been omitted and none have here. The existence assertion states that no extra transactions or balances have been included and none have been. There is one building and the company is reporting one building. The presentation assertion states that the balances have been properly placed within the financial statements and the building is shown as a fixed asset which is appropriate. The valuation assertion states that the figures being reported have been determined according to US generally accepted accounting principles. That was not the case here.
Regulation
At the beginning of the current year, John Doe is single. However, he marries Helen on January 23. The couple adopts two infant daughters from Russia on May 1 of that year. Unfortunately, Helen dies in a car accident in November of this year. John Doe does not remarry prior to the end of the year. The children do qualify as dependents. What tax status should the taxpayer use when filing his income tax return for this year?
a. Single
b. Head of household
c. Qualifying widow
d. Joint
Answer: D
If a spouse dies during the tax year, the filing status at that time holds (unless a change occurs subsequently such as a remarriage). In this particular case, on the date that Helen died, the couple could file a joint return. Despite her death, that status still applies for that tax year.
BEC
A stockholder of the Chaplin Corporation received each of the following items. All of them are considered asset or capital distributions, except:
a. a stock split of 300 previously unissued shares of the company’s stock
b. a distribution of three acres of land
c. a dividend of $3,000 based on the profits of the company
d. a dividend of $2,000 in cash that is deemed to be a liquidating dividend
Answer is A.
A stock split is a type of stock dividend that neither reduces the assets of the business nor increases the stockholder’s percentage of the ownership. It is not viewed as a distribution but rather as an attempt by the company to reduce the market price of the company’s stock by increasing the supply. It is not viewed as an asset or capital distribution. The business is no worse off and the stockholder is no better off.
If it snows, add points!!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Thursday, January 28, 2010
Thursday, January 14, 2010
Make it Happen in 2010
78 Weeks of Operation and 7,865,448 Page Views (without a penny spent on marketing)
Lesson 59
From: Joe
(A) - Thanks to everyone who has helped to make 2009 such a wonderfully special year for all of us here at CPA Review for FREE. I just checked and our number
of hits last week was 126 percent higher than during the same week in 2008. Great growth with nothing spent on advertising. And, over the course of 2009,
we averaged (this is the average number not the highest number) 128,092 page views per week. That is adding a lot of points to a lot of CPA Exam scores.
Now, if we can just grow as fast in 2010!!! And, we can with your help. Please tell anyone that you know who is thinking about the CPA Exam that we are
here to help them pass. All of our questions and answers are available for FREE (yes, F R E E) at www.CPAreviewforFREE.com.
(B) – Our daily tips on Facebook have been going wonderfully well. If you have not had a chance yet, go to www.facebook.com and become a fan. Just search
for CPAreviewforFREE. You can read the 27 tips that we have sent out to our fans in the last 27 days. Figure out which one you think is best and let us
know. I really would be interested in knowing what kind of tip is the most helpful.
(C) – Don’t forget that you can download all of our questions and answers for just a small fee. At www.CPAreviewforFREE.com, check out the Store. Having
the questions in a hard copy can be very helpful if you don’t have easy access to the Internet at all times.
(1)---I recently read an article about Walt Disney, the man who created the company that bears his name. (I am probably one of the few people on this list
who is old enough to remember when Mr. Disney himself served as the weekly host of the television program “The Wonderful World of Disney.”)
In this article, the writer talked about how Walt Disney had created his company and then turned it into a gigantic success in both movies and amusement parks.
The writer mentioned one of Mr. Disney’s favorite made-up words: “stick-to-it-ivity” which was described as “his word for tenacity, for perseverance.”
I know that as we enter a brand new year, it may be time for a bit of “stick-to-it-ivity.” Not a bad time to make this YOUR word for 2010.
The pass rate on each part of the CPA Exam is roughly 50 percent. Unfortunately, if my math is correct, that means that the failure rate on each part of the
CPA Exam is also roughly 50 percent.
Thus, I am sure that—as we exit 2009—some of you on this list were disappointed by the CPA Exam this past year. But, as we enter 2010, that is all in the
past. It’s in the past – forget about it. Make it your New Year’s resolution to have the exam behind you by this time next year.
To any of you who were disappointed this year with your results, let me assure you that I fully believe that you can and will pass the CPA Exam. I mean that
truly. If you did not get the scores that you wanted in 2009, that can only mean one of two things:
(a) that you have not yet been able to invest the time that you needed and/or
(b) that you have not yet been able to set up a study routine that will work for you.
With adequate time and the proper approach, you can pass!
So, it may be time for some stick-to-it-ivity. Don’t let the CPA Exam get the best of you. It is easy when you are frustrated to shake your head and say “I
quit.” Quitting is the easiest thing to do in life. Well, DON’T DO IT! You are ready for some tenacity; it is time for some perseverance.
I’m sure there is a bit of an ache in your heart if you scores were not quite there in 2009 but stick to the task. No one has ever won anything important in
life by quitting. Sure, take some time off if necessary and put the exam out of your mind but don’t walk away forever. You may be just so very close to
passing. You may not believe how close you are to getting that passing grade.
If you have not yet passed the CPA Examination, it is time for you to have a bit of stick-to-it-ivity. I realize that it is not easy but don’t let the CPA
Exam get the best of you. Every success in life is sweet but a success that requires tenacity and perseverance is ever so much sweeter. It is those
successes that add zest to life.
Stick-to-it-ivity. Walt Disney would be proud of you.
(2) – I don’t spend much time watching television but I do know that they are playing a lot of football games over the next few days and weeks. In both the
colleges and the pros, they are playing to see who will become the champions. That has to be a big thrill—to go all the way through a long season and get to
the end of year with a chance to be the champion.
I once heard a coach say about football players: “Everyone wants to be the star quarterback during the football games in November and December but it is the
person who is able to work in the heat of July and August who actually achieves that goal.”
That may well be true about football but I know for certain that it is also very true about the CPA Exam. Most people think you pass the CPA Exam when you
walk into the exam site and start answering questions. Wrong, completely wrong. That is not where the passing grade comes from. You pass the CPA Exam during
the weeks and months leading up to the test day, each time that you sit down at a desk and do the real work. Each time that you work a question and carefully
read the answer.
How you perform on the eventual test day is no more than the result of what you can do right now. If you do the work now, you can pass when you walk into the
exam site; if you don’t work now, your chances go way down.
I’m not sure who is going to win any of the football games over the next few days but I would be willing to bet that the ones who practiced hardest back in the
summer really have a great chance.
I’m also not sure who is going to pass the CPA Exam but I would be willing to bet it is those people who are studying the hardest, day in and day out, right
now, that have the greatest chance.
So, forget about taking the CPA Exam—focus all of your attention on January 1, 2010. What are you going to accomplish in the next 24 hours. That is what
really counts.
(3) - We have roughly 10,000 people currently on our subscription list who get these email lessons about every 7-10 days. They come from all parts of the
globe, people just like you, people working to pass the CPA Exam. We would love to add more folks to our list. We enjoy having the opportunity to be of
service. We do this to help people and we would like to help even more if possible. So, if this lesson has been forwarded to you and you would like to join
all of these other candidates who receive our lessons automatically each week, we would love to add you. There is no obligation; these lessons are genuinely
free.
To subscribe, just go to www.CPAreviewforFREE.com and register. It will ask you if you want more information. That is referring to these lessons so make sure
to check that box.
If you ever want to unsubscribe, just scroll to the bottom of any email lesson (like this one) and click on the link that indicates Unsubscribe.
(4) – Let’s start the new year off with a bit of practice.
FAR
The City of Dylan buys $100,000 in supplies for cash and then uses $70,000 during the current year in one of its governmental funds (the police department, for
example). Which of the following statements is true in connection with the preparation of fund-based financial statements?
A – Under the consumption method, expenditures are $70,000 while under the purchases method expenditures are $70,000.
B – Under the consumption method, expenditures are $100,000 while under the purchases method expenditures are $100,000.
C – Under the consumption method, expenditures are $70,000 while under the purchases method expenditures are $100,000.
D – Under the consumption method, expenditures are $100,000 while under the purchases method expenditures are $70,000.
Answer is C
Under the consumption method, only the amount of supplies or prepaid expenses that are consumed ($70,000) are reported on fund-based statements as
expenditures. Under the purchases method, the entire amount of supplies or prepaid expenses that are purchased ($100,000) are reported on fund-based
statements as expenditures.
Auditing
A CPA firm is performing an audit engagement and it currently beginning to assess the amount of control risk. Which of the following is not viewed as one of
the components of a company’s internal control?
A – Control environment
B – Risk assessment
C – Control activities
D – Design and formulation
Answer is D
The components of internal control are control environment (policies and procedures that show the company’s overall commitment to good internal control), risk
assessment (policies and procedures to identify areas within operations where the most risk exists so that extra preventative measures can be taken),
information and communication systems (policies and procedures to ensure that information is gathered and communicated properly), control activities (policies
and procedures to ensure that operations are carried out in the way intended by management), and monitoring (policies and procedures involving the ongoing
assessment of internal control).
Regulation
Company S has 100,000 shares of voting common stock outstanding and no preferred stock. Company P wants to acquire control over Company S and would like to
acquire enough shares so that a consolidated tax return can also be filed? How many shares must Company P acquire so that a consolidated tax return is
allowed?
A – 50,001
B – 80,000
C – 90,000
D – 100,000
Answer is B
For tax purposes, a consolidated return can be filed if the acquiring corporation acquires at least 80 percent of the voting power and 80 percent of each class
of nonvoting stock of the other corporation. In tax rules, which are different than used for financial reporting purposes, 80 percent ownership is the
minimum level where two companies are basically viewed as one entity.
BEC
A company manufactures widgets. A widget takes 2 pounds of material at $9 per pound and 3 hours of labor at $16 per hour. Factory overhead is applied at
the rate of $6 per direct labor hour. The company wants to have a gross profit percentage of 30 percent. What should the company set as its sales price
for each widget?
A - $109.20
B - $115.40
C - $118.60
D - $120.00
Answer is D
Each widget has a total cost of $84.00. That is direct material of $18 (2 times $9), direct labor of $48 (3 times $16), and factory overhead of $18 (3 times
$6). Because the company wants a gross profit percentage of 30 percent, the sales prices (SP) should be: SP – 84 = .30SP. Or, with rearrangement: .70
SP = 84. By dividing both sides by .70, SP = 120. That is the sales price to get that gross profit percentage.
Have a great 2010!!!!!
Joe Hoyle
President
www.CPAreviewforFREE.com
Lesson 59
From: Joe
(A) - Thanks to everyone who has helped to make 2009 such a wonderfully special year for all of us here at CPA Review for FREE. I just checked and our number
of hits last week was 126 percent higher than during the same week in 2008. Great growth with nothing spent on advertising. And, over the course of 2009,
we averaged (this is the average number not the highest number) 128,092 page views per week. That is adding a lot of points to a lot of CPA Exam scores.
Now, if we can just grow as fast in 2010!!! And, we can with your help. Please tell anyone that you know who is thinking about the CPA Exam that we are
here to help them pass. All of our questions and answers are available for FREE (yes, F R E E) at www.CPAreviewforFREE.com.
(B) – Our daily tips on Facebook have been going wonderfully well. If you have not had a chance yet, go to www.facebook.com and become a fan. Just search
for CPAreviewforFREE. You can read the 27 tips that we have sent out to our fans in the last 27 days. Figure out which one you think is best and let us
know. I really would be interested in knowing what kind of tip is the most helpful.
(C) – Don’t forget that you can download all of our questions and answers for just a small fee. At www.CPAreviewforFREE.com, check out the Store. Having
the questions in a hard copy can be very helpful if you don’t have easy access to the Internet at all times.
(1)---I recently read an article about Walt Disney, the man who created the company that bears his name. (I am probably one of the few people on this list
who is old enough to remember when Mr. Disney himself served as the weekly host of the television program “The Wonderful World of Disney.”)
In this article, the writer talked about how Walt Disney had created his company and then turned it into a gigantic success in both movies and amusement parks.
The writer mentioned one of Mr. Disney’s favorite made-up words: “stick-to-it-ivity” which was described as “his word for tenacity, for perseverance.”
I know that as we enter a brand new year, it may be time for a bit of “stick-to-it-ivity.” Not a bad time to make this YOUR word for 2010.
The pass rate on each part of the CPA Exam is roughly 50 percent. Unfortunately, if my math is correct, that means that the failure rate on each part of the
CPA Exam is also roughly 50 percent.
Thus, I am sure that—as we exit 2009—some of you on this list were disappointed by the CPA Exam this past year. But, as we enter 2010, that is all in the
past. It’s in the past – forget about it. Make it your New Year’s resolution to have the exam behind you by this time next year.
To any of you who were disappointed this year with your results, let me assure you that I fully believe that you can and will pass the CPA Exam. I mean that
truly. If you did not get the scores that you wanted in 2009, that can only mean one of two things:
(a) that you have not yet been able to invest the time that you needed and/or
(b) that you have not yet been able to set up a study routine that will work for you.
With adequate time and the proper approach, you can pass!
So, it may be time for some stick-to-it-ivity. Don’t let the CPA Exam get the best of you. It is easy when you are frustrated to shake your head and say “I
quit.” Quitting is the easiest thing to do in life. Well, DON’T DO IT! You are ready for some tenacity; it is time for some perseverance.
I’m sure there is a bit of an ache in your heart if you scores were not quite there in 2009 but stick to the task. No one has ever won anything important in
life by quitting. Sure, take some time off if necessary and put the exam out of your mind but don’t walk away forever. You may be just so very close to
passing. You may not believe how close you are to getting that passing grade.
If you have not yet passed the CPA Examination, it is time for you to have a bit of stick-to-it-ivity. I realize that it is not easy but don’t let the CPA
Exam get the best of you. Every success in life is sweet but a success that requires tenacity and perseverance is ever so much sweeter. It is those
successes that add zest to life.
Stick-to-it-ivity. Walt Disney would be proud of you.
(2) – I don’t spend much time watching television but I do know that they are playing a lot of football games over the next few days and weeks. In both the
colleges and the pros, they are playing to see who will become the champions. That has to be a big thrill—to go all the way through a long season and get to
the end of year with a chance to be the champion.
I once heard a coach say about football players: “Everyone wants to be the star quarterback during the football games in November and December but it is the
person who is able to work in the heat of July and August who actually achieves that goal.”
That may well be true about football but I know for certain that it is also very true about the CPA Exam. Most people think you pass the CPA Exam when you
walk into the exam site and start answering questions. Wrong, completely wrong. That is not where the passing grade comes from. You pass the CPA Exam during
the weeks and months leading up to the test day, each time that you sit down at a desk and do the real work. Each time that you work a question and carefully
read the answer.
How you perform on the eventual test day is no more than the result of what you can do right now. If you do the work now, you can pass when you walk into the
exam site; if you don’t work now, your chances go way down.
I’m not sure who is going to win any of the football games over the next few days but I would be willing to bet that the ones who practiced hardest back in the
summer really have a great chance.
I’m also not sure who is going to pass the CPA Exam but I would be willing to bet it is those people who are studying the hardest, day in and day out, right
now, that have the greatest chance.
So, forget about taking the CPA Exam—focus all of your attention on January 1, 2010. What are you going to accomplish in the next 24 hours. That is what
really counts.
(3) - We have roughly 10,000 people currently on our subscription list who get these email lessons about every 7-10 days. They come from all parts of the
globe, people just like you, people working to pass the CPA Exam. We would love to add more folks to our list. We enjoy having the opportunity to be of
service. We do this to help people and we would like to help even more if possible. So, if this lesson has been forwarded to you and you would like to join
all of these other candidates who receive our lessons automatically each week, we would love to add you. There is no obligation; these lessons are genuinely
free.
To subscribe, just go to www.CPAreviewforFREE.com and register. It will ask you if you want more information. That is referring to these lessons so make sure
to check that box.
If you ever want to unsubscribe, just scroll to the bottom of any email lesson (like this one) and click on the link that indicates Unsubscribe.
(4) – Let’s start the new year off with a bit of practice.
FAR
The City of Dylan buys $100,000 in supplies for cash and then uses $70,000 during the current year in one of its governmental funds (the police department, for
example). Which of the following statements is true in connection with the preparation of fund-based financial statements?
A – Under the consumption method, expenditures are $70,000 while under the purchases method expenditures are $70,000.
B – Under the consumption method, expenditures are $100,000 while under the purchases method expenditures are $100,000.
C – Under the consumption method, expenditures are $70,000 while under the purchases method expenditures are $100,000.
D – Under the consumption method, expenditures are $100,000 while under the purchases method expenditures are $70,000.
Answer is C
Under the consumption method, only the amount of supplies or prepaid expenses that are consumed ($70,000) are reported on fund-based statements as
expenditures. Under the purchases method, the entire amount of supplies or prepaid expenses that are purchased ($100,000) are reported on fund-based
statements as expenditures.
Auditing
A CPA firm is performing an audit engagement and it currently beginning to assess the amount of control risk. Which of the following is not viewed as one of
the components of a company’s internal control?
A – Control environment
B – Risk assessment
C – Control activities
D – Design and formulation
Answer is D
The components of internal control are control environment (policies and procedures that show the company’s overall commitment to good internal control), risk
assessment (policies and procedures to identify areas within operations where the most risk exists so that extra preventative measures can be taken),
information and communication systems (policies and procedures to ensure that information is gathered and communicated properly), control activities (policies
and procedures to ensure that operations are carried out in the way intended by management), and monitoring (policies and procedures involving the ongoing
assessment of internal control).
Regulation
Company S has 100,000 shares of voting common stock outstanding and no preferred stock. Company P wants to acquire control over Company S and would like to
acquire enough shares so that a consolidated tax return can also be filed? How many shares must Company P acquire so that a consolidated tax return is
allowed?
A – 50,001
B – 80,000
C – 90,000
D – 100,000
Answer is B
For tax purposes, a consolidated return can be filed if the acquiring corporation acquires at least 80 percent of the voting power and 80 percent of each class
of nonvoting stock of the other corporation. In tax rules, which are different than used for financial reporting purposes, 80 percent ownership is the
minimum level where two companies are basically viewed as one entity.
BEC
A company manufactures widgets. A widget takes 2 pounds of material at $9 per pound and 3 hours of labor at $16 per hour. Factory overhead is applied at
the rate of $6 per direct labor hour. The company wants to have a gross profit percentage of 30 percent. What should the company set as its sales price
for each widget?
A - $109.20
B - $115.40
C - $118.60
D - $120.00
Answer is D
Each widget has a total cost of $84.00. That is direct material of $18 (2 times $9), direct labor of $48 (3 times $16), and factory overhead of $18 (3 times
$6). Because the company wants a gross profit percentage of 30 percent, the sales prices (SP) should be: SP – 84 = .30SP. Or, with rearrangement: .70
SP = 84. By dividing both sides by .70, SP = 120. That is the sales price to get that gross profit percentage.
Have a great 2010!!!!!
Joe Hoyle
President
www.CPAreviewforFREE.com
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