May 12, 2010
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Lesson 69
From: Joe
(a) – I know I sound like a broken record (although I am delighted, in this case, to sound like a broken record) but we had more visitors last week to www.CPAreviewforFREE.com than in any week of our history. Week after week, the word spreads that our 2,100 free questions and answers can get you through the CPA Exam. And, week after week, more people decide to save their hard-earned money and give us a shot. In fact, I took the results from last week and then backed up 52 weeks and found that our weekly traffic has grown by over 64 percent in the past year. That should tell you something.
(b) – I was at a convention recently and was talking with a person I know who has been in CPA Review for a long time. We were discussing changes in the exam and changes in review programs. I asked him what he thought the next big change was going to be. He responded quite honestly: “people are going to start catching on that the exam is easier to pass than it used to be. The pass rate is 50 percent and not 30 percent and you can take one part at a time. People will realize that you don’t need to pay thousands of dollars if all you want to do is pass and get on with your life. Look what iTunes did for 99 cents per song and what NetFlix did for $4.99 per month. If all you want to do is drive across town, why buy a Rolls Royce?”
(1) – No matter how many questions and answers we provide at www.CPAreviewforFREE.com, people always want more. Periodically, the Journal of Accountancy includes ten questions and answers dealing with fraud. They are not CPA Exam questions but they certainly cover material that looks like it could be from the Auditing and Attestation portion of the CPA Exam. And, like us, they are FREE.
If you are preparing for Auditing, you can get 30 good questions to practice in this way. Go to journalofaccountancy.com. Under the search box, click on “open advanced search.” For the title, type in: What’s Your Fraud IQ? For the date range, type in May, 2009 through January 2010. You should get three hits (May 2009, September 2009, and January 2010) each with 10 excellent questions. More practice for free.
I like free.
I have adapted one of the questions in our Practice section at the end of this email just so you can see it.
(2) – We have approximately 13,000 names on our subscription list and we love sending these emails out to each and every one of you. Those names come from around the world and it is an honor to have the chance to chat with so many wonderful folks. However, you have the right to unsubscribe at any time you wish. Just scroll to the bottom of this email lesson and click on “Unsubscribe” and we will remove your name. Please stay as long as you wish but do feel free to unsubscribe any time that you are ready.
(3) – I watched the movie Crazy Heart last week. Jeff Bridges plays a completely washed up country singer named Bad Blake. He was once a famous entertainer but through heavy drinking and just bad living he really hits rock bottom. He was nearly 60 in the movie and I kept expecting him to have a heart attack and die because of his many bad habits. But, toward the end of the movie, he saw that his life was slipping away and he made a fundamental change in himself and makes a genuine comeback. He didn’t get all the things back that he wanted but he did get clean and got his life back together. Although he was in just terribly shape, he managed to turn his life around.
I know that there are a lot of you reading this email who are studying for the CPA Exam, probably in the current April-May window. I know that it doesn’t always go well. In many cases, you mean to study but there just doesn’t seem to be enough time in the day. Or, you think you know a topic but then you cannot answer the questions. Or, you start to study late at night and you are so tired that you fall asleep. Trust me, there is always a point where every candidate is on the verge of giving up. The desperation cry of the CPA Exam candidate: “This is stupid; I’m just going to quit.”
Well, don’t do it!!!
No matter how far down you are, don’t give up. I realize that I am an optimistic person but tomorrow is a new day. Tomorrow is the chance for you to turn things around. Tomorrow is an opportunity for you to add a point or two and get closer to passing. In fact, today is not over yet. You can begin the climb back up RIGHT NOW.
The past is just that: the past. It has no direct relevance to your work today. Don’t let the past ruin the present. All you’ve got in life is the present. Don’t build up excuses for yourself by dwelling in the past.
Okay, you cannot add 25 points in one day. That’s impossible—no matter how hard you work. But, regardless of what you have done in the past, there is no reason why you cannot add a point or two today. And, another point or two tomorrow. And, then, you are on a roll. The month of May still has 19 days left. If you can average adding 1.5 points per day (and that is a goal that I think everyone can make), you can turn a 47 today into a passing score by the end of May. It is not a miracle. It is not a dream. It is not impossible. It is just a measly 1.5 points per day.
But, the secret is that you have to get started today and you have to make legitimate progress.
You can’t just talk about studying.
You can’t just dream about studying.
You can’t just pray about studying.
You actually have to study.
You have to go to www.CPAreviewforFREE.com and start (a) answering questions and (b) reading the answers carefully, especially for the ones you miss.
Question after question.
My goal would be that you add one point for every 20 questions that you attempt. That is a very reasonable goal. Thus, to get 1.5 points per day, you need to answer 30 questions and read the answers (very carefully for the ones you miss).
Can you do that? Of course, you can. No matter what you have done in the past, you can do 30 questions per day on www.CPAreviewforFREE.com. Today is a good day to kick it into high gear. If you can just do 30 questions per day, there is no reason why you cannot add 28.5 points in the remainder of the time in May (1.5 points per day).
But you can’t dream about it – you have to sit down and block out the time and turn off the television and stop drinking the beer and forget about everything but those 30 questions.
For the rest of May, I want you to be a question answering machine. Whether you’ve been a lazy bum for your entire life or not, for the rest of May, I want you to promise yourself that—at a minimum—you will answer 30 questions per day and you will read those answers and you will take a few quick notes so you can get the question right the next time. “Get the question right the next time” should be your mantra.
Even if you’ve hit the bottom, there is no reason to give up. That doesn’t do you one bit of good. You have to set a reasonable goal for yourself for TODAY and then you have to have the self-discipline to grind out that work. Nothing but today and 30 questions should be on your mind.
Forget what you have done in the past, no matter how bad it has been. Make it happen TODAY – 30 questions and answers and add 1.5 points.
(4) – Practice
Auditing
An independent auditor is examining the financial statements for the Jeter Corporation. The company’s sales have gone up significantly this year and the auditor is afraid that some of the sales are fictitious, simply recorded to make the company look better. The auditor is considering taking each of the following actions during the audit. Which one is most likely to provide evidence of extra sales being added that never actually took place?
A – Investigate complaints by vendors.
B – Credits to accounts receivable in the period after the end of the year are analyzed.
C – A search is made for unrecorded liabilities as of the end of the year.
D – The sales department is questioned about the validity of the final sales figure.
Answer is B
Companies that inflate revenues often do so by recording credit sales near the end of the year and then removing the accounts receivable in the subsequent period as a bad account, a discount, or as a sales return. They put the receivable and revenue on and then subsequently remove the receivable. In that way, no sales invoices are sent out to non-existent customers. Vendors tend to complain about lack of payment so that particular test is done in connection with either inventory or accounts payable and not revenues. Unrecorded liabilities are a potential problem but they have nothing to do with false sales. Finally, asking the sales department only provides information from inside the company which is rarely considered strong evidence. Plus, it may well have been the sales department that instigated the fraud and, thus, is most likely to cover it up.
FAR
A company that sells men’s and women’s fashions is given a building for free by a shopping center to entice the company to open a store in that facility. The building has a fair value of $980,000. How does the company record this donated asset?
A – No entry is made since the building was received as a donation.
B – The building is recorded at $980,000 along with an equal amount of paid-in capital.
C – The building is recorded at $980,000 along with an equal amount of revenue.
D – Recording is optional.
Answer is C
Although the building has no cost to the company, leaving it unrecorded seems very misleading. Therefore, it is recorded at fair value at the time of the gift along with an offsetting entry to a revenue account.
BEC
Several individuals want to create a limited partnership. Which of the following is correct?
A – A limited partnership can be created simply by agreement of these individuals.
B – A limited partnership requires that the individuals comply with applicable state statutes.
C – A limited partnership requires approval by the SEC although a general partnership does not.
D – A limited partnership can only be created by following special provisions passed by the US Congress.
Answer is B
A general partnership can be formed by agreement of the partners or, in some cases, by simply acting like a partnership. A limited partnership, though, is different than a general partnership and requires compliance with applicable state laws.
Regulation
A corporation has qualified as an S corporation for income tax purposes. However, several of the owners want to terminate the S corporation status. What percentage of the stock of this S corporation must these owners hold before revocation will take place?
A – 34 percent or more
B – More than 50 percent
C – 80 percent or more
D – All 100 percent must consent
Answer is B
The tax laws require the termination of S corporation status if shareholders owning more than half of the shares of stock consent to the revocation.
Okay, start today. Start right now. Remember 30 questions and answers every day for the rest of May – you want to add 1.5 points per day. That’s a reasonable goal – go get it.
Joe Hoyle
Co-Founder
CPAreviewforFREE
www.CPAreviewforFREE.com
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