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March 25, 2010
CPA Review for FREE
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Lesson 66
From: Joe
(1) – We are now officially OVER 10,000,000 PAGE VIEWS – Now, ON TO 100 MILLION.
(2) – Don’t forget that you can always pay a small fee at www.CPAreviewforFREE.com (an amount which helps us to maintain our site) and download all of the
questions and answers so you can carry them with you wherever you go. I realize that it is not always possible to be on the Internet. With downloads, you
can study any time you wish. Just go to www.CPAreviewforFREE.com and click on Store in the upper right hand corner.
(3) – If you are an educator and live in the Cincinnati area, I will be giving a live program on teaching effectiveness next Tuesday, March 30, (followed by a
panel discussion) at Northern Kentucky University. I think it should be a lot of fun. I love to talk about teaching. It is open to the public. If you would
like the place and time, drop me a note at Jhoyle@richmond.edu.
(4) – I have received a lot of wonderful emails recently. Here are just a few:
From LB: “I just want to say THANK YOU for posting all this review info for free. Do you have any idea how much this means to an unemployed person with no
source of income, to have this kind of information available? I feel empowered to change my future.”
From MV: “I wanted to thank you yet again for your great site in helping me pass another section. I received my BEC score today and scored an 83. Your
questions specifically on the CAPM model were a big plus as my review software didn't cover this and I gained a few points from this. Also, your explanations
on the cost accounting questions got me over the hurdle in understanding them finally. I have struggled with cost accounting since college and felt if I was
going to pass this section the cost accounting questions would make or break me. I am now moving to the auditing section and hope for another passing score.
Thank you for your help and continue the great work.”
From AM: “I wanted to say THANK YOU for making this resource available to the general public. It was key in helping me grasp big picture concepts as pertains
to the Tax Exam and so in the end, facilitating a passing grade! Thanks!!!!!”
From MT: “Thank you for supporting so many CPA candidates. I just passed my last exam with 1 day until the 18 month deadline. Yahoo! I used study materials
throughout the process from 3 other 'big' name providers. What I found is that most of the questions were similar to your website. For some subjects I needed
video lectures, so I would stay awake! But I always ended the day with your website. Or if I had absolutely no energy, then I would go to CPA review for free
for just 20 questions. It worked! Thank you again for a wonderful resource.”
From: JL: “I passed BEC and am studying for FAR now. I use your CPA Review for Free website all the time. I find that working through tons of practice
problems has been the best way for me to study and that website has been an awesome tool to have.”
(5) – Here’s a question that I want to pose: How do you become the person that you really want to be? Everyone talks about becoming better but how do you
actually do that? Let me make a suggestion that might have a bit of an impact. Okay, it won’t turn you into Bill Gates over night but it will, I believe,
help you focus on what you really want to become. And, I think that is so important.
After you go to bed tonight, lie there for a few minutes and think of a few adjectives that you would like to have describe you. What personal adjectives
would you like to have people use when they talk about you:
--Energetic
--Productive
--Caring
--Helpful
--Successful
--Dependable
--Efficient
--Hard-working
Come up with your own list. Keep it to about five and just repeat them over and over as you visualize the person that you are.
Do it every night – come up with different adjectives or keep the same ones but always picture the words being applied to you.
The first thing this does is make you aware of what you want to become. Often if you talk to people about their aspirations, they are so vague as to be
totally meaningless. When I do this personally, I find that I really do want to be energetic, productive, and caring. It helps me focus on the “me” I want
to become. Just saying “I want to be better” doesn’t do anyone any good.
Second, I believe there is something about associating yourself with such adjectives that makes them easier to attain. If you picture yourself every night and
repeat energetic, productive, and caring (or whatever adjectives you want for yourself), I think it makes it more likely that you will take on those
attributes. You will gradually move toward your adjectives.
Try it for a few nights. You only need to do it for a minute or two – you may be surprised to find that you start gaining those characteristics in yourself
that you admire.
(6) – Please feel free to unsubscribe whenever you wish. You can always do so by scrolling down to the bottom of this email lesson and clicking on the proper
link. We have over 12,000 subscribers and we love having you also. But always know that you can unsubscribe at any time that you wish.
(7) – The following was posted this morning on our CPAreviewforFREE page at www.FaceBook.com.
Tip Fifty – Over 2,000 years ago, the poet Horace wrote “Carpe diem, quam minimum credula postero” which translates as “Seize the day, trusting tomorrow as
little as possible.” Yesterday, I talked with my college students about “deferred learning.” That is the strategy of doing just a little bit of work today
with the promise to yourself that you’ll do a whole lot more work tomorrow (or, more specifically, right before the test). As you can imagine, in college,
deferred learning is a very popular strategy. “I’ll do it tomorrow” is never far from the lips of a college student.
If you want to pass the CPA Exam, you need to follow Horace. You need to get it done today (March 25, 2010). There is no promise that you can get anything
done tomorrow. Deferring the work may feel good but (a) you lose today and (b) you open yourself up to the uncertainty of tomorrow. All kinds of things may
keep you from studying tomorrow. I always translate Horace as “Figure out what you really want and, by gosh, go get it right now” (I guess that is the
Southern translation). If you are not willing to do it right now, you probably did not really want it.
So, if you seriously want to pass the CPA Exam, seize TODAY. Add points TODAY. Make it happen TODAY. Carp diem, quam minimum credula postero!!! Great
motto.
(8) – The most common complaint that I ever get is “I just don’t have enough time in the day to do everything.” Trust me – that is a complaint that I
understand very well myself. Life is so full of stuff that it is just hard to find time to study.
When I feel overwhelmed by all the stuff I need to get done, I usually think of President Abraham Lincoln. He was only president for four years and he had to
be the commander-in-chief throughout the horrible days of the American Civil War. In addition, one of his children died during this period. Between the
war and his personal tragedy, how could anyone accomplish anything else?
What I find interesting is that he was able to do a lot of things that had nothing directly to do with the war. Even without considering the Civil War, he is
considered to have been a great president. He helped put in place the Morrill Act that led to the creation of land grant colleges around the nation such as
NC State and Virginia Tech. He supported the Homestead Act which made millions of acres of land in the West available at low prices to allow people to leave
the big cities and create their own farms. He signed the National Banking Act which established the first paper currency. He chartered the first
transcontinental railroad. The man accomplished an incredible amount AND he led the Union in the Civil War.
I quite honestly do not know how he could have possibly been the president during the Civil War and accomplished all of those major actions. It is
incredible. I do believe, though, that we are all capable (you and me, both) of doing so much more than we actually do. I think we limit ourselves by
thinking “I am working so hard; I just cannot do one more thing.” That statement right there gives us permission to stop accomplishing stuff.
Yes, we do have to be very efficient and we have to work very hard. But I firmly believe that the amount that YOU and I can accomplish is virtually
unlimited. Instead of worrying so much about all that we have to get done, we should go about getting it done. We waste an awful lot of energy worrying
about what we have to get done. Abraham Lincoln could easily have said: “I’m fighting a terrible war. I don’t have time to do one more thing. I don’t
even have the Internet or a computer to help me work faster. Someone else is going to have to get these other things done.”
Instead of whining, he helped establish some of the greatest colleges of our country and one of the truly important achievements of his time (the
transcontinental railroad).
It is easy to whine about all that needs to doing.
It is much harder just to stop whining and start doing.
(9) – PRACTICE
FAR
The city of Krzyzewski received money during the current fiscal year from a number of different revenue sources. Which of the following should be classified
for reporting purposes as an imposed nonexchange revenue?
a. A fine for improper maintenance of a building site
b. Income tax
c. Sales tax
d. A grant given by the state government
Answer: A
An imposed nonexchange revenue occurs when a state or local government receives financial resources without an underlying event or transaction such as a sale
or the creation of income. For most governments, a property tax is the main example of an imposed nonexchange since it is not a tax on an event. However,
fines and forfeitures are also mentioned specifically by GASB as other common examples. In contrast, a grant or gift has to be reported as either a
government-mandated nonexchange transaction or a voluntary nonexchange transaction.
Regulation
Otis has a tax basis in the Barney and Otis partnership of $52,000. Title to an acre of land is conveyed to Otis as a nonliquidating distribution from this
partnership. Which of the following is correct?
a. If the land has a tax basis to the partnership of $38,000 but a fair value of $53,000, Oliver has an increase in taxable income from the distribution.
b. If the land has a tax basis to the partnership of $38,000 but a fair value of $53,000, the partnership has a taxable gain on the distribution.
c. If the land has a tax basis to the partnership of $53,000 but a fair value of $57,000, Oliver has an increase in taxable income from the distribution.
d. If the land has a tax basis to the partnership of $53,000 but a fair value of $57,000, Oliver records the land as having a tax basis of $52,000.
Answer: D
Except in some cases where cash is received, a nonliquidating distribution from a partnership creates no taxable income for either the partnership or the
partner. Normally, the partner’s tax basis in the partnership is simply reduced by the tax basis of the property received and the asset retains this same tax
basis for the partner. However, by following that rule exactly, if the tax basis of the property exceeded the tax basis of the partnership, the tax basis of
the partnership would be reduced below zero. Therefore, the tax laws make an exception at that point. If the tax basis of the property to the partnership
($53,000) is larger than the partner’s tax basis in the partnership ($52,000), the partner sets the tax basis of the new asset equal to his or her tax basis in
the partnership ($52,000) but no gain is reported.
BEC
Gray and Blue entered into a written partnership agreement to operate a book store in St. Louis, Missouri. However, this agreement made no mention of the
duration of the partnership. After some unpleasant discussions over the operation of the book store, Gray wishes to dissolve the partnership. Which of the
following statements is correct?
a. Gray may dissolve the partnership at any time.
b. Unless Blue consents to the dissolution of this partnership, Gray must apply to a court of law in order to obtain a decree that orders the dissolution.
c. Gray has no ability to bring about the dissolution of the partnership unless Blue formally consents in writing.
d. Gray may dissolve the partnership but only after formal notice of the dissolution is given to every creditor of the partnership.
Answer is A.
A partnership is dissolved whenever one of the general partners is changed. Thus, Blue can dissolve this partnership simply by withdrawing.
Auditing
The Washington Company holds a large number of accounts receivable from several different segments of its business. The auditing firm of Alexander Burr and
Associates has recently mailed out confirmations to many of the company’s customers. A positive confirmation was sent to James Monroe and a negative
confirmation was sent to Andrew Jackson. Which of the following is most likely to not be true?
a. The firm believes that James Monroe will pay close attention to the confirmation but Andrew Jackson will not.
b. The firm believes that the quality control surrounding the accounting system that maintains the record of James Monroe’s receivable is weaker than the one
that maintains the record of Andrew Jackson’s receivable.
c. The receivable balance owed by James Monroe is significantly larger than the receivable balance owed by Andrew Jackson.
d. The receivable balance owed by James Monroe is significantly larger than the receivable balance owed by Andrew Jackson.
Answer is A
Positive confirmations are viewed by auditors as more effective but they are also more costly. Therefore, positive confirmations are more likely to be
utilized whenever more risk is present. A larger receivable, an older receivable, or a receivable generated by a poorer accounting system all pose greater
risk of a material misstatement; thus, a positive confirmation is more appropriate. If James Monroe is expected to pay more attention to the confirmation than
Andrew Jackson, this factor creates less risk for the confirmation. It would cause the auditor to be more likely to make use of a negative confirmation.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.cpareviewforfree.com
3351 Lady Marian Court
Midlothian, VA 23113
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Monday, March 29, 2010
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March 8, 2010
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87 Weeks of Operation and 9,613,694 Page Views (without a penny spent on marketing)
Lesson 65
From: Joe
(a) – We have added something new to help spread the word that the CPA Exam can be passed. If you go to www.facebook.com and search for CPAreviewforFREE,
you’ll find our Facebook page. If you click on Discussions, you will see that we have added a section titled “Wall of Fame!”
If you used our questions in part or in whole to pass one or more parts of the exam, we hope that you will share the good news with all of us. Don’t be shy!!!
You worked hard; you deserve to shout out your success!!! Tell us what you did to make those 75 points and get it done. I don’t mind if you also used other
programs but I would prefer that you did not mention them by name. Since they all charge money, they can afford to pay for their own advertising.
And, if you are in need of a morale boost, you can always go to this same section. Somehow reading about how other people managed to pass makes us all
realize that it can be done. That’s what we want, to help you believe in yourself and your ability to get those points and pass.
Let’s hear those success stories.
(b) – Sometime in the next couple of weeks, we will go over ten million page views. When I started out on this journey, I would have thought it would take 10
years to hit 10,000,000 page views. Thanks, as always, to those of you who go out of your way to spread the good news about www.CPAreviewforFREE.com
(1) – I was in New York City this past Tuesday for a meeting between the people who create CPA Review materials and the folks at the AICPA who produce the CPA
Exam. We get together twice a year and it is always a fascinating meeting. A lot of what was discussed will be changes in the exam starting in 2011. So,
as always, my advice is: pass it NOW and don’t worry about 2011.
For everything I mention here about 2011, I’ll send out much more information over the next 3-6 months.
Here are a couple of things that you might find interesting that I have written in my notes from this meeting.
---International Financial Reporting Standards (IFRSs) and International Standards on Auditing (ISIs) will be tested starting in 2011. IFRSs will be in FAR
and ISIs will be in Auditing. At least to begin, my guess is that these will be relatively limited. However, you will need to know a basic amount about
them. If you are still in college, you might want to pay special attention to what your teachers tell you about international standards.
---They would love for everyone to read the Candidate Bulletin before they get started in taking the exam. It can be found at
www.cpa-exam.org/cpa/bulletin.html and is 29 pages long. It doesn’t take long but it contains lots of important information. They know what is most likely
to go wrong and they want to prevent anything bad from happening.
---Some of the content of the exam is going to move around or be changed a bit starting in 2011. If you are going to be taking the exam in 2011, it is not a
bad idea to review what you can expect to see which can be found at: www.cpa-exam.org/download/CSOs-SSOs-Final-Release-Version-effective-01-01-2011.pdf
---Starting in 2011, written communication questions will only be found in BEC. It will no longer be tested in FAR, Auditing, or Regulation. In 2011,
candidates will receive 3 written communication questions in BEC. Two of those will be graded and the other will be included solely to determine if it is a
good quality question. However, as always, you will not know what is graded and what is not.
---Because of the movement of written communications to BEC, the BEC exam in 2011 will be 30 minutes longer (up to three hours) and Auditing will be 30 minutes
shorter (down to four hours). Thus, the overall exam will remain at 14 hours.
---Starting in 2011, in Auditing, FAR, and Regulation, the current system of simulations will change dramatically. Instead of two long and complicated
simulations, the candidate will have 6 or 7 “task based simulations” that are individually much shorter and focus on one particular area. At least one of
those simulations will be on the researching of authoritative literature (much like the current research questions). Personally, I think the change in
simulations is a big improvement. The current system is fine but often seems to feel overwhelming to candidates. This new system will make the coverage
broader to make sure everything gets properly tested.
---Because of all the changes, the weighting of points has changed. Currently, on all parts but BEC (which is all multiple-choice), 70 percent of the grade
comes from the multiple-choice questions, 10 percent from written communication, and 20 percent from the remainder of the simulations. In 2011, roughly 50-60
percent of the grade will come from multiple choice and 40-50 percent from the simulations. In BEC, at that time, 80-90 percent of the grade will come from
multiple-choice with the rest from the written communication questions.
---I always wonder how long they wanted your written communication answers to be. They said on Tuesday that they expected a person to write about 5-10
minutes per answer. That is a fairly short answer. They clearly do not want a long and involved essay.
---I think I have mentioned this before but the pass rates for the year of 2009 ranged from a low of 48.34 percent (BEC) to 49.79 percent (Auditing).
Clearly, if you can get into the upper half of the people taking the exam, you’ve got a great chance to pass.
Other stuff was discussed at the meeting but these were the most important. And, as I said at the start, most everything relates to 2011. That should give
you a big push to get up off the couch and get this thing passed in 2010.
(2) – You may well feel that the year 2010 has just begun but, in truth, 18 percent of the days of 2010 have already passed. Time always passes faster than
we might want. When 2010 first began, you probably thought about all those things you wanted to accomplish. Well, 18 percent of those days are now history.
Are you ahead of schedule or behind?
---Don’t be one of those people who is always asking “Where did the time go? I had meant to get so many things done.”
---Don’t be one of those people who doesn’t realize until the day is done that they have lost an opportunity.
---Don’t be one of those people who is constantly saddened by all the chances they have missed.
Yes, it is still early in 2010 but the remaining days will fly by and be wasted unless you make sure to make good use of each one. Whether you work or play,
be sure that you spend time doing what you want to be doing. Make things happen. You should control life and not let life control you.
I am always reminded of Marlon Brando’s famous line from the movie On the Waterfront: “I coulda been a contender.” Make the most of your time while you
still have it and don’t regret missing out.
(3) – As always, you can easily unsubscribe from these email lessons. Simply go to the end of this email lesson and click “unsubscribe” if you would like to
have your name removed from our subscription list.
(4) – I sometimes think we make preparation for the CPA Exam way too elaborate and complicated. If you have followed these email lessons for long, you
probably know that I am a big fan of the legendary pro football coach Vince Lombardi. In one of his most famous quotes, he said “Some people try to find
things in this game that don't exist but football is only two things - blocking and tackling.”
In much the same way, I think you can boil CPA exam preparation down to four things at its very core:
A – Work as many problems as you possibly can. Problems are like physical exercise—the more you do the stronger you get.
B – Read the answers very carefully, especially for the problems you miss. The answers help you fill in the gaps in your knowledge. The single best way to
add points is to miss a question and then figure out how to get it right the next time.
C – Take short notes. I like 3 by 5 cards with a basic question on one side and a short answer on the other. Whatever form they take, keep them to a few
words and only the stuff that really makes a difference. Carry them with you everywhere.
D – Review your notes on a regular basis to keep everything as fresh in your head as you can. If you have not reviewed a topic in the last 10-14 days, the
knowledge is probably beginning to fade.
Sure, there are many other things you can do but, at the very core, those four steps are the basics. They are the steps that provide the foundation knowledge
that you must have to pass the CPA Exam.
And, the great thing is that those are all things that YOU can do. We here at www.CPAreviewforFREE.com provide 2,100 questions and great answers to you for
free. You provide the time and effort. What a great partnership.
(5) – Practice Questions – let’s do a few questions just to get in some practice here on a beautiful Monday.
FAR
A company reports salary expense for the current year of $300,000. Salary payable was $13,000 on the first day of the year and $16,000 on the last day of the
year. The company is preparing the operating activity section of the statement of cash flows. Which of the following statements is true?
A – Under the indirect method, the $3,000 increase in the liability is added to net income while under the direct method, cash paid to employees is $297,000.
B – Under the indirect method, the $3,000 increase in the liability is subtracted from net income while under the direct method, cash paid to employees is
$297,000.
C – Under the indirect method, the $3,000 increase in the liability is added from net income while under the direct method, cash paid to employees is $303,000.
D – Under the indirect method, the $3,000 increase in the liability is subtracted from net income while under the direct method, cash paid to employees is
$303,000.
Answer is A.
The liability went up $3,000 during the year (from $13,000 to $16,000). Liabilities go up because companies pay less. This company did not actually pay
$300,000; it paid $3,000 less or $297,000. That is why the liability went up. That is the amount reported by the direct method. In applying the indirect
method, the company starts with net income. That figure contains the $300,000 salary expense. Because the liability went up, less was paid so more cash was
generated than the income figure. To reflect that difference, the $3,000 change is added to net income. That is the same as changing the $300,000 expense to
the $297,000 cash payment.
Regulation
The Acme Corporation paid the following four amounts. Which of these amounts is fully deductible for income tax purposes?
A - $20 penalty paid as punishment for a relatively small illegal act.
B - $20 paid to buy a gift for a customer.
C - $20 made as a political contribution.
D - $20 paid so that a sales person could take himself and a customer to a new movie.
Answer is B
Business gifts of up to $25 per person per year can be deducted. Penalties and political contributions are not deductible and only half of business meals and
entertainment can be deducted.
Auditing
The Belview Corporation is considering the undertaking of a major transaction and is currently gathering information on the proper reporting of that
transaction. Belview has approached the CPA firm of Welston and Beggly about its reporting of the appropriate method by which this transaction should be
included in a set of financial statements. Welston and Beggly has not previously worked for Belview. Which of the following statements is not true?
A – The CPA firm may need to consult with experts or other specialist to determine the necessary reporting.
B – Because the CPA firm has not worked previously for Belview, this engagement cannot be accepted.
C – The CPA firm cannot provide this report without gaining an adequate understanding of both the form and substance of this transaction.
D – A complete review must be made of US generally accepted accounting principles to ensure that the advice provided is appropriate.
Answer is B
This type of engagement can be accepted by a CPA firm even if an ongoing relationship with the client has not been established. The firm needs to understand
the transaction and then determine the proper reporting according to US GAAP. In some cases, discussion with an expert or specialist may be necessary,
especially in determining the exact nature and outcome of the proposed transaction.
BEC
A person’s income goes up during a period of time by 19 percent. Over the same period, the quantity of product X that the person buys increases by 11
percent. Which of the following statements is true?
A – Product X is neither a necessity nor a luxury good to this person.
B – Product X is a necessity to this person.
C – Product X is a luxury good to this person.
D – Product X is both a necessity and a luxury good to this person.
Answer is B
The income elasticity of Product X is 11 percent divided by 19 percent or 0.58. Because that number is below 1.0, the product is viewed as a necessity.
Adequate amounts must have been bought when income was still low (indicating that it is a necessity) because growth in purchasing has been slow as the income
rose. If this ratio had been above 1.0, it would indicate that more and more is acquired as income gets higher which signals that Product X is a luxury good.
In that case, purchasing is primarily at higher levels of income.
Have a great week!!! We are having our Spring Break so I assume all my college students are enjoying the warm weather in Florida.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.cpareviewforfree.com
3351 Lady Marian Court
Midlothian, VA 23113
March 8, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
87 Weeks of Operation and 9,613,694 Page Views (without a penny spent on marketing)
Lesson 65
From: Joe
(a) – We have added something new to help spread the word that the CPA Exam can be passed. If you go to www.facebook.com and search for CPAreviewforFREE,
you’ll find our Facebook page. If you click on Discussions, you will see that we have added a section titled “Wall of Fame!”
If you used our questions in part or in whole to pass one or more parts of the exam, we hope that you will share the good news with all of us. Don’t be shy!!!
You worked hard; you deserve to shout out your success!!! Tell us what you did to make those 75 points and get it done. I don’t mind if you also used other
programs but I would prefer that you did not mention them by name. Since they all charge money, they can afford to pay for their own advertising.
And, if you are in need of a morale boost, you can always go to this same section. Somehow reading about how other people managed to pass makes us all
realize that it can be done. That’s what we want, to help you believe in yourself and your ability to get those points and pass.
Let’s hear those success stories.
(b) – Sometime in the next couple of weeks, we will go over ten million page views. When I started out on this journey, I would have thought it would take 10
years to hit 10,000,000 page views. Thanks, as always, to those of you who go out of your way to spread the good news about www.CPAreviewforFREE.com
(1) – I was in New York City this past Tuesday for a meeting between the people who create CPA Review materials and the folks at the AICPA who produce the CPA
Exam. We get together twice a year and it is always a fascinating meeting. A lot of what was discussed will be changes in the exam starting in 2011. So,
as always, my advice is: pass it NOW and don’t worry about 2011.
For everything I mention here about 2011, I’ll send out much more information over the next 3-6 months.
Here are a couple of things that you might find interesting that I have written in my notes from this meeting.
---International Financial Reporting Standards (IFRSs) and International Standards on Auditing (ISIs) will be tested starting in 2011. IFRSs will be in FAR
and ISIs will be in Auditing. At least to begin, my guess is that these will be relatively limited. However, you will need to know a basic amount about
them. If you are still in college, you might want to pay special attention to what your teachers tell you about international standards.
---They would love for everyone to read the Candidate Bulletin before they get started in taking the exam. It can be found at
www.cpa-exam.org/cpa/bulletin.html and is 29 pages long. It doesn’t take long but it contains lots of important information. They know what is most likely
to go wrong and they want to prevent anything bad from happening.
---Some of the content of the exam is going to move around or be changed a bit starting in 2011. If you are going to be taking the exam in 2011, it is not a
bad idea to review what you can expect to see which can be found at: www.cpa-exam.org/download/CSOs-SSOs-Final-Release-Version-effective-01-01-2011.pdf
---Starting in 2011, written communication questions will only be found in BEC. It will no longer be tested in FAR, Auditing, or Regulation. In 2011,
candidates will receive 3 written communication questions in BEC. Two of those will be graded and the other will be included solely to determine if it is a
good quality question. However, as always, you will not know what is graded and what is not.
---Because of the movement of written communications to BEC, the BEC exam in 2011 will be 30 minutes longer (up to three hours) and Auditing will be 30 minutes
shorter (down to four hours). Thus, the overall exam will remain at 14 hours.
---Starting in 2011, in Auditing, FAR, and Regulation, the current system of simulations will change dramatically. Instead of two long and complicated
simulations, the candidate will have 6 or 7 “task based simulations” that are individually much shorter and focus on one particular area. At least one of
those simulations will be on the researching of authoritative literature (much like the current research questions). Personally, I think the change in
simulations is a big improvement. The current system is fine but often seems to feel overwhelming to candidates. This new system will make the coverage
broader to make sure everything gets properly tested.
---Because of all the changes, the weighting of points has changed. Currently, on all parts but BEC (which is all multiple-choice), 70 percent of the grade
comes from the multiple-choice questions, 10 percent from written communication, and 20 percent from the remainder of the simulations. In 2011, roughly 50-60
percent of the grade will come from multiple choice and 40-50 percent from the simulations. In BEC, at that time, 80-90 percent of the grade will come from
multiple-choice with the rest from the written communication questions.
---I always wonder how long they wanted your written communication answers to be. They said on Tuesday that they expected a person to write about 5-10
minutes per answer. That is a fairly short answer. They clearly do not want a long and involved essay.
---I think I have mentioned this before but the pass rates for the year of 2009 ranged from a low of 48.34 percent (BEC) to 49.79 percent (Auditing).
Clearly, if you can get into the upper half of the people taking the exam, you’ve got a great chance to pass.
Other stuff was discussed at the meeting but these were the most important. And, as I said at the start, most everything relates to 2011. That should give
you a big push to get up off the couch and get this thing passed in 2010.
(2) – You may well feel that the year 2010 has just begun but, in truth, 18 percent of the days of 2010 have already passed. Time always passes faster than
we might want. When 2010 first began, you probably thought about all those things you wanted to accomplish. Well, 18 percent of those days are now history.
Are you ahead of schedule or behind?
---Don’t be one of those people who is always asking “Where did the time go? I had meant to get so many things done.”
---Don’t be one of those people who doesn’t realize until the day is done that they have lost an opportunity.
---Don’t be one of those people who is constantly saddened by all the chances they have missed.
Yes, it is still early in 2010 but the remaining days will fly by and be wasted unless you make sure to make good use of each one. Whether you work or play,
be sure that you spend time doing what you want to be doing. Make things happen. You should control life and not let life control you.
I am always reminded of Marlon Brando’s famous line from the movie On the Waterfront: “I coulda been a contender.” Make the most of your time while you
still have it and don’t regret missing out.
(3) – As always, you can easily unsubscribe from these email lessons. Simply go to the end of this email lesson and click “unsubscribe” if you would like to
have your name removed from our subscription list.
(4) – I sometimes think we make preparation for the CPA Exam way too elaborate and complicated. If you have followed these email lessons for long, you
probably know that I am a big fan of the legendary pro football coach Vince Lombardi. In one of his most famous quotes, he said “Some people try to find
things in this game that don't exist but football is only two things - blocking and tackling.”
In much the same way, I think you can boil CPA exam preparation down to four things at its very core:
A – Work as many problems as you possibly can. Problems are like physical exercise—the more you do the stronger you get.
B – Read the answers very carefully, especially for the problems you miss. The answers help you fill in the gaps in your knowledge. The single best way to
add points is to miss a question and then figure out how to get it right the next time.
C – Take short notes. I like 3 by 5 cards with a basic question on one side and a short answer on the other. Whatever form they take, keep them to a few
words and only the stuff that really makes a difference. Carry them with you everywhere.
D – Review your notes on a regular basis to keep everything as fresh in your head as you can. If you have not reviewed a topic in the last 10-14 days, the
knowledge is probably beginning to fade.
Sure, there are many other things you can do but, at the very core, those four steps are the basics. They are the steps that provide the foundation knowledge
that you must have to pass the CPA Exam.
And, the great thing is that those are all things that YOU can do. We here at www.CPAreviewforFREE.com provide 2,100 questions and great answers to you for
free. You provide the time and effort. What a great partnership.
(5) – Practice Questions – let’s do a few questions just to get in some practice here on a beautiful Monday.
FAR
A company reports salary expense for the current year of $300,000. Salary payable was $13,000 on the first day of the year and $16,000 on the last day of the
year. The company is preparing the operating activity section of the statement of cash flows. Which of the following statements is true?
A – Under the indirect method, the $3,000 increase in the liability is added to net income while under the direct method, cash paid to employees is $297,000.
B – Under the indirect method, the $3,000 increase in the liability is subtracted from net income while under the direct method, cash paid to employees is
$297,000.
C – Under the indirect method, the $3,000 increase in the liability is added from net income while under the direct method, cash paid to employees is $303,000.
D – Under the indirect method, the $3,000 increase in the liability is subtracted from net income while under the direct method, cash paid to employees is
$303,000.
Answer is A.
The liability went up $3,000 during the year (from $13,000 to $16,000). Liabilities go up because companies pay less. This company did not actually pay
$300,000; it paid $3,000 less or $297,000. That is why the liability went up. That is the amount reported by the direct method. In applying the indirect
method, the company starts with net income. That figure contains the $300,000 salary expense. Because the liability went up, less was paid so more cash was
generated than the income figure. To reflect that difference, the $3,000 change is added to net income. That is the same as changing the $300,000 expense to
the $297,000 cash payment.
Regulation
The Acme Corporation paid the following four amounts. Which of these amounts is fully deductible for income tax purposes?
A - $20 penalty paid as punishment for a relatively small illegal act.
B - $20 paid to buy a gift for a customer.
C - $20 made as a political contribution.
D - $20 paid so that a sales person could take himself and a customer to a new movie.
Answer is B
Business gifts of up to $25 per person per year can be deducted. Penalties and political contributions are not deductible and only half of business meals and
entertainment can be deducted.
Auditing
The Belview Corporation is considering the undertaking of a major transaction and is currently gathering information on the proper reporting of that
transaction. Belview has approached the CPA firm of Welston and Beggly about its reporting of the appropriate method by which this transaction should be
included in a set of financial statements. Welston and Beggly has not previously worked for Belview. Which of the following statements is not true?
A – The CPA firm may need to consult with experts or other specialist to determine the necessary reporting.
B – Because the CPA firm has not worked previously for Belview, this engagement cannot be accepted.
C – The CPA firm cannot provide this report without gaining an adequate understanding of both the form and substance of this transaction.
D – A complete review must be made of US generally accepted accounting principles to ensure that the advice provided is appropriate.
Answer is B
This type of engagement can be accepted by a CPA firm even if an ongoing relationship with the client has not been established. The firm needs to understand
the transaction and then determine the proper reporting according to US GAAP. In some cases, discussion with an expert or specialist may be necessary,
especially in determining the exact nature and outcome of the proposed transaction.
BEC
A person’s income goes up during a period of time by 19 percent. Over the same period, the quantity of product X that the person buys increases by 11
percent. Which of the following statements is true?
A – Product X is neither a necessity nor a luxury good to this person.
B – Product X is a necessity to this person.
C – Product X is a luxury good to this person.
D – Product X is both a necessity and a luxury good to this person.
Answer is B
The income elasticity of Product X is 11 percent divided by 19 percent or 0.58. Because that number is below 1.0, the product is viewed as a necessity.
Adequate amounts must have been bought when income was still low (indicating that it is a necessity) because growth in purchasing has been slow as the income
rose. If this ratio had been above 1.0, it would indicate that more and more is acquired as income gets higher which signals that Product X is a luxury good.
In that case, purchasing is primarily at higher levels of income.
Have a great week!!! We are having our Spring Break so I assume all my college students are enjoying the warm weather in Florida.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.cpareviewforfree.com
3351 Lady Marian Court
Midlothian, VA 23113
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