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Lesson 111
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,200 FREE CPA Review Questions and Answers Available for YOU (for FREE)
185 Weeks of Operation and 31,707,772 Page Views (an average of over 171,000 page views each and every week for nearly 3 ½ years)
Lesson 111
From: Joe
(1) – Okay,
it is still early but I am delighted to report that our traffic (in terms of
pages viewed) is up by over 24 percent in 2012 compared to the same period in
2011. That is fantastic. And, since we do not advertise, this has to
be because you folks obviously like us and take the time to tell others about
us. One way you can do that is to
forward this newsletter via the link at the end of the newsletter. Thanks! Thanks a million!
(2) – Here
is a modified version of a posting I made recently on our CPAreviewforFREE Facebook
page:
The more you
know about the CPA Exam the more likely you are to pass. I am always amazed by
how many candidates walk into the test site a bit confused by the process. Trust me, on the day you take any part of
the CPA Exam, you only want one thing on your mind: getting the points you need to pass. Any degree of confusion makes achieving that
goal more difficult.
The
Candidate Bulletin is the official handbook for individuals who plan to take
the Uniform Certified Public Accountant (CPA) Examination. They have written and modified it enough now
so that it covers virtually anything you might want to know about the
exam. It covers such topics as how to
apply, how and when to schedule the examination, what rules are in effect at
test centers, when to expect scores, and what topics are covered on the examination.
It also includes information about the examination structure, the roles and
responsibilities of CPA Examination partners (the AICPA, NASBA, and Prometric),
and board of accountancy contact information. You can download the Candidate
Bulletin or by going to the AICPA exam
website and clicking on “For Candidates.”
(3) – This
was also placed on our Facebook
page although I have rewritten some parts.
If we boil
things down to the very basics, there are only three reasons why people fail to pass a part of the CPA exam. At
some point, you need to think about all three.
----First,
candidates that fail to get 75 might not have yet attained quite enough
understanding of the material. As we all know, there are many tough topics
covered on each exam. Your knowledge has to be quite broad. And, it has to be really there.
----Second,
the candidate knows enough to pass but makes too many careless mistakes during
the exam. We all make a few of those
but you cannot afford to make many. I
have graded enough tests over the past 41 years to realize that people can be
incredibly careless.
----Third,
while taking the exam, the candidate does not manage the time well. Candidates either rush through too quickly
(making careless mistakes) or they go slowly so that they are not able to
finish on time.
I want to look
at time management today. As you
prepare for the exam, it is important occasionally to practice at the speed you
need on the CPA Exam to get a feel for what is required. If you practice like you are crawling, it is
hard to sprint when you get to the real exam.
So, how fast
do you need to work during the CPA Exam?
Let’s take
financial accounting (FAR) and auditing and attestation (AUD) as examples. Both of these sections have seven task-based
simulations. If we assume you can
complete each of those seven in 10 minutes (probably a reasonable goal if you
really hustle), then you have to work the 90 multiple-choice questions at an
average rate of about 1 minute and 50 seconds each. That should show you why time management is
important. As you practice, see how
close to that speed you can get. Please
don’t get obsessed by that goal but gradually work to get faster and faster so
you’ll be ready when it is time to take the CPA Exam. You can eventually move up to the speed you
need but you do have to learn to stay focused and keep pushing. Speed is a good thing to practice to make
sure you are ready on test day. On our
website, our questions are probably a bit harder than average because we want
you to learn more than enough. For that
reason, when working FAR or AUD on www.CPAreviewforFREE.com, you will probably
want to shoot for an average of one question every 2 minutes or maybe every 2 ½
minutes.
Regulation
(REG) only takes 3 hours and you have 72 multiple-choice questions and six
task-based simulations. If the
task-based simulations take 10 minutes each, that leaves 120 minutes for the
multiple-choice questions or 1minute and 40 seconds each. That’s a little shorter time frame but the
REG questions tend to be a bit less complex so that is still a doable goal.
BEC also
only has 3 hours and you get 72 multiple-choice questions along with three
written communication questions.
Assuming the written communication questions take 20 minutes each, you
can still finish the multiple-choice questions if you are able to work them at
a one minute and 40 second rate.
It is not
that these rates are good or bad. They
simply alert you to the speed you need to achieve to get through the exam at
the moment you run out of time.
(4) – My
good friend Paul Clikeman who teaches Auditing here at the University of
Richmond told this story to his class yesterday as they began to prepare for
their first examination in about a week.
He then conveyed the story to me over lunch at Taco Bell.
The New York
Giants and the New England Patriots are going to play in the Super Bowl in
about ten days. When did those players
earn the right to play for the championship?
You may think they earned that right last Sunday when they beat a couple
of other good teams. But, the truth is,
they earned this right last summer when they worked out in very hot weight
rooms and practiced under a blistering sun learning how to run plays correctly. That was months ago but the work they did
then is just now paying off. There is
never any guarantee that a person is going to win. Things do happen. But you can stack the odds in your favor by
doing the work so that you are well prepared.
It is easy for a football player to slack off in the summer when there
are no games being played and the championship seems forever a way. Only individuals with true dedication are
able to do the work and get themselves ready in plenty of time.
You have a
test coming up. You can put it off; you
can procrastinate. You can wait until
the last minute. You can always find
something more interesting to do. But,
if you do, the information will just be jumbled up in your head when you start
the test. If you truly want to do well,
if you truly want to be a winner, you’ll get this material learned and get it
learned well in advance. You’ll start
doing the work now. You’ll have the
energy to do the work before it becomes an emergency. That is not easy but that’s how you stack
the odds in your favor.
Tom Brady
and Eli Manning have a game to play in 10 days. What do you think they are doing today? Do you think they are playing videos games
and lying around? My guess is that they
are working as hard as they possibly can to be ready and at their very best. My guess is that they are watching films and
practicing plays as hard as they can because they both want to be champions. They both want to be winners.
If you want
to win, prove it!!! Don’t just say you
want to win – prove it!!! Start getting
yourself ready for the exam now so that when you walk into the room on test day,
you’ve got the odds stacked in your favor that you will walk out a winner.
(5) –
Practice – and, now, as always, here are a couple of practice questions. Assume each one adds a point. Go get ‘em.
FAR
Company A
and Company Z start operations this year and both are identical in every way
except that Company A used a periodic FIFO system for its inventory while
Company Z used a perpetual FIFO system for its inventory. They each bought 1,000 units for $30 each
and sold 800 for $40 each. They each
then bought 1,000 more units for $40 each and sold 800 for $50 each. Finally, they each bought 1,000 more units
for $50 each and sold 700 for $60 each.
What is the difference in their reported net income figures?
A. Company A’s net income will be $7,000 higher
than Company Z’s net income
B. Company Z’s net income will be $7,000 higher
than Company A’s net income
C. Company A’s net income will be $4,200 lower
than Company Z’s net income
D. Company A and Company Z will report the same
net income
Answer is D
Periodic and
perpetual FIFO systems always arrive at the same reported figures for ending
inventory and cost of goods sold. Thus,
the net income totals are the same.
That is not true for either LIFO or averaging. Here, under either periodic or perpetual,
inventory purchases are 3,000 units costing $120,000 ($30,000 + $40,000 +
$50,000). Because 2,300 units are sold
(800 + 800 + 700), the ending inventory is 700 units. Under FIFO, those remaining units always have
the cost of the last units acquired during the year or $50 each for a total of
$35,000. Cost of goods sold is $120,000
less $35,000 or $85,000.
Auditing
The
Holthouser Company reports inventory on its balance sheet at $435,000. In examining this company’s financial
statements, the independent auditing firm is least likely to be concerned about
which of the following?
A. This inventory contains some damaged items.
B. A portion of this inventory is not on hand
in the company’s warehouse.
C. The age of the inventory has increased
rather significantly since the previous year.
D. The physical inventory was taken by
individuals who were not properly trained.
Answer is B
The
independent auditor is most concerned about issues that could indicate the
presence of a material misstatement. If
inventory is damaged or old, the reported value will likely require reduction. If that reduction has not been made (or not
been made properly), the reported balance can be materially misstated. If the physical count was incorrectly taken,
the balance may also be wrong by a material amount. However, inventory is often not physically
being held by a company. The goods may
be out on consignment, for example, or in transit. The mere failure to be in the warehouse does
not signify a likely misstatement.
Regulation
In federal
income tax laws, what is the significance of a Section 179 expense?
A. A Section 179 expense can only be taken by
companies that have been in business for less than five years.
B. A Section 179 expense is one that relates to
research and development costs.
C. A Section 179 expense is a specified amount
of the cost of qualifying personal property that can be expensed at the time of
acquisition rather than capitalized.
D. A Section 179 expense is a contribution that
is made to a charitable organization that can be expensed for tax purposes even
though it is not spent to generate revenue.
Answer is C
To encourage
smaller companies to buy more machinery and equipment, a specified amount of
the cost (within certain limitations) of qualifying personal property can be
expensed at the time of acquisition rather than being capitalized and
depreciated over a set period.
BEC
The
Adventure Corporation wants to issue $10 million in bonds to finance the
construction of a new warehouse.
Company officials believe that interest rates might well fall over the
next two years. Thus, they fear that
they will be stuck paying a rate of interest that is higher than the market
rate for a long period of time. Which
type of bond should they consider to reduce this interest rate risk?
A. Zero coupon bonds
B. Serial bonds
C. Floating rate bonds
D. Term bonds
Answer is C
Normally,
the interest rates to be paid on a bond are set by the bond indenture and will
not change. However, with a floating
rate bond, the interest to be paid is adjusted every period as the prevailing
rates move up and down. A zero coupon
bond pays no cash interest but is sold at a deep discount. A term bond pays interest periodically with
the face value paid in full on the maturity date. A serial bond pays both interest and
principal each period over the life of the bond.
Have a great
week!!!
Joe Hoyle
President
and CoFounder
CPA review
for FREE
