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February 19, 2014
Lesson 147
From: Joe
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Nuts and Bolts of Preparing for the CPA Exam
The question that I get most often (and I get a lot of questions) is: “I want to pass the CPA Exam in a reasonable period of time and I don’t want to spend any money. I am out of work and really don’t have money to spend on fancy courses. I am not shooting for 100. All I want is to get 75 points on each of the four exams and pass and then get on with my life. I realize that the pass rate is about 50 percent on each part but I am willing to work hard. If that is my goal, how would you recommend that I prepare for the CPA Exam?”
I think that is a very reasonable goal and one that CPAreviewforFREE can help you accomplish. I have long held that too many people who really need to pass the exam (so they can get a job and start a career) never even take the exam because of the high cost of review materials. I think that is terribly sad. I think that is bad for the country and bad for the profession. Professions should not just be open to the wealthy.
So, here are my steps to success on the CPA Exam without spending money (or spending almost no money). Please feel free to pass this along to anyone you know who might be looking to take the CPA Exam (especially those folks who are short of cash).
a. Make sure that you qualify to take the CPA Exam in the state of your choice. Go toThisWayToCPA for a list of the states and a brief overview of the requirements to sit in that state. If you click on the state name, more specific information is given as well as state board contact information. This site is great for U.S. or international candidates.
b. Start learning about the CPA Exam itself. The enemy here is big. You want to understand the process as completely as you can. Go to the AICPA's website and you’ll find a massive amount of information. You don’t have to look at it all but try to get as comfortable with the process as you can.
On the opening page, you’ll see the following links that you should follow and read:
For the rest of the items...See c through u here
I’ve probably left out a few things but this is not a bad path at all to get the exam done without spending thousands of dollars. A few companies have tried to convince everyone on the planet that thousands must be spent to pass the CPA Exam. No, if you have the self-discipline to do the work, you have a great chance of passing the exam while leaving all of that money in your own pocket so that you can buy things you really want.
Practice Questions
Okay, enough about the exam, let’s do some practice and add some points. Here are four questions – four potential points. Let’s make good use of them.
FAR
On January 1, Year One, Wherton Corporation buys an oil well in the Gulf of Mexico for $20 million. It is expected to pump out 1 million barrels of oil over five years and then be dismantled. Legally, Wherton is required to remove all signs of the oil well when the oil has been removed. The fair value of that obligation as measured in Year One is $3 million. Wherton pumped out 300,000 barrels of oil in Year One and sold them for $83 per barrel. What was the reported gross profit for that year?
a. $8,400,000
b. $12,800,000
c. $15,200,000
d. $18,000,000
Regulation
Jack and Diane are both 28 years old and have income this year of $50,000. During this tax year, they paid $2,300 in interest on qualified student loans. How does that impact their federal income tax return?
a. There is no deduction because of the income.
b. There is a $2,300 deduction to arrive at adjusted gross income.
c. There is a $2,300 itemized deduction for interest expense.
d. There is a $2,300 itemized deduction as a miscellaneous deduction.
Auditing
An auditor with the CPA firm of Winston and Churchill is working to understand a client’s inventory procurement system. In hopes of assessing the control risk present in this system, the auditor is reviewing a flowchart created by company employees. One symbol has a diamond shape. What does that symbol represent?
a. A document within the system
b. A decision made within the system
c. A process carried out within the system
d. The input of information within the system
BEC
At the beginning of the current year, $1 would buy .8 Euros. At the end of the current year, $1 would buy only .6 Euros. Which of the following is most likely to be true?
a. US exports to Europe should decrease
b. US citizens are more likely to become tourists in Europe
c. European citizens are less likely to become tourists in the US
d. European exports to the US should decrease
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ANSWERS
FAR
Answer is D
The fair value of the cleanup operation that is legally required is capitalized to the cost of the oil well making the total $23 million. Because 1 million barrels of oil are expected, depletion is $23 per barrel. The oil is sold for $83 per barrel for a gross profit of $60 per barrel. The company pumped out and sold 300,000 barrels for a total gross profit of $18 million. Because the remains of the oil well must be removed, there is apparently no residual value.
Regulation
Answer is B
Here, both the amount of interest and the amount of income are below threshold levels so the interest paid on those qualified student loans is deducted as a deduction to arrive at Jack and Diane’s adjusted gross income.
Auditing
Answer is B
On a flowchart, a diamond represents a decision that must be made. Normally, the operations process out of one point of the diamond if the answer to the decision is Yes and out of another point on the diamond if the answer is No.
BEC
Answer is D
The dollar can buy a certain amount of Euros at first and then later the dollar can buy a smaller amount of Euros. The dollar is losing value and the Euro is gaining value. People holding dollars have less comparative wealth and people holding Euros have more comparative wealth because of the relative change in currency values. Answer a is wrong because Europeans are likely to buy more now from the US rather than less. Answer b is wrong because US citizens are more likely to stay home now because they have less value to spend. Answer c is wrong because Europeans have more comparative wealth now and are more likely to travel rather than stay at home. The answer is D because US citizens have less comparative wealth now and, therefore, are inclined to spend less.
Joe Hoyle
President
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