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January 9, 2015
Lesson 158
From: Joe
Happy Holidays
Happy Holidays to all of our readers who live and work around the world. At this holiday season, we here at CPA Review for FREE want to wish you the very best in joy and happiness. And, as you begin 2015, set your goals and make your plans so that this new year will be your greatest one ever. Without goals and plans, you are depending on luck and Success, with a capital “S”, should never be based on luck.
Get Yourself (or someone else) Motivated to do Great Things
And, just in case you missed a few of the people on your Christmas shopping list, let me assure you that copies of my book (Don’t Just Dream About Success, Stack the Odds in Your Favor) are still available on Amazon for under $9.00. Okay, it is a little late for Christmas but what could be more thoughtful than a gift that pushes a person you love to have a great 2015? Start this new year with the goal of making a truly giant step toward Success.
Let’s start today’s lesson with an easy question.
If you want to pass the CPA Exam in 2015, how should you study? In other words, what is the best way to gain the knowledge you need in order to be successful on this very challenging test?
I have recently been reading a book titled Make It Stick – The Science of Successful Learning, by Brown, Roediger, and McDaniel. As you might imagine, I am always deeply interested in how people can learn more effectively. I have found this book to be especially insightful. One of the things that these authors often assert (and I believe) is that reading material over and over is not very helpful in getting the key elements into your memory. According to them and their research, it is the retrieval of information that really solidifies learning. If you want to learn something, pull it out of your memory over and over and your knowledge will get stronger and stronger. It is much like physical exercise. As they say in the book, “One of the best habits a learner can instill in herself is regular self-quizzing to recalibrate her understanding of what she does and does not know.”
They even have a chapter titled “To Learn, Retrieve.”
How can you do this in practice as you work to pass the CPA Exam? How do you get “retrieval” into your study plan? Here are a couple of my recommendations. Learn how...
If you want to learn more about our website, watch this short video.
Our partner, Fast Forward Academy, has a comprehensive review course program with many more bells and whistles than our course. It has:
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Let’s do some practice. Let’s add some points.
In addition to the questions below, here is a question and answer explained in a video from Joe on the cost volume profit and break even point question from BEC.
FAR
Helping Heart (Heart) is a not-for-profit entity that is affiliated with another not-for-profit entity named Handy Hand (Hand). To help Heart become more efficient, Hand sends its assistant accountant to work for Heart for two months. This employee’s cost to Hand is $3,000 per month although the value of the services is actually $3,200 per month. The difference is not considered significant. All costs are paid for by Hand. Heart receives this employee’s work for free. How does Helping Heart report the work done by the assistant accountant?
A. As an expense of $6,000
B. As an expense of $6,400
C. As an asset of $6,400
D. No recording is made of this work because it is paid for my Hand
Auditing and Attestation
Lot Corp requested Moon, CPA to audit its current year financial statements. The prior year financial statements produced by Lot were audited by Williams, CPA. Before accepting the engagement, Moon, CPA requested permission to make inquiries of Williams, CPA, and Lot Corp consented without restrictions. However, Williams, CPA has chosen to provide only a limited response. Which of the following would be an appropriate step for Moon, CPA to take?
A. Ask Lot Corp to compel Williams, CPA to provide a full response.
B. Consider the need to perform alternative audit procedures.
C. Consider the implications for engagement acceptance.
D. Withdraw from the engagement as a limited response is highly suspect.
Regulation
James Edwards comes to you to ask if he can file his income tax return as a head of household. He tells you the following story. “I am single but I pay more than half of the cost of the house that my elderly father lives in as his principal residence. This house is about 200 miles from my principal residence.” Which of the following statements is correct?
A. James Edwards cannot file as a head of household because the father lives in a different principal residence.
B. Head of household is only available if the housing costs are paid for a son, daughter, grandson, granddaughter, or foster child.
C. James Edwards can file as a head of household but only if the he receives an exemption for his father for income tax purposes.
D. James Edwards can file as a head of household because the father’s house is less than 250 miles away from his house.
BEC
James Felder is president of the Highblue Corporation. The board of directors has become concerned that Felder is putting the company at extreme risk because of some of the decisions that he has made over the past year. They are looking into salary patterns that might have led to this behavior. Which of these is most likely to have influenced Felder in his decision-making?
A. He gets paid $450,000 per year.
B. He gets paid $100,000 per year plus 10 percent of the company’s after tax net income.
C. He gets paid $200,000 per year plus 1,000 stock options that cannot be exercised for five years.
D. He gets paid $125,000 per year plus 500 shares of the company’s common stock that must be held for four years.
Answers:
FAR
Answer is A.
When employees of one not-for-profit entity work for another affiliated not-for-profit entity, the recipient records its expense at the cost of the services to the donor. Fair value is only used if it is significantly different than cost (which is not the case in this problem).
Auditing & Attestation
Answer is C.
Consider when this problem takes place. The audit has not yet been accepted or started. The new CPA is simply trying to determine if problems might exist with the client or with the audit that would make acceptance of the engagement untenable. The new auditor is not thinking about actual audit procedures or withdrawing from engagement. The new auditor is trying to decide whether to accept the new engagement. Prior to acceptance of an initial audit engagement, the successor auditor should evaluate the impact of the predecessor auditor’s response (or lack thereof) on the decision to accept the engagement.
Regulation
Answer is C
Head of household status applies to a wide range of relatives where the taxpayer pays more than half of the cost of housing. Head of household status only applies if the person lives with you except for a parent who does not have to live with you. However, the taxpayer must still be able to claim the person as an exemption. The distance of the parent’s home is not relevant.
BEC
Answer is B
Risky behavior can often be associated with the possibility of an immediate boost in compensation. In A, there is no chance that Felder will receive a direct increase in pay based on his actions. In C and D, there might be an increase in income but it will only happen several years into the future and might be damaged by risky activities at the current time. However, in B, Felder might be gambling that his decisions will cause a sudden jump in net income that will lead to an immediate, significant increase in his compensation for the year.
You Can Do It!
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