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March 4, 2014
Lesson 148
From: Joe
How to Get Started Using CPAreviewforFREE
We here at CPAreviewforFREE have been working quite hard recently to make our website (and our 2,500 free questions, answers and explanations) easier to access and, therefore, easier for every candidate to use. Consequently, a few days ago, I produced a short video to help you and everyone else make the very best use of all the information that our website has to offer. Watch the video (or please pass it along to someone else who might need assistance in passing the CPA Exam). I think this guidance can help you make effective use of our resources in order to get the 75 points needed to pass the CPA exam.
Free Videos on Bonds and Leases
And, while I was making this video, I made a couple more to help candidates who are preparing to take the FAR portion of the CPA Exam. I find that a lot of people struggle with bonds and leases and can always use a little extra help. I created a short problem on computing the exchange price of a bond and the recording of its interest expense for two years. This is not an easy problem so I carefully walk you through the sequential steps to get the right answer. If you (or, again, a friend) are planning on taking FAR any time soon, these videos can help you get tough areas under control.
Then, I created a lease problem that looks at the accounting by the lessor and then the accounting by the lessee. Please feel free to share. We are out to help EVERY candidate pass without spending a fortune.
Create A Sense of Urgency
As many of you know, I recently wrote a book titled “Don’t Just Dream About Success: Stack the Odds in Your Favor” which is available on Amazon.com in both the paperback and the Kindle version with the proceeds going to support the mission of CPAreviewforFREE.
Although sales have been great so far, we have a lot of people ask the obvious question:
“What is the book about and how could it possibly help me?”
Fair question. So, I wanted to provide an answer. The book is nearly 150 pages long but here are a couple of pages that I believe can help anyone who is looking to become more successful (but especially more successful on the CPA Exam). This is an excerpt from “Don’t Just Dream About Success: Stack the Odds in Your Favor” specifically for you (yes, YOU).
“Because they are human beings, college students have a strong tendency to procrastinate. Whether scheduled to write a paper, take a test, or create a presentation, most prefer to find other activities to occupy their hours and days until the last possible minute. As a student told me recently, ‘If a requirement is not on fire, I’ve got more interesting things to do with my time.’ Not surprisingly, when the deadline finally looms large, they are often forced to rush through the process so that results suffer. Every teacher knows that students are likely to upgrade their work if a touch of urgency is added to the daily routine.
‘This information will probably show up on your test.’
‘I am thinking about handing out a pop quiz sometime next week.’
‘You will be expected to explain the material in the third chapter of the textbook.’
“In classrooms almost every day, teachers rely on such warnings and 10,000 more like them to motivate students to action. The learning process improves whenever urgency is introduced. Students work harder and are more focused. The message is clear: Read the message and more.
Let’s do some practice
Every question that you work makes you a better student and gets you ever closer to those 75 points you need to pass the CPA Exam.
FAR
On January 1, Year One, the Hogan Company issues a four year $100,000 term bond that pays an annual 6 percent cash interest. Interest is paid every 12/31 with the face value to be paid four years from the issuance date. The bond is issued to earn an actual annual rate of 10 percent. The present value of an ordinary annuity of $1 for four time periods at a 10 percent rate is 3.16. The present value of a single amount of $1 in four time periods at a 10 percent rate is .68. What interest expense should Hogan report on its Year Two income statement?
a. $6,000
b. $6,800
c. $7,070
d. $10,000
Auditing
The CPA firm of Hay and Worth is auditing the financial statements of LaBrend Corporation. LaBrend has used a special purpose financial reporting framework. Which of the following statements is true?
a. The cash basis qualifies as a special purpose financial reporting framework but the tax basis does not.
b. The report should have an emphasis-of-a-matter paragraph to indicate that the basis being used was not consistent with US GAAP.
c. The tax basis qualifies as a special purpose financial reporting framework but the cash basis does not.
d. A balance sheet and income statement must be included in the financial statements.
Regulation
The Hyldina Corporation has an account receivable for $10,000 from Prosgko Corporation that is outstanding at the end of Year One. The debt was incurred as a result of normal business tranactions. Prosgko is a relatively new customer from a neighboring town. Hyldina believes that there is an 8 percent chance of collecting this receivable. Hyldina is an accrual basis taxpayer. What can be deducted by Hyldina on the company’s Year One income tax return?
a. Zero
b. $800
c. $4,000
d. $10,000
BEC
At the end of Year One, the Glacken Company has accounts receivable of $435,000. During that year, the company made credit sales of $2.6 million. At the end of the year, what is the average age of the reported accounts receivable balance? (rounded)
a. 46 days
b. 53 days
c. 59 days
d. 61 days
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ANSWERS
FAR
Answer is C
The future cash flows are $6,000 per year ($100,000 times 6 percent) for four years and then $100,000. The present value of those cash flows is $6,000 times 3.16 or $18,960 plus $100,000 times .68 or $68,000. The price of the bond is the total present value of $86,960 ($18,960 plus $68,000). Interest for Year One is that $86,960 times 10 percent or $8,696. Because only $6,000 is paid, the other $2,696 is compounded. The bond was sold at a discount so the compounding is added to bring the principal up to $70,696 ($68,000 + $2,696) at the end of Year One. In Year Two, the new $70,696 balance is multiplied by 10 percent to get interest of $7,070, the answer for this question.
Auditing
Answer is B
The auditor wants to make certain that any reader of the statements is adequately warned that US GAAP has not been followed. Thus, an emphasis-of-a-matter paragraph should be added after the opinion paragraph to explain this distinction. In addition, the statements are normally given different titles (such as the statement of assets and liabilities arising from cash transactions rather than balance sheet) to draw more attention to the difference in the method being used. Special purpose financial reporting frameworks include the cash basis, the tax basis, the contractual basis, and that regulatory basis.
Regulation
Answer is A
For tax purposes, accounts receivable must be completely worthless before they can be deducted as an expense. This receivable is not completely worthless.
BEC
Answer is D
The company is making credit sales of $7,123 per day ($2,600,000/365). Thus, the average account receivable balance is 61 days old ($435,000/$7,123).
Joe Hoyle
President
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Tuesday, March 11, 2014
Video on How To Prepare for CPA Exam; New Practice Questions
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