Chase A Few Dreams

Try us FIRST before you spend your hard-earned money.

June 15, 2010

CPA Review for FREE
www.CPAreviewforFREE.com

Over 2,100 FREE CPA Review Questions and Answers Available for YOU

102 Weeks of Operation and 12,722,785 Page Views (without a penny spent on marketing)

Lesson 73

From: Joe


(a) - We have readers from around the world so I want to tell everyone who is following the World Cup: I hope your team goes all the way!! (You want them to win and they want you to pass the CPA Exam - seems like a fair trade.) I only wish I had a vuvuzela to use to cheer you on.


(1) - Nice email that I just got a few minutes ago. This is exactly what I want to hear from you. This note comes from S. D. "I want to thank all of your staff for building such a wonderful portal for all CPA candidates. I was initially using a well known review provider but they were not updated on most of the latest topics. I used your materials and got through the toughest parts of the exam. Again I thank you all for helping me become a CPA."

Yeah, that's a problem with those other courses - they charge you a lot of money and still are not well updated. You pay a lot for material that is mediocre at best and then blame yourself when you don't pass.

--OUR goal is to get you through the CPA Exam.
--THEIR goal is to get your money from your pocket into their pocket.


And, here's another note from a few days ago-another winner!!!! "I got my FAR score today. I got 80! Thanks for your great website, I would not be able to do well without it! I will notify other scores as soon as I receive them. Once again THANK YOU!"


(2) - Remember, if you want, that you can download all of our questions and answers for a small fee so that you can study 24/7 and not just when you are online. Just go to www.CPAreviewforFREE.com and click on "Store" in the upper right-hand corner. However, of course, the questions are always free and available on line.


(3) - As most of you probably know, we have a Facebook page (just search for CPAreviewforFREE and it'll pop up). A couple of days ago a person wrote in on Facebook to ask what percentage of the questions he should be getting correct to feel comfortable as he studied. That's a common question - people are tense and want some assurance that they are going to make it.

My response was the same one that I have given to this question since I first started in CPA review in 1980. On the CPA Exam some of the questions are relatively simple. You look at it and you wonder if you are misreading it because you automatically know the answer. Other questions are harder - some are almost impossibly hard. It is a wide-ranging test.

Here is my advice. If you are looking at a relatively easy question, you probably need to get 90 percent of those correct. You have to stay focused so that you don't make careless errors. It is easy to throw away points by missing questions that are easy. There is something about seeing an easy question that makes you stop paying close attention to it. You start thinking about what comes next. So, for the easy questions, I would want you to get close to 100 percent of them right - but let's say 90 percent. I think that is a "passing goal."

The other questions, though, are harder-often extremely hard. Obviously, if you just guess randomly you should get 25 percent of the remaining multiple-choice questions. You clearly need to do better than that. My goal, if I were taking the exam again at the current time, would be to shoot for 60 percent of the hard questions correct. Oh, it would be nice to get 90 percent of these right also but I doubt that is a reasonable goal for most of us. As I always say, I just want you to pass; I don't need for you to seek perfection. I think getting 60 percent of the tough questions would probably get you to a grade of about 75.

90 percent of the relatively easy questions
60 percent of the relatively hard questions

--I think that is a good benchmark
--And, I think it is something that you can do with enough time and effort.
--Yeah, you may have to fight for every possible point. You may have to work and think and try to squeeze out a point here and there.
--But, there is no reason why you cannot get 90 percent of the easy ones and 60 percent of the hard ones.

Go for it!!!


(4) - I got a note from a candidate (A. E.) a few days ago who said something like "I passed the CPA Exam using www.CPAreviewforFREE.com and I'm going to unsubscribe to the email lessons now but I just couldn't leave without saying thanks." As always, the kind words are very much appreciated.

We are delighted for you to stay on our subscription list forever. Delighted to have you. However, like A. E. who wrote in, you certainly have the right to unsubscribe. She had passed and was ready to move on. Wonderful!!! I was proud of her. So, please know that you can stay with us or you can unsubscribe whenever you wish. Just scroll to the bottom of any email lesson and click on the appropriate link.


(5) - I was driving through Williamsburg a couple of days ago, one of the real homes of American freedom. At the time, I was listening to one of my favorite songs on my iPod-"Virginia" by a singer named Page Wilson. (Of course, I have lived in the state of Virginia since 1976 so I am biased toward the state.) The song has one line that I like especially when the singer is talking about life: "in the end, it's just a gamble; at least you chased a few dreams."

I think people ought to chase more dreams. Life becomes too ho-hum without some dreams to chase. I like chasing dreams even if I don't really expect to catch them. (That is probably why I put $2 on the lottery every week.)

What are your dreams? What dreams are you chasing at the moment?
I think that is a great question to ask yourself - and demand a serious answer.

Here at www.CPAreviewforFREE.com, we have one overriding dream. We would like, within a couple of more years, for every single person in the entire world who takes the CPA Exam to use our questions and answers to help them pass. I think that is a great goal and one that deserves to be chased. And, I see no reason why it cannot happen.

But that is our goal-what is your goal? Why dreams are you chasing?

Obviously, I hope that one of your top dreams is passing the CPA Exam. If it is a real dream of yours, that alone will give you the energy and courage needed to do the work.
--If you view this whole process as drudgery, it is awfully hard to do the work necessary.
--If you are really not enthusiastic about passing, it is hard to get up the excitement needed to push forward.
--If the CPA Exam for you is more of a nightmare than a dream, you are going to have troubles. No one chases nightmares.

I want passing the CPA Exam to be a dream that you chase. I want passing the CPA Exam to be a desire that burns in your belly. I want this to be real to you.

All over the world, people recognize what it means to pass the CPA Exam. Many people major in accounting but only a few make it all the way through the CPA Exam. It is the pinnacle of the profession. It is the Mt. Everest of accounting. If you are an accountant, passing the CPA Exam really should be a dream that you chase.

In life, attitude is everything.
If you have dreams to chase, you'll be surprised by how many of them you eventually catch and you'll have a wonderful life chasing them.


(6) - When I wrote the line above "In life, attitude is everything" I was reminded of a story that I have told before. My uncle used to tell me about joining the Marines in World War II and being sent to Parris Island, South Carolina to train. He and all the young recruits were scared to death of the obstacle course they had to run there during training. It was supposed to be impossibly hard and it was all they could talk about-how much they dreaded it.

However, after they had all been there for several weeks, they would sneak out of the barracks in the middle of the night and go run the obstacle course just for fun. After a little practice, it went from impossibly hard to something they did for fun.

The only thing that changed was their attitude toward it. Many, many people start the CPA Exam with nothing but dread. But eventually the feeling will change. I cannot possibly tell you how many people over the years have told me (about half way through the exam) "I'm actually getting to enjoy learning this material. I never understood a lot of this stuff before but now as I work through these questions, it feels good to see how much I can learn. I hated it at first but, now, I don't mind studying for a couple of hours each night. It actually feels good."

Marine obstacle course.
CPA Exam.

Same thing (well, kind of).

Don't let your attitude ruin the experience. If you tell yourself that you are going to be miserable and will only study under pain of death, then you are going to have a terrible time and probably fail. But, if you will tell yourself, I'm chasing a dream, I'm adding points, I'm actually learning some interesting stuff, the chance of passing goes way up because you won't mind putting in the work.

It is not about the exam; it is about YOU and what kind of attitude you bring to the exam.


(7) - PRACTICE - Let's have some fun practicing on a couple of questions and adding a few points.

FAR

The Markoff Company buys inventory costing $11,000 from Montclair Corporation. Markoff plans to sell this merchandise for $19,000. The goods are shipping by Montclair on December 28, Year One and received by Markoff on January 3, Year Two. They were listed as FOB shipping point. Markoff uses a periodic inventory system and, on December 28, debited Purchases of Inventory for $11,000 and credited Accounts Payable for the same amount. Markoff failed to count this inventory when it took its December 31, Year One physical count because it had yet arrived. In making its Year One financial statements, which of the following is true for Markoff?

A - Liabilities on the balance sheet is understated by $8,000.
B - Retained earnings on the balance sheet is correctly stated.
C - Net income for the period is overstated by $11,000.
D - Net income for the period is understated by $11,000.


Answer is D

Because of the FOB point, the inventory belongs to Markoff at the end of the year and the journal entry that was recorded was appropriate. However, the inventory was not counted in determining the ending inventory balance. In a periodic system, cost of goods sold is calculated by taking beginning inventory and adding purchases and then subtracting ending inventory. Purchases (as well as accounts payable) are correct because of the entry that was made. Ending inventory, though, is understated because it was not included in the count. Ending inventory is too low and it is a subtraction so the resulting cost of goods sold is too high. Cost of goods sold is an expense so the resulting net income is too low by the $11,000 cost. Because net income is too low, retained earnings is also too low by the same amount.


Regulation

Skiba is a lawyer who does work for one of her clients in Year One. The invoice price for the work done was $2,000 but she agreed to accept shares of another company as payment in full. These shares had cost the client $600 when bought two years earlier as an investment but were worth $1,900 at the time of conveyance. In Year Two, Skiba sells the shares for $2,500 in cash. What gain does Skiba have for income tax purposes at the time of sale?

A - Zero
B - $500
C - $600
D - $2,500


Answer is C

When the shares are received, Skiba records the investment at its fair value of $1,900 and reports taxable revenue of $1,900. She did work and received compensation of $1,900-that is taxable revenue. The shares have a tax basis to her of $1,900 so that when sold for $2,500, she must report a gain for tax purposes of $600.


Auditing and Attestation

The CPA firm of Bryant and Rondo are auditing the financial statements of Rivers, Inc. The CPAs send out positive confirmations of a sample of the accounts receivable being reported by the client. One confirmation of $8,000 is returned from the Jackson Company indicating that the amount is correct. However, the confirmation was returned by fax. Which action is the CPA firm most likely to take?

A - Send another confirmation to Jackson.
B - Call Jackson to confirm that the confirmation was sent by the company.
C - Accept the confirmation and do nothing further.
D - Send another confirmation to a different company that owes approximately $8,000.


Answer is B

The confirmation sent by fax is okay but there needs to be follow up to provide more assurance that the fax was actually sent by the debtor company and came from the proper representative. Usually, the CPA will call and verify that the fax copy is appropriate and also ask for the original confirmation to be mailed so that it is held by the CPA.


BEC

Carmichael Corporation needs to raise $50 million for a major construction project. The company is trying to decide whether to issue bonds to raise this money or common stock. Which of the following is the most likely reason to issue the bonds rather than the stock?

A - There is less risk involved with the debt.
B - Interest is tax deductible whereas dividend distributions are not.
C - Earnings per share will go up and, hence, stock prices will rise.
D - Interest payments can be avoided but dividend payments cannot.


Answer is B

Creditors can force a company into bankruptcy and shareholders cannot so debt is viewed as a more risky method to raise funds. Bankruptcy is possible if interest and principal payments cannot be made when due. It is hard to predict what will happen to earnings per share because the interest drives the net income down but, hopefully, the additional revenue from the completed project will push net income up. However, that rise may not happen for a number of years, if at all. The cost of interest, though, is reduced because interest expense can be deducted from income for tax purposes but dividend payments cannot.


Have a great week - it is too hot to be outside so go somewhere cool and study (and add points)!!!




Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com