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November 23, 2010

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Lesson 84

From: Joe


(a) – Have a great and joyous and wonderful Thanksgiving day on Thursday. Please do take time out of your busy and hectic day to reflect on all those many things that you have in your heart to be thankful for. I’m convinced that life goes better if your focus on what you are grateful for rather than stew on those things that tick you off. Too many people I know spend too much valuable time stewing.


(b) – And, here is one thing that we have to be thankful for – last week was our busiest week in our history!!! And, as always, it was done without advertising. Just think, if we had any money and could advertise like the big courses, we could really grow.

Just to put our growth into perspective, we measure a lot of things around here in page views. A page view is basically one person reading one question and one answer. So, it is a unit of measure that we can all understand. In our first week of existence, we had 1,920 page views and I was ecstatic. I thought that was unbelievable.

Last week, we had an average of 1,920 page views every 45 minutes round the clock, 24 hours per day for all 7 days of the week. That is close to a one-half million page views in that one week. (Or, as another way to look at it, we averaged 42.85 page views PER MINUTE for an entire week).

The average person stayed on our site for nearly 30 minutes and did 31.27 page views. That was THE AVERAGE PERSON.

So, don’t let the big courses kid you. We believe that 2011 will be the year where we become the most popular CPA Review program in the world. We have great plans that we will be rolling out during the next month. Stay tuned.


(c) – We get gazillions of emails and we always like to share a few with you. Speaking of those big, expensive courses, here is one that I got yesterday.

From EC: “I have to share some great news about your website. I just got my score from the BEC exam that I took on October 15. After four times of miserably failing the BEC section and after spending hundreds of dollars in mediocre CPA review materials such as XXXXXX, XXXXX XXXXXXXX, XXXX, and XXXXXX, I decided to give it a shot using your program. I did not have to spend more money I only needed to invest my time for the fifth time. I felt very comfortable during my last BEC exam but I did not want to have my hopes up since another failure would have devastated my self-esteem. I was pleasantly surprised when I saw I had passed BEC with 79. I was able to raise seven points with your program. The best I had done in the past was a 72, twice. Thank you very much for your commitment to help people like me who almost lost hope on passing BEC. I am now studying to sit for Audit on November 30, 2010, again since my credit expired last June due to the constant failure of not
passing BEC. I am now religiously studying the questions of your program. I will keep you posted as soon as I get my results. If I pass it, I will finally become a CPA and my name will be added to the CPA registry of the AICPA.” (You folks at home get points if you can figure out the four programs marked with the XXXs.)

Notes like this are what keep us working on CPAreviewforFREE.com


(1) – I love the note from EC above because the exam kept pushing him back but he wouldn’t let it get the best of him. He kept working and pushing forward and, at the end of the day, he got 79 points and he passed his nemesis – BEC.

Last Friday, in the Wall Street Journal, there was a quote from the movie Rocky Balboa:

“It ain’t how hard you hit, it’s how hard you can get hit and keep moving forward.”

Whether it is life or the CPA Exam, there are all kinds of barriers in our paths. All sorts of things that want to prevent us from succeeding. Yeah, it is easy to hit a barrier and quit and go home. The people I’m most proud of are those folks like EC who come close but fail several times and are willing to keep moving forward and doing it again until they make it happen!

If you are very smart and a great student and pass the CPA Exam pretty easily, that’s great for you. I really am pleased. But the exam didn’t truly put you to a serious test. The people I cheer for the most are those that work like dogs just to be average students. And, no matter how hard the CPA Exam pushes those folks back, they just keep moving forward and eventually they pass. And, that is truly wonderful. The CPA Exam has been a real test of their character and that character has proven to be rock solid. Now that is an accomplishment worth cheering about.

I liked the quote from the Rocky Balboa movie so well that I went to Google and found the whole quote. This quote is for all those people where the CPA Exam is truly a serious test of your intestinal fortitude. Don’t give up – don’t ever give up.

Rocky: “Let me tell you something you already know. The world ain't all sunshine and rainbows. It is a very mean and nasty place and I don't care how tough you are it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain't how hard you hit; it's about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That's how winning is done. Now, if you know what you're worth, now go out and get what you're worth. But you gotta be willing to take the hits, and not pointing fingers saying you ain't where you wanna be because of him, or her, or anybody. Cowards do that and that ain't you. You're better than that!”

If that doesn’t get you up off the couch to go do some problems on CPAreviewforFREE, you better have someone check your pulse.


(2) – Speaking of dynamic characters, we went on a short two-day vacation about ten days. We were staying in a bed and breakfast and we were staying in the “Theodore Roosevelt Room.” If you have ever read much about President Roosevelt, he may well have been one of the most dynamic figures in history. He once was scheduled to give an important speech in a hotel. He was shot in the chest right before he was to give the speech. He refused to go to the hospital until after he gave the speech. The speech lasted for nearly two hours. He almost passed out several times during the speech but he refused to let the gunman get the best of him.

In this Theodore Roosevelt Room, they had the following quote from TR framed at the top of the stairs:

“We shall make mistakes, and if we let these mistakes frighten us from our work, we shall show ourselves weaklings.”

Yes, you are going to miss questions.
Yes, you are going to get discouraged.
Yes, it is possible that you might fail some of the CPA Exam.
Yes, you simply cannot be perfect.

But you cannot let those mistakes frighten you into giving up or not putting in your best effort.

It is easy to live your life in fear but no one ever gets better by being afraid of mistakes.

What is holding you back from doing your very best on the CPA Exam? Is it simply that you are frightened by the possibility of not being perfect? Are you afraid that you will work hard and fail? We all fail at times. We all come up short at times.

And, yes, many people really do give up and quit. Don’t let that be you. When you win, you need to be gracious. When you lose, you need to be pugnacious.

I often tell the story about Vince Lombardi (the legendary coach) in his first pro football playoff game way back when he first started coaching. Apparently, his team lost the game right at the very end when they couldn’t score a touchdown that they really should have scored. As he walked off the field, he told someone something like “my teams will never lose another playoff game.” And, they didn’t.

Now, they did lose some regular season games but when things counted most at the end of the season, a Vince Lombardi team never lost another playoff game.

Think about it, what if that mistake in the first playoff game had made Coach Lombardi tentative or afraid of losing. No one would still remember Lombardi these days. However, hee wasn’t a person to be frightened by failure and, consequently, he is remembered as one of the greatest coaches of all time.

We make mistakes – how we do in life, in large part, depends on how we react to those mistakes. In my book, you need to be pugnacious.


(3) – As always, please know that you are allowed to unsubscribe from these lessons. We have a good number of people all the time who pass the exam and do unsubscribe. Super. To unsubscribe, go to the bottom of this email lesson and click on the unsubscribe button.

Want to help – just forward this email lesson to someone who is thinking about taking the CPA Exam. That would be such a help to us. Simply say “this guy helps to run www.CPAreviewforFREE.com and this email lessons will help you know how to pass. And, they are free.” It’s hard to beat free.


(4) – In just the time it took me to write this email lesson, I got the following two emails:

From MA: “I just wanted to make sure that you know that your free questions and paid content WORK!!! The only thing I supplemented this website with for FAR was an audiobook that I downloaded to listen to in the car and at work, and found out this morning that I got a 77 on FAR (Massachusetts). Thank you Joe!!!”

From JH: “You and your team are wonderful! I am happy to announce that I have officially passed all 4 parts, but I wasn't able to do it until I found your site. Thanks a million for all you are doing for us! I have passed your information along to those I know who are taking the exam. Keep up the good work and thanks again!”


(5) – Let’s do a bit of practice. Let’s add some points. Let’s learn some material. Let’s keep moving forward.

FAR

Near the end of the Year One, a company buys two derivatives that will come due in the next year. One of these derivatives was properly designed as a cash flow hedge. The other derivative was properly designed as a fair value hedge. By the end of the year, the fair value of both of these derivatives had increased. Where will these gains be reported?

A. In net income for both hedges
B. In accumulated other comprehensive income for both hedges
C. In net income for the fair value hedge and in accumulated other comprehensive income for the cash flow hedge.
D In net income for the cash flow hedge and in accumulated other comprehensive income for the fair value hedge.


Answer is C

The fair value hedge is bought to offset a possible loss from an asset or liability that is recorded at fair value. Since the account being hedged is recorded at fair value, its gain or loss will go into net income. Thus, the offsetting gain or loss on the hedge is also put into net income. A cash flow hedge is bought to ensure that an appropriate amount of cash is received or paid. There is not a reported gain or loss to be eliminated. Therefore, any gain or loss on a cash flow hedge is temporarily put into accumulated other comprehensive income (in stockholders’ equity) until it is terminated. In this case, the gain will go from accumulated other comprehensive income to net income in Year Two when the derivative comes due.


BEC

A company needs to obtain $2 million to build a new warehouse and is trying to decide whether to issue debt or issue equity to get the money. Which of the following statements is true about that decision?

A – Financial leverage is an advantage of issuing equity.
B – The tax effects are a disadvantage of debt.
C – The potential impact on future borrowing is a disadvantage of debt.
D – The possibility of bankruptcy is a disadvantage of equity.


Answer is C

If a company borrows money, it will cause a higher debt to equity ratio. As a company’s debt to equity ratio goes up, the ability to borrow money becomes more difficult and interest rates tend to escalate. Financial leverage (using other people’s money to make money for the owners) is a primary advantage of debt. Interest on debt is tax deductible while dividends paid on equity is not so that the advantage goes to the debt. Debt (and its periodic interest) must be paid or a company can be pushed into bankruptcy. No such requirement exists in connection with equity.


Auditing & Attestation

An independent auditor is concerned about her responsibility for uncovering illegal acts that have been committed by an audit client. Which of the following statements is not true?

A - A company records false sales in its financial statements in order to obtain a bank loan. Defalcation has occurred.
B - One reason that an auditor might not be expected to discover all client illegal acts is that some of these acts may involve nonfinancial problems.
C - One reason that an auditor might not be expected to discover all client illegal acts is that some of these acts may be well hidden from the auditors.
D – A reporting company is guilty of polluting the local river and will be subjected to a heavy monetary fine if caught. This is an example of an indirect illegal act.


Answer is A

The manipulation of information to make a company look different than it actually is should be referred to as “fraudulent financial reporting.” Defalcation is theft. An auditor is not expected to uncover all illegal acts for several reasons. For example, some problems (such as pollution) simply do not refer directly to financial reporting. In addition, the audit client will often make a concerted effort to hide illegal acts so that the auditor is unaware. Finally, a direct illegal act has already had an impact on the financial statements. An indirect illegal act will only impact the financial statements if the company is ever caught and punished.


Regulation

Mr. and Mrs. Wallace T. Briarwood have asked you to prepare their federal income taxes. They have listed the following charitable contributions. Which of these four may they include in determining their itemized deductions for this year?

A - Services donated to charity having a fair value of $2,000
B - Dues paid to the American Legion of $180
C - Out-of-pocket costs associated with donated services of $300
D - Donated cash to a political party of $500


Answer is C

Donated services to a qualified charitable organization are not tax deductible but related out-of-pocket expenses are. Dues to a fraternal organization such as the American Legion is not deductible and neither are political contributions.


We have a lot of new subscribers for our email lessons this week. If you are interested in the history of CPAreviewforFREE.com, here is a link to a story about us.

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


And, if you are interesting in watching one of my videos about education (skip the introductions – you guys know who I am already) here is the URL:

www.youtube.com/watch?v=LjwHxVbZq1o

HAPPY THANKSGIVING FROM ALL OF US HERE AT WWW.CPAREVIEWFORFREE.COM -- WE LOVE YOU GUYS!!!!!

Joe Hoyle
Co-Founder and President
CPA Review for FREE