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February 27, 2011
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Lesson 89
From: Joe
(I was going to send this message out several hours ago but my Internet connection went down completely. At such times, I am always reminded of how much we rely on technology.)
(1) – I gave an intermediate accounting test last week. I thought it was a pretty good test—the questions were hard without being impossible. However, there was one devious trick: The students had to read each question rather carefully. Okay, the test was in English and I used relatively small words but you had to actually read what it said rather than scan it quickly and guess at what was being asked.
It was the first test of the semester and the students were very tense and, unfortunately, some of them didn’t really read the questions. It wasn’t that they didn’t know the material; it was that they literally did not read the questions closely enough. Can you believe that? How could you ever try to answer a question without reading it carefully? It was an important test in their major and they didn’t focus on the question. Well, believe it or not, that happens way too often. Students are in such a hurry to start creating answers that they don’t pay sufficient attention to the question. They do not show the patience necessary to read the entire question before they start forming an answer.
Decades ago, candidates could buy back their CPA Exam answers so they could actually see what they had missed and try to do better the next time (the CPA Exam has obviously changed a lot over the decades). I would occasionally sit down with a candidate who had failed and we would go over the questions they missed very carefully. I cannot tell you how often the candidate would look up horror stricken during these sessions and cry out “I knew that question – how could I possibly have chosen the wrong answer? I must have read the question incorrectly.” There we go again, missing questions based on a poor reading.
I have a theory. If are sloppy when we practice, then, when we get to the real game, we will play sloppy. As the old saying goes, “you play like you practice.” In other words, when you practice, if you get used to scanning through questions quickly without focusing on what is being asked, you’ll be likely to do that on the real exam. In my classes, students often excuse themselves for dumb answers by lamenting “oh, I read the question wrong.” And, I will respond “don’t do that! You are picking up bad habits.”
As you work problem after problem to get yourself ready for the CPA Exam, work on focusing on the question to make sure you know
--what is being asked
--the facts that you have available
Then, in most cases, the problem is no more than putting those pieces together in the proper order.
If you miss a question during practice because you didn’t know what to do, that’s okay because you can then work on the topic and learn it. However, if you miss a question due to careless reading, you’ve wasted your time. You’ve not learned a single thing. That is probably the very worse outcome: a mistake by bad reading. Nothing at all happens that can be positive about that.
As you practice, read those questions ever so carefully. Learn to focus during your work sessions and you’ll be more likely to focus in the real exam. Don’t pick up bad habits. That focus will help you to stop giving away points on the CPA Exam through carelessness.
(2) – If you are ready to unsubscribe to these email lessons that I send out every week or two, you can easily scroll to the bottom of this lesson (or any other lesson) and you’ll find the world famous “Unsubscribe” button. Click on that and we will have parted. It will seem sad without you but you do have the right to unsubscribe whenever you so choose.
(3) – My good buddy Professor C. J. Skender at UNC sent me the following great quote. I had asked him what words had inspired him in his life.
“In Rocky IV, Rocky is talking with his son before leaving for Russia to fight Ivan Drago. ‘Going in one more round when you don't think you can, that's what makes all the difference in your life.’"
In studying to pass the CPA Exam (and in so many other things in life), we work until we get tired. Studying day after day can just wear a person totally out. Whether you succeed often depends on what you do AFTER you reach the point of being sick and tired of it all. Anyone can study well when they are fresh and just getting started. That doesn’t prove much. You start really making a difference when you get to the point where you want to quit. Then, what do you do? How tough are you?
A vast majority of people get tired and ready to quit and then they respond by quitting. It certainly takes nothing to put down the pencil and go watch television or go take a nap. That’s easy. That doesn’t make you stronger or more able to take on strong challenges.
It is a whole lot more difficult when you get tired to then push yourself to keep working for another 15-30 minutes. It takes something deep down inside of yourself to push on when you have reached the point when you start to think “Quit.”
Anyone can work well up to the point where you think “I’m ready to stop.” It is the real winners in life who can then push on for another 15-30 minutes even after they are dogged tired and ready to quit for the day.
As Rocky says, “Going in one more round when you don't think you can, that's what makes all the difference in your life."
(4) – Let’s do some practice. Remember to read the questions carefully to make sure you know the facts that are given and the actual question being asked. Don’t miss a single question because of poor reading.
FAR (we worked this problem today in my Intermediate Accounting II class).
On January 1, Year One, Ace Company completes construction work on a warehouse at a cost of $2 million and sells it to a bank for $2.3 million. Ace immediately leases it back for its entire 20 year life for lease payments that have a present value of $2.3 million. The straight-line method is to be used and the warehouse is expected to have no residual value at the end of that 20 years. What amount of depreciation expense is recognized by Ace for Year One?
A. Zero
B. $15,000
C. $100,000
D. $115,000
Answer is C
Initially, in this question, it looks like the depreciation should be the capitalized lease cost of $2.3 million allocated over 20 years at a rate of $115,000 per year. However, in a sale-leaseback arrangement where the asset is leased back for most of its life, any gain on the sale ($300,000 in this case) is not recognized but rather deferred. Then, that deferred gain is reduced over the life of the lease or, here, at the rate of $15,000 per year ($300,000 deferred gain divided over 20 years). The reduction of the deferred gain is not recognized as an actual gain but rather as a reduction of depreciation expense. Therefore, Ace will report depreciation expense of $100,000 ($115,000 less $15,000).
Regulation
My daughter made a ceramic soup bowl at her church. It was red and shaped like a heart. It had a value of $20. Right before the Super Bowl, it was auctioned off by the church and I paid $35 to buy it. What amount of itemized deduction can I claim on my individual income taxes?
A. Zero
B. $15
C. $20
D. $35
Answer is B
If you pay an amount to a qualified charity to acquire an item, then anything you pay over the fair value of the property is viewed as a donation to the organization. Because I paid $15 more than fair value, I can take that as a charitable contribution on my itemized deductions.
BEC
Internal controls are extremely important to the appropriate governance of any organization. In the United States, what group produced the framework for internal controls that is the most commonly used by organizations?
A. FASB
B. PCAOB
C. COSO
D. IASB
Answer is C
The internal control framework that is most commonly used in the United States is “Internal Control—Integrated Framework” produced by COSO. In this, COSO separates internal control into five components: control environment, risk assessment process, control activities, information and communication, and monitoring. COSO is the Committee of Sponsoring Organizations of the Treadway Commission.
Auditing and Attestation
The International Ethics Standards Board for Accountants (IAESB) operates within the International Federation of Accountants (IFAC). It produces ethical standards to be used by accountants around the world. Which of these statements reflects the rules created by the IAESB in connection with the acceptance of contingent fees?
A. The professional accountant should never accept a contingent fee.
B. The professional accountant should only accept contingent fees for audit engagements.
C. The professional accountant should make sure that necessary safeguards are in effect in connection with contingent fees.
D. The professional accountant should only accept contingent fees for tax engagements.
Answer is C.
Because this set of rules must be flexible enough to be applied around the world (where widely differing rules have long been accepted practice), these standards tend to be more general in nature. Note that A, B, and D are all very specific rules. In contrast, C is a general guideline. It does not indicate what is allowed or not allowed. Instead, it requires the company to set up proper safeguards.
Auditing and Attestation (bonus question because we really want you to pass)
In which paragraph of a standard unqualified audit report is the following sentence found: “An audit includes examining all evidence that supports the amounts and disclosures in the financial statements.”
A. First (introductory) paragraph
B. Second (scope) paragraph
C. Third (opinion) paragraph
D. None of the above
Answer is D
The auditor almost never examines all of the evidence for any reported amount or disclosure. Instead, as is explained in the scope paragraph, the auditor looks at evidence on a test basis. A test basis means that items are studied in samples and is sufficient to be able to provide the reasonable assurance which is given by a CPA in an unqualified opinion.
Joe Hoyle
Co-Founder
CPA Review for FREE
Sunday, February 27, 2011
Sunday, February 6, 2011
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Lesson 88
From: Joe
(1) – We went over a 21 million (I still can’t imagine the size of this number) page views in our history last week. That’s an average of 155,606 page views per week for over 2 ½ years. Or, to put it another way, that represents 10,000 candidates answering 15.56 questions EVERY WEEK for 135 weeks.
Wow -- No wonder the pass rates have gone up on the CPA Exam from 33 percent to about 50 percent. That’s a lot of questions answered. That’s an awful lot of points added.
(2) – Please remember that we now have our subscription services available for FAR, BEC, and Regulation. We have hundreds of content slides online (for each of these three sections) along with task-based simulations and written communication questions. All of this is available for a mere $15 per month per section. $.50 per day for great materials.
Here’s a tiny sample of the study guide that we include for the FAR portion of the exam just to give you an idea of how this is set up.
PORTION OF THE STUDY GUIDE FOR FAR
When working questions, you should never guess. Although that is important when taking the actual examination, guessing can be misleading during your preparation (getting a question right by luck might fool you into thinking you actually know the topic). Read each answer carefully, especially if you did not select the correct choice. Your goal is always to be adding points. Your only objective is to get to 75 points on the CPA Exam. You do that by adding points when you study.
Keep a notebook with you whenever you are answering questions. If you miss a question, read the answer and try to take a short note (preferably 10 words or less) that will help you get it (or a similar question) correct the next time you see it. Periodically, you will review those notes to keep that “helpful” material fresh in your mind.
**
One important question for your preparation is whether you should work the free questions first or go through the subscription content material first. Here are two possible approaches. You may want to practice both for a few days to see which seems to work best for you.
*Study Plan One--If You Are Not Already Comfortable With a Topic (such as Accounts Receivable or Leases) Follow These Steps:
--Step 1 – Read the content material first. It is not designed to provide you with an answer for all questions but rather to help you establish a basic level of understanding that will enable you to pass.
--Step 2 - Work the corresponding question area in the free questions. As suggested, take short notes on any of those that you miss.
--Step 3 - If you get 70-80 percent of the free questions correct, move on to the next topic. You probably know enough to pass that topic.
--Step 4 - If you do not get 70-80 percent of the questions correct, read the content material again and then also read all of your 10-word notes for that topic.
--Step 5 - Go through all of the questions again and try to get 10 percent more of the answers correct this time. For example, if you got 20 out of 40 on the first attempt, shoot for 24 the second time.
--Step 6 - Move on to the next topic.
*Study Plan Two--If You Are Already Comfortable With a Topic (such as Accounts Receivable or Leases) Follow These Steps:
--Step 1 – Work the free questions on the topic first. As always, take short (10 word) notes on those questions that you miss.
--Step 2 – If you get 70-80 percent of the free questions correct, move on to the next topic. You probably know enough to pass.
--Step 3 - If you do not get 70-80 percent of the free questions correct, read the related content material (the subscription material) carefully and read all of your 10-word notes for that topic.
--Step 4 - Go through all of the questions again and try to get 10 percent more of the answers correct. If you got 20 out of 40 on the first attempt, shoot for 24 this time.
--Step 5 - Move on to the next topic.
*Study Sessions
The length of the following study sessions can vary from 30 minutes to 3 hours. Study sessions can be combined or they can be broken down into two or more sessions. You need to adjust the program so that it allows you to study when and where you can.
*Study Session One
--Subscription Content Area: Accounts Receivable
--Free Questions: Accounts Receivable
*Study Session Two
--Subscription Content Area: Inventory and Present Value
--Free Questions: Inventory
*Study Session Three
--Subscription Content Area: Notes and Bonds Payable
--Free Questions: Notes and Bonds Payable
*Study Session Four
--Subscription Content Area: Land, Buildings, and Equipment and Intangible Assets
--Free Questions: Land, Buildings, and Equipment and Intangible Assets
*Study Session Five
--Reread all of your 10 word notes for the topics in sessions one through four
--Free Questions: Rework every fourth question in the topics in sessions one through four
Okay, the study guide goes on to outline all of the study sessions but you get the idea of how the program is constructed.
(3) – Here, in the United States, they will be playing the Super Bowl on Sunday. Two teams (the Packers and the Steelers) will be seeking to win the championship of pro football. All of the other teams have lost and gone home.
I’d bet that if you asked the players on these two final teams how they got this far, you’d get a response something like this: “It all goes back to getting properly prepared last summer. When practice first started, we realized that we had a chance to win it all so we dedicated ourselves to doing the work necessary to make it happen. It was hot and the work was both tedious and difficult but we wanted to win so we kept at it day after day. If you want to win, you do the work and you do it right and you do it right from the beginning.”
No one gets good at the last minute.
No one suddenly decides at the end to be a winner.
Success always goes back to the very beginning and whether the person is willing to do the work that it takes to achieve success.
--A lot of players say they want to win but then they cut back on their practice time or simply slack off and don’t try very hard.
--A lot of players say they want to win but then look around for some good luck to carry them forward without the need for real work.
The teams that most often win are the ones who do things (from Day One) in the right way. They do the exercises; they lift the weights; they learn the plays; they practice getting things right over and over. They make the personal sacrifices that it takes to do well. It is not exciting; it is not fun. But, it gets the job done.
If you really want to pass the CPA Exam (if it is more than just lip service), you need to do your study in the right way starting today. You have to be willing to do all of the boring stuff: sitting and working questions, carefully reading answers, reviewing your notes, going over complicated materials time and time again. You have to be willing and able to make sacrifices: turn off the television, drink less beer, go out less often, become more efficient in your daily life.
Success does NOT happen randomly.
Success does NOT happen by accident.
You need to plan for success and you need to do things in the right way.
I do realize that we now live in a society that demands instant gratification. People want positive feedback immediately. People want things to be perfect right now. Well, I’m sorry but the CPA Exam is different. You have to study 60-100 hours per part; you have to go take the exam; and, then, you have to wait weeks for the results. That’s a prime reason why the studying is so difficult: the gratification of (hopefully) passing the CPA Exam only comes weeks or maybe months after you begin to do the hard work. People just don’t do well with a “work very hard now and hopefully you’ll get a positive score in a couple of months” routine.
So, a lot of candidates just won’t make it. They’ll get excited and they’ll get started but without that instant gratification, they fade out. They get tired; they slow down; they quit. When it comes to the CPA Exam, a lot of people start strong but a great many of them give up before they even make it to the CPA Exam.
When it comes to the Super Bowl and to the CPA Exam, you need to realize that success comes from getting started early and then doing the work that is needed in an appropriate manner. As I always say, it is not about being smart; it is not about your level of education. The only thing that really matters is setting up a legitimate plan and then making the sacrifices necessary to follow that plan to success.
Go get it!!! You can do it!!!
(4) – We are always delighted to hear from our customers.
From AC: “I've been meaning to email you, but have been so busy lately. Just wanted to let you know that using only a few books purchased online and your site, I was able to pass the CPA exam last October! I passed REG, FAR, and BEC on my first try and AUD on the second. CPAreviewforFREE helped me for all four sections, but especially for the government and nonprofit portion of FAR. I was also able to sell my books back and ended up only spending $20 in total to study for the exam! Thanks for the website and emails - you guys are the best!”
From SS: “I'm one of many who owe you a big Thank you and hugs. I finished and passed all of my exams in December 2010 and I couldn't have done it without your encouragement, support, motivation, and your website. I've been encouraging my friends to take CPA exams and use your website which was crucial for my experience. I thank you for your kindness and caring approach to CPA candidates all around the world. I will try my hardest to spread your words and motivate people around me.”
We always appreciate your willingness to help us spread the word about www.CPAreviewforFREE.com.
(5) – In case you no longer want to receive these email lessons every 7-10 days, you are certainly able to unsubscribe. Just scroll to the bottom of this lesson or any other lesson and you will find an “unsubscribe” button which allows you to remove your name from our mailing list.
We are always delighted to have you with us but we don’t want to fill up your email box unnecessarily.
(6) – Okay time to get in some practice. Let’s see if we can ask you a couple of questions that will provide you with the opportunity of adding a couple of points to your score. Every point gets you closer to that magic 75 number.
**FAR
As of December 31, Year One, the Ranstok Corporation has three debts that come due in July of Year Two. The company will issue its Year One financial statements on February 22, Year Two. Debt One is for $1 million and the companies agree on January 19, Year Two that land costing $800,000 will be conveyed to the creditor to satisfy the debt. Debt Two is for $2 million and the bank agrees on January 31, Year Two to refinance the debt for an additional two years. Debt Three is for $4 million and the bank gives Ranstok a noncancellable agreement on February 8, Year Two, stating that it will refinance the debt for an additional year on the date that it comes due. According to US GAAP, what current liability should Ranstok report on its December 31, Year One, balance sheet?
A – Zero
B - $1 million
C - $2 million
D - $4 million
Answer is A
In each case, the debtor will not use any of its December 31, Year One, current assets to satisfy the liability. Hence, they must all be reported as noncurrent. The first debt will be paid this year but will be paid with land and not with a current asset. Debt Two has been refinanced before the financial statements are issued and, therefore, the company is sure that its own current assets will not be used. Debt Three has not yet been refinanced but there is a noncancellable agreement to refinance that is signed before the financial statements are issued which assures that the company will not have to use its current assets when the debt comes due. Therefore, there are no current liabilities to be reported.
**BEC
The Thornston Company is preparing a balanced scorecard and is currently looking at this process from the perspective of the company’s customers. A strategic objective has been established that is critical to the company’s success. A performance measure (such as the customer retention rate) has also been selected. What component of a balanced scorecard is most likely to come next?
A. Key initiatives to be taken are identified.
B. Quality enhancement keys are listed.
C. Baseline performance is to be determined.
D. A strategy map needs to be drawn.
Answer is C
Once a company has identified a performance measure such as the customer retention rate, the current level of performance for that measure needs to be determined. That is known as the baseline performance. After that, within the framework of the balanced scorecard, target levels should be set and strategic initiatives identified in order to move from the baseline performance to these targets.
**Regulation
The MIT Car Repair Company repairs a car for Mr. Jones. The cost was $900 but the total charge for the services is $1,400. The company fears that cash payment will not be made by Mr. Jones and retains possession of the car until payment is received. What type of lien is illustrated here?
A. Automotive lien
B. Artisan’s lien
C. McCormack’s lien
D. Jersey lien
Answer is B
An artisan’s lien occurs when one party improves personal property for another and then retains possession of that property until payment is made. Without this type of lien, the party doing the work might have trouble forcing payment to be made.
**Auditing
The Harvard Corporation buys and sells investments during the year and maintains physical control over all stock certificates. The auditor comes in and finds the serial numbers listed on the purchase orders for these investments and then compares those to the actual serial numbers listed on the stock certificates held by the company. What is the auditor worried about when doing such testing?
A. That the stock certificates are counterfeit.
B. That the stock values have been permanently impaired and need to be written down in value.
C. That the stocks were sold by company employees and then replaced.
D. That the initial cost of the stocks was miscalculated.
Answer is C
If stock certificates are held by a company, one concern is that an employee is able to “borrow” the certificate, sell the stock, make use of the money for a period of time, and then buy a replacement certificate so that the absence is not noticed. In effect, the money received from the sale serves as an interest free loan for the employee. Therefore, if the serial numbers on the certificates do not match with the numbers indicated for the original purchase, the auditor knows that it is likely that the stocks were stolen and then replaced as a way of covering up the crime.
Enjoy watching the Super Bowl but remember that YOUR SUPER BOWL is the CPA Exam. And, just like the Packers and the Steelers, you become a winner based on the amount of work that you do right now.
Joe Hoyle
President and Co-Founder
CPAreviewforFREE
135 Weeks of Operation and 21,006,849 Page Views (without a penny spent on marketing)
Lesson 88
From: Joe
(1) – We went over a 21 million (I still can’t imagine the size of this number) page views in our history last week. That’s an average of 155,606 page views per week for over 2 ½ years. Or, to put it another way, that represents 10,000 candidates answering 15.56 questions EVERY WEEK for 135 weeks.
Wow -- No wonder the pass rates have gone up on the CPA Exam from 33 percent to about 50 percent. That’s a lot of questions answered. That’s an awful lot of points added.
(2) – Please remember that we now have our subscription services available for FAR, BEC, and Regulation. We have hundreds of content slides online (for each of these three sections) along with task-based simulations and written communication questions. All of this is available for a mere $15 per month per section. $.50 per day for great materials.
Here’s a tiny sample of the study guide that we include for the FAR portion of the exam just to give you an idea of how this is set up.
PORTION OF THE STUDY GUIDE FOR FAR
When working questions, you should never guess. Although that is important when taking the actual examination, guessing can be misleading during your preparation (getting a question right by luck might fool you into thinking you actually know the topic). Read each answer carefully, especially if you did not select the correct choice. Your goal is always to be adding points. Your only objective is to get to 75 points on the CPA Exam. You do that by adding points when you study.
Keep a notebook with you whenever you are answering questions. If you miss a question, read the answer and try to take a short note (preferably 10 words or less) that will help you get it (or a similar question) correct the next time you see it. Periodically, you will review those notes to keep that “helpful” material fresh in your mind.
**
One important question for your preparation is whether you should work the free questions first or go through the subscription content material first. Here are two possible approaches. You may want to practice both for a few days to see which seems to work best for you.
*Study Plan One--If You Are Not Already Comfortable With a Topic (such as Accounts Receivable or Leases) Follow These Steps:
--Step 1 – Read the content material first. It is not designed to provide you with an answer for all questions but rather to help you establish a basic level of understanding that will enable you to pass.
--Step 2 - Work the corresponding question area in the free questions. As suggested, take short notes on any of those that you miss.
--Step 3 - If you get 70-80 percent of the free questions correct, move on to the next topic. You probably know enough to pass that topic.
--Step 4 - If you do not get 70-80 percent of the questions correct, read the content material again and then also read all of your 10-word notes for that topic.
--Step 5 - Go through all of the questions again and try to get 10 percent more of the answers correct this time. For example, if you got 20 out of 40 on the first attempt, shoot for 24 the second time.
--Step 6 - Move on to the next topic.
*Study Plan Two--If You Are Already Comfortable With a Topic (such as Accounts Receivable or Leases) Follow These Steps:
--Step 1 – Work the free questions on the topic first. As always, take short (10 word) notes on those questions that you miss.
--Step 2 – If you get 70-80 percent of the free questions correct, move on to the next topic. You probably know enough to pass.
--Step 3 - If you do not get 70-80 percent of the free questions correct, read the related content material (the subscription material) carefully and read all of your 10-word notes for that topic.
--Step 4 - Go through all of the questions again and try to get 10 percent more of the answers correct. If you got 20 out of 40 on the first attempt, shoot for 24 this time.
--Step 5 - Move on to the next topic.
*Study Sessions
The length of the following study sessions can vary from 30 minutes to 3 hours. Study sessions can be combined or they can be broken down into two or more sessions. You need to adjust the program so that it allows you to study when and where you can.
*Study Session One
--Subscription Content Area: Accounts Receivable
--Free Questions: Accounts Receivable
*Study Session Two
--Subscription Content Area: Inventory and Present Value
--Free Questions: Inventory
*Study Session Three
--Subscription Content Area: Notes and Bonds Payable
--Free Questions: Notes and Bonds Payable
*Study Session Four
--Subscription Content Area: Land, Buildings, and Equipment and Intangible Assets
--Free Questions: Land, Buildings, and Equipment and Intangible Assets
*Study Session Five
--Reread all of your 10 word notes for the topics in sessions one through four
--Free Questions: Rework every fourth question in the topics in sessions one through four
Okay, the study guide goes on to outline all of the study sessions but you get the idea of how the program is constructed.
(3) – Here, in the United States, they will be playing the Super Bowl on Sunday. Two teams (the Packers and the Steelers) will be seeking to win the championship of pro football. All of the other teams have lost and gone home.
I’d bet that if you asked the players on these two final teams how they got this far, you’d get a response something like this: “It all goes back to getting properly prepared last summer. When practice first started, we realized that we had a chance to win it all so we dedicated ourselves to doing the work necessary to make it happen. It was hot and the work was both tedious and difficult but we wanted to win so we kept at it day after day. If you want to win, you do the work and you do it right and you do it right from the beginning.”
No one gets good at the last minute.
No one suddenly decides at the end to be a winner.
Success always goes back to the very beginning and whether the person is willing to do the work that it takes to achieve success.
--A lot of players say they want to win but then they cut back on their practice time or simply slack off and don’t try very hard.
--A lot of players say they want to win but then look around for some good luck to carry them forward without the need for real work.
The teams that most often win are the ones who do things (from Day One) in the right way. They do the exercises; they lift the weights; they learn the plays; they practice getting things right over and over. They make the personal sacrifices that it takes to do well. It is not exciting; it is not fun. But, it gets the job done.
If you really want to pass the CPA Exam (if it is more than just lip service), you need to do your study in the right way starting today. You have to be willing to do all of the boring stuff: sitting and working questions, carefully reading answers, reviewing your notes, going over complicated materials time and time again. You have to be willing and able to make sacrifices: turn off the television, drink less beer, go out less often, become more efficient in your daily life.
Success does NOT happen randomly.
Success does NOT happen by accident.
You need to plan for success and you need to do things in the right way.
I do realize that we now live in a society that demands instant gratification. People want positive feedback immediately. People want things to be perfect right now. Well, I’m sorry but the CPA Exam is different. You have to study 60-100 hours per part; you have to go take the exam; and, then, you have to wait weeks for the results. That’s a prime reason why the studying is so difficult: the gratification of (hopefully) passing the CPA Exam only comes weeks or maybe months after you begin to do the hard work. People just don’t do well with a “work very hard now and hopefully you’ll get a positive score in a couple of months” routine.
So, a lot of candidates just won’t make it. They’ll get excited and they’ll get started but without that instant gratification, they fade out. They get tired; they slow down; they quit. When it comes to the CPA Exam, a lot of people start strong but a great many of them give up before they even make it to the CPA Exam.
When it comes to the Super Bowl and to the CPA Exam, you need to realize that success comes from getting started early and then doing the work that is needed in an appropriate manner. As I always say, it is not about being smart; it is not about your level of education. The only thing that really matters is setting up a legitimate plan and then making the sacrifices necessary to follow that plan to success.
Go get it!!! You can do it!!!
(4) – We are always delighted to hear from our customers.
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(6) – Okay time to get in some practice. Let’s see if we can ask you a couple of questions that will provide you with the opportunity of adding a couple of points to your score. Every point gets you closer to that magic 75 number.
**FAR
As of December 31, Year One, the Ranstok Corporation has three debts that come due in July of Year Two. The company will issue its Year One financial statements on February 22, Year Two. Debt One is for $1 million and the companies agree on January 19, Year Two that land costing $800,000 will be conveyed to the creditor to satisfy the debt. Debt Two is for $2 million and the bank agrees on January 31, Year Two to refinance the debt for an additional two years. Debt Three is for $4 million and the bank gives Ranstok a noncancellable agreement on February 8, Year Two, stating that it will refinance the debt for an additional year on the date that it comes due. According to US GAAP, what current liability should Ranstok report on its December 31, Year One, balance sheet?
A – Zero
B - $1 million
C - $2 million
D - $4 million
Answer is A
In each case, the debtor will not use any of its December 31, Year One, current assets to satisfy the liability. Hence, they must all be reported as noncurrent. The first debt will be paid this year but will be paid with land and not with a current asset. Debt Two has been refinanced before the financial statements are issued and, therefore, the company is sure that its own current assets will not be used. Debt Three has not yet been refinanced but there is a noncancellable agreement to refinance that is signed before the financial statements are issued which assures that the company will not have to use its current assets when the debt comes due. Therefore, there are no current liabilities to be reported.
**BEC
The Thornston Company is preparing a balanced scorecard and is currently looking at this process from the perspective of the company’s customers. A strategic objective has been established that is critical to the company’s success. A performance measure (such as the customer retention rate) has also been selected. What component of a balanced scorecard is most likely to come next?
A. Key initiatives to be taken are identified.
B. Quality enhancement keys are listed.
C. Baseline performance is to be determined.
D. A strategy map needs to be drawn.
Answer is C
Once a company has identified a performance measure such as the customer retention rate, the current level of performance for that measure needs to be determined. That is known as the baseline performance. After that, within the framework of the balanced scorecard, target levels should be set and strategic initiatives identified in order to move from the baseline performance to these targets.
**Regulation
The MIT Car Repair Company repairs a car for Mr. Jones. The cost was $900 but the total charge for the services is $1,400. The company fears that cash payment will not be made by Mr. Jones and retains possession of the car until payment is received. What type of lien is illustrated here?
A. Automotive lien
B. Artisan’s lien
C. McCormack’s lien
D. Jersey lien
Answer is B
An artisan’s lien occurs when one party improves personal property for another and then retains possession of that property until payment is made. Without this type of lien, the party doing the work might have trouble forcing payment to be made.
**Auditing
The Harvard Corporation buys and sells investments during the year and maintains physical control over all stock certificates. The auditor comes in and finds the serial numbers listed on the purchase orders for these investments and then compares those to the actual serial numbers listed on the stock certificates held by the company. What is the auditor worried about when doing such testing?
A. That the stock certificates are counterfeit.
B. That the stock values have been permanently impaired and need to be written down in value.
C. That the stocks were sold by company employees and then replaced.
D. That the initial cost of the stocks was miscalculated.
Answer is C
If stock certificates are held by a company, one concern is that an employee is able to “borrow” the certificate, sell the stock, make use of the money for a period of time, and then buy a replacement certificate so that the absence is not noticed. In effect, the money received from the sale serves as an interest free loan for the employee. Therefore, if the serial numbers on the certificates do not match with the numbers indicated for the original purchase, the auditor knows that it is likely that the stocks were stolen and then replaced as a way of covering up the crime.
Enjoy watching the Super Bowl but remember that YOUR SUPER BOWL is the CPA Exam. And, just like the Packers and the Steelers, you become a winner based on the amount of work that you do right now.
Joe Hoyle
President and Co-Founder
CPAreviewforFREE
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