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Over 2,300 FREE CPA Review Questions and Answers Available for YOU (for FREE)
211 Weeks of Operation and 36,786,381 Page Views (an average of over 174,000 page views each and every week for 4 years)
August 2, 2012
Lesson 120
Lesson 120
From: Joe
Great Questions, Great Answers
We always love hearing from the folks who use our products. Here’s an email that we got yesterday from PH: “You guys are so great, thanks for what you do. Your explanations of why the wrong answers were wrong and why the right answers were right are extremely thorough and helpful.
It's great to have a supplement like this, and a free one also!”
It's great to have a supplement like this, and a free one also!”
PH makes a great point. One of the best ways to evaluate any review program is to look at the explanations they provide for the answers. Most of the ones that I have seen do that very poorly. The real learning is not in the question; the real learning is in the answers. Anyone can write a question but only true teachers know how to write clear and helpful answers. “The answer is C because it is not A, B, or D” is simply not a good answer. It doesn’t help you get the question correct the next time you see it (which, of course, is the real goal).
When anyone asks what makes CPAreviewforFREE special, I always have the same response: “Our answers are, by far, the best in the business and that’s how you learn to pass the CPA Exam.”
CPA Exam Passing Rates for the First Half of 2012
I posted this information on our Facebook page on Friday but it is worth repeating here. The pass rates for the CPA Exam for the first half of 2012 were: Auditing – 46.45 percent, BEC – 51.03 percent, FAR – 45.19 percent, and Regulation – 47.40 percent.
I am sure we would all love to see pass rates of 99 percent. It would take the uncertainty out of exam preparation. However, I think a rate of close to 50 percent is pretty good. For many decades, back under the old exam format, the pass rate hovered around 30 percent. That was scary. You had to get in the upper 30 percent to pass.
With roughly a 50 percent pass rate, you obviously only need to get into the upper half of the candidates. That’s a lower threshold.
Furthermore, I would estimate that between 25 and 30 percent of the candidates have not seriously prepared when they enter the test site. They meant to study or they planned to study or they thought about studying. But they never got around to studying. If only 70 percent of the candidates actually prepare in a reasonable manner and the pass rate is about 50 percent, you can see that there is certainly good reason not to despair. Most people who prepare in an adequate fashion do well. Not all, but most.
If YOU prepare seriously for the CPA Exam, you’ve got quite a good chance (let’s guess 50/70) of being successful. Those are not bad odds.
But, of course, preparation is the key. Preparation is always the key. Go start answering some questions.
Serious Preparation or Fun Now
This summer, I have spent some time at the gym working to get into better physical shape. The other day, as I drove into the parking lot, I noticed that they had put up a sign: “would you prefer to be sore or sorry tomorrow?” I thought that was an excellent question. In life, we make choices. Often, those choices come down to: What do you want to do right now versus what do you want to be like tomorrow?
--I can be lazy now or I can feel stronger tomorrow.
--I can eat cake now or I can be thinner tomorrow.
As we all know, one of the main reasons we fail to accomplish our goals is that we choose to be easy on ourselves now which results inbeing weaker tomorrow.
For CPA candidates, the choice is obvious:
--Do I study now so that I am able to get a higher score tomorrow?
or
--Do I have fun now and have a lower score tomorrow?
That’s a choice you must make.
Life is full of choices. It is very easy to choose “fun now” or “cake now” because the poor results won’t appear until tomorrow.
If you seriously want to pass the CPA Exam, you have to get away from that “fun now” attitude. I teach in college. I cannot even begin to tell you how many good students that I have seen do poorly over the years simply because they could not get beyond that basic “fun now” attitude.
You don’t have to study every minute. You don’t have to work yourself into exhaustion. There’s no benefit from that.
But you do have to do the work and you need to start right NOW. You can’t put it off and put it off and put it off. That’s just a loser’s approach.
Given the choice between “study now” or “study later,” absolutely everyone is inclined to study later because that allows for fun now.
It is a tough world out there. You are never going to live up to your potential and be competitive until you can choose “study now” over “fun now,” at least most of the time.
CPA Exam Candidates are Like Tea Bags
I was at church on Sunday and the pastor used a quote from Eleanor Roosevelt that I am going to steal (borrow) and change a little bit. The quote was “Women are like tea bags. You never know how strong they are until you put them in hot water.” And, of course, I am going to modify Mrs. Roosevelt’s words to: CPA Exam candidates are like tea bags. You never know how strong they are until you put them into hot water.
Preparation for the CPA Exam and the actual taking of the CPA Exam can sometimes just move along like clockwork. Everything just goes according to schedule. You never get sick while studying. You never have any job problems while studying. You never have any family issues while studying. You never have any major distractions while studying. And, then, you go to the exam itself and the questions are pretty much what you expected and what you studied.
When things go that well, you really don’t need much internal strength in order to do well.
How often do things run that smoothly? Oh, I would guess about one time in 100. Life is just always full of unexpected challenges. It is when those challenges begin to pop up along the way that you come to learn how much real strength you have. You have to plunge into that hot water to know how strong you really are.
There are always tough days that you have to face.
--The boss wants you to work late.
--Your children need for you to take them to a soccer tournament.
--One of your parents gets sick.
--A friend asks you for a favor that is going to require a lot of time you don’t have.
At those moments, you can always just bring out the white flag and give up. I’ve met many candidates over the years who just threw in the towel at the first sign of trouble. They were great when things went smoothly but they couldn’t deal with the hot water.
Giving up is always easy.
Or, they got to the exam and unexpected challenges started jumping at them.
--The room was noisy.
--The room was hot.
--The room was cold.
--They faced questions on topics they had never heard of in their studies.
--They worked a problem they knew and their answer was not one of the choices.
At those moments, it is easy to get distracted and discouraged and frightened. Negative emotions seem to be everywhere. It’s at that point that Mrs. Roosevelt’s (modified) quote comes into play: CPA Exam candidates are like tea bags. You never know how strong they are until you put them into hot water.
There are a lot of things out there – both as you prepare each day and while you take the exam – that seem designed to throw you off your game. I’d love to wave my magic wand and push those distractions away. But there is no magic wand. The only thing that works is your ability to soldier on through that hot water.
“I am not going to let this get me rattled. I am not going to let this keep me from my goal of passing the CPA Exam.”
When it comes to hot water, are you ready to be strong????
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Practice – Time to Add Some Points. You Can Do It!
FAR
Company A and Company Z go together equally to create Middle Company as a joint venture with joint control. Middle Company holds land that cost $2 million but has a fair value of $3 million. Company A is currently considering how it should report its ownership interest in this joint venture. Which of the following statements is not true?
A. Under U.S. GAAP, Company A applies the equity method to its ownership of the joint venture.
B. Under IFRS, Company A is allowed to apply the equity method to its ownership of the joint venture.
C. Under U.S. GAAP, Company A is allowed to add $1.5 million to the reported value of its land account.
D. Under IFRS, Company A is allowed to add $1.5 million to the reported value of its land account.
Answer is C
Under U.S. GAAP, a joint venture is reported using the equity method. The ownership interest appears in an investment account. The share of the income is reported by Company A as a single amount as it is earned by Middle. According to IFRS, the equity method can be used. However, a second method called proportionate consolidation is also allowed. In that alternative, the assets of Middle Company are reported by each owner based on the proportionate share of fair value. Thus, half of the land’s value can be reported by Company A under IFRS but not under U.S. GAAP.
Auditing
The CPA firm of Kobe and James has been hired by an investment firm to examine the financial statements of Winston Coal Company. The firm has been hired to specifically perform three testing procedures. The board of directors for Winston Coal has agreed to allow such testing. Which of the following is true about this engagement?
A. The CPA firm is not allowed to accept such an engagement.
B. The report must be in the form of a general use report or Kobe and James should not accept the engagement.
C. The engagement can only be accepted if the report will first be filed with the PCAOB.
D. The final report from the CPA firm will be a restricted use report for the parties involved.
Answer is D
When agreed-upon procedures are being performed, the risk is that parties who do not fully understand what was done by the auditors will see the report and make incorrect conclusions based on the information. Therefore, when parties have agreed-upon the procedures to be performed, the report should be restricted to those parties who understand the actions that were taken.
Regulation
Mr. and Mrs. Smith have two children, both of whom are dependents. Their son James was a full-time junior at State College this past year. Mr. and Mrs. Smith paid $4,000 for his tuition, fees, and course materials. Their daughter Delores was a full-time freshman at South University this past year. Mr. and Mrs. Smith paid $2,000 for her tuition, fees, and course materials. Mr. and Mrs. Smith report adjusted gross income of $92,000. What amount will Mr. and Mrs. Smith take as their American Opportunity Tax Credit (also known as the Modified Hope Scholarship Tax Credit)?
A. $2,000
B. $4,000
C. $4,500
D. $6,000
Answer is C
Because the adjusted gross income is well below the threshold here, Mr. and Mrs. Smith are allowed to take the American Opportunity Tax Credit. The amount is 100 percent of the first $2,000 spent on tuition, fees, and course materials and 25 percent of the next $2,000 spent on those same costs. That is a credit of $2,000 for the daughter (100 percent of $2,000). That is also a credit of $2,500 for the son (100 percent of the first $2,000 and 25 percent of the next $2,000) for a total of $4,500.
BEC
Determination must be made as to whether each member of a corporation’s board of directors is independent or not. Under normal rules, which of the following directors for the Kreyst Corporation is independent?
A. A director who is president of Washington Corporation, a company that receives significant amounts of revenue from Kreyst.
B. A director whose spouse received $50,000 in payments from Kreyst while working as an independent contractor.
C. A director who was a former partner until last year of Adams CPAs, the external audit firm that examines the financial statements of Kreyst.
D. A director whose spouse was an officer of Kreyst until two years ago.
Answer is B
The New York Stock Exchange (and NASDAQ) have rules that establish whether a director is deemed to be independent or not. Those rules identify relationships that are too recent and too significant to be ignored. Thus, the president of the company that sells to Kreyst is too closely tied to the company and is not independent. The same is true for the director whose spouse was recently an officer and the director who was recently a partner with the external auditor. However, the director whose spouse received $50,000 is still considered independent. The rules set $120,000 as the threshold for this amount and that line was not broken.
And, finally, to repeat:
You don’t have to study every minute. You don’t have to work yourself into exhaustion. There’s no benefit from that.
But you do have to do the work and you need to start right NOW. You can’t put it off and put it off and put it off. That’s just a loser’s approach.
Joe Hoyle
CoFounder
CPA Review for FREE
