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Lesson 74

From: Joe

(1) - Nice note that I got recently from MG in Los Angeles: "I received the results from the Auditing exam over the weekend and I was so happy to find out that I got a score of 81!! I took this test 3 times already but it is only during this 4th time that I used your review questions. I also can't believe that my score is higher than the BEC and Financial which I passed last year! I regret those times when I should have started with this review rather than paying for the much more pricey review. But everything happens for a reason. I also want to THANK YOU for your encouraging emails. I really get a lot of inspiration from them. I even apply your tips by encouraging other friends to NOT GIVE UP!! I still have one more test to take - REGULATION and I will definitely be using your review as my starting point. ALL THE BEST TO YOU AND YOUR STAFF!!!"

And a note also from MV: "I received my score for AUD and got an 89. I know a lot of people say that is over-studying, but I'll gladly take it. Your site again was stellar at preparing for the exam. Since I have switched over in using your site for my review (I use both XX review program and your site, but your site is what I primarily use whenever I get stuck on a section or concept). I have been 3 in row in REG, BEC, and AUD. I'm taking FAR next and feel overwhelmed with the information in it. I'm going to continue review through your site and looking forward to another passing score. I also recommended this site to an old co-worker of mine who has failed two sections straight. He was amazed with the quality of your explanations and now is running through questions on his blackberry on the go. Thanks again for creating such a wonderful site. I look forward to passing my 4th in a row with your site."


(2) - As many of you might know, John Wooden died on June 4, just a few months short of being 100 years old. In my mind, he was the best basketball coach in history. And, he was the best because his teams (at UCLA) won by doing things the right way. He didn't rage up and down the side lines. He didn't scream and shout and curse. He calmly showed his players how to play basketball the right way so that they formed a team and got the most out of their talent. The way he coached basketball is the way I would love to teach accounting.

One of Coach Wooden's most famous statements is one that I really try to follow: "Don't let what you cannot do interfere with what you can do."

When I work with students or with CPA Exam candidates, they seem to invariably want to tell me what they cannot do, what they are not good at. It becomes confession time. There must be some human psychology that feels a need to list out personal weaknesses:
--I don't write very well.
--I don't read fast enough.
--I can never answer enough questions.
--I did not learn enough of this stuff in school.

What good does it do you to spend time thinking about what you cannot do?

Here's a suggestion. Stop right now and write down on a sheet of paper your three "favorite" weaknesses. That is those things that you tend to use most often as your excuse for not succeeding. Yeah, you know what they are. I sometimes call them conversation starters: "Hi, I'm Joe and I am awfully weak at .." Or "I just cannot seem to succeed because of .."

Write the top three on a sheet of paper. Then, tear that paper into small shreds and flush them all down the toilet. After that, NEVER MENTION THEM AGAIN IN YOUR WHOLE LIFE.

You'll be so much better off to throw off those self-imposed weaknesses. They do you no good. Why do you hang onto them with such devotion? Why are you so fond of your personal weaknesses?

Whether you have 4 points at the moment or 74 points, your only goal should be to add points. Get on with it. Forget about weaknesses. Life calls you to be successful. Holding onto your weaknesses is just a crutch. Throw them away and let's get this CPA Exam passed.

There is a famous line by Shakespeare in the play Othello: "go, make money." If I were writing the play, the line would be: "go, add points."


(3) - I had someone mention to me recently that our questions tend to have more words than the questions she had seen on the CPA Exam. The person who mentioned this seemed puzzled. My response was "well, of course - they have two entirely different purposes." CPA Exam questions only have one goal-to see what you know. If I want to see if you know the capital of Montana, the question only has to be: "What is the capital of Montana?"

At www.CPAreviewforFREE.com, though, we are trying to teach you what you need to know in order to get 75 points and pass. Our questions are for teaching. Our questions take a lot more thought: You drive 1,043 miles from the capital of Washington (Olympia) to the capital of North Dakota (Bismarck). Along the way, you stop at the capital of Montana. Where did you stop?

Yeah, our question has about 25 more words, but we have taught you four things: the capitals of three states and the distance from Olympia to Bismarck. (Plus, our questions are more interesting to work which is important when you have to sit there studying for hour after hour.)

Some people seem obsessed "I want to see something that looks exactly like the CPA Exam." Wrong goal. Wrong goal. Wrong goal. The correct goal is "I want to see something that will help me add enough points to pass the CPA Exam."


(4) - In case you are ready to stop receiving these email lessons, you can always scroll to the bottom of a lesson and click on the unsubscribe button. It is there; it is always there. We love having you but you are certainly free to unsubscribe. We have nearly 14,000 subscribers - we like having each of you. But, you have the right to unsubscribe. Please know that.


(5) - For no particularly good reason, I just went and checked my email and, lo and behold, got several more notes from CPA Exam candidates.

From SH: "Greetings from CA. I got my score today for my Regulations and I want you to know that I have been your avid follower in CPAReviewforfree since last year. I passed the Regulation exam with an 88 (with barely 2 hours of sleep before my exam.) I thank God that He has given you to us to give us moral support and motivation when we are down and struggling to study each of the sections of the CPA exam."

From LJ: "I just wanted to let you know that I have finally passed all 4 parts of the CPA exam. When my state license came I realized that it's really real. Your emails and words of wisdom and inspiration always helped. Especially when I was feeling down, one of your emails would come and remind me that a few extra minutes a day could help give me the extra point I needed to pass. I used your site many times to help understand the subject matter that is tested on the exam."

From AO: "I wanted to drop you a note and thank you again for your support and encouragement, as well as the great material on cpareviewforfree.com. I just received my passing grade on the last section of the exam [first try on BEC (80) AUD (81) REG (90) and second try on FAR (77)] and I can say with 100% confidence that without your material and your approach to readiness for the exam, I wouldn't have passed. Even though I did spend "thousands of dollars" on a review class, the questions from your site were the most effective way of learning the material. Your sound advice, encouraging e-mails and your ability to communicate the essence of the topics is simply brilliant. I have and will continue to promote "cpareviewforfree.com" and be a huge fan, but most of all I will always be a believer in Joe Hoyle's approach."

Before too much more time has passed, I want to hear from you that you have passed!!!!


(6) - Since I am in a mood to think about Coach John Wooden, here is another quote from him. One of the emails that I get the most is "I'm so discouraged; I keep missing questions." I know that can be tough but missed questions are the best way for you to learn. I know that can be painful but reading a question and getting it right does not make you one bit better. Here's what Coach Wooden said "If you're not making mistakes, then you're not doing anything. I'm positive that a doer makes mistakes."

When it comes to passing the CPA Exam, you want to be a "doer." That is a person who makes good things happen that can bring about improvement. Yeah, I can give you questions that you can get right ("What is two plus two? What is the name of the ocean off the coast of Virginia?") but what good is that? That doesn't stretch you; that doesn't make you better; that doesn't add points; that doesn't lead to improvement. I'd rather ask "how do you go about accounting for a derivative?" and, if you miss it, then you can learn something.

Don't worry about mistakes.
Don't worry about missing questions.
Don't let yourself get discouraged.

The whole game is about pushing forward and getting better.

BE A DOER!!


(7) - Practice

FAR

How do you go about accounting for a derivative?

A - All derivatives are recorded as assets at fair value
B - Derivatives are not reported on a company's balance sheet.
C - All derivatives are recorded as liabilities at fair value
D - All derivatives are reported as either assets or liabilities at fair value


Answer is D

Derivatives are financial instruments that derive their value from some other security or index. For example, a contract to buy gold at a specific point in the future at a specified price is a derivative because its value will be based on the market price of gold. If the price of gold rises, the contract has a positive value (you can buy the gold for less than its market price). If the price of gold falls, the contract has a negative value (you must pay more than market price for the gold). All derivatives (no exceptions) are carried on the balance sheet as either assets (positive value) or liabilities (negative value) at fair value.


BEC

The Tazem Company delivers donuts throughout the city of Chicago every day during the year to various outlets. The company has one truck and it was driven for 76,650 miles during the most recent year. On the average, the company delivered 720 dozen donuts per day. The company estimates that the cost of driving its truck for one mile is $.38. In setting its prices, what cost should the company use for delivering one dozen donuts?

A - $.1108
B - $.1288
C - $.1358
D - $.1478


Answer is A

The total delivery cost for the year is 76,650 miles times $.38 per mile or $29,127. The total number of dozen donuts delivered this year is 720 times 365 days or 262,800. If it cost the company $29,127 to deliver 262,800 dozen donuts, that is $.1108 per dozen.


Auditing and Attestation

The CPA firm of Donovan and Dempsey is auditing the financial statements for the Wynklin Corporation The auditors have decided to qualify the audit report for the current year because not enough evidence could be obtained to substantiate the balance reported for inventory. The CPA firm is also auditing the financial statements of Salander Corporation. The auditors have decided to qualify the audit report for the current year because the inventory account contains a material misstatement. Which of the following statements is not true?

A - The introductory paragraph for both reports will not be affected by these problems.
B - The score paragraph for both reports will need to be changed to reflect the problems.
C - The opinion paragraph for both reports will need to be changed to reflect the problems.
D - An explanatory paragraph will be added in both cases just before the opinion paragraph.


Answer is B

In qualified opinions, the introductory paragraphs are not changed. However, in both cases, an explanatory paragraph is added between the score paragraph and the opinion paragraph and the wording of the opinion paragraph is changed because of the qualification. In a scope qualification (such as with the Wynklin audit), the scope paragraph must also be changed. With a departure from GAAP (such as with the Salander audit), the scope paragraph is not affected.


Regulation

In Year One, Mr. and Mrs. Rothchild filed their federal income tax return. They had only salary income of $63,700. They had one itemized deduction, state income tax payments, of $7,200. Since that amount was larger than the standard deduction of $6,300, they subtracted the itemized deduction. In Year Two, they received a cash refund of $1,200 from the filing of their Year One state income tax return. Which of the following is true?

A - The $1,200 should be recognized as an addition to taxable income in Year Two.
B - $900 should be recognized as an addition to taxable income in Year Two.
C - The Year One tax return should be amended to report the standard deduction rather than the itemized deduction.
D - The refund causes no tax effect on either Year One or Year Two.


Answer is B

Under normal conditions, if itemized deductions are taken in one year but a state income tax refund is received in the following year, the refund is reported as income in that second year. However, here, the refund drops the tax benefit of the payments from $7,200 to $6,000 which is lower than the standard deduction amount. That creates less benefit than they are entitled to receive. So, the income to be recognized in Year Two is only the amount that reduces the benefit from $7,200 to $6,300. That $900 is income in the year received.


Have a great week - it is supposed to get to 104 degrees here in Richmond, Virginia today. That makes it a good day to stay inside and study!!!

Be a doer!!!

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