Lesson 122
From: Joe
CPA Review for FREE--Over 2,400 FREE CPA Review Questions, Answers and Explanations Available to YOU (for FREE and always will be)
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(1) – We received several extremely nice emails during the last couple of days. This is exactly what I want to hear from every single person who uses CPAreviewforFREE. I want you to feel well prepared for the CPA Exam so that you can walk into that testing site and get those 75 points you need in order to pass. 98% of our users would recommend us to family, friends and co-workers. Like us on our Facebook page--CPAreviewforFREE.
FROM CS:
“Just a quick note to let you know I survived AUD and to tell you how grateful I am for CPAreviewforFREE!!! I can honestly say I only saw maybe 2 questions containing content I had not seen before--or at least recalled seeing--on your website. Now certainly that doesn't mean I got all the other questions correct by any stretch of the imagination BUT no other review course could've prepared me better. For that, I thank you and am recommending CPAreviewforFREE to anyone I come in contact with who's studying for the exam. I even mentioned it this morning while waiting outside Prometric. There were 3 other people there. 2 hadn't used it (both were using XXX program) or maybe not even heard of it…. Thanks for all your advice and all that you do.”
FROM JR:
“I just wanted you to know how much I appreciated your website. A coworker told me about your site and I got more benefit from your site for all 4 parts than from the materials that I paid for! Thank you very much.”
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FROM WM:
“I don't remember HOW I stumbled upon CPARFF, but I'm SO glad I did. I was trying to decide which part of all of this has been most valuable, and it's pretty tough. I will say that I really began to take a second look at the paid Essentials content because of your motivational emails. I don't know if it's the same for everyone, but for me, they truly spoke to me--motivated me in such a positive way.
“As I also posted on the forums and elsewhere, I never doubted that I could pass the exam based on the content. But I often doubted I would be able to overcome procrastination, laziness, fear, ambivalence, poor time management, and boredom (hope I didn't leave any out) to get all of that content in my head. I knew I'd never quit, but I was afraid I might drag my feet on and on, finding other things to do during my study time (as happened to me so very many times).
“The Friday before my THIRD attempt at AUD (this last one), I even ended up rescuing an old, lost dog (with 4 inches of hair) with no collar from the 100 degree heat that I SWEAR would've expired in another hour. All from a phantom ring of my doorbell--both my dogs and I thought we heard one, but no one was there but the little dog running down my front walk, desperate for shade and water (honest to Goodness, it's true). All of my valuable study time two days prior to the exam was spent trying to capture, find the owner of, and return what turned out to be a little old lady's dog (thanks to FB, Cody made it safely home that afternoon).
“All I kept thinking was, ‘oh, no! I wish I hadn't allowed myself to be so easily distracted all those OTHER times!’
“But the Universe saw fit to give me some extra AUD points for the deed, I guess. Once again, I was just trying for a 75, but the trick of knowing where that 75 line is remains elusive--my highest score of all, an 87. From 73 to 66 to 87. I still think it's partly a crap shoot as to whether you get a hard one or an easy one, which is mitigated by great preparation. A quality I never had! AUD is really much easier than the rest, despite my marks to the contrary! :o)
“Anyway, I really only meant to say a HUGE thanks. Your site, your review course, and your motivational emails were truly responsible for completion of all four parts! Keep up the great work!”
“As I also posted on the forums and elsewhere, I never doubted that I could pass the exam based on the content. But I often doubted I would be able to overcome procrastination, laziness, fear, ambivalence, poor time management, and boredom (hope I didn't leave any out) to get all of that content in my head. I knew I'd never quit, but I was afraid I might drag my feet on and on, finding other things to do during my study time (as happened to me so very many times).
“The Friday before my THIRD attempt at AUD (this last one), I even ended up rescuing an old, lost dog (with 4 inches of hair) with no collar from the 100 degree heat that I SWEAR would've expired in another hour. All from a phantom ring of my doorbell--both my dogs and I thought we heard one, but no one was there but the little dog running down my front walk, desperate for shade and water (honest to Goodness, it's true). All of my valuable study time two days prior to the exam was spent trying to capture, find the owner of, and return what turned out to be a little old lady's dog (thanks to FB, Cody made it safely home that afternoon).
“All I kept thinking was, ‘oh, no! I wish I hadn't allowed myself to be so easily distracted all those OTHER times!’
“But the Universe saw fit to give me some extra AUD points for the deed, I guess. Once again, I was just trying for a 75, but the trick of knowing where that 75 line is remains elusive--my highest score of all, an 87. From 73 to 66 to 87. I still think it's partly a crap shoot as to whether you get a hard one or an easy one, which is mitigated by great preparation. A quality I never had! AUD is really much easier than the rest, despite my marks to the contrary! :o)
“Anyway, I really only meant to say a HUGE thanks. Your site, your review course, and your motivational emails were truly responsible for completion of all four parts! Keep up the great work!”
FROM AL:
“I am currently reviewing FAR and I bought all the review materials including the FAR questions. It is very convenient and very simple to follow.”
I love every email like these – thanks for sharing your experiences.
(2) – In a very few days, my younger daughter Lara leaves the security of home to start college in Charlotte. She is one of the hardest working people that I’ve ever met. And, she really wants to do well in college. She has long dreamed of a particular career and this is her big chance. She is willing to make the sacrifices necessary to make it happen. But she is also nervous. It’s a big step.
There are no guarantees in life. If she is going to make it, she has to be willing to take the gamble.
Lara has cerebral palsy which has presented her with very significant challenges over the years. So far, she has always been able to work around those challenges wonderfully well. She’s an inspiration to us all. College, though, is a new challenge on top of the CP.
I think she will be fine. However, as we all know, there are no guarantees in life.
What advice would you tell me to give Lara as she leaves home to start her college career? More...
(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.
The year of 2012 is beginning to wind down. You want to make as much progress toward passing the CPA Exam in 2012 as you possibly can. Start now. Start making it happen. You can do this!!!
Joe Hoyle
President and CoFounder
CPA Review for FREE
