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October 31, 2011 (Happy Halloween for those in the USA)
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Lesson 106
Over 2,200 FREE CPA Review Questions and Answers Available for YOU (for FREE)
173 Weeks of Operation and 29,252,756 Page Views (an average of over 169,000 page views each and every week for nearly 3 ½ years)
Lesson 106
From: Joe
(1) – People always ask us: “CPAreviewforFree.com provides
such a great service for so many people – how can I help?” That’s
easy—don't pay all those other guys thousands of dollars for mediocre
materials. Go to our store
and (at the very least) review what we have to sell to help you pass
the
CPA Exam. It’s good stuff and it’s a lot less expensive. You can
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business.
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We are able to spend all these countless hours for exactly
one reason: people just like you are willing to buy our products and
support our efforts to be helpful to so many people around the globe.
(2) – Speaking of helping people:
From GB: “I purchased the Accounting Points to Pass and they really helped.“
From KG: “Just wanted to say thanks again for the
excellent information on this website. I've passed two exams on the
first try using it. . . . Thanks, and I will be using this site for my
last 2 exams without hesitation. Great tool for study.”
From JC: “Thank you so much for creating this site. It’s
been a huge resource throughout my studying process. Got my scores back
the other day and got an 81 on AUD and a 75 on BEC! Like you guys say,
anything beyond a 75 means you studied too hard! I already got an 81 on
FAR so now on to REG!”
Ah, such notes just make us all smile around here.
(3) - The Wall Street Journal had a great article
on Wednesday, October 26 titled “Toughest Exam Question: What is the
Best Way to Study?” I personally thought it was super – even going so
far as to talk about what you
should eat on the morning of an exam. After so many years of watching
students take tests (and often doing poorer than they should), I liked
everything they said in this article. Further down in the article,
there is another short essay titled “Tips on Conquering Test-Day
Jitters.”
If
you are going to be taking the CPA Exam (or if you know anyone who is a
student and will be taking tests in the future), it would be a great
idea to read both of these articles.
(4) – I am not sure how many of the people who get these
emails might be impacted by this announcement but it is interesting to
see how the CPA Exam is moving more and more toward becoming a
completely international exam.
Starting in February 2012, the CPA Exam will be given in Brazil.
(5) – It is amazing where a person can manage to find
inspiration. I have often said that inspiration is everywhere in life
if you’ll just open up your eyes and look for it. Inspiration is there
is you are willing to receive it. It is almost like all of life wants
to encourage you to succeed. We seem to live in a negative time where
everyone is angry about everything. But, if you will stay positive
and
look around you with an open mind, you’ll be surprised how much
inspiration there really is.
I was watching a video recently about Islamic Art at the
Metropolitan Museum of Art. The moderator showed this lovely bowl that
was approximately 1,000 years old (you had to wonder how it could have
possibly survived for so long without being cracked or crushed). It
had on it a very interesting and intricate design. It was an extremely
pretty piece. The moderator then went on to explain that the design
was really the words
“planning before work protects you from regret.” The words were the
design.
I liked that idea—the need for planning before work. I
rush around a lot and have a lot of regret. Frequently, I start
working on something and only then do I try to figure out what I want to
get done. Probably not surprising, I’m often inefficient and wind up
wasting lots of valuable time.
Ever since I watched that art video, I have been trying to
do a better job of “planning before work.” I want to get back into the
habit of (a) writing down what I want to do over the next few hours and
then (b) putting those tasks in order of priority before I get
started. I’ll list 5-10 things that I need to get done and then circle
them one at a time and write 1, 2, 3, etc. to indicate what I need to
do first, second, and so
on.
It really has helped me. I’m starting to get more
accomplished. I work a lot of hours but often get frustrated that I
don’t accomplish as much as I should. Too often, I spend a lot of time
and get really tired but wind up feeling like I have under-achieved.
“Planning before work” seems to be helping me. It forces
me to consider what I need to get done and what I really can defer.
So, when you next sit down to plan your day or your
studies. You might try listing out what needs to be done and then
prioritize that list. I find, in preparing for the CPA exam, that it
is very easy to do everything BUT study for the exam. If you don’t
give studying a high priority, it is often easy to put it off until
tomorrow so that it simply never gets done. And, that is no way to get
those 75 points you need to pass this
exam.
Check out the bowl that
I found inspirational, it can be located at the following URL. Can
you imagine, it is 1,000 years old and the message is still special.
(6) – As many people know, I write college textbooks. One
of my books is free online. It is a basic Financial Accounting
textbook. If you know anyone who just wants to read basic Financial
Accounting, click here. You can see the table of contents and read any chapter that you want. This is
not a bad way to review the basics of financial accounting without having to spend money.
(7) – Okay, I know some baseball fans are happy and some
baseball fans are upset by the World Series. However, it is hard not
to feel good about the St. Louis Cardinals. About 5-6 weeks ago, no
one gave them a chance of even getting into the playoffs. They were
out of it and they seemed to have no hope at all. But, not only did
they get into the playoffs on the very last day of the season, they went
all the way to the
final game and became the champions.
It would have been so easy for those players to have given up back in September.
It would have been so easy to say “we just can’t make it so why kill ourselves trying.”
It would have been so easy to say “we are just not good enough this time, maybe we can do better next year.”
But they didn’t give up and things started to go better and they managed to win it all.
In sports, there is nothing quite like watching the final
out of the championship game when all the players rush together to
celebrate. What a wonderful feeling. Success! Victory!
I know a lot of the people who get these email lessons may
be feeling discouraged. It might feel like you are never going to
pass. It is easy to give up. Or, at the least, not study so hard.
It is easy to feel defeated. But if you tell yourself that you can’t
win, you’ll never get anywhere. The moment St. Louis gave up, their
season would have been over. That didn’t give up; they
came back; they won.
I always say that giving up is the easiest thing in the
world. It gives you an excuse to stop trying so hard. It is the
mere fact that St. Louis didn’t give up even when things looked hopeless
that makes their victory so much more exciting.
If victory were easy, it wouldn’t be fun.
If success were assured, you would never experience the excitement.
Yes, passing the CPA Exam is a real challenge. And, yes,
you may fail parts. But, in the long run, the only way that you can
fail is to give up. If you keep pushing, if you keep getting better, if
you keep believing in yourself, if you keep adding points, then one day
you are going to pass. And that day is one that you will remember for
the rest of your life. Every time you think about the day that you
received those passing grades
you’ll feel this exciting tingle run up and down your spine – “it looked
like I was going to come up short but I didn’t give in and, ultimately,
I made it happen.”
That’s the definition of a champion.
St. Louis did it
So can you.
(9) – Time for some practice.
FAR – from my Intermediate Accounting class from Friday.
A company has $900,000 in revenues in Year One. Of that
amount, $350,000 is taxable in Year 5 with the rest taxable
immediately. The company also has $600,000 in expenses. Of this
amount, $300,000 is deductible in Year One for tax purposes, $200,000 in
Year Two, and $100,000 in Year Three. The company believes there is a
53 percent chance that it will have income in Year Two so the expenses
can be deducted and that there is a
46 percent chance that it will have income in Year Three so the expenses
can be deducted. The enacted tax rate is 40 percent. What is income
tax expense-deferred to be recognized in Year One?
A. $20,000
B. $60,000
C. $80,000
D. $140,000
Answer is B
Deferred income taxes are recognized using a balance sheet
approach. Deferred tax liabilities and assets are determined first and
the expense is the amount needed to record those figures. Here, the
deferred tax liability is the tax on the temporary difference that
increases taxable income in Year 5 ($140,000 or $350,000 times 40
percent). The deferred tax asset is the tax on the temporary
differences that will decrease taxable income in
Years 2 and 3 ($200,000 + $100,000 = $300,000 and then times 40 percent
to arrive at $120,000). However, for any deferred tax asset, the
company must also recognize a reduction (a valuation allowance) if
officials believe that the company is not more likely than not to have
income in those years so that the expenses can be used to reduce that
taxable income. The chance is over 50 percent in Year Two (53 percent)
but not in Year Three (46 percent). Therefore,
a valuation allowance is needed for Year Three ($40,000 or $100,000 x 40
percent). The deferred tax asset to be reported is really only
$80,000 ($120,000 minus $40,000). Creating the deferred tax liability
leads to an expense of $140,000. Creating the deferred tax asset leads
to an expense reduction of $80,000. The net change of $60,000
($140,000 minus $80,000) is the income tax expense-deferred.
Regulation
Samson and Delilah form a partnership to create a
business. They will be equal partners. Samson contributes $13,000 in
cash and several pieces of equipment. This equipment had originally
cost $30,000 but now has a tax basis of $21,000. However, it had a
fair value of $24,000. What is Samson’s tax basis in connection with
his interest in this partnership?
A. $13,000
B. $34,000
C. $37,000
D. $43,000
Answer is B
Normally, there is no gain or loss for tax purposes in an
exchange between a partner and a partnership. Therefore, without a
recognized gain or loss, there is no reason to change the tax basis.
The cash has a tax basis of $13,000 and the equipment has a tax basis of
$21,000. The tax basis surrendered was $34,000. That becomes the
taxpayer’s basis in the partnership.
Auditing
An auditor is currently examining invoices that explain
additions recorded to the reporting company’s buildings and equipment
account during the current year. In this particular test, what is the
auditor most concerned about?
A. Net income is overstated.
B. Expenses are overstated.
C. Assets are understated.
D. Liabilities are understated.
Answer is A
The amounts have already been recorded as assets. It is
likely that the amounts have also been recorded as liabilities
(liabilities are credited to offset the debit to the asset account).
Therefore, the assets and liabilities might be overstated but it is hard
to see how they could be understated. And, since an asset has been
recorded (rather than an expense), the expenses cannot be overstated.
The auditor worries
that the capitalized amount in the asset account really should have been
an expense. For example, the amount might have been recorded as an
asset to lower expenses and, therefore, inflate net income. The
auditor is worried that net income is overstated.
BEC
A company has a quick ratio of 1.60 to 1.0
($160,000/$100,000) and a current ratio of 2.00 to 1.0
($200,000/$100,000). At the very last minute in a company’s fiscal
year, it sells an additional $10,000 in inventory on account for
$14,000. Which of the following is true after this last transaction is
recorded?
A. The quick ratio is 1.74 to 1.0
B. The current ratio is 2.14 to 1.0
C. The current ratio is 2.10 to 1.0
D. The quick ratio is 1.64 to 1.0
Answer is A
Accounts receivable is included in determining the quick
ratio but inventory is not. Thus, the only change here for the quick
ratio is that accounts receivable goes up by $14,000 so the computation
is now $174,000/$100,000 or 1.74 to 1.0. For the current ratio, both
the change in accounts receivable (up $14,000) and inventory (down
$10,000) are included. The net impact is an increase of $4,000 so that
the current ratio is now
$204,000/$100,000 or 2.04 to 1.0
Have a great week. Shoot for that victory.
Joe Hoyle
President and CoFounder
CPA review for FREE
