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March 8, 2010

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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

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Midlothian, VA 23113