Hours Equal Points

November 9, 2010

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Lesson 83

From: Joe


(a) – As we mentioned yesterday on our Facebook page, the school newspaper did a story on www.CPAreviewforFREE.com. If you would like to learn our history and why we first got started in this great adventure, you can read the entire story at the following URL:

www.thecollegianur.com/2010/11/04/accounting-professor-creates-affordable-cpa-review-website/15405/


(b) – It is hard to believe that we have been offering the best possible questions and answers now for 123 weeks and, last week, was our second busiest week in history. We continue to grow as more and more people come to realize that they can pass the CPA Exam without spending thousands of dollars for mediocre materials.


(c) – I have a copy of all of our FAR questions and answers sitting beside of me right here on my desk. I was just reading through several pages and, once again, as I always note, these questions and answers are really well written. Each question and answer is potentially another point on your journey to get 75 and pass.

Remember, you can buy a download of all our questions and answers if that makes your study process easier and more efficient.

And, for FAR and Regulation (and soon for BEC and then Auditing), we have a subscription service that provides hundreds and hundreds of content slides (and, very soon, task-based simulations).

By buying these downloads and/or the subscription service, you add to the materials you can use and you help us pay for this website. And, we do appreciate it.


(1) – When you first get up in the morning, take a 3 by 5 card and write down the number of questions you want to work that day on www.CPAreviewforFREE.com. Pick a number that is challenging but realistic. Put the card in your pocket. Then, each time you work a question during the day, mark off the old number and write in the remaining number of questions to be done. For example, if you hope to do 30 questions today, write down 30. After you do the first question and read the answer, mark out the 30 and write in 29.

This does several things that help you.
--It gives you a goal right now that you can do something about. Making 75 on the CPA exam is a future goal—something you can worry about tomorrow if you wish. You want to avoid procrastination at all costs.
--It provides a sense of accomplishment. Watching those numbers drop off during each day is a clear cut indication that you are making progress. In fact, at the end of every day, tape the card to the wall above your desk. There is something about seeing all those cards that will just feel good. When you feel good about studying, it is easy to study more.
--It helps you focus on today. As you feel that card in your pocket, it will remind you that you have work to do today. One of the hardest things for any person trying to accomplish something is staying in the current moment. Today is the day you’ve got to make good things happen.

Try it – I think you’ll find that you will work more questions and feel better about the whole process.


(2) – A person that I met for about 45 minutes a few weeks ago on our campus sent me a book. I didn’t do anything to deserve a book but I was pleased to get it anyway. Never turn down a good book. The book is titled “Life Is Not A Game of Perfect.”

One of the early stories in this book is about a person who gets a scholarship to play football at a major college. Although he was a great player in high school, when he gets to college, he realizes that he is not the best—in fact, he is far from the best.

I often see this in the students in my college classes. They were great in high school without much effort but in college they are just average. How will that affect them? It is always interesting to see how a person reacts to challenges that they have not faced before. What caught my attention in this book was the reaction of the player on the football team because it is not a reaction that you often see. “I decided,” (he) remembers, “that I might get beat out, but no one would outwork me.”

“No one would outwork me” – how often can you say that, especially when you get into a real challenge? When it comes to the CPA Exam, how many people are outworking you? Often, we have exactly the opposite attitude, “if I can’t do well, why should I try so hard?”

Many of you are preparing for the CPA Exam right now. It is often a struggle. Few people ever face anything like the CPA Exam until they are actually preparing for it. It is often discouraging. Be honest—what is your attitude? How are you responding to this challenge? More importantly, are you letting other people outwork you?

“No one would outwork me” or “If I can’t do well, what should I try so hard?”

How you answer that question tells a lot about who you really are. Your answer depends a lot on how you think about the hard work of studying. If you think that studying is painful and something to be avoided, it is very hard to outwork anyone.

On the other hand, if you think that studying is rewarding because it makes your mind better, then outworking other people is not as hard as it might seem at first.

Everything starts with your attitude. All success comes back eventually to your attitude.

In the case of the CPA Exam, it all comes back to how you look at study time. If it is punishment. If it is tiring. If it is excruciating. Then, you have a real mountain to climb. Putting in the time will be quite difficult.

On the other hand, if you can adopt a different attitude, you’ll find that studying is not nearly as hard. If you view studying as getting a better brain. If you view studying as a game where you see whether you get more wins (correct answers) than losses (incorrect answers). If you view studying as an interesting mental exercise. Then, the ability to put in the necessary hours is just going to be so much easier.

When you compare yourself to all of the people around the world today who are studying for the CPA Exam, where is your attitude?

Is it with the group who says: “No one would outwork me”

Or, are you more aligned with that large body of people who sigh pathetically and doubt themselves by asking: “If I can’t do well, what should I try so hard?”


(3) – We are beginning to gear up for the 2011 CPA Exam. As always, we will continue to send out these email lessons every 1-2 weeks. We are delighted to have you with us. We hope we add points and provide encouragement. However, you do have the right to unsubscribe at any time that you wish. If you should want to unsubscribe, scroll to the bottom of this email lesson (or any email lesson) and click on the appropriate link.


(4) – I have the great good fortune on Thursday of leading a 3 1/2 hour teaching workshop for 150 brand new teachers in the Virginia Community College System. One of the things I hope to introduce them to is “Joe’s Theorem of Success.” In teaching, as well as in most other things in life such as the CPA Exam, I think this theorem is true:

If it takes X hours to be average at a task

Then it will take 2X hours to be good at that task

And 3X hours to be truly truly excellent

The question is not how to achieve excellence. We are all more than capable of achieving excellence. I am sure of that. The question is whether we want excellence badly enough to put in a sufficient amount of time.

Everyone on this email list can pass the CPA Exam. I’ve worked in this business for 30 years and I’ve never met anyone who couldn’t pass. The only question is whether you want to pass badly enough to put in sufficient time.

As I have said dozens of times in these email lessons - HOURS EQUAL POINTS

I can give you all kinds of helpful advice. In the end, the best thing I can tell you (quite honestly) is that the more time you spend, the better your grade will be.

Don’t procrastinate
Don’t put it off
Put in those hours and learn those questions and answers. In the long run, that is probably the best advice that anyone can give you.


(5) – Speaking of putting in the time, let’s do some practice. If you get these questions correct, then move on. If you miss them, turn that lack of knowledge into real knowledge because that is the only way you really add points on the CPA Exam.


FAR – I opened up my intermediate accounting textbook at random and wrote this question based on what I found on the first page I read.

Pepitone Corporation buys equipment for $900,000 on January 1, Year One. Depreciation for book purposes is $300,000 per year. However, for tax purposes, depreciation was $500,000 in Year One and $200,000 in Year Two and $200,000 in Year Three. The enacted tax rate is 30 percent for Year One and Year Two but 32 percent for Year Three. Which of the following is found on the company’s balance sheet at the end of Year One?

A. Deferred tax asset-current of $30,000 and deferred tax asset-noncurrent of $32,000
B. Deferred tax asset-noncurrent of $62,000
C. Deferred tax liability-current of $30,000 and deferred tax liability-noncurrent of $32,000
D. Deferred tax liability-noncurrent of $62,000


Answer is D

For tax purposes, this company will have $100,000 less depreciation expense in Year Two so taxable income will be $100,000 higher. At a 30 percent tax rate, that is a deferred tax liability of $30,000. For tax purposes, this company also will have $100,000 less depreciation expense in Year Three so taxable income will be $100,000 higher. At a 32 percent tax rate, that is a deferred tax liability of $32,000. The total liability is $62,000. Where that amount is shown on a balance sheet depends on what account caused the difference. Here, it was caused by the equipment that was depreciated. Equipment is a noncurrent account. Hence, all related deferred income tax liabilities or assets will also be reported as noncurrent.


Auditing and Attestation

The Wishton Corporation’s financial statements are audited by the CPA firm of Mansen and Dallas. Wishton has a subsidiary located 1,800 miles from the company’s headquarters. The financial statements of this subsidiary are consolidated with the statements of the parent for external reporting purposes. The subsidiary’s assets and revenues make up approximately 16 percent of the total for the consolidated entity. The subsidiary’s financial statements are audited by a local CPA firm and that audit report has now been forwarded to Mansen and Dallas. In providing the audit report for the consolidated financial statements, Mansen and Dallas has decided to make reference to the work done by the other CPA firm. Which of the following statements is true?

A. The audit report should make reference to the other auditors in the introductory paragraph only.
B. The audit report should make reference to the other auditors in the scope paragraph only.
C. The audit report should make reference to the other auditors in the introductory, scope, and opinion paragraphs only.
D. The audit report should make reference to the other auditors in a separate explanatory paragraph only.


Answer is C

When reference is made to other auditors, the introductory paragraph indicates that the principal auditors did not audit a portion of the consolidated statements and indicates the size of that portion by specifying the amount of assets and revenues audited by the other firm. The scope paragraph is changed to indicate that the principal auditor’s audit and the report of the other auditors provided a reasonable basis for opinion. The opinion paragraph indicates that the opinion being rendered is based on the principal auditor’s audit and the report of the other auditors.


Regulation

Matthews is a 40 percent partner in the WestBrook Partnership. Matthews has a tax basis (capital share) in the partnership of $45,000. Matthews has not loaned the partnership any money but is responsible for her share of the debts. The partnership has $100,000 in assets and $60,000 in liabilities. This year, the partnership reported an ordinary business loss of $120,000. What amount of that loss can Matthews deduct on her individual income tax return this year?

A. $40,000
B. $44,000
C. $45,000
D. $48,000


Answer is D

A partner can deduct the ownership percentage of any partnership ordinary business loss but only up to the person’s “at-risk balance.” The “at-risk balance” is the tax basis in the partnership ($45,000) plus any loans to the partnership (0) plus the owner’s share of the debts of the business (40 percent of $60,000 or $24,000). Here, the “at-risk balance” is a total of $69,000. That is more than this partner’s percentage of the loss. The partner can deduct the entire 40 percent of the $120,000 ordinary business loss (or $48,000).


BEC

The Lynch Company started the current year with 10,000 units in process that were 60 percent complete as to direct labor costs. As to direct labor, these units had a cost at that time of $45,000. During the year, another 50,000 units were started and direct labor cost for the period was $320,000. At the end of the year, the company had 4,000 units still in process which were 20 percent complete as to direct labor. If the company uses a FIFO system, what is the cost of a unit this year as to direct labor costs?

A. $5.63
B. $6.30
C. $6.40
D. $6.43


Answer is B

In a FIFO system, the cost per unit is the cost expended this period divided by the number of equivalent units created during the period. The current cost for direct labor is $320,000. The number of equivalent units starts with the number of units completed. Here, since no units are mentioned as being lost, that number must have been 56,000 (10,000 beginning plus 50,000 started less 4,000 ending working in process). Total direct labor done is 56,000 completed units plus 800 units still in ending working in process (4,000 units that are 20 percent complete) or a total of 56,800 units of work. To get the work done just in this current period (which is used by FIFO), the amount of work in beginning work in process is subtracted. That is 10,000 units times 60 percent completion or 6,000 units done last year. The amount of work done this period is 56,800 total minus 6,000 done last year to arrive at 50,800 units of work done this period. The cost per unit using
FIFO is $320,000/50,800 or $6.30.


GET THAT EXAM OUT OF YOUR WAY!!!

Joe Hoyle
Co-Founder and President
CPA Review for FREE