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August 6, 2013 Lesson 137
From: Joe
Meet Joe at the AAA in Anaheim in August
I know that some of the readers of these email lessons are college accounting professors. So, this first short item is for you. If you are going to be at the annual convention of the American Accounting Association in Anaheim, I am scheduled to give a 90 minute teaching presentation from 2:00 until 3:30 p.m. on Wednesday, August 7, in the Laguna A room, on the 4th floor of the Hilton. My teaching blog was named the AAA Accounting Education Innovation of the Year for 2013. As a result, they will give me 90 minutes to talk about some of the teaching ideas I have written about recently. If you are going to be at the convention, I hope you’ll stop by my presentation. I would love to meet you and chat about teaching (and the CPA Exam as well as Accounting Homework Apps, smartphone apps containing mcqs to practice for accounting course tests).
Aw, shucks!
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Don't Let Self Imposed Barriers Stop You
In all the years that I used to teach a live CPA Exam review course, I was always amazed by how many capable candidates showed up and immediately started telling me why they couldn’t pass the CPA Exam. Had it not been so sad, it would have been funny. In fact, I labeled it as the “I can’t do this because” disease. New candidates would practically leap out of their cars on the first day telling me why they couldn’t pass the CPA Exam.
--I can’t do this because I didn’t learn much in college.
--I can’t do this because I am a bad test taker.
--I can’t do this because my boss won’t give me any time to study.
--I can’t do this because my family is not supportive.
--I can’t do this because I work so slowly.
--I can’t do this because I have failed in the past.
--I can’t do this because I didn’t make good grades in Accounting at college.
With all these self-imposed barriers, I used to wonder how anyone ever passed the CPA Exam.
My response was always “well, don’t place too many stumbling blocks in your own path. Let’s start adding some points on a daily basis and see where we wind up.” The CPA Exam is tough enough without you telling yourself you are going to fail. I could never figure out how all of those excuses were of any possible help.
I think the “I can’t do this because” disease must be pretty universal. A lot of humans just seem to think that way. Every time we start a new challenge in life, especially if it pushes us outside of our comfort zone, we seem to lose faith in ourselves. We all do this – it is just a little more obvious in studying for the CPA Exam. Setting low expectations makes it is easier if you do fail. We seem to be trying to soften the possible blow by letting everyone know that we don’t really expect to do well.
However, setting low expectations makes it so much more difficult to succeed. That attitude works against you. It is hard to have the confidence to do the hard work necessary for success if you have already explained to everyone (including yourself) the many reasons you are going to fail. Who wants to work hard if you don’t believe you can succeed? People live up to their own high expectations but, just as importantly, they also live down to their own low expectations.
Attitude is vitally important in achieving success. People rarely succeed without a “can do” attitude. No one wants you to walk around and brag about how well you are going to do. But, a certain degree of “I can do this” is necessary if you are going to take on tough challenges and win.
Let me give you an example. My wife has long wanted to take a pottery class. I have always resisted because I was convinced that I could never learn how to take a lump of clay and put it on a wheel and turn it into a pot or bowl or vase that could be glazed and fired. I always assumed that I would produce a wreck. I didn’t want to try because I was afraid that I would be embarrassed by my failure. I was afraid of looking stupid. So, I created all kinds of excuses. I found myself constantly starting sentences with “I can’t do this because.”
Finally, this summer we decided to take a six-week pottery class after I ran out of excuses. I figured that I would produce awful stuff but I’d get it over with.
And, of course, you can guess what happened. The teacher was very patient and showed me exactly how to start, how to get the clay centered, how to mold it, how to shape and trim it. When I did something wrong, she would show me how to learn from my mistake and do better the next time. It was a wonderful learning experience.
I enjoyed every second.
And, almost immediately, “I can’t do this because” was replaced by “with some help, I can make this happen.”
But the key was that I stopped putting roadblocks in my path. I stopped defeating myself. I let the teacher help me make gradual progress. And, eventually, I could make some pottery.
After 6 weeks, my wife and I had produced over 30 pieces. Here are a few photos that we took.
What is the point of the previous story about pottery? More...
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Practice always gives us an opportunity to add some points...
...and get better on that CPA Exam. Read these questions, provide your answer and then read the answers that I give. As always, the goal is to get better. No peaking at the answers at the end before working the questions!
FAR
The Marston Corporation recently issued 1,000 shares of its common stock to its president for $30 per share so that she can vote at stockholders’ meetings and also receive dividends. However, in five years, when she is expected to retire, she must sell these shares back to the company for $35 per share. On its balance sheet, at the end of this first year, how is this stock reported?
a. As a liability
b. It is reported through note disclosure as a contingency
c. In stockholders’ equity as “common stock.”
d. In stockholders’ equity as the “equivalent of preferred stock.”
Auditing and Attestation
The Harthaus Corporation is a publicly-traded corporation that is audited by the CPA firm of Hansel and Gretel. Bob Patterson has been the audit partner in charge of this audit for the firm. At the end of his fifth year in that role, he turned this responsibility over to a different audit partner in the firm: Alexandra Manjal. What is the most likely reason for this switch?
a. It is required by U.S. GAAP.
b. It is required by the Sarbanes-Oxley Act.
c. It is required by IFRS.
d. It is not required so it must have been a personal decision or a firm decision.
Regulation
Janice Stathmore had a salary of $32,000 in the most recent year. In filing her federal taxes, she took the standard deduction this year as well as the previous three years. She also received unemployment compensation of $2,000. Finally, she received a $1,300 refund on her state income tax return for the previous year. In the current year, for federal income tax purposes, what should she report as her gross income?
a. $32,000
b. $33,300
c. $34,000
d. $35,300
BEC
A company wants to borrow $30 million for an expansion project. Bonds with that face value are issued at 98 percent of face value. How is the cost of this debt most likely measured for decision-making purposes?
a. At the prime rate
b. At the coupon (or cash) rate
c. At the effective rate based on the issuance price of the bonds
d. At the effective rate less tax savings
EXCLUSIVE: REVISIONS TO REGULATION (REG)
Although not much has been happening in the U.S. Congress, CPAreviewforFREE
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| Business Law |
| Debtor-Creditor |
| Govt. Regulation of Business |
| Corporate Income Taxes |
| Individual Income Taxes |
| Partnerships, S Corps and Other Taxation Areas |
IN CASE YOU MISSED IT...HERE IS INFO ON THE AUDITING CLARITY PROJECT
As many of you know, the AUD section of the exam starting with the July 1, 2013 testing window includes questions on the Auditing Clarity Project. Many review courses charge you for the information we are giving you for free. Please do us a favor. Forward this newsletter to friends, co-workers, HR/Training Specialist at your firm and be sure to let them know that you received the free updates from CPAreviewforFREE. Here are the new updates.
MCQ Answers
FAR
Answer is A
Any financial instrument that imposes an obligation on the issuer to transfer assets or issue equity shares is classified as a liability.
Auditing and Attestation
Answer is B
Section 204 of the Sarbanes-Oxley Act makes it unlawful for an audit partner having primary responsibilities for the audit to perform that service for more than five years.
Regulation
Answer is C
The salary is obviously taxable. The unemployment compensation is also included in gross income. The key point here is the handling of the state income tax refund. If that amount was taken on the previous year’s tax return as an itemized deduction, then it is taxable income when the refund is collected. If the taxpayer takes the standard deduction (as she does in this problem), then the original payment did not reduce her taxable income. No effect last year means no effect this year. Consequently, the subsequent refund is not included in taxable income. Only the salary and the unemployment compensation make up her gross taxable income.
BEC
Answer is D
Because these bonds were sold at a discount, the investors wanted (and the company gave) a higher effective rate of interest. Apparently, the bonds were not enticing enough at their cash interest rate to get enough investing interest. However, the effective interest rate (based on the lower price) is not the cost of the debt because interest expense is tax deductible. Those savings must also be taken into consideration.
Joe at CPAreviewforFREE
Joe at CPAreviewforFREE
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