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November 19, 2012
Lesson 126
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
CPA Review for FREE
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