Try us FIRST before you spend your hard-earned money.
June 14, 2011
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,200 FREE CPA Review Questions and Answers Available for YOU
154 Weeks of Operation and 24,755,208 Page Views (an average of over 160,000 page views per week for approximately three solid years)
Lesson 98
From: Joe
(1) – Do you ever wonder whether all those other review programs ever pay any attention to CPA Review for FREE (www.CPAreviewforFREE.com)? If you ask them, they will tell you that they pay no attention to us at all.
Well, here’s some information you might find interesting.
---We are able to trace where the traffic to our website comes from. Last month, we had 269 visits from one of the major review courses—IN ONE MONTH! We don’t know what they were looking for but they sure were interested in our website.
---Another major review course now boasts on its website “Experience the best in CPA Exam Review for FREE. Just enter….” I even wrote that review program to suggest that they needed to hire someone who could come up with some new ideas of their own. At the very least, they could have made it sound different.
---Another CPA review website just recently started bragging that they are going to start giving away a “FREE study planner.” Oh my goodness, where did that idea come from, I wonder? What a coincidence.
Okay, here is my point – these other review programs are asking for thousands of your dollars. They have one goal: your money in their pockets And, yet, they can’t even come up with their own ideas.
--We are the innovative ones.
--We are the ones who have the ideas.
--We are the ones who care about you enough to do this week in and week out.
--All those other review programs have is just fancy marketing.
--Don’t be fooled.
--When’s the last time they had a creative educational idea that they didn’t get from us?
So, shouldn’t you go directly to the source?
Shouldn’t you trust the people who actually come up with the ideas and not the ones who follow 8 steps behind?
--Our 2,200 questions and answers are free – always have been, always will be.
--Our subscription service has hundreds of pages of content about each topic you need to know.
--Our subscription service has examples of ten task-based simulations per part and numerous written communication questions for BEC.
--Our subscription service provides a study guide to show you how to combine our free questions and our subscription service.
--Our subscription service cost $15 per month per part. Yeah – 50 cents per day.
What do we ask? Give us $15 and try one part for one month. At the end of that month, give us another $15 or give the other guys $2,500. That is a very reasonable approach. Worst case scenario – you lose $15. Best case scenario – you save thousands.
Why not go with the people who have all the real ideas and not the ones who obviously don’t?
(2) – In my last email, I talked all about our latest (and potentially greatest) addition to CPA Review: Points to Pass. Questions that you can work over and over until you can get them right every time. We have had a lot of questions about how soon that will be available. We plan to roll out the FAR version in the next week or two. Stay tuned.
(3) – If you are a college student, I want you to know that we will have an exhibit table at the Beta Alpha Psi convention in Denver this August. If you are a member of BAP and will be there, please stop by the booth and say hello. We have the niftiest gifts to hand out. I stole five of them for myself.
(4) – We posted the following note on our Facebook page a couple of days ago. This is exactly what we want to hear from each of you. This is what victory sounds like. This is what success feels like. This is what we want for you.
“I just wanted you to know that I used CPAreviewforfree.com and have just been issued my CPA license from the North Carolina Board of Accountancy. Thanks for all you have done to help me and so many others prepare for this exam. RB, CPA”
Our wants are simple – we want to see you get four grades of 75 so you can move on with your life and your career (with your money still in your pocket).
(5) – They played a great basketball game on Sunday night. It was a game that went back and forth. One team got ahead and then the other team caught up and got ahead. It proved to be the final game of the season because Dallas won and took the championship.
Those guys had been practicing and playing for at least 9-10 months day in and day out.
--Do you think they ever got tired along the way?
--Do you think they ever got discouraged?
--Do you think they ever wanted to slack off?
--Do you think they ever wanted to give up?
Of course they did – it is a long season that requires an incredible amount of work—day after day, week after week. But, they won the championship because they stuck with it. Even in the dark days, they kept pushing themselves on.
Giving up is easy. Slacking off is easy.
You know how it starts. One day you quit studying early and promise yourself to make up the time tomorrow. But, tomorrow, you study a bit less. Studying less feels good and you start to make excuses. When you don’t want to do something, any excuse will work. You start to give yourself permission to lose.
Sticking with it takes courage. Sticking with it takes heart.
If you ask the Dallas players today how success feels, I guarantee they will tell you it feels absolutely wonderful. They had a dream of being the champions and now they have the trophy. They will always know what being the champion feels like.
Your dream is to pass the CPA Exam.
Your dream is to get your scores and see 75 or more on all four parts.
Your dream is to be able to tell your friends and family that you have passed a very difficult test.
And, like a basketball championship, it is not easy. It is real work. They don’t give you points for smiling. They give you points because you are able to answer questions. And, you become able to do that through long hours of practice where you sit and answer questions and read answers and take notes.
They work in a hot gym for hours and hours. You sit in front of a computer screen and work question after question.
No, success is never easy. Success requires courage and heart.
Everyone wants success but not everyone is willing to do the work that it takes.
Dallas did it.
So can you.
(6) – To unsubscribe from these weekly email lessons, just scroll to the bottom of this screen or any other email lesson and click on “Unsubscribe.” We hope you’ll stay. We like talking with you. We appreciate it when you tell others about us (well, don’t tell those other review courses since they seem to like our ideas too much). We are glad to have you get these emails lessons.
Please stay just as long as you wish.
(7) – Let’s do some practice. More importantly, let’s add some points. My goal is always the same – after you read each of these questions and answers can you get them right the NEXT TIME you see them. If so, you are adding points and that’s the real secret to success on the CPA Exam.
Okay, here’s what I decided to do this week. I wanted to give you a feel for the information available in our subscription service. So, for each part of the exam, I went into our subscription service and picked a general topic (like inventory or contract law). Then, I randomly scrolled down through that topic and stopped. Wherever I landed, I took that material and used it to write the following questions for you. If you are using our subscription service, the answers to each question are readily available
FAR
The Lutz Company is using IFRS to prepare its annual financial statements. Under IFRS, revaluation of fixed assets is permitted but it must be done for an entire class of assets. One class of the company’s fixed assets has gone up in value. Another class of fixed assets has gone down in value. What is the impact of revaluation under IFRS?
A. Decrease in value reduces net income; increase in value increases accumulated other comprehensive income.
B. Decrease in value reduces net income; increase in value increases net income.
C. Decrease in value reduces accumulated other comprehensive income; increase in value increases accumulated other comprehensive income.
D. Decrease in value reduces accumulated other comprehensive income; increase in value increases net income.
Answer is A
Probably because of the conservatism that is inherent in much of financial accounting, if a class of assets goes down in value, IFRS reflects that revaluation as a reduction in net income. However, if a class of assets goes up in value, IFRS reflects that revaluation as an increase in accumulated other comprehensive income (within stockholders’ equity on the balance sheet) rather than in net income.
Auditing and Attestation
In auditing, what is meant by the term “inherent risk?”
A. It is the chance that a reporting entity will go bankrupt regardless of its current financial position.
B. It is the chance that a material misstatement will exist in a financial statement assertion, assuming no re¬lated internal controls are in place.
C. It is the chance that an independent auditor will make a mistake purely because of being a human being.
D. It is the chance that an independent auditor will see a material misstatement but not recognize that it a material misstatement.
Answer is B.
When an audit is started, the independent auditor needs to assess the inherent risk which is the chance that a material misstatement exists in one of the financial statement assertions. Companies with great accounting systems, well-trained employees and transactions that do not contain a lot of risk may have virtually no inherent risk. Material misstatements probably will not occur. Other companies with poorly designed accounting systems or untrained employees or very risky transactions may have an incredible amount of inherent risk. As you can imagine, the work that the independent auditor does to reduce audit risk to an acceptably low level is impacted significantly by the assessed level of inherent risk.
BEC
The Jones Corporation is publicly-held and subject to the rules of the SEC. In the current period, to reduce its registration costs, the company issued unregistered bonds directly to a specific number of accredited investors. This practice is common. What is it called?
A. Undisclosed sale
B. Private placement
C. Accredited sale
D. Approved sale
Answer is B
The SEC has certain rules that permit the private placement of securities. These rules allow the sale of securities with only a limited amount of registration and disclosure information which will save the company money. Such an issuance is referred to as a private placement.
Regulation
The Lambert Company bought a piece of equipment this year on October 9. The company’s tax return is filed on a calendar year basis. MACRS (the Modified Accelerated Cost Recovery ) is used to determine depreciation for income tax purposes. Which of the following is true as to the amount of depreciation that can be recognized in this initial year?
A. Lambert can take no depreciation
B. Lambert should take a full year of depreciation.
C. Lambert can take depreciation for 3/12 of the year.
D. Lambert can take depreciation for 1/2 of the year.
Answer is D.
According to the rules of MACRS, personal property is treated as placed in service or disposed of at the midpoint of the taxable year, resulting in a half-year of depreciation for the year in which the property is placed in service or disposed of by the company.
Hey, it is a beautiful day here in Richmond. I hope it is beautiful wherever you are today.
Work hard
Add points
We really do want you to pass and get on with your lives.
Do me a favor – give someone a hug today and tell them that you are cheering for them. It might make all the difference in the world to that person.
Joe Hoyle
Co-Founder and President
CPA Review for FREE
www.CPAreviewforFREE.com
Tuesday, June 14, 2011
Tuesday, June 7, 2011
Go Forth Boldly and Challenge the CPA Exam
Try us FIRST before you spend your hard-earned money.
June 7, 2011
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,200 FREE CPA Review Questions and Answers Available for YOU
153 Weeks of Operation and 24,621,047 Page Views
Lesson 97
From: Joe
(1) – We just added a few additional Tips to our “Tips for Success” column on our website (www.CPAreviewforFREE.com). Go to the homepage and you’ll see “CPA Exam Resources” in the lower left. “Tips for Success” should be the fourth article on that list.
(2) – I am truly excited that, in two weeks, we will be adding a brand new product to our list. We are always thinking of ways to help you pass. Okay, for now, it is only for FAR. It addresses the concern that every candidate must face:
--You work a question.
--You miss the question.
--You read the answer carefully.
--You think you understand the answer so you want to work another question again to see if you can get it correct this time. (Have you really learned it?) However, you already know the answer to that question so it really doesn’t prove anything to do the same question again.
What you really want is another question in the same category that you can keep working as many times as you want as long as you want--unlimited questions! Yea, that would be a big help.
Welcome to: POINTS TO PASS
If you subscribe to this program, the software will generate a stream of new questions so that you can try again (and again and again) until you are sure you have mastered the material. The best way to practice is to practice and Points to Pass allows you to do that for as long as you want.
Points to Pass will generate an entirely new question.
If you really understand the concept, you will get the correct answer. If not, you can read the answer carefully and try again with a newly generated question until you are comfortable with this computation.
I just think this is the absolute greatest way ever to prepare for the CPA Exam. And we will have FAR available on a subscription basis in about two weeks – stay tuned.
(3) – I was in Norfolk, Virginia a few weeks back on a Sunday morning. I walked into an old-timey bookstore, the kind you used to see before they started getting to be the size of large barns. The first thing I noticed was a little sign that asked the question “what would you set out to do in life if you had no fear of failure?”
Interesting question – one that I have thought a lot about since that morning. We are all ruled (at least somewhat) by fear. There are lots of things that we really want to do except we are afraid to try. We are timid. We all hold back because we worry about what might happen if we do not succeed. Instead of focusing on what we might be able to accomplish, we try to stay totally safe. Failure gets built up in our minds until it is this huge ogre that is going to hurt us with an ax.
Come on, really?
I’ve known lots of people who became so obsessed with the possibility of failure that they would not even take the exam. They were never able to walk in and take it for fear of failure.
What will really happen if you fail the CPA Exam?
--You’ll feel bad for a day or two.
--You’ll wonder how you could have gotten a few more questions correct.
--You’ll fuss that you got too many weird questions.
--You’ll wish you had been a bit more careful and managed your time better.
And then you’ll move on and start thinking about getting back into your preparation. You’ll start adding points again and working to do things slightly better. Life is full of trial and error – you’ll start working on doing better the next time so you will pass.
So, put all thoughts of failure out of your mind. Such thoughts are never helpful and, in truth, those thoughts will just seem a lot scarier than necessary. The fear of failure will hold you back and make you cautious. Thinking about failure doesn’t do you any good and it will probably make you play scared.
I don’t like playing scared. That’s not what life is all about. Instead of thinking about failure, I want you to have Power Thoughts.
--I am going to learn this stuff.
--If other people can do this, so can I.
--It just takes time and I’m going to give it the time that it needs.
--If I add a point or two every day, I’ll be able to pass in no time.
--I will make the time today to get in the study that I need.
--I can make this happen.
--I can work one more question and read one more answer.
You need Power Thoughts. You need Power Thoughts every day to keep up your spirits. You don’t need to play scared. I recently heard a person mention a favorite saying of mine: “Why not go out on a limb? Isn't that where the fruit is?”
Go after the exam, don’t let it come after you.
Go after those hours of study.
Go after the knowledge you need.
Go after those points and don’t quit going for them until you have 75.
Go boldly after the CPA Exam. Nothing is accomplished by being afraid.
(4) – We love having 20,000 subscribers – we hope you’ll go out and get us some more subscribers. Explain to people what they are missing.
However, if you ever decide that you want to unsubscribe, just scroll to the bottom of this email and click on “unsubscribe.” You can do that if and when you are ready to stop receiving these email messages.
(5) – One of my former students came by my office this afternoon to talk about the CPA Exam. She graduated a few weeks ago and is studying hard so she can knock out some/all of the exam over the summer. She asked specifically about the three written communication questions included in BEC.
The best thing you can do for the written communications questions is to go to www.cpa-exam.org and click on Tutorial and Sample Tests. Then, select the Sample Tests for downloading. They will give you five multiple-choice questions. After you submit those answers, they give you two examples of written communications questions. That shows you the kinds of questions that you are going to see.
It is very important to understand that they include the following information (I may have missed a word or two but this is the basic idea).
“REMINDER: Your response will be graded for both technical content and writing skills. Technical content will be evaluated for infor¬mation that is helpful to the intended reader and clearly relevant to the issue. Writing skills will be evaluated for development, organi¬zation, and the appropriate expression of ideas in professional correspondence. Use a standard business memo or letter format with a clear beginning, middle, and end. Do not convey information in the form of a table, bullet point list, or other abbreviated presentation.”
In other words, write something that is clear and understandable and addresses the question in a professional manner. Make it look like it was written by a CPA.
I gave my student the following example: you might be told that a client runs a manufacturing operation and wants you to suggest a method for reporting a by-product that is created as a result of this process. That seemed like a reasonable question that a CPA might encounter in practice and would fall under the BEC topics.
My student then asked the obvious question. “What if I don’t know a specific method for handling a by-product? Do I just leave the answer blank and get a zero?”
Absolutely not!!! The answer is graded twice. First, it is read to determine whether it is “on topic” – in other words is the written answer about the accounting for by-products? If it is not, if you have written about deferred taxes or contract law, you get a zero regardless of how well written the answer is. The answer has to address the question.
If your answer is “on topic,” then the question goes through a second grading where points are given for your use of the English language as described above. Notice, that the second grading is about the use of the language and not about whether the answer is right or wrong. The rest of the BEC exam tests your knowledge of content. That is not the purpose of the written communication questions. So, you do have to be “on content,” you do have to write about the subject in question. After that, though, the points are given based on proper use of English and not on how well you did getting the answer perfectly correct.
(6) – Remember a free study guide is available to show you how to combine our free questions and answers with our content subscription service ($15 per month per part) if you’ll identify the part that you are going to study next in an email to Jhoyle@cpareviewforfree.com. It is not fair to ask you to spend money without showing you how the program works.
(7) – Review – let’s add some points. Let’s do some practice.
FAR – Just to show you how a program like Points to Pass works, I went to our free question and answer data base and selected a question and answer. Then, I made some changes so that you can try the topic again.
You can find the following question in our database of questions:
(a) - The James Company starts Year One with accounts receivable of $370,000 and an allowance for doubtful accounts of $22,200 (a credit balance). During the year, credit sales of $1.9 million were made and cash of $1.2 million was collected. Accounts with a total balance of $50,000 were written off during the period as uncollectible. Company officials believe that 6 percent of ending accounts receivables will eventually prove to be uncollectible. What should James Company report as its bad debt expense for this year?
A - $61,200
B - $68,400
C - $89,000
D - $92,000
The answer is C.
In applying the percentage of receivables approach to bad debts, the allowance for doubtful accounts is the balance being estimated. The ending receivable balance is $370,000 plus $1.9 million less $1.2 million less $50,000 or $1,020,000. Because 6 percent is the estimated amount of uncollectible accounts, the company needs to report an allowance for doubtful accounts of $61,200 ($1,020,000 x 6 percent). Bad debt expense is the amount of adjustment that is needed so that the year-end allowance reports this $61,200. Prior to the adjustment, the allowance has a debit balance of $27,800 (the original $22,200 credit reduced by $50,000 in accounts written off). The company must turn the $27,800 debit balance into the proper $61,200 credit balance. To do so, an expense of $89,000 is recognized.
**
Let’s assume you missed the above question, you read the answer carefully and now you want to try again. You tell Points to Pass to show you a second question on this topic and here is what you get.
(b) The Robertson Company starts Year One with accounts receivable of $510,000 and an allowance for doubtful accounts of $41,000 (a credit balance). During the year, credit sales of $2.3 million were made and cash of $1.9 million was collected. Accounts with a total balance of $60,000 were written off during the period as uncollectible. Company officials believe that 5 percent of ending accounts receivables will eventually prove to be uncollectible. What should Robertson Company report as its bad debt expense for this year?
A - $42,500
B - $61,500
C - $64,500
D - $69,500
The answer is B.
In applying the percentage of receivables approach to bad debts, the allowance for doubtful accounts is the balance being estimated. The ending receivable balance is $510,000 plus $2.3 million less $1.9 million less $60,000 or $850,000. Because 5 percent is the estimated amount of uncollectible accounts, the company needs to report an allowance for doubtful accounts of $42,500 ($850,000 x 5 percent). Bad debt expense is the amount of adjustment that is needed so that the year-end allowance reports this $42,500. Prior to the adjustment, the allowance has a debit balance of $19,000 (the original $41,000 credit reduced by $60,000 in accounts written off). The company must turn the $19,000 debit balance into the proper $42,500 credit balance. To do so, an expense of $61,500 is recognized.
AND, you can keep requesting questions under Points to Pass until you know exactly how to work this question. Every time I see this I just know how much it will help YOU to pass the FAR portion of the CPA Exam.
Auditing and Attestation
The treasurer of a company has stolen $10,000 in cash from the company. At the end of the year, he is afraid that he will be caught so he transfers $10,000 from one company bank account to another. He records the deposit on December 31 of the first year so that $10,000 cash is added. He does not record the withdrawal from the other account until January 1 of the second year. As a result, for one day, the company looks like it has $10,000 more than it really does. What is this deception called?
A. Kiting
B. Lapping
C. Simultaneous Origination
D. Zero Line Fraud
Answer is A
When money is moved from one account to another but the deposit and the withdrawal are recorded in different time periods to inflate the amount of cash being reported, the term “kiting” is used to identify that fraud.
BEC
A company spends $100,000 to produce 20,000 pounds of product A. However, in that process, 3,000 pounds of product Z are produced. It is viewed as a by-product because it can only be sold for $5 per pound after spending $3 per pound to process it enough to be sold. The company chooses to record this by-product at its net realizable value. What is the cost of a pound of product A?
A. $4.25 per pound
B. $4.50 per pound
C. $4.70 per pound
D. $5.00 per pound
Answer is C
The net realizable value of the by-product is the $5.00 sales price less the $3.00 to be spent on processing or $2.00 per pound. For 3,000 pounds, that is a net realizable value of $6,000. The by-product is recorded at its net realizable value so $6,000 is moved from the $100,000 cost into a by-product inventory account. That leaves $94,000 assigned just to product A. There are 20,000 pounds of product A so the cost is $4.70 per pound.
Regulation
Mr. and Mrs. Stremble were married at the age of 30 and lived together until the current year when Mrs. Stremble died at the age of 70. Mr. Stremble received $100,000 in cash from a life insurance policy. They had paid, as a couple, a total of $40,000 in premiums over the years on this policy. What amount of income must he include in his current tax return as a result of receiving the $100,000 payment?
A. Zero
B. $60,000
C. $80,000
D. $100,000
Answer is A.
Life insurance premiums paid by the couple were never deductible but the proceeds, when received at the time of death, are not taxable. Money from a life insurance policy is not viewed as “income” and, therefore, is not taxed as taxable income.
Have a great week. It has been a beautiful day here in Richmond. Enjoy each day but make sure to make time to do your studies and add some points. Don’t be afraid – go forward boldly.
Joe Hoyle
President
CPA review for FREE
www.CPAreviewforFREE.com
June 7, 2011
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,200 FREE CPA Review Questions and Answers Available for YOU
153 Weeks of Operation and 24,621,047 Page Views
Lesson 97
From: Joe
(1) – We just added a few additional Tips to our “Tips for Success” column on our website (www.CPAreviewforFREE.com). Go to the homepage and you’ll see “CPA Exam Resources” in the lower left. “Tips for Success” should be the fourth article on that list.
(2) – I am truly excited that, in two weeks, we will be adding a brand new product to our list. We are always thinking of ways to help you pass. Okay, for now, it is only for FAR. It addresses the concern that every candidate must face:
--You work a question.
--You miss the question.
--You read the answer carefully.
--You think you understand the answer so you want to work another question again to see if you can get it correct this time. (Have you really learned it?) However, you already know the answer to that question so it really doesn’t prove anything to do the same question again.
What you really want is another question in the same category that you can keep working as many times as you want as long as you want--unlimited questions! Yea, that would be a big help.
Welcome to: POINTS TO PASS
If you subscribe to this program, the software will generate a stream of new questions so that you can try again (and again and again) until you are sure you have mastered the material. The best way to practice is to practice and Points to Pass allows you to do that for as long as you want.
Points to Pass will generate an entirely new question.
If you really understand the concept, you will get the correct answer. If not, you can read the answer carefully and try again with a newly generated question until you are comfortable with this computation.
I just think this is the absolute greatest way ever to prepare for the CPA Exam. And we will have FAR available on a subscription basis in about two weeks – stay tuned.
(3) – I was in Norfolk, Virginia a few weeks back on a Sunday morning. I walked into an old-timey bookstore, the kind you used to see before they started getting to be the size of large barns. The first thing I noticed was a little sign that asked the question “what would you set out to do in life if you had no fear of failure?”
Interesting question – one that I have thought a lot about since that morning. We are all ruled (at least somewhat) by fear. There are lots of things that we really want to do except we are afraid to try. We are timid. We all hold back because we worry about what might happen if we do not succeed. Instead of focusing on what we might be able to accomplish, we try to stay totally safe. Failure gets built up in our minds until it is this huge ogre that is going to hurt us with an ax.
Come on, really?
I’ve known lots of people who became so obsessed with the possibility of failure that they would not even take the exam. They were never able to walk in and take it for fear of failure.
What will really happen if you fail the CPA Exam?
--You’ll feel bad for a day or two.
--You’ll wonder how you could have gotten a few more questions correct.
--You’ll fuss that you got too many weird questions.
--You’ll wish you had been a bit more careful and managed your time better.
And then you’ll move on and start thinking about getting back into your preparation. You’ll start adding points again and working to do things slightly better. Life is full of trial and error – you’ll start working on doing better the next time so you will pass.
So, put all thoughts of failure out of your mind. Such thoughts are never helpful and, in truth, those thoughts will just seem a lot scarier than necessary. The fear of failure will hold you back and make you cautious. Thinking about failure doesn’t do you any good and it will probably make you play scared.
I don’t like playing scared. That’s not what life is all about. Instead of thinking about failure, I want you to have Power Thoughts.
--I am going to learn this stuff.
--If other people can do this, so can I.
--It just takes time and I’m going to give it the time that it needs.
--If I add a point or two every day, I’ll be able to pass in no time.
--I will make the time today to get in the study that I need.
--I can make this happen.
--I can work one more question and read one more answer.
You need Power Thoughts. You need Power Thoughts every day to keep up your spirits. You don’t need to play scared. I recently heard a person mention a favorite saying of mine: “Why not go out on a limb? Isn't that where the fruit is?”
Go after the exam, don’t let it come after you.
Go after those hours of study.
Go after the knowledge you need.
Go after those points and don’t quit going for them until you have 75.
Go boldly after the CPA Exam. Nothing is accomplished by being afraid.
(4) – We love having 20,000 subscribers – we hope you’ll go out and get us some more subscribers. Explain to people what they are missing.
However, if you ever decide that you want to unsubscribe, just scroll to the bottom of this email and click on “unsubscribe.” You can do that if and when you are ready to stop receiving these email messages.
(5) – One of my former students came by my office this afternoon to talk about the CPA Exam. She graduated a few weeks ago and is studying hard so she can knock out some/all of the exam over the summer. She asked specifically about the three written communication questions included in BEC.
The best thing you can do for the written communications questions is to go to www.cpa-exam.org and click on Tutorial and Sample Tests. Then, select the Sample Tests for downloading. They will give you five multiple-choice questions. After you submit those answers, they give you two examples of written communications questions. That shows you the kinds of questions that you are going to see.
It is very important to understand that they include the following information (I may have missed a word or two but this is the basic idea).
“REMINDER: Your response will be graded for both technical content and writing skills. Technical content will be evaluated for infor¬mation that is helpful to the intended reader and clearly relevant to the issue. Writing skills will be evaluated for development, organi¬zation, and the appropriate expression of ideas in professional correspondence. Use a standard business memo or letter format with a clear beginning, middle, and end. Do not convey information in the form of a table, bullet point list, or other abbreviated presentation.”
In other words, write something that is clear and understandable and addresses the question in a professional manner. Make it look like it was written by a CPA.
I gave my student the following example: you might be told that a client runs a manufacturing operation and wants you to suggest a method for reporting a by-product that is created as a result of this process. That seemed like a reasonable question that a CPA might encounter in practice and would fall under the BEC topics.
My student then asked the obvious question. “What if I don’t know a specific method for handling a by-product? Do I just leave the answer blank and get a zero?”
Absolutely not!!! The answer is graded twice. First, it is read to determine whether it is “on topic” – in other words is the written answer about the accounting for by-products? If it is not, if you have written about deferred taxes or contract law, you get a zero regardless of how well written the answer is. The answer has to address the question.
If your answer is “on topic,” then the question goes through a second grading where points are given for your use of the English language as described above. Notice, that the second grading is about the use of the language and not about whether the answer is right or wrong. The rest of the BEC exam tests your knowledge of content. That is not the purpose of the written communication questions. So, you do have to be “on content,” you do have to write about the subject in question. After that, though, the points are given based on proper use of English and not on how well you did getting the answer perfectly correct.
(6) – Remember a free study guide is available to show you how to combine our free questions and answers with our content subscription service ($15 per month per part) if you’ll identify the part that you are going to study next in an email to Jhoyle@cpareviewforfree.com. It is not fair to ask you to spend money without showing you how the program works.
(7) – Review – let’s add some points. Let’s do some practice.
FAR – Just to show you how a program like Points to Pass works, I went to our free question and answer data base and selected a question and answer. Then, I made some changes so that you can try the topic again.
You can find the following question in our database of questions:
(a) - The James Company starts Year One with accounts receivable of $370,000 and an allowance for doubtful accounts of $22,200 (a credit balance). During the year, credit sales of $1.9 million were made and cash of $1.2 million was collected. Accounts with a total balance of $50,000 were written off during the period as uncollectible. Company officials believe that 6 percent of ending accounts receivables will eventually prove to be uncollectible. What should James Company report as its bad debt expense for this year?
A - $61,200
B - $68,400
C - $89,000
D - $92,000
The answer is C.
In applying the percentage of receivables approach to bad debts, the allowance for doubtful accounts is the balance being estimated. The ending receivable balance is $370,000 plus $1.9 million less $1.2 million less $50,000 or $1,020,000. Because 6 percent is the estimated amount of uncollectible accounts, the company needs to report an allowance for doubtful accounts of $61,200 ($1,020,000 x 6 percent). Bad debt expense is the amount of adjustment that is needed so that the year-end allowance reports this $61,200. Prior to the adjustment, the allowance has a debit balance of $27,800 (the original $22,200 credit reduced by $50,000 in accounts written off). The company must turn the $27,800 debit balance into the proper $61,200 credit balance. To do so, an expense of $89,000 is recognized.
**
Let’s assume you missed the above question, you read the answer carefully and now you want to try again. You tell Points to Pass to show you a second question on this topic and here is what you get.
(b) The Robertson Company starts Year One with accounts receivable of $510,000 and an allowance for doubtful accounts of $41,000 (a credit balance). During the year, credit sales of $2.3 million were made and cash of $1.9 million was collected. Accounts with a total balance of $60,000 were written off during the period as uncollectible. Company officials believe that 5 percent of ending accounts receivables will eventually prove to be uncollectible. What should Robertson Company report as its bad debt expense for this year?
A - $42,500
B - $61,500
C - $64,500
D - $69,500
The answer is B.
In applying the percentage of receivables approach to bad debts, the allowance for doubtful accounts is the balance being estimated. The ending receivable balance is $510,000 plus $2.3 million less $1.9 million less $60,000 or $850,000. Because 5 percent is the estimated amount of uncollectible accounts, the company needs to report an allowance for doubtful accounts of $42,500 ($850,000 x 5 percent). Bad debt expense is the amount of adjustment that is needed so that the year-end allowance reports this $42,500. Prior to the adjustment, the allowance has a debit balance of $19,000 (the original $41,000 credit reduced by $60,000 in accounts written off). The company must turn the $19,000 debit balance into the proper $42,500 credit balance. To do so, an expense of $61,500 is recognized.
AND, you can keep requesting questions under Points to Pass until you know exactly how to work this question. Every time I see this I just know how much it will help YOU to pass the FAR portion of the CPA Exam.
Auditing and Attestation
The treasurer of a company has stolen $10,000 in cash from the company. At the end of the year, he is afraid that he will be caught so he transfers $10,000 from one company bank account to another. He records the deposit on December 31 of the first year so that $10,000 cash is added. He does not record the withdrawal from the other account until January 1 of the second year. As a result, for one day, the company looks like it has $10,000 more than it really does. What is this deception called?
A. Kiting
B. Lapping
C. Simultaneous Origination
D. Zero Line Fraud
Answer is A
When money is moved from one account to another but the deposit and the withdrawal are recorded in different time periods to inflate the amount of cash being reported, the term “kiting” is used to identify that fraud.
BEC
A company spends $100,000 to produce 20,000 pounds of product A. However, in that process, 3,000 pounds of product Z are produced. It is viewed as a by-product because it can only be sold for $5 per pound after spending $3 per pound to process it enough to be sold. The company chooses to record this by-product at its net realizable value. What is the cost of a pound of product A?
A. $4.25 per pound
B. $4.50 per pound
C. $4.70 per pound
D. $5.00 per pound
Answer is C
The net realizable value of the by-product is the $5.00 sales price less the $3.00 to be spent on processing or $2.00 per pound. For 3,000 pounds, that is a net realizable value of $6,000. The by-product is recorded at its net realizable value so $6,000 is moved from the $100,000 cost into a by-product inventory account. That leaves $94,000 assigned just to product A. There are 20,000 pounds of product A so the cost is $4.70 per pound.
Regulation
Mr. and Mrs. Stremble were married at the age of 30 and lived together until the current year when Mrs. Stremble died at the age of 70. Mr. Stremble received $100,000 in cash from a life insurance policy. They had paid, as a couple, a total of $40,000 in premiums over the years on this policy. What amount of income must he include in his current tax return as a result of receiving the $100,000 payment?
A. Zero
B. $60,000
C. $80,000
D. $100,000
Answer is A.
Life insurance premiums paid by the couple were never deductible but the proceeds, when received at the time of death, are not taxable. Money from a life insurance policy is not viewed as “income” and, therefore, is not taxed as taxable income.
Have a great week. It has been a beautiful day here in Richmond. Enjoy each day but make sure to make time to do your studies and add some points. Don’t be afraid – go forward boldly.
Joe Hoyle
President
CPA review for FREE
www.CPAreviewforFREE.com
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