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Lesson 68

From: Joe


(a) – First, let me apologize for not sending out one of these email lessons for the past couple of weeks. As most everyone knows, I am on the accounting faculty of the University of Richmond. We have been doing our final exams (you may have seen one of my intermediate accounting questions show up this past week on our Facebook page). However, exams are over and grades have been turned in and I’m ready to get back to writing email lessons for the CPA Exam more frequently.

Apparently, my short absence did not deter anyone from preparing: we had the second biggest week in our history last week. Our growth just keeps, well, growing.


(1) – Nice note from one of our candidates:

“Thank you so much for all your advice and help online. I took audit last week and I felt that your questions were great. It gave me a real chance and I know I am going to pass it this time. I have registered for FAR. Thanks so much and God bless you.”


(2) – I do not watch much television. Always strikes me as a pretty big waste of time. There are always more interesting things to accomplish. However, now and then, I will watch poker on television. I am not actually a card player myself but I find some aspects of poker to be fascinating.

In sports, the person with the most points (unless it is golf) automatically wins. In poker, though, the person who draws the best hand frequently does not win. If you have a horrible hand and play it well, you can always win. It is not the hand you draw but rather how you play it that counts. In fact, a famous song from 1978 says it well “every hand's a winner and every hand's a loser.” There are a lot of things like that in life.

Last night, a guy holding a 2 and a 5 beat another player who had two kings just by playing the game well. The guy with the 2 and the 5 should have given up and quit but he played the hand so well that he won very easily. He got all of the money.

When it comes to the CPA Exam, we all know that some people hold good cards: they are good test takers, they went to a good school, they have plenty of time to study. If this were basketball or football, those people would always win—they would get all the 75s. Everyone else would be stuck.

But the CPA Exam is much more like poker. It is not the cards that you get dealt at the start that count but, rather, how well you play them. Maybe you had a couple of poor teachers in college. Maybe you didn’t have the highest grade point average. Those are bad cards but they shouldn’t keep you from passing. That’s all past history and has less impact on the CPA Exam than you might think. It is not the cards you hold that make the difference but how well you play them.

When it comes to the CPA Exam, a good player shows some special characteristics that indicate that they know how to play the game and win.
--They don’t waste time in areas where they already have good knowledge. Getting those questions correct during a study session might make the candidate feel good but that doesn’t add any points.
--They don’t waste time trying to be perfect. You are not trying to make 100; you are trying to pass and that is a long way from perfect.
--When they miss a question, they try to learn from it. They don’t get upset; they learn. Missing a question provides fertilizer for your knowledge – a chance to learn something.
--They don’t necessarily study everyday but they do study on a very regular, consistent basis.
--They stay away from excuses.
--They try to cut down on their mistakes. Missing a question that you do not know is fine. That is just part of the game. However, you want to work so that you never, never (never) miss a question that you do know. That is careless. That is just giving points away. You want to aim to reduce carelessness to zero.
--They understand the difference between “being tired” and “being tired of it.” Candidates often quit studying because they are “tired.” If that is the case, then they should take a break and get some rest. It does happen; we are human. Too often, though, they are not really tired; they are just tired of sitting there studying. They are tired of it. It is psychological. Try to get yourself pumped back up. Do a little exercise; walk around the house a couple of times. Think about the excitement that will come when you start getting those passing grades.
--They don’t defer learning. Too many people learn the easy stuff today and then promise themselves that they’ll do the hard work tomorrow to learn the complicated stuff. But tomorrow never comes. You cannot always put off the real work. Step up and get it done now.

Lots of ways to play this game well. Whether you had all A’s in college or all C’s, passing the CPA Exam does not depend on the cards you hold as much as it depends on how well you play those cards. Start thinking of yourself as a person who “plays smart.” When it comes to the CPA Exam, you are not a victim so don’t act like one. Think about that “plays smart” label and think about what “plays smart” means when it comes to preparing for the CPA Exam.


(3) – If you want to unsubscribe from these email lessons, you may scroll to the bottom of this lesson and click on the appropriate box. I hope to get back into my regular schedule of a new lesson ever 7 to 10 or maybe 14 days. We love having you with us but if you are ready to unsubscribe, it is certainly your right.


(4) – I’ve been in the process of assigning grades for the spring semester. I had 57 very bright students in Intermediate Accounting II, all of whom were more than capable of doing well. In the end, a lot of them made the grade of C, a pretty good number got a B, but only 12 percent earned an A. I always want more of my students to make an A.

What I find interesting is that the A students know how to make an A but the C students do not. It is almost never a question of smarts or even hard work. An A student just knows what it takes to make an A but a C student does not. There is just not the same level of awareness.

I occasionally sit with students who are struggling and ask quite innocently: “if I offered you $1 million to make an A, how would you change your preparation?” Often, they have no good idea. “How to make an A” is a problem they have never seriously considered.

So, as you study for the CPA Exam, I want you to picture the very best student you’ve ever met. Not the smartest student but the best student. Then make a list of 2 or 3 characteristics that describe why that student was best. What does it take to be the best student? In fact, I just posted this same question on our Facebook page if you want to give me your answer.

But, I have one caveat: you cannot use the word “smart” because I don’t think that is it at all. In fact, I sometimes think smartness is a hindrance because it makes you lazy and inefficient. Some of my smartest students are perpetual C students.

YOU can become the BEST STUDENT but, first, you have to identify what those characteristics are that makes a person the best. Once you know what it takes, then YOU can go do it also.

Think about it – what characteristics would be on your list?


(5) – Practice

FAR – here’s another question from one of my final examinations. As I always say, the CPA Exam is one mile wide and one inch deep whereas Intermediate Accounting II is one mile deep and about two feet wide. However, some of the questions do overlap a bit.

During the current year, a company’s Accumulated Depreciation account went up $33,000 despite recording depreciation expense of $88,000. At the same time, the company’s Equipment account went up $240,000 despite buying $700,000 in new items (half for cash and half on a long-term note payable). On the company’s income statement, there is a gain of $24,000 on the sale of equipment. That was a cash transaction. In connection with Equipment, what is the total amount shown on the company’s statement of cash flows under investing activities?
A - Net Cash Inflow of $74,000
B - Net Cash Inflow of $79,000
C - Net Cash Inflow of $94,000
D - Net Cash Inflow of $104,000


Answer is B

The purchase of $700,000 in equipment required cash of $350,000 because half of the acquisition was paid for with cash. However, the equipment account only went up $240,000. That means that a second $460,000 reduction must also have taken place ($700,000 less $240,000). A gain on a sale is mentioned so this amount of equipment must have been sold. Depreciation expense for the period was $88,000 but accumulated depreciation only went up by $33,000. A reduction of $55,000 must have also occurred. Since no other event is mentioned, that drop was also in connection with the sale. Equipment costing $460,000 with accumulated depreciation of $55,000 has a book value of $405,000. If it is sold at a $24,000 gain, the company must have received $429,000. Cash payment of $350,000 was made on the purchase and cash collection of $429,000 was made on the sale so that a net increase in cash of $79,000 took place during the year. These transactions did not happen on a
daily basis and involved assets so they are listed as investing activities.


Regulation – Here is a question that I took directly from the 2009 instructions for the 1040 form. You cannot confine your knowledge to just those instructions but they do give significant guidance as to what people need to know about individual income taxes.

Which of the following is not deductible by an individual taxpayer in arriving at adjusted gross income?

A – Qualifying moving expenses
B – One-half of self-employment taxes
C – Alimony paid
D – Union dues


Answer is D

If you look at the 1040 form, qualifying moving expenses are deductible on line 26 to arrive at adjusted gross income, one-half of self-employment tax payment is deductible on line 27, and alimony payments are deducted on line 31a. They all can be used to reduce the amount reported by the taxpayer as adjusted gross income. Union dues are deductible on Schedule A as an itemized deduction. They are reported on line 21 as “job expenses and certain miscellaneous deductions.” However, no amount can be deducted except the total amount of these expenses that is in excess of 2 percent of adjusted gross income.


Auditing

What are pro forma financial statements?

A – Statements that are produced based on projections of the future.
B – Historical statements that have been changed to show the impact that would have occurred as a result of a proposed event.
C – Statements that have been created according to a basis of accounting that is not viewed as generally accepted.
D – Financial statements created according to specific government regulations, for example to meet certain banking requirements.


Answer is B

When a transaction (such as the acquisition of another company) is proposed or has already taken place, the parties are often interested in the financial ramifications. Pro forma financial information restates previous numbers to show the effects that would have taken place if the transaction had occurred at an earlier date.


BEC

What is “commercial paper?”

A – All bonds of corporations fall under the term “commercial paper.”
B – Unsecured promissory notes issued to the public by corporations with up to a nine month maturity period.
C – Notes that trade on a bond exchange and have a maturity of two years or less.
D – A debt instrument assigned from one individual to another that is used to purchase property or inventory.


Answer is B

Commercial paper is an unsecured obligation issued by a corporation or bank to finance short-term credit needs. Maturities typically range up to 270 days. Commercial paper is available in a wide range of denominations, can be either discounted or interest-bearing, and usually have a limited or nonexistent secondary market (cannot easily be sold to another investor). Commercial paper is typically issued by companies with high credit ratings, meaning that the investment is almost always viewed as having relatively low risk.


Every hand is a winner and every hand is a loser. Make yours the winning hand.



Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o

Co-Founder
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