Double Time, You Can Do It

Try us FIRST before you spend your hard-earned money.   CPA Review for FREE   Over 2,400 FREE CPA Review Questions and Answers Available to YOU (for FREE)   From:  Lynn Sheehan   December 11   Do You Double Time?   Many of you are stuggling to find time to do everything that are "must dos" not just "need to dos."  So much of our life is spent scrambling and trying to study for the CPA exam is  one more thing to do on top of the "must dos".  The fact that you are reading this newsletter is a great start!  Since there are only 24 hours in a day, something has to give AND you can do what I call "double time."   Double time is not for the faint hearted, but it will maximize your time as you'll be practicing mcqs at times and places some may think unorthodox. So how does it work? It's a combination of filling in gaps of time (waiting, standing in line, on hold on the phone) and doing two things at once (studying while listening to music, watching tv, etc).     Maximize your morning routine.  As you get ready in the morning, learn and know one mcq. Guys, this could be while you are shaving.  Ladies, this could be while putting on make up. Learn a question and add a point.  Here are other places you can double time:  During a seminar or networking event, discreetly study. Waiting for anything is a good time to study--in a grocery line, the doctor's office, waiting for a car inspection, in the order or pick up line for take out food, in a car as a passenger, waiting for a child's soccer practice to finish, while a game is being played, while you're in line buying holiday presents.  I went back to school in my 40's to finish my bachelors degree.  During those years, my daughter had to be at her soccer games one hour before the game.  I'd study in the car during that time instead of talking to the other parents.  Every moment of the day, create a way to double time.   Oursmart phone apps are great for these opportune study times.   Put a sticky on your bathroom mirror, car mirror, hallway mirror, refrigerator door that provides inspiration like "You Can Do It!" or whatever you need to tell yourself to keep motivated.  Believe You Can Do It!     'Tis the Season to Give   It is always better to give than receive.  Give today to   our partner, Project HOPE.  It's tax deductable and is for a very worthy cause. Also check out our community forum page. We are starting to post updates daily for inspiration, motivation and to help where we can. It's free and tied to your CPAreviewforFREE account so you can use your same log in credentials to access it.  Get Help and Give Hope.  You'll feel better for it.   Did You Notice Our New Shopping Cart?   We changed the way you purchase our products. For those of you who need more than our 2400+ free mcqs on the site, we reconfigured our Store to make it easier to see our products to move through the check out process.  For your comfort level, we don't keep any credit information on our site.  We use an established payment gateway and secure authorized checkout system for American Express, MasterCard, Visa and PayPal.  Remember, when you see an https: with the lock icon in green, you know your payment is secure.   To Lighten Your Mood   One of the comments from our survey a few months ago highlighting the problems with using your smartphone to type.  It gave us a laugh.   "The sexplanations to the review questions are easy to understand."   Update for International Candidates   The AICPA in conjunction with NASBA, National Associaiton of State Boards of Accountancy, has updated information regarding fees to take the exam as well as how to help International candidates sit and prepare for the CPA Exam.  See this comprehensive website which can answer many of your questions.   Now Go Practice Some Questions on our Site   Lynn Sheehan Co-Founder CPA Review for FREE

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November 19, 2012

Lesson 126

 

From:   Joe

 

In the United States, Thursday, November 22, is Thanksgiving.   For those of you outside the US, I hope you’ll understand how nice this day is.   We stop and take a day off in order to think about what we have been given and be grateful for those people and things that we have in our lives that make us better people.  

 

Here is one thing I am thankful for today.  CPAreviewforFREE  went over 40 million page views last week.   Since the day we got started, we have had CPA candidates look at our pages 40 million times.   What a wonderful record to hit.  We are grateful for this opportunity.

--We love helping people pass the CPA Exam.

--We love making this information available at a reasonable cost and over 2400 free mcqs.

--We love assisting you in making your career dreams come true.

 

That’s how life should work.

 

Pass it on and you'll feel better too!

 

 

AICPA PASSING RATES

 

Interesting news:   The pass rates have now been released for the third testing window of 2012 (July and August) and they were up considerably from the two previous quarters.   That is always good news because it shows that more candidates are better prepared when they arrive at the test site.   These future CPAs have done the work and are ready to take and pass the CPA exam.   According to AICPA, the pass rates for the third window of 2012 were:

 

--Auditing – 50.08 percent

--BEC – 57.63 percent

--FAR – 53.91 percent

--Regulation – 51.26 percent

 

This reinforces what I have said many times before:   If you put in the time and effort (60-100 hours per part), you certainly have a reasonably good chance for success.   Passing the CPA Exam is not an impossible dream.   There are always 20-30 percent of the candidates who walk in and take the exam although they are completely unprepared.   They simply have no chance.   But the remaining 70-80 percent are not facing mission impossible – with adequate work, each person has a good chance to do well.

 

It IS NOT the amount of money that you spend that makes the difference.   They don’t give points based on the money you have shelled out.

 

It IS the amount of time you spend working with good quality materials that makes the difference.  Good quality materials + time = passing the CPA Exam

 

There are just a few days left in the fourth and final testing window of 2012.   I know some of you are behind in your work.  Those higher passing rates should really be encouraging.   They should get you motivated.   Get to work, put in the hours, finish off as much of this exam as you can in 2012.  

 

It is never easy to squeeze in another hour.   I fully understand.   It is never easy to work 5-10 more questions atCPAreviewforFREE.   It is never easy to stay up an extra 30 minutes at night so you can add some points.   But you can do it.   You know you can.

 

Don’t worry so much about writing big checks for review products.   It’s not the size of the checks that you write but the number of practice problems that you manage to work that will get you into that passing zone. 

 

UNDERSTAND THE PROBLEM

 

 I have a box of 3 by 5 cards sitting on a table beside my computer at home.  My wife (or someone) gave these cards to me a few years back.   They were developed to deliver messages found in one of those books that talk to you about the habits of successful people.

 

So, this morning I decided to select one of these “success” cards at random and see what it told me in connection with the CPA Exam.   I thought I was just joking with myself.   Much to my surprise, I loved the advice that it provided.   And, it seemed to apply perfectly to the CPA Exam.

 

“First, understand the problem.”

 

I’m not joking – that is what the card I picked randomly recommended. 

 

I have watched college students and CPA Exam candidates take exams for several decades.  There is one thing that consistently happens that holds them back from success.   They get excited and they start answering the question before they know what it is about.   This is what I sometimes refer to as “guessing rather than reading.”  

 

In every CPA Exam problem, the actual question will be spelled out clearly and everything you need to know to work that question will be present. Here's how...

 

PRACTICE NEW MCQS

 

Let’s do some practice problems.   It’s a great way to add some points.

 

FAR – A company buys a restaurant for $1 million with no residual value and a 20-year expected life.   It is being depreciated on the straight-line method.   At the beginning of the third year, the neighborhood around the restaurant starts to become dangerous and its fair value drops to $789,000.  However, the restaurant still has many loyal customers and is able to generate $53,000 in net cash flows each year for its remaining life.   What should be the net book value for the restaurant on the first day of the third year?

 

A.   $789,000

B.   $900,000

C.   $924,000

D.   $954,000

 

Answer is B

 

Depreciation is $50,000 per year ($1,000,000/20 years) so net book value at the end of Year Two is $900,000 ($1,000,000 less $50,000 and less $50,000).   Although the fair value is only $789,000, the restaurant is not viewed as having its value impaired because the future cash flows of $53,000 for 18 years gives a total ($924,000) that is greater than the net book value of $900,000.   As long as the expected cash flows are greater than net book value, the asset is not held to be impaired and remains reported at net book value.

 

 

Regulation

 

What is the Statute of Frauds?

 

A.   It sets out rules that indicate the time periods for rules and other laws to be in existence.

B.   It sets out rules that require certain contracts to be in writing.

C.   It sets out rules that indicate which actions are gross negligence and which are fraudulent.

D.   It sets out rules that spell out the actions that an agent can take on behalf of a principal.

 

 

Answer is B.

 

Most contracts can either be established orally or in writing.   However, the Statute of Frauds indicates which contracts must exist in writing and cannot be created orally.   For example, according to the Statute of Frauds, a contract in which a surety agrees to answer for the debts of another must be in writing.

 

 

Auditing

 

The Ramsey Corporation is being audited by Keillor and Associates CPAs.   The auditors discovered that Ramsey is reporting a note receivable from Lexington Corporation, a company that recently filed for bankruptcy.   The note is still reported at its $250,000 face value although a reasonable estimation is that only $140,000 will be collected.   If these amounts are considered material, which of the following statements is true?

 

A.   An unqualified opinion should be given but only with an added explanation of the problem.

B.   An unqualified opinion cannot be rendered and the scope paragraph must be modified.

C.   A disclaimer of opinion must be given.

D.   An unqualified opinion cannot be rendered but the scope paragraph should not be modified.

 

 

Answer is D

 

The account balance is materially misstated so, therefore, an unqualified opinion is not appropriate.   A disclaimer is also not correct because the auditor does have an opinion.   The problem here does not relate to the work of the auditor (which would be described in the scope paragraph).   The work of the auditor seems to be complete and reasonable.   Therefore, the scope paragraph is not changed.   Instead, an explanatory paragraph is added to describe the problem and the opinion paragraph is changed.

 

 

BEC

 

The Drexel Donut Company produces 8,000 dozen donuts under normal circumstances but believes that 5,000 to 10,000 dozen donuts is a relevant range for its current production levels.   Fixed costs within this relevant range are $24,000.  At 8,000 dozen, the company calculates that a dozen donuts has a total cost of $4.00.   If the company manages to push production levels to 10,000 dozen donuts, what is the cost of a dozen?

 

A.   $3.40

B.   $3.50

C.   $3.80

D.   $4.00

 

 

Answer is A

 

At 8,000 dozen, the cost is $4.00 per dozen or $32,000 in total.   Of that amount, $24,000 is fixed cost so the remaining $8,000 must be the variable cost.   That is a variable cost of $1.00 per dozen ($8,000/8,000 dozen).   Thus, within the relevant range, fixed costs will stay at $24,000 and variable costs will stay at $1.00 per dozen.   For 10,000 dozen, the fixed cost will be $24,000 and the variable costs will be $1.00 per dozen or $10,000.   The total is $34,000 for 10,000 dozen donuts or $3.40 per dozen.

 

 

Have a great Thanksgiving.   Take time to count your blessing.  It’s a good exercise every day but especially at Thanksgiving.

 

 

Joe Hoyle

Co-Founder
CPA Review for FREE

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November 6, 2012

Lesson 125

 

Thoughts Go To Those Impacted by Hurricane Sandy

 

Everyone here at CPAreviewforFREE wants the folks who have been hurt by the recent hurricane to know that you are in our thoughts.   Whether you live in one of the Caribbean islands that was hit by Sandy or live along the east coast of the United States, we fully understand how much damage the storm has caused and the incredible amount of suffering.   In our daily lives, it is easy to get wrapped up in something like the CPA Exam and come to believe that passing or failing that test is the most important thing in the world.   Then, a catastrophe like Sandy rolls up and people die or homes are lost or significant devastation takes place.   We hope and pray that each of you has stayed safe along with your family and friends.   Times like the last week help us to keep the rest of life in better perspective.    Every day that we wake up in a warm house with everyone safe, we should count our blessings.  This is why we have a partnership with Project HOPE as part of our Help & Hope Community Forum.  Just click on the Project HOPE logo to help with whatever you can.

 

Make Up Your Mind Yourself

 

I know the big CPA Exam Review programs (that want YOUR money) often tell you that no one actually uses our site.   Hmmm.   I wonder how much you should trust those people.    Let’s look at the facts.    Last week was a pretty typical week for us.  Hundreds of new candidates register with us each week.  The AVERAGE visitor stayed on the site for well over 23 minutes.   Not 23 seconds – but 23 minutes.  

 

Now, what does that tell you about the actual quantity of candidates using our questions and answers to prepare to pass the CPA Exam? 

 

We will go over 40 million pageviews (40,000,000) in the next day or two.   As always, thanks to everyone who helps us by spreading the good word.   We don’t advertise so a whole lot of candidates never even know we exist.   We continue to help more and more candidates every day because you tell people about us, in person and on Facebook and Twitter and in a million other ways.   Thanks!!!

 

Points of Clarification

 

We'd like to clarify some misconceptions about CPAreviewforFREE that we received from users.  

1.  "I'd like to have more than 20 free questions.  How about 30-40?"  You CAN work over 2400 free questions.  After 20 questions, we ask you to register.  That's it.  You can go back to working the remainder of the 2400 free questions after registering.  We ask that you register to receive newsletters from us to encourage you and provide tips to help you pass the exam.  We don't sell or rent our lists!

2.  "Questions should be updated with the current standards."  We are up to date with the standards that will appear on the CPA exam.  Remember, accounting and auditing pronouncements are eligible to be tested on the Uniform CPA Examination in the testing window beginning six months after a pronouncement's effective date.  CPAreviewforFREE meets with the AICPA Board of Examiners twice a year to hear the latest regarding the exam. 

3.  "Develop a Comprehensive Online Forum so that People return to your site for mutual support."  We DO have a community forum.  Share your thoughts, fears, encouragement.  Bookmark it today!

 

How to Deal with Nervousness

 

I gave a big test last week in one of my classes here at the university.   As luck would have it, I walked to the classroom with one of my students.   She was chatting about the test and how nervous she was.   In those last 15 seconds, I tried to get her to calm down but there wasn’t much time.  

 

I had expected this particular student to do quite well on the test but she didn’t.   She missed a number of questions that I would have thought she would get correct.   She should have done well but she made a low grade.   Afterwards, my first concern was that her nervousness had prevented her from scoring high on my test.  

 

Whenever there is an important test, everyone gets a little nervous.   In fact, I think a slight bit of tension can be okay because it helps you focus and keeps you alert.   However, any degree of tension above the “slight” level is bad.   It makes it difficult to read the questions and concentrate on the numbers and words that are most important.   It zaps away your energy.   There is absolutely nothing good about more than a little (a very little) nervousness.  

 

I have a couple of pieces of advice about nervousness and how to stay calm.  More...

 

Time for some practice.   

 

Here are four questions.   Let’s see if you can add four points.

 

FAR

 

The Lawson Corporation buys an inventory item for $321 that it plans to sell for $352.   However, by the end of the year, the replacement cost of that inventory item has dropped to $270 because the market has been flooded with units.   Lawson believes the net realizable value is now $318.   If IFRS is being applied, what is reported for this inventory item on the company’s balance sheet?

 

A.   $270

B.   $318

C.   $321

D.   $352

 

 

Answer is B

 

Both IFRS and US GAAP report inventory at the lower of cost or market.  Under US GAAP, the computation of market is quite complex involving both replacement cost and net realizable value.   In IFRS, market is simply the net realizable value.   Since net realizable value ($318) is lower than cost ($321), the $318 is reported.   Furthermore, in US GAAP, if the reported value of this item is reduced and then ever increases, no removal of the loss is made.   However, for IFRS, if the value rebounds, the loss (or a portion of the loss) is removed.

 

 

Auditing

 

An audit team is doing an engagement that requires the use of governmental auditing standards.   Where can generally accepted government auditing standards be found?

 

A.   In the “yellow book” produced by the Government Accountability Office.

B.   In the “white book” produced by the US Treasury Department.

C.   In the “blue book” produced by the Office of the Controller General.

D.  In the “red book” produced by the Chief Accountant of the SEC.

 

 

Answer is A.  

 

According to Wikipedia, “the Generally Accepted Government Auditing Standards (GAGAS), commonly referred to as the ‘Yellow Book’, are produced in the United States by the Government Accountability Office (GAO).  The standards apply to bothfinancial and performance audits of government agencies. Five general standards are included: Independence, Due Care,Continuing Professional Education (CPE),

Supervision, Quality Control.  The Yellow Book standards are used by auditors who examine the federal government, . . .”

 

 

Regulation

 

The Curry Corporation (an accrual based taxpayer) had sales in the current year of $500,000.   The company wrote off $9,000 of its accounts receivable as uncollectible.   At the end of the year, the company still had accounts receivable of $100,000.   The company’s accountant believes that roughly 2 percent of its sales for the year or 11 percent of its accounts receivable will eventually prove to be uncollectible.   What amount can be deducted as bad debts for the year?

 

A.   Zero

B.   $9,000

C.   $10,000

D.   $11,000

 

 

Answer is B

 

Corporations file a form 1120.   According to the instructions for the form 1120, in determining bad debts, the company should “enter the total debts that became worthless in whole or in part during the tax year.”   The government prefers the actual fact of the debt becoming worthless to any estimate of that amount.   In this year, $9,000 in accounts were judged to be uncollectible.  

  

BEC

 

A company is looking into making an investment and discovers that the net present value of that investment is a positive $6,000.   What does that mean?

 

A.   The investment has a cost to the company of $6,000.

B.   The investment has an expected residual value at the end of its maturity of $6,000.

C.   The present value of the cash flows generated by the investment is greater than its cost by $6,000.

D.   The future cash to be generated by the investment is greater than its present value by $6,000.

 

 

Answer is C

 

One way to determine if an investment opportunity should be pursued is to determine the present value of those future cash flows that it will generate and compare that amount to its cost.   The difference is known as the net present value.   If that number is positive (the present value is higher than the cost), the investment is considered a wise one.   In that case, the value of the future cash flows is greater than the current amount that must be spent.   In computing the present value, a discount rate must be selected.   Several possible rates can be applied although the company’s weighted average cost of capital is frequently used.

 

 

Have a great week.    Add some points.

 

Add more points.

 

And

 

Add even more points.

 

Joe Hoyle
Co-Founder
CPA Review for FREE

Hard Work = Passing the CPA Exam

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Over 2,400 FREE CPA Review Questions and Answers Available to YOU (for FREE)

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Lesson 124

 

VOTE!

 

 In about two weeks on Tuesday, November 6, here in the United States, there will be an election.   We here at CPA Review for FREE always urge everyone to get out and vote.  No matter which candidate or party you support, we believe that democracy and freedom can only survive if we make the effort necessary to cast our ballots.   We are lucky to live in a country where we can vote.   Everyone should make the most of that opportunity.   I certainly understand that there is no perfect candidate.   We always seem to want something different.  I sometimes think we want candidates who are not human.   But they are all human and they deserve our support.   Pick one that you believe in and go out there and make your vote count.   It will remind you of how lucky you are to be able to vote.  

 

And, no matter who wins, be thankful that there are people who are courageous enough to put themselves through this.   We spend too much time tearing down that “other candidate” when we should feel a deep sense of gratitude for everyone who seeks to serve our nation.   Promise yourself that you will support the winner whether it is your person or the other person.  

 

If you think preparing for the CPA Exam is hard, you should try running for president.  Every skeleton comes out of the closet.

 

Carve  Out Time to Study--Not Pumpkins

 

One of the hardest things about passing the CPA Exam is just finding the time to do the preparation that is necessary.   We all live full lives that keep us running around constantly.   Then, we suddenly try to add in a number of hours of study each day and there simply is not enough available time.   I cannot tell you how often people write to tell me that they get to the end of each day exhausted without having found the time to do any studying.  It is frustrating.  

 

How can you get organized enough to find sufficient time to study?   Well, I have two pieces of advice.  More...

 

 

Phone Apps FAQ's

 

Even finding time to use the Phone Apps is hard.  How can I do it?

 

Candidates often complain about not having time.   That is true.   The burden is on you to find the time.   Always be ready to study.   That is one of the primary reasons to look into buying our apps.   All of our questions are available to you on our new mobile apps.   That makes studying at odd moments ever so much easier.

 

Do I need wifi or my data plan to use the phone app?

 

Once you download the app onto your phone, you do not need wifi or your precious data plan minutes to work practice questions.  One of the true secrets to passing the CPA Exam is being ready to study when any opportunity presents itself.   It is rare, most days, to have 90 minutes of free time to study.   But there are numerous times during each day when you have an open 2-10 minutes.   If you are not ready, it is easy to miss those chances to stay.   And that time can accumulate.   Always be ready to do a bit of studying whenever a few spare minutes open up.   While you are waiting for your meal to arrive at lunch.   Or, you are waiting for a bus.   Or, you are sitting in a doctor’s office until it is time for your appointment.   Be ready to add points.

 

Which smartphones work with the new phone apps?

 

Only iPhone/iPad and Android smartphones support our apps.  For more info on the apps, read this article.

 

Do I have a ghost of a chance to pass using CPAreviewforFREE only?

 

Yes you do!  Our review course program is a stand alone self study regimen which will prepare you to pass IF you are willing to put in the time--about 60-100 hours per part.  We have all the resource articles, practice questions, online Essential Content material and smartphone apps to get you there.  Don't take our word for it.  We have manytestimonials on our site  to prove it.  

 

If you are studying for FAR, consider using Points to Pass.  Unlimited FAR test bank of questions by individual question or by topic.  Try it now!

 

Luck? No--Hard Work? Yes

 

My wife and I went to Philadelphia last week and had a great day wandering through several magnificent museums.   One day we went to the Franklin Institute.   There sits a huge statue of Benjamin Franklin in the foyer.   Around that statue, Franklin’s famous quotations are constantly flashing up on the walls.   While we were standing, my wife pointed to one particular quotation that came up and told me that Benjamin Franklin was talking to CPA Exam candidates when he said  “I am a strong believer in luck and I find the harder I work the more I have of it.”

 

People will often hear about a candidate who passes the CPA Exam and will mumble with a bit of envy “boy, that person certainly is lucky.”   Nonsense.   Absolute nonsense.   Luck has nothing really to do with it.   I realize that people would like to think that luck plays a role because that takes some of the burden off of them.   But, in truth, people who put in the work (we usually recommend 60 to 100 hours for each of the four parts) and who come to understand the material, usually do well.   There is no guarantee but their chances go way up.

 

On the other hand, people (for whatever reason) who are not able to put in a sufficient amount of time and effort are much more likely to struggle on the actual exam.

 

Don’t rely on luck – as Benjamin Franklin knew:   What counts is your willingness and ability to put in all those hours in an efficient way.   If you do that, there is no reason to even think about luck.

 

 

Time to stop being lucky and start adding some real points.  

 

Here are a few of practice questions.   Let’s see how you do.  Are any of them scary?

 

FAR – I’m currently reading “Essentials of Accounting for Governmental and Not-for-Profit Organizations” by Paul Copley up at James Madison University.   This question is based on the information that I have been reading today.  

 

Within the City of Copley, an enterprise fund provides a service to a governmental fund for cash.   On fund financial statements, how is this transaction recorded?

 

A.   As an expense by the governmental fund and as a transfer in by the enterprise fund

B.   As an expenditure by the governmental fund and as revenue by the enterprise fund

C.   As an other financing use by the governmental fund and as an other financing source by the enterprise fund

D.   As a transfer out by the governmental fund and as a transfer in by the enterprise fund

 

 

Answer is B

 

This interfund service is not a transfer because actual work is being performed.   Therefore, the reporting is done the same as if each of the parties had been dealing with an outside organization.   The governmental fund loses current financial resources because a service is acquired.   For fund financial statements, that is reported as an expenditure.   The enterprise fund provides those services and, therefore, earns the compensation received.   That is reported as revenue.

 

 

Auditing

 

The CPA firm of Abraham and Associates is auditing the financial statements of the West Nebraska Corporation (WNC).   The auditors have obtained a general understanding of WNC’s internal control system and are pleased with the results.   What might the auditors do next?

 

A.   Verify the assessment of internal control by performing analytical procedures

B.   Consider whether additional testing of specific control policies and procedures would be an efficient means of lowering overall audit time and cost.

C.   Consider whether the internal control is strong enough so that an unqualified opinion can be rendered without substantive testing.

D.   Make sure that the information received has been documented through the use of a flow chart.

 

 

Answer is B

 

After a general understanding of internal control has been obtained, the auditor should consider whether additional testing of more specific factors (such as policies and procedures) might reduce audit time enough to outweigh the cost and effort of doing that additional testing.   Often, the additional testing of specific controls is not viewed as an effective way to reduce overall audit effort so that the auditor moves directly to substantive testing procedures.   However, in some cases, this additional emphasis on internal control can be used to reduce the assessment of control risk enough to warrant that work.   Some amount of substantive testing is always necessary to render an unqualified opinion.   The internal control information must be documented but a flowchart is not required.   Analytical procedures are used to spot account balances that seem out of line with what the auditor might have anticipated and are not directly related to internal control.

 

 

Regulation

 

What is a registration statement?

 

A.   It is another term for a company’s audited financial statements.

B.   It is a document that must be filed with the SEC each year by a publicly-held company.

C.   It is a document that is filed with the SEC to list all inside parties and any insider trading that has taken place in the previous 12 calendar months.

D.   It is a statement that must be filed with the SEC before the initial sale of securities in interstate commerce.

 

 

Answer is D

 

When a company wants to issue its securities through interstate commerce (for example, capital stock shares that will subsequently be traded on a stock exchange), specific information must be provided to the SEC with portions of that information being made public.   The overall filing is known as a registration statement.

 

 

BEC

 

A company starts the year with $340,000 in accounts receivable.   During the year, credit sales of $2,993,000 are made while cash collections are $2,763,000.   No accounts are written off during the year.   How long did it take the company to collect its average accounts receivable during this year?

 

A.   46.3 days

B.   52.5 days

C.   55.5 days

D.   60.4 days

 

Answer is C

 

Ending accounts receivable is $340,000 plus $2,993,000 less $2,763,000 or $570,000.   Therefore average accounts receivable for the year is ($340,000 + $570,000)/2 or $455,000.   Sales per day is $8,200 ($2,993,000/365 days).   If the company sells $8,200 each day and average receivables total $455,000, then the average time to collect accounts receivable is $455,000/$8,200 or 55.5 days

 

 

Joe Hoyle
Co-Founder
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Lesson 122

From:  Joe

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(3) – Practice

FAR – I wrote this question by opening my intermediate accounting textbook at random and picking the first topic I saw.

Hans Dieterbach is the accountant for the Ehrmantraut Company, a company that applies straight-line depreciation.   In Year Seven, he realizes that a material error was made in the Year Four financial statements.   A $200,000 expenditure on the first day of Year Four was added to the cost of a piece of equipment (with a 10-year remaining life and no residual value) when it should have been expensed immediately.   Which of the following is NOT true?

A.   If only Year Seven financial statements are prepared, depreciation expense should be increased by $20,000.

B.   If only financial statements for Years Six and Years Seven are prepared, beginning retained earnings should be decreased by $160,000.

C.   If only financial statements for Years Five, Six, and Seven are prepared, beginning retained earnings should be decreased by $180,000.

D.   If only financial statements for Year Four are prepared, net income will be reduced by $180,000.

Answer is A

A material error made in an early year is corrected retroactively by changing the impact of the previously reported numbers from incorrect to correct.   Because the $200,000 was capitalized to the cost of equipment with a 10-year remaining life, depreciation expense was then reported as higher each year by $20,000.   Instead, the entire $200,000 should have been expensed immediately.   Going from $20,000 depreciation in Year Four to an expense of $200,000 decreases reported net income by $180,000 and also reduces the beginning retained earnings for Year Five by that same amount.   Another $20,000 in depreciation is recorded in Year Five so that beginning retained earnings for Year Six needs to be reduced by $160,000 ($200,000 rather than $20,000 and $20,000).  However, in the current year, depreciation expense is not increased by $20,000 but rather decreased by $20,000.

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Regulation

Mr. and Mrs. Allen Mosweisz have adjusted gross income for tax purposes of $80,000.   They own a garage where they park their two cars.   The garage has a cost basis of $100,000 but is actually worth $140,000.  Lightning strikes the garage and does extensive damage to the roof.   The value of the property drops to $110,000.   Because times are tight, they only spend $17,000 to repair the roof.   What amount of itemized deduction can they take as a result of this casualty loss?

A.    Zero

B.   $16,900

C.   $21,900

D.   $30,000

Answer is C

For a casualty, the loss is the smaller of the drop in value (from $140,000 to $110,000 or $30,000) or the cost basis of $100,000.   Thus, the casualty loss is $30,000.   To determine the itemized deduction, each separate casualty is reduced by $100.   All casualty losses are then reduced by 10 percent of the taxpayer’s adjusted gross income.   So, the itemized deduction is $30,000 less $100 less $8,000 or $21,900.

BEC

Economists have a demand curve for widgets that shows that 10,000 units will be demanded by the market at a price of $5.   What happens if something takes place that moves the demand curve to the left?

A.   There will be more demand so at $5, the market would be willing to buy more than 10,000 widgets.

B.   There will be less demand so at $5, the market would be willing to buy less than 10,000 widgets.

C.   Producers will be willing to supply more widgets.

D.   The market price of widgets will go up.

Answer is B

When the demand curve for a product moves to the left, that reflects a reduction in demand.   So, at the same price, buyers will buy fewer units.   Because demand is less, the demand curve and the supply curve will cross (where equilibrium is established) at a lower market price.   Because the market price is lower, producers will reduce the amount they are willing to supply.

Auditing

The CPA firms of Barr and Goodman audited the financial statements for the HeavyDuty Company for December 31, Year Four, and the year then ended.   The last day of audit fieldwork was February 9, Year Five.   However, on February 13, Year Five, a major event took place and HeavyDuty added a footnote to its Year Four financial statements to disclose the impact of this event on several reported balances.   On that same day, the auditors examined the contents of that footnote and were satisfied that it contained no material misstatements according to US GAAP.   What date should be used for the audit report supplied by Barr and Goodman?

A.   December 31, Year Four

B.   February 9, Year Five

C.   February 13, Year Five

D.   It should be dual dated

Answer is D

The normal date of the independent auditor’s report is the last day of audit fieldwork.   However, if a change is subsequently made to the financial statements (such as the added footnote), the auditor can return and only audit that change.   If sufficient evidence is obtained that the change contained no material misstatements according to US GAAP, the audit report is then dual dated as of February 9, Year Five except for the footnote which is dated as of February 13, Year Five.

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