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May 14, 2013
Lesson 133
From: Joe
THANKS FOR YOUR HELP PAYING US FORWARD
We just got our results for last week and we had 10,029 visitors to our website who spent an average time of over 21 minutes. That is an average visit for the entire week of 21 minutes, not 21 seconds like on most websites but 21 minutes. To put that in another way, those visitors looked at 212,502 pages in that one week. That means that someone looked at a page onCPAreviewforFREE every 2.8 seconds for 24 hours per day for the entire 7 days.
Why do so many people look at so many of our pages? That’s easy – people just like you get the word out to their friends. All those other (expensive) review programs advertise like crazy. We spend nothing on advertising. Nothing. Instead, we depend on you to pass along emails like this one to people who are preparing to take the CPA Exam.
So, every time we see a number like 212,502, we always say a word of thanks to YOU for helping to spread the word.
FACEBOOK AND TWITTER FOR MOTIVATION BETWEEN NEWSLETTERS
We send these email lessons out every 10-14 days to everyone who registers for free at CPAreviewforFREE. However, we want to try to provide more encouragement quicker. So, recently, we have been sending out 2-3 messages per day on Facebook (CPAreviewforFREE) and twitter (CPAreview4FREE). It is amazing how much you can say in just 140 characters. We realize that people who are challenging something as tough as the CPA Exam can use a touch of encouragement on a regular basis and that is what we are trying to provide.
Check us out.
Or, again, pass the word along.
HOW TO STAY FRESH WHILE TAKING THE EXAM
I gave a couple of final exams last week for Intermediate Accounting II (deferred taxes, bonds, leases, etc.). As I am sure you know, that material is very complex. Therefore, although the students normally get three hours, I gave them four hours. One of the things that I always warn my students about is “thinking tired” during any exam. They are not digging ditches or building pyramids but it is easy to start convincing yourself that you are tired as you mentally work through a long test. When you start “thinking tired,” you begin to get careless. You lose your concentration. You start making silly errors. That can be the difference in passing and failing.
I realize that a four hour test is a long test but when it comes to your mental state, you are only as tired as you tell yourself you are. I want my students to be as fresh during the last hour on that exam as they are during the first. I suggest that they stand up and stretch every 45 minutes or so just to relax and get the energy moving again.
However, my most common admonition is that they never start mentally whining about how tired they feel. More...
DEFINITIVE INFORMATION ON THE CPA EXAM FROM THE AICPA
I am a big believer when you face a serious challenge that you need to learn as much about the enemy as you can. When I took the CPA Exam many decades ago, I spent the first couple of weeks reading as much about the Exam as I could find. I felt like I could better prepare myself for the battle if I understood what the CPA Exam was all about.
Now, of course, there is an entire website devoted to the CPA Exam. Before you get too much further into your preparation, take a break and make sure you understand what you are facing.
Go to www.cpa-exam.org
Next, click on “For candidates” and read the “Candidate Bulletin.” Skip what does not apply to you but read carefully everything that does apply to you.
Next, click on “Exam content” and read the “CSOs/SSOs Effective January 1, 2013”
After that, just wander through the website and see what you can learn. Much of it will not impact you but some of it can be very important. Know the enemy – it makes the enemy easier to defeat. A reminder, our material is up to date to prepare you for the CPA exam.
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PRACTICE NEW MCQs
Let’s do some practice and add some points to your score. We're trying something different. We added the answer letter and explanation to the end of the questions so you don't see the answers right off the bat. Let us know if you like this.
FAR
The city of LeHuston sends out its Year Two property tax levies in Year One. Although the money cannot be legally used by the city until Year Two, cash of $30,000 is collected prior to the end of Year One. Cash is debited for $30,000 at that time. How is the credit recorded in preparing the government-wide financial statements for Year One?
a. As a revenue of $30,000 on the statement of activities
b. As a liability of $30,000 on the statement of net assets
c. As a deferred inflow of resources of $30,000 on the statement of net position
d. As an increase in the fund balance-restricted on the balance sheet
Auditing
The audit firm of Jennifer and Lawrence is gathering evidence about the possibility of material misstatements in a client company’s accounts receivable. The company has 10,000 accounts receivable that the CPAs have split into two groups: one for balances under $500 and another for balances of $500 or more. The CPAs tested 5 percent of the first group and 20 percent of the second. Which of the following statements is true?
a. The audit firm cannot split accounts receivable in this way because the balance must be examined as a whole.
b. The audit firm has stratified the population in hopes of reducing the necessary sample size.
c. The audit firm can split the group as it pleases but the same number of items must be selected from each group.
d. The audit firm can split the group as it pleases but must sample at least 30 percent of the total number of items.
Regulation
The Mendenhall Corporation is a domestic US company and owns shares in three different companies. Each investment paid a $20,000 dividend to Mendenhall during the current tax year (for a total of $60,000). Mendenhall owned 9 percent of the first company which was not a domestic US corporation. Mendenhall owned 18 percent of the second company which was a domestic US corporation. Mendenhall owned 27 percent of the third company which was also a domestic US corporation. By how much did these dividends cause Mendenhall’s taxable income to go up?
a. $60,000
b. $30,000
c. $16,000
d. $12,000
BEC
A company is attempting to project the amount of cash that it will need to purchase an adequate amount of inventory for the current physical year. The company expects to make sales of $300,000 with the merchandise costing $180,000. The company wants to increase its level of inventory during the year by $25,000. In addition, the company would like to decrease the level of accounts payable by $10,000. What cash will have to be spent to achieve these objectives?
a. $145,000
b. $165,000
c. $195,000
d. $215,000
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Answers to the questions above:
FAR--Answer is C
Historically, this early payment amount was reported as a liability. However, services do not have to be rendered to earn the money and no repayment will occur. So, the credit does not really meet the normal definition of a liability. In a relatively new standard, GASB has created a statement of net position (instead of a statement of net assets) where a few balances (such as this) are reported as deferred inflows of resources in a category separate from the government’s liabilities.
Joe Hoyle
Auditing--Answer is B
One of the problems in doing statistical sampling is that sample size is affected by the variability of the items in the population. Thus, a lot of variability may necessitate a very large sample size (requiring a large amount of cost and effort). That problem can be alleviated somewhat by dividing a population into several smaller populations based on dollar amounts – a process known as stratification. The variability of each of these smaller populations is reduced so that the overall sampling size can be smaller saving time and cost.
Regulation--Answer is B.
All of the dividends are included as revenue but then, for the two investments in domestic US corporations, a dividend received deduction is allowed. For the second company, that deduction is $14,000 or 70 percent because ownership was under 20 percent. For the third company, that deduction is $16,000 or 80 percent because ownership was 20 percent or more. The revenue was $60,000 less $14,000 and $16,000 for an increase in taxable income of $30,000.
Answer is D
The company expects to sell $180,000 worth of inventory but still wants to increase inventory levels by $25,000. That is only possible if the company buys $205,000 in inventory this period. The company also wants to reduce the level of its accounts payable by $10,000. Reducing a liability requires an additional payment, in this situation an additional payment of $10,000. Therefore, to achieve these goals the company must anticipate spending a total of $215,000 in purchasing inventory.
Now go get some additional points!
Joe Hoyle, Co-Founder
CPA Review for FREE
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