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How Hard Are You Working
Lesson 29
From: Joe
(1) - Last week we had more visitors to our website than in any previous week in our history. Thanks so much to everyone who has recommended us. Without your help, we simply would not exist.
(2) - If you know anyone who wants to receive these free weekly email lessons, send their email address to Jhoyle@cpareviewforfree.com. We cannot add them automatically but we will send them a confirmation note that will allow them to subscribe if they wish.
(3) - Last week was a wonderful one for getting emails here at www.CPAreviewforFREE.com. Here are just a couple of the ones that I have received in the last four or five days.
From SL: "I just wanted to send you a quick 'thank you' note for your exceptional website. Prior to finding CPA Review For Free, I had failed Regulation twice, first with a 74 and then with a 72. I was using the (big name) courses in my preparation, . . . There was just something missing on REG. I felt prepared going in, and spent many hours viewing lectures, taking notes, rewriting notes, etc. The Multiple Choice practice left something to be desired, because each time I went in, I was caught off-guard by the types of questions they would ask.
"After finding out that I had failed REG the second time, I searched the Internet for alternative courses for preparation. I knew that tax was my weakest area, probably in the entire CPA Exam. I had avoided tax classes in undergrad as much as possible, and have exclusively worked on the audit side since joining a public firm. Once I found your website and signed up, I was struck by the variety of questions you provided for tax, and their similarity to those I had seen on the actual exam, not only in topical nature, but the form, the length, the types of possible answers, etc. I felt like I was actually practicing questions I would expect to find the next time I sat.
"I used CPA Review For Free along with re-reviewing my other materials this last time (January 2009). I answered all of the REG questions, and re-worked the sections that were difficult for me. Low and behold, your website must have over-prepared me - I received a 77 on REG and I have completed the CPA Exam! My only regret is that I did not know about your site until after I had started with the other program. Not only do I believe I would have been well-prepared for the tests, I would also be about $2,000 richer. Again, thank you for the services that your website provides. I have been passing along the website to any of my friends and staff people who are working on their CPA."
From GS: "Your insight and encouragement has helped to put the exam process into perspective. Understanding the nature of the exam's process is critical to passing. You brought to light the process by comparing the exam to a river that reaches a mile wide and an inch deep, that really makes perfect sense to me. Previously, I had a strong desire to drill down on every topic, curse at myself when a practice MC question was answered incorrectly, and fret over small details, all of which had contributed to failing exam sections.
"I understand that this testing process requires general knowledge of subject matter and only a grade of 75% to pass.
As a result of your insight and encouragement, this candidate has passed two sections, taken another section and can calmly approach the final section knowing that it too will be passed. I owe you a great deal and thank you for your FREE insight, and I hope to repay you somehow."
From EB: "First of all, let me say how much I appreciate the service that you are offering. I not only appreciate the review questions available on your website, I also want to thank you for the comments and the encouragement in your blog postings. I started pursuing a second degree in accountancy in 1999 and next month, after 10 years of classes, one class each semester, I will complete the coursework required to receive my bachelor's degree in accountancy. I will be 54 years old when I complete the class work and my goal is to pass the CPA exam during the year that I turn 55.
"I think that your comments are so worthwhile that I pass them along to my children. I hope I didn't violate any copyright laws when I cut and pasted your article about the Steve Martin book that you were reading into an e-mail to my children. "Perseverance is a great substitute for talent." What a great quote.
"And now for my request. You stated in your December 26th blog that you would pass on to anyone who requested it your 30 question final exam for your introductory financial accounting course. If that offer still stands, I would appreciate receiving the exam (and of course, the answers for it.) Once again, thanks so much for the service that you offer."
(4) - Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree
These are good folks and we are delighted to offer their products at this discount.
(5) - I have a few quotes that are really my all-time favorites. No matter how often that I hear them, they make me stop and do a few moments of real reflection. About 2 years ago, I was reading an article in Fortune magazine on what it takes to be great. This always intrigues me. Why is Tiger Woods such a great golfer? Why do certain basketball coaches always seem to win?
There was a quote in this article that I probably think about 3-4 times per week.
From: "What It Takes To Be Great," Fortune, October 30, 2006: "People learn quickly at first, then more slowly, and then stop developing completely. Yet a few do improve for years and even decades, and go on to greatness."
In many things in life, this is exactly what happens. People get excited and enthusiastic and start off any new task very well. They learn how things are done and they get better at them. They improve. But, all too often, they begin to slow down. The interest is not quite so intense. The ability to make sacrifices becomes more difficult. Finding time to do the necessary details becomes harder. Pretty soon, the things that were going so well become a bit more sloppy. The task at hand is no longer the number one priority.
And, eventually, most people simply stop improving. They kind of adopt the attitude: "this is the best I'm ever going to be; I might as well get used to it." Mediocrity sets in and that feeling just blankets everything that is done.
However, that doesn't always happen. Some people get a feeling of true excitement when they see themselves improving. That excitement provides fuel for the fire and they are actually able to work harder. I sometimes say "they smell the blood in the water and it spurs them forward."
CPA Review is a long process. Under the best of conditions, it takes months.
Most people, when they first begin the process, are intrigued by the possibility of getting those three letters after their name. They will set aside time every day or two for serious study. And, then they will make sure that time is spent wisely.
That initial euphoria lasts for a week or two or maybe even a bit longer. But it usually does fade. At some point, every candidate takes a step back with the realization "this is not fun; this is really work."
It is at that point that many people pass or fail the CPA Exam. It is not even about going to a Prometric Center. It is about what you do when preparing for the exam becomes more like work and less like fun.
Most people do not just quit. That is actually kind of rare. First, they begin to slow down. Instead of studying for 2 hours, they study for 45 minutes. Instead of studying 4-5 days per week, they study for 1-2 hours per week. Instead of studying in a quiet room, they have on television and their iPod. It is almost like they have given up shooting for 75 but now they are trying for 63.
However, obviously, other folks are not intimidated by the CPA Exam and the preparation that is needed. Yes, they still take breaks and, yes, they do not study every day. But that has never been necessary.
Instead, even when it becomes real work,
--the CPA Exam continues to be a serious priority in their lives.
--they make time for the CPA Exam on a regular schedule.
--when they start studying, that becomes their central focus. They don't let themselves get distracted.
You can be great and you can pass the CPA Exam. I am convinced of that. But you have to have the self-discipline that is needed when the task of preparation goes from being fun to that of being a real job. Every one of you can be great as long as you do not get stuck in being mediocre.
(6)-You are always able to unsubscribe from this service without problem. Just scroll to the bottom of this (or any other) email lessons and click on the Unsubscribe button. We are always glad to have you with us. However, it is your life and your time and if you are ready for the lessons to stop just follow those directions.
(7)-Ah, they are playing basketball this week-end in the Final Four. I must say something about that. Two of the best college players in the United States are Tyler Hansbrough (North Carolina) and Blake Griffin (Oklahoma). They are both so talented that it is just fun to watch them play. In fact, I almost never watch a basketball game that I do not wonder what it must feel like to have so much talent.
I was listening to the radio last Sunday and they were interviewing one of the coaches (I believe it was Oklahoma's coach) and he was talking about these two players and he had a very revealing quote that went something like: "what makes these guys so great is that they simply outwork everyone else."
No mention of talent. No mention of height.
They simply outwork everyone else.
Let's assume we took you and 99 other CPA candidates and, somehow, we ranked each of these people on how hard they are working to pass the CPA Exam. That is a quality where anyone can be ranked number one if they have the necessary desire and self-discipline. It is not based on IQ, it is not based on the college you went to, it is not based on how much money you have, it is not based on who your parents are.
If we were to rank 100 CPA candidates based on how hard they are working
WHERE WOULD YOU RANK??
I think that is a very valid question. Would you be number 25? Or, would you be 67? Or, maybe you would be number 4? Or, maybe you would be 94?
Okay, I will be honest with you. You don't have to be in the top 10 or even the top 20 to pass the CPA Exam. That is certainly not required. But, if I were taking the CPA Exam, I really would want to be in the top 30 or top 35. And, there is absolutely, positively no reason why you could not be in the top 35 percent of the people taking the CPA Exam when it comes to hard work. That just requires self-discipline, organization, desire, and focus. Something everyone is capable of having.
That is not a bad experiment. Look back on the past week and think of all of the people studying for the CPA Exam throughout the US and around the world. If it came down just to hard work, where would you rank? Be honest. There is no reason to fool yourself. Where would you rank? Would you be in the top 30-35 percent? If not, what would it take to get there? Are you willing to do that?
(8) - Here are a few practice questions - try to add a point. That should always be your goal: "I want to get one point better."
Regulation
A company issues 100,000 shares of common stock and 10,000 shares of preferred stock with a $2 cumulative dividend. In the first year, no dividends are paid or declared. Which of the following statements are true?
A - The company should report a $20,000 liability on its year-end balance sheet.
B - All dividends in arrears on the preferred stock must be paid before any dividends can be paid on common stock.
C - The preferred stockholders are guaranteed to receive this $20,000 at some point in the future.
D - By not paying the cumulative dividend, the company will be forced into bankruptcy within 90 days of the beginning of the new year.
Answer is B.
A cumulative preferred stock simply means that all dividends on the preferred stock must be paid as required before any dividends can be distributed to the owners of the common stock. The company is not obligated in any other way. There is no guarantee nor liability and failure to pay will not automatically lead to bankruptcy. However, if the board of directors ever formally declares these dividends, the liability must be reported.
Financial Accounting
A company has a red asset that it bought for $80,000 and has now depreciated down to a book value of $33,000. However, the asset has a fair value of $40,000. This asset is traded for a green asset that also is worth $40,000. The two assets are expected to generate the same future cash flows in terms of amounts, timing, and risk. Therefore, the trade is viewed as having no economic or commercial substance. In recording the trade, which of the following statements is true?
A - New asset is recorded at $33,000 and a $7,000 gain is reported.
B - New asset is recorded at $33,000 and no gain is reported.
C - New asset is recorded at $40,000 and a $7,000 gain is reported.
D - New asset is recorded at $40,000 and no gain is reported.
Answer is B.
The answer to any normal trade would be C. The new asset is recorded at the fair value of the asset given up and any difference between its book value and fair value is recorded as a gain or loss. However, there is one exception and this question looks at that exception. If there is no economic or commercial substance to a trade, then the assumption is that the trade was made solely in order to record a gain. If there is no commercial substance, there is no possible reason for having made the trade. That condition arises where the cash flows (in amount, timing, and risk) are not affected in any way by the trade. In that one situation, book value is retained and no income effect is recorded.
Business Environment and Concepts
A company produces a product in a long-series of automated steps that requires little direct material and direct labor but a lot of overhead. What costing system is the company most likely to use?
A - Job-order costing
B - Process costing
C - Activity-based costing
D - Just-in-time costing
Answer is C
In this situation, a company might use job-order costing or process costing. There is not enough information to tell if products are unique (where job-order costing is appropriate) or mass produced (where process costing is appropriate). However, in connection with either of these approaches, the company is likely to apply activity-based costing because there are many steps in the process and overhead is a significant cost. Activity-based costing breaks the process down into individual activities and determines a specific overhead cost driver for each of these activities. In that way, the costing is designed specifically for the process in use. Overhead for one activity might be applied based on machine hours if that is appropriate to the activity whereas overhead for another activity might be applied based on direct labor cost if that is appropriate.
Auditing and Attestation
A CPA is doing a compilation of financial statements for a client. Which of the following is most likely to be done by the CPA?
A - The physical inventory taken by the client must be observed by the CPA.
B - At least a few of company's accounts receivable must be confirmed by the CPA.
C - Analytical procedures must be carried out after all other work is performed.
D - The statements should be read for any obvious mistakes.
Answer is D.
A compilation means that client information is taken and put into the form of financial statements. There are no audit procedures performed and no assurance of any type is given. However, the CPA is required, at a minimum, to read the statements and make sure that no obvious errors are present. For example, if land is listed as a current asset, or if retained earnings is listed as a liability, the CPA does have to check that out because they both seem obviously incorrect.
And, finally, just a reminder for those of you who live near Richmond:
The University of Richmond is pleased to announce Joe Hoyle as the University's first "Last Lecturer." Professor Hoyle is an associate professor of accounting in the Robins School of Business. He has taught at the University of Richmond since 1979 and is a distinguished educator, receiving numerous awards and honors. Students nominated over seventy professors during the week of February 9th. Please join us on Tuesday, April 7th, 2009 at 7 p.m. in the Jepson Alumni Center to listen to Professor Hoyle's "Last Lecture." This event is part of the newly created Last Lecture Series at the University of Richmond in which students nominate professors they would like to hear deliver a speech based on the question "If you were to address students at the University of Richmond for the last time, what would you say?" Professor Hoyle's "Last Lecture" is free and open to the public.
Saturday, April 4, 2009
Wednesday, March 25, 2009
Pass The CPA Exam One Topic At A Time
Pass The CPA Exam One Topic At A Time
From: Joe
ANNOUNCEMENT: We here at CPA Review for FREE are always trying to find new ways to be helpful to our readers. We realize that people who pass the CPA Exam might also be interested in the CFA (Chartered Financial Analyst) Exam. Or, you may have friends who are thinking of taking the CFA Exam.
Consequently, we have teamed up with the good folks at ProfessionalExamReview.com to offer you a 10 percent discount on their CFA Exam Review products. In these days, save every penny you can. Take a moment and go out and look at the wide variety of products that they provide: http://m1e.net/c?86471133-T3oJUZE5tOzlk%404096319-vgjWOWZYWn9nA
Of course, pass the CPA Exam first, but, after that, you might look into the possibility of adding three more letters (CFA) after your name. When you are in a study and testing mindset, it is good to get as many of those letters as you can.
(1) - One other quick announcement: we should hit a total of 2.2 million page views in the next day or two. If anyone at one of these big fancy CPA Review programs tells you that we are not real, just ask them why we've gotten 2.2 million page views in such a short period of time.
These big courses WANT YOUR MONEY. That is their number one goal.
They will tell you almost anything to GET YOUR MONEY.
Don't be gullible.
My recommendation:
--go to www.CPAreviewforFREE.com
--under CPA Exam Resources, read "Using CPAreviewforFREE"
--try us for 4-6 weeks
--after that, if you still want to send a couple of thousand to the big courses, then that is a considered decision on your part.
Don't let the big courses SCARE YOU OUT OF YOUR MONEY.
(2) - One of the biggest problems of the CPA Exam is that it looks so hard. Everyone hears how difficult it is; how many hours you have to spend. When you first start, it seems like you are beginning to climb Mt. Everest. It is very easy to get overwhelmed and discouraged. A lot of people just have trouble getting started. It can seem so hopeless that they never really get out of the starting gate.
One recommendation is to focus on passing one topic at a time.
For example, if you are studying to pass FAR, focus on a topic such as Accounts Receivable first. Stop thinking about the CPA Exam. Only worry about gaining enough knowledge to pass that ONE topic. My guess is that you can pass Accounts Receivable with 30-90 minutes of preparation. Other than estimating and recording bad debt expense, there is not much to it. So, that is a reasonable goal.
Then, once you have enough knowledge to pass Accounts Receivable, you move on to the next topic-something like Inventory. Okay, that is a bit broader topic but you can probably pass it in 1 hour to 2.5 hours. Then move on to Buildings and Equipment.
In that way, when you wake up each morning, you have a goal that you can actually accomplish. TODAY: pass a topic or two. Don't focus on the CPA Exam, focus on today's topic.
Otherwise, it is easy to wake up with the entire CPA Exam in front of you. You face the burden of studying for a couple of hours without a sense of accomplishment. It feels like you are struggling up Mount Everest and it is winning. Instead of looking at the CPA Exam as a huge mountain that is almost impossible to climb, think of it as a series of small hills. You climb one hill and then begin up the second hill. Now, that is a reasonable goal.
Start right now: what is the very first topic that you want to pass? Start climbing that hill. You can climb a hill-get the first one done today.
(3) - Remember that you can unsubscribe from these email lessons (that I send out every week or two) by scrolling to the bottom of this lesson and clicking on the unsubscribe button.
And, since we do no marketing, we very much appreciate your willingness to tell other folks about www.CPAreviewforFREE.com. YOU are the most important part of our success.
(4) - It is so easy to run out of energy when you are studying for the CPA Exam. Every night you come home from work and you plan to open up www.CPAreviewforFREE.com but you are just soooo very tired. You keep thinking that you will defer study until you have more energy but every time you even think about studying, your energy flies out of your body.
Every night you get to bed time and you have not accomplished what you had wanted to do and that makes you discouraged. It is tough-trust me, I have been there. I well know.
I am currently reading a book about the making of the famous 1967 movie The Graduate. They were getting ready to film a very important scene and Dustin Hoffman was having trouble doing it just right. The director (Mike Nichols) asked Hoffman what was wrong and the actor responded that he was tired.
Nichols took Hoffman aside and said something like: You are going to look back on this movie for the rest of your life. Do you really want to look back at the most important scene in the entire movie and realize that you didn't do it as well as you could have because you were tired? It was the most important scene and you were tired???????
The CPA Exam is very important to your career and to your own feeling of self-confidence. Do you really want to look back and realize that you could have passed except that you were tired?
---If this exam is really so important to you, shouldn't your heart be pumping every time you think about passing?
---If this exam is really so important to your career, shouldn't the adrenaline be racing through your body like a NASCAR racer?
---If this exam is really going to show people what you really can do, shouldn't you wake up each morning excited to have the chance to pass a new topic?
Tired??? Bah! Humbug! The excitement of such a major accomplishment should push tired right out of your head.
I think most mental tiredness is just psychological. We tell ourselves "I have been busy today; my mind is not going to function well." Why not tell ourselves "I have been busy today; my mind is already pumped up and ready to go after the CPA Exam."
We tell ourselves "I just had my dinner; I need to put my feet up and rest and turn on television." Why not tell ourselves "Okay, I'm finished with dinner, now is a good time to put in an hour or two and get closer to passing the CPA Exam." Heck, I'm well over 60 and I don't go lay down after dinner and rest. I get excited about the prospect of getting something accomplished.
We tell ourselves "I don't study well in the morning; my brain does not work well that early." Why not tell ourselves "This is a great time to study; I can add some points when the world is peaceful and quiet and won't disturb me."
Are you telling your mind negative things or positive things? If you fill up your mind with negatives, don't be surprised that it feels tired.
Your mind is as tired or as active as you tell it to be. I know plenty of people who go through life with "mental weariness" because they tell themselves day in and day out that they are just so very tired. I know just as many people who convince themselves that their brain is alive and pumping and ready to go to work.
Guess who passes the CPA Exam?
Which one are you?
(5) - Here's an email I got a day or two ago:
"My exam experience with FAR was not that good. I was a wreck when I came out as I had run out of time and was only able to do the communications part of both simulations. That was the third time I'd taken it and had only done a little bit more than the other times. The only difference this time was that I had used questions from CPA Review for Free and tried to incorporate your 'inch deep, mile wide' attitude. Anyway, I was hopeful, but not as confident as when I did BEC. Bottom line. I passed with 75%!"
CONGRATULATIONS!!! That is just wonderful. That is a perfect example of my advice: remember, you do not have to be perfect; you just have to get enough questions right to pass!!! And you did it!! I know you must be proud of yourself. You did the work and you made it happen. Go out and celebrate-tell your friends and neighbors. YOU did it.
(6) - Some practice problems. The first one here I am taking from my Intermediate Accounting class this past Friday.
Financial Accounting and Reporting
The Palermo Company reported net income in its financial statements of $600,000 (before tax) in Year One. The tax rate is currently 30 percent but is expected to go up to 32 percent at the start of Year Two. The company has revenue of $90,000 that will not be taxed until Year Two. In addition, the company has another $50,000 in revenue that will never be taxed. What does the company show as its income tax expense for Year One?
A - Income tax expense-current is $138,000 and income tax expense-deferred is $27,000
B - Income tax expense-current is $180,000 and income tax expense-deferred is $28,800
C - Income tax expense-current is $153,000 and income tax expense-deferred is $27,000
D - Income tax expense-current is $153,000 and income tax expense-deferred is $28,800
Answer is A
Future tax rates are only used if the rate has been legally enacted, not just anticipated. Thus, all income here is recorded at the current rate of 30 percent since the new rate is only expected. Only $460,000 is to be taxed in the current year ($600,000 less $90,000 and $50,000). At 30 percent, the income tax expense-current is $138,000. The $50,000 will never be taxed and can be ignored. The $90,000 will be taxed next year but the expense is recognized this year at the 30 percent rate so that the income tax expense-deferred is $27,000.
Regulation (Unfortunately, I thought of this one yesterday when I was doing my income tax return for 2008)
Mr. and Mrs. Archibald Taylor are filing their income tax return for the current year. They have short-term capital losses of $10,000 and long-term capital losses of $20,000. Which of the following is correct?
A - They can deduct $3,000 of the short-term losses this year and carry all of the remaining losses forward indefinitely.
B - They can deduct nothing this year but can carry all of the losses back for three years and then forward for up to seven years.
C - They can deduct $3,000 of the long-term losses this year and carry all of the remaining losses forward for up to 20 years.
D - The losses are combined and $3,000 can be deducted this year with the remaining $17,000 carried over for up to seven years.
Answer is A
For individual taxpayers filing a joint return, $3,000 in capital losses can be deducted each year. Short-term losses are deducted first. The remaining amounts can be carried forward indefinitely. In the carryover process, short-term losses remain short-term and long-term losses remain long-term. Corporate rules are quite different for capital gains and losses.
Auditing & Attestation
The Acme Coal Company spends $3 million to buy a new coal mine. Depletion expense is to be computed based on the company's estimation that the mine contains 600,000 tons of coal. Ross and Company CPAs is auditing the financial statements produced by Acme. Ross hires the engineering firm of Less and Low to substantiate the estimation of coal made by company management. The CPA firm has made sure that the engineering firm is independent of Ross and has appropriate credentials. Which of the following is true?
A - The hiring of Less and Low was inappropriate because they are not under the control of the CPA firm.
B - The CPA firm must review all computations made by the engineering firm.
C - The CPA firm must ask the engineering firm to disclose and explain all assumptions and methods that were used in making this estimation.
D - The engineering firm must be independent of the audit client.
Answer is C
Using the work of a specialist in an audit is quite normal. CPAs cannot be expected to have unlimited knowledge on all possible topics (such as estimating the amount of coal in a coal mine). The specialist does not have to be independent but the CPA's reliance on the findings of the specialist should be guarded if independence is lacking. The auditor is probably not capable of reviewing all the work of the specialist. If the auditor had that much knowledge, a specialist would not be needed. However, the CPA needs to be well aware of all assumptions and methods used by the specialist in doing the assigned work.
BEC
A company buys and sells widgets on credit. The inventory conversion period is 31 days. The receivables conversion period is 23 days. The accounts payable conversion period is 28 days. What is the cash conversion period?
A - 23 days
B - 26 days
C - 54 days
D - 82 days
Answer is B
The cash conversion period is the inventory conversion period (31) plus the receivables conversion period (23) less the payable conversion period (28).
And one final thought for the upcoming week:
"Look at a day when you are supremely satisfied at the end. It's not a day when you lounge around doing nothing; it's when you've had everything to do, and you've done it."
Margaret Thatcher
Joe Hoyle
Co-Founder
CPA Review for FREE
From: Joe
ANNOUNCEMENT: We here at CPA Review for FREE are always trying to find new ways to be helpful to our readers. We realize that people who pass the CPA Exam might also be interested in the CFA (Chartered Financial Analyst) Exam. Or, you may have friends who are thinking of taking the CFA Exam.
Consequently, we have teamed up with the good folks at ProfessionalExamReview.com to offer you a 10 percent discount on their CFA Exam Review products. In these days, save every penny you can. Take a moment and go out and look at the wide variety of products that they provide: http://m1e.net/c?86471133-T3oJUZE5tOzlk%404096319-vgjWOWZYWn9nA
Of course, pass the CPA Exam first, but, after that, you might look into the possibility of adding three more letters (CFA) after your name. When you are in a study and testing mindset, it is good to get as many of those letters as you can.
(1) - One other quick announcement: we should hit a total of 2.2 million page views in the next day or two. If anyone at one of these big fancy CPA Review programs tells you that we are not real, just ask them why we've gotten 2.2 million page views in such a short period of time.
These big courses WANT YOUR MONEY. That is their number one goal.
They will tell you almost anything to GET YOUR MONEY.
Don't be gullible.
My recommendation:
--go to www.CPAreviewforFREE.com
--under CPA Exam Resources, read "Using CPAreviewforFREE"
--try us for 4-6 weeks
--after that, if you still want to send a couple of thousand to the big courses, then that is a considered decision on your part.
Don't let the big courses SCARE YOU OUT OF YOUR MONEY.
(2) - One of the biggest problems of the CPA Exam is that it looks so hard. Everyone hears how difficult it is; how many hours you have to spend. When you first start, it seems like you are beginning to climb Mt. Everest. It is very easy to get overwhelmed and discouraged. A lot of people just have trouble getting started. It can seem so hopeless that they never really get out of the starting gate.
One recommendation is to focus on passing one topic at a time.
For example, if you are studying to pass FAR, focus on a topic such as Accounts Receivable first. Stop thinking about the CPA Exam. Only worry about gaining enough knowledge to pass that ONE topic. My guess is that you can pass Accounts Receivable with 30-90 minutes of preparation. Other than estimating and recording bad debt expense, there is not much to it. So, that is a reasonable goal.
Then, once you have enough knowledge to pass Accounts Receivable, you move on to the next topic-something like Inventory. Okay, that is a bit broader topic but you can probably pass it in 1 hour to 2.5 hours. Then move on to Buildings and Equipment.
In that way, when you wake up each morning, you have a goal that you can actually accomplish. TODAY: pass a topic or two. Don't focus on the CPA Exam, focus on today's topic.
Otherwise, it is easy to wake up with the entire CPA Exam in front of you. You face the burden of studying for a couple of hours without a sense of accomplishment. It feels like you are struggling up Mount Everest and it is winning. Instead of looking at the CPA Exam as a huge mountain that is almost impossible to climb, think of it as a series of small hills. You climb one hill and then begin up the second hill. Now, that is a reasonable goal.
Start right now: what is the very first topic that you want to pass? Start climbing that hill. You can climb a hill-get the first one done today.
(3) - Remember that you can unsubscribe from these email lessons (that I send out every week or two) by scrolling to the bottom of this lesson and clicking on the unsubscribe button.
And, since we do no marketing, we very much appreciate your willingness to tell other folks about www.CPAreviewforFREE.com. YOU are the most important part of our success.
(4) - It is so easy to run out of energy when you are studying for the CPA Exam. Every night you come home from work and you plan to open up www.CPAreviewforFREE.com but you are just soooo very tired. You keep thinking that you will defer study until you have more energy but every time you even think about studying, your energy flies out of your body.
Every night you get to bed time and you have not accomplished what you had wanted to do and that makes you discouraged. It is tough-trust me, I have been there. I well know.
I am currently reading a book about the making of the famous 1967 movie The Graduate. They were getting ready to film a very important scene and Dustin Hoffman was having trouble doing it just right. The director (Mike Nichols) asked Hoffman what was wrong and the actor responded that he was tired.
Nichols took Hoffman aside and said something like: You are going to look back on this movie for the rest of your life. Do you really want to look back at the most important scene in the entire movie and realize that you didn't do it as well as you could have because you were tired? It was the most important scene and you were tired???????
The CPA Exam is very important to your career and to your own feeling of self-confidence. Do you really want to look back and realize that you could have passed except that you were tired?
---If this exam is really so important to you, shouldn't your heart be pumping every time you think about passing?
---If this exam is really so important to your career, shouldn't the adrenaline be racing through your body like a NASCAR racer?
---If this exam is really going to show people what you really can do, shouldn't you wake up each morning excited to have the chance to pass a new topic?
Tired??? Bah! Humbug! The excitement of such a major accomplishment should push tired right out of your head.
I think most mental tiredness is just psychological. We tell ourselves "I have been busy today; my mind is not going to function well." Why not tell ourselves "I have been busy today; my mind is already pumped up and ready to go after the CPA Exam."
We tell ourselves "I just had my dinner; I need to put my feet up and rest and turn on television." Why not tell ourselves "Okay, I'm finished with dinner, now is a good time to put in an hour or two and get closer to passing the CPA Exam." Heck, I'm well over 60 and I don't go lay down after dinner and rest. I get excited about the prospect of getting something accomplished.
We tell ourselves "I don't study well in the morning; my brain does not work well that early." Why not tell ourselves "This is a great time to study; I can add some points when the world is peaceful and quiet and won't disturb me."
Are you telling your mind negative things or positive things? If you fill up your mind with negatives, don't be surprised that it feels tired.
Your mind is as tired or as active as you tell it to be. I know plenty of people who go through life with "mental weariness" because they tell themselves day in and day out that they are just so very tired. I know just as many people who convince themselves that their brain is alive and pumping and ready to go to work.
Guess who passes the CPA Exam?
Which one are you?
(5) - Here's an email I got a day or two ago:
"My exam experience with FAR was not that good. I was a wreck when I came out as I had run out of time and was only able to do the communications part of both simulations. That was the third time I'd taken it and had only done a little bit more than the other times. The only difference this time was that I had used questions from CPA Review for Free and tried to incorporate your 'inch deep, mile wide' attitude. Anyway, I was hopeful, but not as confident as when I did BEC. Bottom line. I passed with 75%!"
CONGRATULATIONS!!! That is just wonderful. That is a perfect example of my advice: remember, you do not have to be perfect; you just have to get enough questions right to pass!!! And you did it!! I know you must be proud of yourself. You did the work and you made it happen. Go out and celebrate-tell your friends and neighbors. YOU did it.
(6) - Some practice problems. The first one here I am taking from my Intermediate Accounting class this past Friday.
Financial Accounting and Reporting
The Palermo Company reported net income in its financial statements of $600,000 (before tax) in Year One. The tax rate is currently 30 percent but is expected to go up to 32 percent at the start of Year Two. The company has revenue of $90,000 that will not be taxed until Year Two. In addition, the company has another $50,000 in revenue that will never be taxed. What does the company show as its income tax expense for Year One?
A - Income tax expense-current is $138,000 and income tax expense-deferred is $27,000
B - Income tax expense-current is $180,000 and income tax expense-deferred is $28,800
C - Income tax expense-current is $153,000 and income tax expense-deferred is $27,000
D - Income tax expense-current is $153,000 and income tax expense-deferred is $28,800
Answer is A
Future tax rates are only used if the rate has been legally enacted, not just anticipated. Thus, all income here is recorded at the current rate of 30 percent since the new rate is only expected. Only $460,000 is to be taxed in the current year ($600,000 less $90,000 and $50,000). At 30 percent, the income tax expense-current is $138,000. The $50,000 will never be taxed and can be ignored. The $90,000 will be taxed next year but the expense is recognized this year at the 30 percent rate so that the income tax expense-deferred is $27,000.
Regulation (Unfortunately, I thought of this one yesterday when I was doing my income tax return for 2008)
Mr. and Mrs. Archibald Taylor are filing their income tax return for the current year. They have short-term capital losses of $10,000 and long-term capital losses of $20,000. Which of the following is correct?
A - They can deduct $3,000 of the short-term losses this year and carry all of the remaining losses forward indefinitely.
B - They can deduct nothing this year but can carry all of the losses back for three years and then forward for up to seven years.
C - They can deduct $3,000 of the long-term losses this year and carry all of the remaining losses forward for up to 20 years.
D - The losses are combined and $3,000 can be deducted this year with the remaining $17,000 carried over for up to seven years.
Answer is A
For individual taxpayers filing a joint return, $3,000 in capital losses can be deducted each year. Short-term losses are deducted first. The remaining amounts can be carried forward indefinitely. In the carryover process, short-term losses remain short-term and long-term losses remain long-term. Corporate rules are quite different for capital gains and losses.
Auditing & Attestation
The Acme Coal Company spends $3 million to buy a new coal mine. Depletion expense is to be computed based on the company's estimation that the mine contains 600,000 tons of coal. Ross and Company CPAs is auditing the financial statements produced by Acme. Ross hires the engineering firm of Less and Low to substantiate the estimation of coal made by company management. The CPA firm has made sure that the engineering firm is independent of Ross and has appropriate credentials. Which of the following is true?
A - The hiring of Less and Low was inappropriate because they are not under the control of the CPA firm.
B - The CPA firm must review all computations made by the engineering firm.
C - The CPA firm must ask the engineering firm to disclose and explain all assumptions and methods that were used in making this estimation.
D - The engineering firm must be independent of the audit client.
Answer is C
Using the work of a specialist in an audit is quite normal. CPAs cannot be expected to have unlimited knowledge on all possible topics (such as estimating the amount of coal in a coal mine). The specialist does not have to be independent but the CPA's reliance on the findings of the specialist should be guarded if independence is lacking. The auditor is probably not capable of reviewing all the work of the specialist. If the auditor had that much knowledge, a specialist would not be needed. However, the CPA needs to be well aware of all assumptions and methods used by the specialist in doing the assigned work.
BEC
A company buys and sells widgets on credit. The inventory conversion period is 31 days. The receivables conversion period is 23 days. The accounts payable conversion period is 28 days. What is the cash conversion period?
A - 23 days
B - 26 days
C - 54 days
D - 82 days
Answer is B
The cash conversion period is the inventory conversion period (31) plus the receivables conversion period (23) less the payable conversion period (28).
And one final thought for the upcoming week:
"Look at a day when you are supremely satisfied at the end. It's not a day when you lounge around doing nothing; it's when you've had everything to do, and you've done it."
Margaret Thatcher
Joe Hoyle
Co-Founder
CPA Review for FREE
Tuesday, March 10, 2009
Don't Let Those Walls Slow You Down
Don't Let Those Walls Slow You Down
From: Joe
(a) - YOU ARE INVITED. I realize that only a small percentage of our readers live here in Richmond, Virginia but I wanted to issue everyone an invitation anyway.
College campuses have had Last Lecture Programs for decades where a professor gives a talk as if it were his last chance to ever speak to the students. What would you say if you only had one final opportunity? It is an interesting question for any teacher.
These programs became especially famous about two years ago because of a wonderful speech (and subsequent book) by Dr. Randy Pausch, a brilliant professor at Carnegie-Mellon University who was dying of cancer at the time.
The University of Richmond is starting an annual Last Lecture series this spring and I was very fortunate to be chosen as its first speaker. If you do live in Richmond, the lecture is open to the public. It is at 7 p.m. on Tuesday, April 7 in the alumni center. I am not yet sure what I will talk about but I am pretty sure that I won't talk about debits and credits. Beyond that, who knows? If you have read these emails for long, you know that I am a person with lots of opinions.
Our campus is beautiful and it is even lovelier in the spring. If you are in the area, do know that you are invited.
(b) - If you have never watched Randy Pausch's speech, you really should join the 9.5 million other people who have watched it on YouTube. It is well worth your time. It is inspirational; it is energizing; it will make you feel better about life.
Just go to www.YouTube.com and search for "Randy Pausch" or "Randy Pausch last lecture." It will help you realize that you do NOT have to spend your life in despair even when times get tough.
(1) - Welcome to CPA Review for FREE. I send out these lessons about every 7-10 days to help you prepare to pass the CPA Exam. If this is your first time with us, my one and only goal is to assist you in getting the points you need to make 75 so that you can pass the CPA Exam. I firmly believe that everyone can pass the CPA Exam and do so without having to pay the outrageous costs charged by other CPA Review programs. If you are lucky enough to have unlimited money and want to give it away, those other programs will gladly take it. But, we have a database of approximately 2,000 excellent questions and answers that everyone can use to prepare for the CPA Exam.
No fees, no costs, no charges.
Just 2,000 great questions and clear answers.
But don't believe me. Be a wise shopper. Just try them for awhile. I amazed that people would hand over $2,000 without first trying a free alternative.
Go to www.CPAreviewforFREE.com. Then, start by reading the information under CPA Exam resources.
After that-go to work and start adding points. Read a question, figure out your response, and read the answer (carefully).
--You have no risk.
--You have no charges.
--You just have hundreds and hundreds of great questions and answers.
Don't you owe it to yourself and to your family to stick your $2,000 back in your pocket and try CPA Review for FREE first.
(2) - As probably everyone knows, the CPA Exam just finished the January-February testing window. The number of visitors to our website during the final four weeks of this testing window was AN AMAZING 43 PERCENT HIGHER than the final four weeks of the October-November testing window.
Honestly, what does that tell you? More and more people are catching on that paying those huge sums is just not necessary to get a passing grade on the CPA Exam.
(3) - Here are some recent emails that I received from our customers.
From Sheila: "I received my BEC score this morning and passed with a 75%! Thank you, thank you, thank you!!! Tonight I will make up my schedule and begin my review using the full approach with CPAreviewforFREE. I started this process a couple of years ago using one of the big name reviews and then another, but though they both claimed to offer support, you are the only one who really has followed through on that promise. Thanks for that as well. I will continue to sing your praises."
From Rose: "I was so happy when I received the email notification this morning that I have passed all of the CPA exam!!! It's been 9 years, from the time when I sat for the old exams, and gave up and then re-picked up and joined the (big name) CPA review course and paid my hard-earned money. Undoubtedly, the CPA review course material was good but expensive. And one day when I tried the (big name) CD, I was informed that the license was expired and I needed to pay again. I was mad since I had paid thousand dollars already. I searched for alternatives on the website and found CPAreviewforfree. I can't believe that this is such a good website with loads of questions and explanations. I made use of this website and finally passed all exams. Thank you, Joe, and I will definitely recommend this website to my friends."
(4) - As always, do remember that you can very easily unsubscribe from this email service. Just scroll to the bottom of this email lesson and click on the button marked "unsubscribe."
(5) - They are playing a lot of basketball these days. In fact, "March Madness" is just around the corner. I rarely pay attention to many games but, when I do, I am fascinated to watch the players when it comes down to the very end of a close contest. I always want to see which player is willing to take the shot that will win (or lose) the game.
That is tough. Anyone can shoot when it is early in the game and not much is on the line. It is much more difficult to come down the court with the clock ticking down 9..8..7.. and this last shot is going to make the difference in the whole game. At that point, many players prefer to pass off and let someone else take that shot. The fear of failure just gets to be overwhelming.
John Havlicek was one of the greatest basketball players ever. I remember reading that he had said that everyone wanted the ball early in the game. "Throw ME the ball!!" they would yell. However, at the very end of a close game, some of those same players would start looking the other way just so you would not throw the ball to them.
They were so afraid of failure that they refused to even try.
When it comes to the CPA Exam, I talk with a lot of people who start becoming obsessed by the chance they might fail. It is easy to start feeling scared. We can all understand how a candidate can become a bit tense. You work hard for months and every time you miss even one little question in practice, it reminds you that you are not perfect, that nothing is ever guaranteed.
The problem is that your mind can start focusing on the wrong things. You can become frozen by the chance of failure. Your mind can start to close down. Never never never think about the word "failure." Wash it out of your mind. The only thing that you should be thinking about is adding points and getting better. That is the thing that I want your brain to focus on as you prepare for the CPA Exam: adding points and getting better.
Read a question on CPAreviewforFREE, work that problem, read the answer, and then take notes if you missed the question. Getting better and adding points.
Always remember that the one thing you have control over is the work you are doing RIGHT NOW to add knowledge and gain points. It is easy to let the fear of failure slow you down. As championship athletes will always tell you:
"You miss 100 percent of the shots you never take."
The only way to ensure that you are going to be a complete failure is just to quit trying. As long as you are working, you are moving toward success.
You will always miss 100 percent of the questions that you don't attempt.
You will always miss 100 percent of the material that you don't cover.
You will always fail 100 percent of the times that you don't try.
Never think about failure. Being negative never helps anyone to get better.
(6) - Speaking of basketball, I was watching a game on Sunday afternoon and Michael Jordan was in the crowd. It seems to be the opinion of most sports people that Jordan was the greatest basketball player ever. Quite an accomplishment. We usually think about people like that as just so talented that it was inevitable that they would be good.
That is not necessarily so. Talent alone is never enough to accomplish much of anything. Effort is always more important than anything else you bring to any endeavor. I'll take effort over talent any day.
I remember hearing Jordan talk once about how he had managed to become such a great player. To me, his response could certainly apply to the CPA Exam and a whole lot of other activities rather than just to basketball.
"If you run into a wall, don't turn around and give up.
Figure out how to climb it, go through it, or work around it."
Do you turn around and give up or do you keep looking for a way to get past the problem?
It seems to me that preparing for the CPA Exam is all about running into walls and how you react to them. Give up? or work to get around them? In truth, which is the real you? When things get tough, will you quit or will you work your way around all of the various walls that impede your progress?
Things will always get tough so you need to think how you are going to respond. Are you a winner?
Whenever you start to study a new tough topic, it will always seem like you are crashing into a brick wall. It is easy to feel overwhelmed and confused. Every time you work a complicated question and get it wrong, you may feel like you've hit that wall full force once again. Each night when you are tired but still need to bear down and study for several hours, you may understand the true meaning of the term "hitting the wall."
As Michael Jordan says, every time you run into one of those walls, you have a choice: give up or figure out how to climb it, go through it, or work around it.
In many ways, you can envision your study time as a long series of walls extending across your path off into the distance as far as you can see. Some of these walls are relatively low and more of a nuisance that anything else. Others, though, are big and may test your abilities to withstand pressure. If you can work around or over or through each of these walls and never let "I quit" enter your mind, there is no reason why you cannot nail down the CPA Exam. Not one reason at all.
Here's a tip: Don't worry about passing the CPA Exam - worry about getting around the next wall that is in your path.
How will you successfully make it to the other side of the next wall that you encounter????? The answer may well determine how quickly you are going to pass the CPA Exam.
(7) - A little practice; let's add some points.
Financial Accounting and Reporting (I taught Advanced Accounting here at the University last week for a friend. This is one of the questions that we worked.)
The City of Sanborn levies an income tax. In Year One, city officials anticipate that the amount of this tax will be $350,000 and will be collected evenly over the period from January 1, Year Two to April 15, Year Two ($100,000 per month and $50,000 for the half month). City officials have a policy that any money collected within 60 days is viewed as available. How much of the revenue should be recognized at the end of Year One?
A - $200,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $200,000 in government-wide financial statements and $350,000 in fund-based financial statements
C - $350,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $350,000 in government-wide financial statements and $350,000 in fund-based financial statements
Answer is C
In state and local government accounting, an income tax (and a sales tax) are known as derived tax revenues. They are taxes on events (the earning of income or the making of a sale). A derived tax revenue is recognized when the taxed event occurs. The income here was earned in Year One so the income tax is recognized within the government-wide financial statements (which use accrual accounting) in Year One. In fund-based financial statements (for the governmental funds), modified accrual accounting is applied so that an additional standard must be met for revenue recognition. The resources must also be available quickly enough so that the money can be used to pay current obligations of Year One. The city has a policy that "available" is identified as anything received in 60 days. Thus, since $100,000 is collected each month, only the $200,000 to be collected in the first two months of Year Two is viewed as available to pay for Year One expenditures.
Auditing and Attestation
The Haynsworth CPA firm is auditing Agnestic Corporation. The auditors have come to the conclusion that certain illegal acts may have occurred during the year so that additional testing will be necessary. Which of the following is most likely to have led to this assessment?
A - The design of the company's internal control policies and procedures has not been revised in four years.
B - Related party transactions have occurred throughout the year.
C - Confirmation of accounts receivable indicates that several recorded balances appear to be understated.
D - Checks were written to "cash" during the year despite policies to the contrary.
Answer is D.
Internal control policies and procedures only need to be revised when they are no longer functioning as intended. A well-designed system might not need to be revised often. Related party transactions are common in many companies and do not, by themselves, indicate any type of illegal activities. Confirmation of receivables which show a pattern of overstatement can possibly indicate that money has been received and then stolen by company employees. However, understatements are more likely to occur because of slowness in posting new sales transactions. Checks should never be written to "cash" because documenting the use made of the money can be very difficult. Hence, checks can be written to "cash" to access money that will then be used for illegal activities.
Regulation
Ms. Polly Atkini collects $1,000 in dividends from a company located in Italy. A foreign tax of $93 was withheld on this income by the local authorities. Ms. Atkini is attempting to determine the impact of this foreign tax when she is filing her United States income tax return for this year. Which of the following is correct?
A - The foreign tax cannot be taken as either an itemized deduction or as a tax credit.
B - The foreign tax must be taken as an itemized deduction.
C - The foreign tax must be taken as a tax credit.
D - The foreign tax can be taken as either an itemized deduction or as a tax credit based on her preference.
Answer is D
The payment of a foreign income tax is one of the few items in federal income tax rules that an item can be used at either of two places. Normally, the benefit is larger if a credit is taken but the taxpayer is also allowed the option of using the amount as an itemized deduction.
BEC
The Bresson Company has recently changed the way that it handles customer service calls based on a benchmarking process. Which of the following is most likely to have taken place?
A - The company studied the methods used by its biggest competitors and found them to be superior to its own.
B - The company hired a consulting firm to smooth out the process that had been used in the past.
C - The company polled its customers to find weaknesses and then took their advice in making changes.
D - The company flowcharted all of its systems to find inherent weaknesses.
Answer is A.
The term "benchmarking" refers to a process of looking at other similar organizations to locate their best practices and then attempt to replicate them to increase its own efficiency. In effect, the company learns from the time and work that has already been carried out by the other organization.
Now is the time to start adding points. Remember, you only have one goal-to add points and get better. As long as you can stay focused on that goal, there is no reason why you cannot pass the CPA Exam in 2009.
Go Get It!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
From: Joe
(a) - YOU ARE INVITED. I realize that only a small percentage of our readers live here in Richmond, Virginia but I wanted to issue everyone an invitation anyway.
College campuses have had Last Lecture Programs for decades where a professor gives a talk as if it were his last chance to ever speak to the students. What would you say if you only had one final opportunity? It is an interesting question for any teacher.
These programs became especially famous about two years ago because of a wonderful speech (and subsequent book) by Dr. Randy Pausch, a brilliant professor at Carnegie-Mellon University who was dying of cancer at the time.
The University of Richmond is starting an annual Last Lecture series this spring and I was very fortunate to be chosen as its first speaker. If you do live in Richmond, the lecture is open to the public. It is at 7 p.m. on Tuesday, April 7 in the alumni center. I am not yet sure what I will talk about but I am pretty sure that I won't talk about debits and credits. Beyond that, who knows? If you have read these emails for long, you know that I am a person with lots of opinions.
Our campus is beautiful and it is even lovelier in the spring. If you are in the area, do know that you are invited.
(b) - If you have never watched Randy Pausch's speech, you really should join the 9.5 million other people who have watched it on YouTube. It is well worth your time. It is inspirational; it is energizing; it will make you feel better about life.
Just go to www.YouTube.com and search for "Randy Pausch" or "Randy Pausch last lecture." It will help you realize that you do NOT have to spend your life in despair even when times get tough.
(1) - Welcome to CPA Review for FREE. I send out these lessons about every 7-10 days to help you prepare to pass the CPA Exam. If this is your first time with us, my one and only goal is to assist you in getting the points you need to make 75 so that you can pass the CPA Exam. I firmly believe that everyone can pass the CPA Exam and do so without having to pay the outrageous costs charged by other CPA Review programs. If you are lucky enough to have unlimited money and want to give it away, those other programs will gladly take it. But, we have a database of approximately 2,000 excellent questions and answers that everyone can use to prepare for the CPA Exam.
No fees, no costs, no charges.
Just 2,000 great questions and clear answers.
But don't believe me. Be a wise shopper. Just try them for awhile. I amazed that people would hand over $2,000 without first trying a free alternative.
Go to www.CPAreviewforFREE.com. Then, start by reading the information under CPA Exam resources.
After that-go to work and start adding points. Read a question, figure out your response, and read the answer (carefully).
--You have no risk.
--You have no charges.
--You just have hundreds and hundreds of great questions and answers.
Don't you owe it to yourself and to your family to stick your $2,000 back in your pocket and try CPA Review for FREE first.
(2) - As probably everyone knows, the CPA Exam just finished the January-February testing window. The number of visitors to our website during the final four weeks of this testing window was AN AMAZING 43 PERCENT HIGHER than the final four weeks of the October-November testing window.
Honestly, what does that tell you? More and more people are catching on that paying those huge sums is just not necessary to get a passing grade on the CPA Exam.
(3) - Here are some recent emails that I received from our customers.
From Sheila: "I received my BEC score this morning and passed with a 75%! Thank you, thank you, thank you!!! Tonight I will make up my schedule and begin my review using the full approach with CPAreviewforFREE. I started this process a couple of years ago using one of the big name reviews and then another, but though they both claimed to offer support, you are the only one who really has followed through on that promise. Thanks for that as well. I will continue to sing your praises."
From Rose: "I was so happy when I received the email notification this morning that I have passed all of the CPA exam!!! It's been 9 years, from the time when I sat for the old exams, and gave up and then re-picked up and joined the (big name) CPA review course and paid my hard-earned money. Undoubtedly, the CPA review course material was good but expensive. And one day when I tried the (big name) CD, I was informed that the license was expired and I needed to pay again. I was mad since I had paid thousand dollars already. I searched for alternatives on the website and found CPAreviewforfree. I can't believe that this is such a good website with loads of questions and explanations. I made use of this website and finally passed all exams. Thank you, Joe, and I will definitely recommend this website to my friends."
(4) - As always, do remember that you can very easily unsubscribe from this email service. Just scroll to the bottom of this email lesson and click on the button marked "unsubscribe."
(5) - They are playing a lot of basketball these days. In fact, "March Madness" is just around the corner. I rarely pay attention to many games but, when I do, I am fascinated to watch the players when it comes down to the very end of a close contest. I always want to see which player is willing to take the shot that will win (or lose) the game.
That is tough. Anyone can shoot when it is early in the game and not much is on the line. It is much more difficult to come down the court with the clock ticking down 9..8..7.. and this last shot is going to make the difference in the whole game. At that point, many players prefer to pass off and let someone else take that shot. The fear of failure just gets to be overwhelming.
John Havlicek was one of the greatest basketball players ever. I remember reading that he had said that everyone wanted the ball early in the game. "Throw ME the ball!!" they would yell. However, at the very end of a close game, some of those same players would start looking the other way just so you would not throw the ball to them.
They were so afraid of failure that they refused to even try.
When it comes to the CPA Exam, I talk with a lot of people who start becoming obsessed by the chance they might fail. It is easy to start feeling scared. We can all understand how a candidate can become a bit tense. You work hard for months and every time you miss even one little question in practice, it reminds you that you are not perfect, that nothing is ever guaranteed.
The problem is that your mind can start focusing on the wrong things. You can become frozen by the chance of failure. Your mind can start to close down. Never never never think about the word "failure." Wash it out of your mind. The only thing that you should be thinking about is adding points and getting better. That is the thing that I want your brain to focus on as you prepare for the CPA Exam: adding points and getting better.
Read a question on CPAreviewforFREE, work that problem, read the answer, and then take notes if you missed the question. Getting better and adding points.
Always remember that the one thing you have control over is the work you are doing RIGHT NOW to add knowledge and gain points. It is easy to let the fear of failure slow you down. As championship athletes will always tell you:
"You miss 100 percent of the shots you never take."
The only way to ensure that you are going to be a complete failure is just to quit trying. As long as you are working, you are moving toward success.
You will always miss 100 percent of the questions that you don't attempt.
You will always miss 100 percent of the material that you don't cover.
You will always fail 100 percent of the times that you don't try.
Never think about failure. Being negative never helps anyone to get better.
(6) - Speaking of basketball, I was watching a game on Sunday afternoon and Michael Jordan was in the crowd. It seems to be the opinion of most sports people that Jordan was the greatest basketball player ever. Quite an accomplishment. We usually think about people like that as just so talented that it was inevitable that they would be good.
That is not necessarily so. Talent alone is never enough to accomplish much of anything. Effort is always more important than anything else you bring to any endeavor. I'll take effort over talent any day.
I remember hearing Jordan talk once about how he had managed to become such a great player. To me, his response could certainly apply to the CPA Exam and a whole lot of other activities rather than just to basketball.
"If you run into a wall, don't turn around and give up.
Figure out how to climb it, go through it, or work around it."
Do you turn around and give up or do you keep looking for a way to get past the problem?
It seems to me that preparing for the CPA Exam is all about running into walls and how you react to them. Give up? or work to get around them? In truth, which is the real you? When things get tough, will you quit or will you work your way around all of the various walls that impede your progress?
Things will always get tough so you need to think how you are going to respond. Are you a winner?
Whenever you start to study a new tough topic, it will always seem like you are crashing into a brick wall. It is easy to feel overwhelmed and confused. Every time you work a complicated question and get it wrong, you may feel like you've hit that wall full force once again. Each night when you are tired but still need to bear down and study for several hours, you may understand the true meaning of the term "hitting the wall."
As Michael Jordan says, every time you run into one of those walls, you have a choice: give up or figure out how to climb it, go through it, or work around it.
In many ways, you can envision your study time as a long series of walls extending across your path off into the distance as far as you can see. Some of these walls are relatively low and more of a nuisance that anything else. Others, though, are big and may test your abilities to withstand pressure. If you can work around or over or through each of these walls and never let "I quit" enter your mind, there is no reason why you cannot nail down the CPA Exam. Not one reason at all.
Here's a tip: Don't worry about passing the CPA Exam - worry about getting around the next wall that is in your path.
How will you successfully make it to the other side of the next wall that you encounter????? The answer may well determine how quickly you are going to pass the CPA Exam.
(7) - A little practice; let's add some points.
Financial Accounting and Reporting (I taught Advanced Accounting here at the University last week for a friend. This is one of the questions that we worked.)
The City of Sanborn levies an income tax. In Year One, city officials anticipate that the amount of this tax will be $350,000 and will be collected evenly over the period from January 1, Year Two to April 15, Year Two ($100,000 per month and $50,000 for the half month). City officials have a policy that any money collected within 60 days is viewed as available. How much of the revenue should be recognized at the end of Year One?
A - $200,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $200,000 in government-wide financial statements and $350,000 in fund-based financial statements
C - $350,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $350,000 in government-wide financial statements and $350,000 in fund-based financial statements
Answer is C
In state and local government accounting, an income tax (and a sales tax) are known as derived tax revenues. They are taxes on events (the earning of income or the making of a sale). A derived tax revenue is recognized when the taxed event occurs. The income here was earned in Year One so the income tax is recognized within the government-wide financial statements (which use accrual accounting) in Year One. In fund-based financial statements (for the governmental funds), modified accrual accounting is applied so that an additional standard must be met for revenue recognition. The resources must also be available quickly enough so that the money can be used to pay current obligations of Year One. The city has a policy that "available" is identified as anything received in 60 days. Thus, since $100,000 is collected each month, only the $200,000 to be collected in the first two months of Year Two is viewed as available to pay for Year One expenditures.
Auditing and Attestation
The Haynsworth CPA firm is auditing Agnestic Corporation. The auditors have come to the conclusion that certain illegal acts may have occurred during the year so that additional testing will be necessary. Which of the following is most likely to have led to this assessment?
A - The design of the company's internal control policies and procedures has not been revised in four years.
B - Related party transactions have occurred throughout the year.
C - Confirmation of accounts receivable indicates that several recorded balances appear to be understated.
D - Checks were written to "cash" during the year despite policies to the contrary.
Answer is D.
Internal control policies and procedures only need to be revised when they are no longer functioning as intended. A well-designed system might not need to be revised often. Related party transactions are common in many companies and do not, by themselves, indicate any type of illegal activities. Confirmation of receivables which show a pattern of overstatement can possibly indicate that money has been received and then stolen by company employees. However, understatements are more likely to occur because of slowness in posting new sales transactions. Checks should never be written to "cash" because documenting the use made of the money can be very difficult. Hence, checks can be written to "cash" to access money that will then be used for illegal activities.
Regulation
Ms. Polly Atkini collects $1,000 in dividends from a company located in Italy. A foreign tax of $93 was withheld on this income by the local authorities. Ms. Atkini is attempting to determine the impact of this foreign tax when she is filing her United States income tax return for this year. Which of the following is correct?
A - The foreign tax cannot be taken as either an itemized deduction or as a tax credit.
B - The foreign tax must be taken as an itemized deduction.
C - The foreign tax must be taken as a tax credit.
D - The foreign tax can be taken as either an itemized deduction or as a tax credit based on her preference.
Answer is D
The payment of a foreign income tax is one of the few items in federal income tax rules that an item can be used at either of two places. Normally, the benefit is larger if a credit is taken but the taxpayer is also allowed the option of using the amount as an itemized deduction.
BEC
The Bresson Company has recently changed the way that it handles customer service calls based on a benchmarking process. Which of the following is most likely to have taken place?
A - The company studied the methods used by its biggest competitors and found them to be superior to its own.
B - The company hired a consulting firm to smooth out the process that had been used in the past.
C - The company polled its customers to find weaknesses and then took their advice in making changes.
D - The company flowcharted all of its systems to find inherent weaknesses.
Answer is A.
The term "benchmarking" refers to a process of looking at other similar organizations to locate their best practices and then attempt to replicate them to increase its own efficiency. In effect, the company learns from the time and work that has already been carried out by the other organization.
Now is the time to start adding points. Remember, you only have one goal-to add points and get better. As long as you can stay focused on that goal, there is no reason why you cannot pass the CPA Exam in 2009.
Go Get It!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Monday, March 2, 2009
Make Your Knowledge Solid -- CPA Review for FREE
Filling in the Holes in Swiss Cheese Knowledge
From: Joe
(1) - It is Saturday night in Richmond, Virginia. Do you think the guys who run those great big CPA review courses and who want to charge you thousands of dollars (for pretty mediocre products) are working tonight? Are any of them trying to help YOU tonight? Do they even care if YOU pass? Think about that before you start mailing in those checks.
I have always felt that, if you really really really want to be successful, you should be willing to work when the other guy is not working. It gives you a chance to get ahead. Okay, I am going downstairs a little later tonight to watch a movie with my wife but, for right now, I'm working to help YOU pass the CPA Exam. How many other review courses can say that?
If you are only willing to work when it is easy, if you are only willing to work when it is fun, success is not necessarily your number one priority.
So, if you are planning on taking the CPA Exam in the near future, I hope you are adding a point or two tonight. You don't have to work all the time but it is nice to think: "I'm sitting here adding points when everyone else is wasting their time."
(2) - Quick story that I found funny. I was talking with one of the accounting majors at the University on Thursday. Here was her story:
"I have a friend who is a math major at another university. She has never even taken an accounting course. She doesn't know a thing about debits and credits. However, before every test that she takes, she goes online to YouTube and watches your 'Believe in Yourself' video. She claims that it gets her pumped up and ready to go do a great job on her tests. She watches it all the time."
I laughed and laughed. I don't remember which of the videos is the "Believe in Yourself" video but I was delighted to be helping a math major.
(If you go to YouTube and search for CPAreviewforFREE and you can find out which one it is.)
It is amazing how many people you can influence when you just try to help people believe in themselves. Nothing in life beats a little positive reinforcement. You always strengthen the people around you when you pat someone on the back and say "you are doing a great job; you really have a lot of great talent." Try it. Don't wait for someone else to do it. You do it. Pass it on.
(3) - I received a number of neat emails this week. Here are a few that I wanted to pass along.
From Erik: "It's been a long six months, but I've done it . I PASSED THE CPA EXAM! I logged on early this morning to check my REG score and saw a magical 89. I couldn't believe it. I want to thank you again for cpareviewforfree.com, which I used (in combination with a review book) for all four parts of the exam (98 on FAR in August, 99 on AUD in October, 92 on BEC in November, 89 on REG in January). It is a tremendous resource, and I know it helped me immensely in this accomplishment. Thanks again!"
From NA: "Thank you so much for your website!!! I just received my score for the FARS section and it was amazing! I just know that I could not have done it without your help. I used a CPA review books & CDs to organize my studying but if it wasn't for your questions I would not have had the confidence and strategies to take the exam as well as I did. This was the first section I've taken so passing it definitely gives me the encouragement I need to study for the other 3 sections. Thank you again and I am definitely recommending your website to anyone I know planning to study for the CPA."
From Donna: "Just a quick note to say Thank you for your encouragement and your free questions. I went through your questions and took my Audit test in January. I passed it, after two earlier attempts at 74 points! I enjoy reading your newsletter and respect you for writing such long newsletters."
THANKS to everyone who takes the time to write. I love reading your notes.
(4) - Always remember that you can unsubscribe at any time you wish. Just scroll down to the end of this email or any of our emails and click on the appropriate box.
And, if anyone ever asks you that all-important question: "How do you get those nifty email lessons from Joe Hoyle?" the answer is easy. You go to www.CPAreviewforFREE.com and register. In the registration process, there is a box that asks if you want to get additional materials (these email lessons). Make sure that box is checked. That's all it takes.
(5) - This semester, I teach one class of introductory accounting and two classes of intermediate accounting II. On Wednesday, in my intro class, we went over FIFO and LIFO. On that same day, in the intermediate classes, we went over capital leases (from the lessee's perspective).
We had a good day in all of the classes and, after each, the students were all smiles. Unfortunately, that can be a bad sign. The students were able to FOLLOW what we were doing in class and that led them to make the assumption that they could DO it themselves. In fact, students will often blurt out: I saw exactly what you just did (true) and I can do that myself now (maybe or maybe not). That can be a dangerous assumption in an accounting class.
So, on Friday, in the subsequent class, I brought in practice problems. I had changed a few of the words from Wednesday and some of the numbers and altered the situations slightly but the problems were not radically different than we had done a mere 48 hours before (with all smiles). This time, though, I did not lead them through the problems but rather let them go on their own. I put the students into teams of 2 or 3 and gave them the practice problems and told them that it was Friday and we could all go home when they had worked those questions successfully.
It was amazing how quickly those smiles turned into frowns. After 20 minutes, most of the students were completely lost. Some could not even get the problems started, let alone finished.
What happened? Did they all get stupid between Wednesday and Friday? Did they forget everything? Of course not.
I finally stopped the chaos and told them the following story that comes from 38 years of being a college professor.
--When you go over something, if it is well explained, it can be easy to follow. It is like following a well-worn path. That just proves that you can follow what someone else has done. It does not mean that you can do the problem yourself.
--After a topic is first covered, your knowledge is like a block of Swiss cheese. It looks solid; it looks substantial. However, it is full of holes. And, at first, those holes are gigantic. Any person who knows how to write a good test question can find those holes very easily.
--So, on Wednesday, the students thought they had solid knowledge but I needed for them to understand there were still a lot of holes in that knowledge. I needed for them to keep working rather than sit around congratulating themselves.
--Of course, my point was that every time they worked a problem, especially a slightly different problem, those holes begin to get smaller. If they keep practicing, quite quickly that Swiss cheese knowledge becomes completely solid. Every question they work helps to fill in a hole. It is not enough to follow an explanation; you have to know that you can do the problem yourself.
Unfortunately, college students have a tendency to quit too soon. They often move on before they get all the holes filled in. They then come to a test and the questions are written to find the holes. The students then come to my office, often in tears, with the following story: "I knew that material until I got to the test." I don't want to be mean but the truth is:
---their knowledge looked solid but really did have holes.
---I wrote questions that exposed those holes.
---If they had just worked more problems in advance, those holes would have gone away.
That is exactly why I wanted www.CPAreviewforFREE.com to have thousands of questions and answers. I firmly believe this is the best way to fill in the holes in your knowledge. Work problem and read the answers. Work problems and read the answers.
You can pass this exam. You can get the 75 points you need. But you cannot quit your study until you have knowledge without any serious holes. And, the only way to do that is keep working questions and keep reading those answers and keep taking 10 word notes on the ones you missed. That will do it.
Don't fool yourself. Don't walk into the testing center with Swiss cheese knowledge that has a whole lot of holes. If you seriously want to pass, you have to put in the hours of practice that are necessary to gain the knowledge that will eliminate the holes in your knowledge. Then, when you take the CPA Exam, it is NOT a question of luck. No matter what questions you get, you will be able to answer enough to get that magic grade of 75.
(6) - Time for some practice.
Financial Accounting and Reporting-it seems only fair that I give you a version of the question that I asked my intermediate accounting II students yesterday. With practice, they can get it and so can you.
On January 1, Year One, the Hermione Company leases a machine for $14,000 per year for five years with the first payment made immediately. The asset has an expected life of six years. At the end of five years, Hermione can buy the machine for $5,000 which is viewed as a bargain. The lessor's implicit interest rate (which is known by Hermione) is 10 percent per year. Hermione's own incremental borrowing rate is 6 percent. The present value of $1 in five years at 6 percent is .75 and at 10 percent is .62. The present value of an ordinary annuity of $1 for five years at 6 percent is 4.21 and at 10 percent is 3.79. The present value of an annuity due of $1 for five years at 6 percent is 4.47 and at 10 percent is 4.17. How much expense should Hermione recognize in Year One?
A-$14,000
B-$14,195
C-$15,035
D-$16,406
Answer is B
Because of the bargain purchase option, this a capital lease and the cash flows are recorded at present value. The incremental borrowing rate of 6 percent is used because it is lower than the implicit rate. The first payment is made immediately so the $14,000 payments represent an annuity due. The $5,000 purchase option is a single amount at the end of the fifth year. Present value is $14,000 times 4.47 or $62,580 plus $5,000 times .75 or $3,750 for a total present value of $66,330. Because of the bargain purchase option, depreciation each year will be $11,055 ($66,330/6 years). The lessee expects to use the asset for its entire life. The initial liability is $66,330 but that amount is reduced immediately by the first $14,000 payment to $52,330. When multiplied by the 6 percent annual rate, interest expense of $3,140 is reported for Year One. Total expense is $11,055 (depreciation) plus $3,140 (interest) for a total of $14,195.
Regulation
The Weasley Company had sales in Year One of $500,000 plus dividend income from other domestic corporations of $100,000. The company had ordinary and necessary business expenses of $400,000. All dividends came from companies in which Weasley held 8 percent ownership. The company also made charitable contributions of $40,000 during the year. What is its taxable income?
A-$90,000
B-$100,000
C-$110,000
D-$117,000
Answer is C
The company's operating income is $200,000 ($500,000 plus $100,000 less $400,000). However, the company also gets a deduction for charitable contributions even though it is not an ordinary and necessary business expense. The amount of that deduction in any one year is limited to 10 percent of this operating income figure or $20,000 in this problem (10 percent of $200,000). In addition, because Weasley holds ownership of less than 20 percent of the domestic companies paying dividends, a 70 percent dividends received deduction is available or $70,000. Thus, taxable income is $500,000 plus $100,000 less $400,000 less $20,000 less $70,000 or $110,000.
Auditing and Attestation
A CPA is performing an audit examination of Malfoy, Inc. The CPA has already done the work necessary to gain a general understanding of the company's internal control. The CPA is now looking at the internal control policies and procedures within the accounting system for accounts receivable. The CPA has decided to perform a test of controls in this area. Which is the following is least likely to be true?
A-The system contains an excess number of possible problems so that testing is required.
B-The system appears to be well designed.
C-The CPA hopes to reduce the amount of substantive testing to be necessary.
D-The CPA hopes to reduce overall audit time.
Answer is A
Once a general understanding of internal control has been obtained, the auditor only needs to test specific controls if it is efficient to do so. If the system is well designed, testing specific controls to verify their efficiency can lead to a reduction in the assessed level of control risk. Hopefully, the amount of substantive testing can then be reduced because the desired level of detection risk does not need to be so low. This decrease in substantive testing can lead, possibly, to an overall reduction in the time and cost of performing the audit. If the internal control appears to be weak, no benefit is gained by testing those controls further. It is not likely that the weaknesses can be overcome.
BEC
The Snape Corporation plans to raise $1 million for operating purposes by either issuing a number of bonds to the public or by issuing shares of common stock. Which of the following is not an advantage of issuing the bonds?
A-It is possible for owners to have an increase in profits without making any additional investment.
B-There is less risk associated with the bonds.
C-The cost of bonds is lowered because the resulting interest is deductible for tax purposes.
D-If inflation results between the date of issuance and the maturity date, the money paid back is worth less than the money originally received.
Answer is B
All debt raises the risk of company bankruptcy. If a cash flow problem arises and debts cannot be paid as they come due, the possibility of bankruptcy is always a possibility. However, debts do have advantages. If the company can use the money to increase income by more than the cost of the interest, this leveraging increases net income without any additional funds from the owners. Furthermore, interest expense is tax deductible so that its cost is reduced significantly (whereas dividend payouts are not tax deductible). Finally, if inflation takes place (which is common), the dollars that are eventually used to repay the bonds are worth less than the ones that were received on the day of issuance-a financial benefit.
Have a great week.
Believe in yourself (it really helps).
And
Go out there and help others to believe in themselves.
Joe Hoyle
Co-Founder
CPA Review for FREE
From: Joe
(1) - It is Saturday night in Richmond, Virginia. Do you think the guys who run those great big CPA review courses and who want to charge you thousands of dollars (for pretty mediocre products) are working tonight? Are any of them trying to help YOU tonight? Do they even care if YOU pass? Think about that before you start mailing in those checks.
I have always felt that, if you really really really want to be successful, you should be willing to work when the other guy is not working. It gives you a chance to get ahead. Okay, I am going downstairs a little later tonight to watch a movie with my wife but, for right now, I'm working to help YOU pass the CPA Exam. How many other review courses can say that?
If you are only willing to work when it is easy, if you are only willing to work when it is fun, success is not necessarily your number one priority.
So, if you are planning on taking the CPA Exam in the near future, I hope you are adding a point or two tonight. You don't have to work all the time but it is nice to think: "I'm sitting here adding points when everyone else is wasting their time."
(2) - Quick story that I found funny. I was talking with one of the accounting majors at the University on Thursday. Here was her story:
"I have a friend who is a math major at another university. She has never even taken an accounting course. She doesn't know a thing about debits and credits. However, before every test that she takes, she goes online to YouTube and watches your 'Believe in Yourself' video. She claims that it gets her pumped up and ready to go do a great job on her tests. She watches it all the time."
I laughed and laughed. I don't remember which of the videos is the "Believe in Yourself" video but I was delighted to be helping a math major.
(If you go to YouTube and search for CPAreviewforFREE and you can find out which one it is.)
It is amazing how many people you can influence when you just try to help people believe in themselves. Nothing in life beats a little positive reinforcement. You always strengthen the people around you when you pat someone on the back and say "you are doing a great job; you really have a lot of great talent." Try it. Don't wait for someone else to do it. You do it. Pass it on.
(3) - I received a number of neat emails this week. Here are a few that I wanted to pass along.
From Erik: "It's been a long six months, but I've done it . I PASSED THE CPA EXAM! I logged on early this morning to check my REG score and saw a magical 89. I couldn't believe it. I want to thank you again for cpareviewforfree.com, which I used (in combination with a review book) for all four parts of the exam (98 on FAR in August, 99 on AUD in October, 92 on BEC in November, 89 on REG in January). It is a tremendous resource, and I know it helped me immensely in this accomplishment. Thanks again!"
From NA: "Thank you so much for your website!!! I just received my score for the FARS section and it was amazing! I just know that I could not have done it without your help. I used a CPA review books & CDs to organize my studying but if it wasn't for your questions I would not have had the confidence and strategies to take the exam as well as I did. This was the first section I've taken so passing it definitely gives me the encouragement I need to study for the other 3 sections. Thank you again and I am definitely recommending your website to anyone I know planning to study for the CPA."
From Donna: "Just a quick note to say Thank you for your encouragement and your free questions. I went through your questions and took my Audit test in January. I passed it, after two earlier attempts at 74 points! I enjoy reading your newsletter and respect you for writing such long newsletters."
THANKS to everyone who takes the time to write. I love reading your notes.
(4) - Always remember that you can unsubscribe at any time you wish. Just scroll down to the end of this email or any of our emails and click on the appropriate box.
And, if anyone ever asks you that all-important question: "How do you get those nifty email lessons from Joe Hoyle?" the answer is easy. You go to www.CPAreviewforFREE.com and register. In the registration process, there is a box that asks if you want to get additional materials (these email lessons). Make sure that box is checked. That's all it takes.
(5) - This semester, I teach one class of introductory accounting and two classes of intermediate accounting II. On Wednesday, in my intro class, we went over FIFO and LIFO. On that same day, in the intermediate classes, we went over capital leases (from the lessee's perspective).
We had a good day in all of the classes and, after each, the students were all smiles. Unfortunately, that can be a bad sign. The students were able to FOLLOW what we were doing in class and that led them to make the assumption that they could DO it themselves. In fact, students will often blurt out: I saw exactly what you just did (true) and I can do that myself now (maybe or maybe not). That can be a dangerous assumption in an accounting class.
So, on Friday, in the subsequent class, I brought in practice problems. I had changed a few of the words from Wednesday and some of the numbers and altered the situations slightly but the problems were not radically different than we had done a mere 48 hours before (with all smiles). This time, though, I did not lead them through the problems but rather let them go on their own. I put the students into teams of 2 or 3 and gave them the practice problems and told them that it was Friday and we could all go home when they had worked those questions successfully.
It was amazing how quickly those smiles turned into frowns. After 20 minutes, most of the students were completely lost. Some could not even get the problems started, let alone finished.
What happened? Did they all get stupid between Wednesday and Friday? Did they forget everything? Of course not.
I finally stopped the chaos and told them the following story that comes from 38 years of being a college professor.
--When you go over something, if it is well explained, it can be easy to follow. It is like following a well-worn path. That just proves that you can follow what someone else has done. It does not mean that you can do the problem yourself.
--After a topic is first covered, your knowledge is like a block of Swiss cheese. It looks solid; it looks substantial. However, it is full of holes. And, at first, those holes are gigantic. Any person who knows how to write a good test question can find those holes very easily.
--So, on Wednesday, the students thought they had solid knowledge but I needed for them to understand there were still a lot of holes in that knowledge. I needed for them to keep working rather than sit around congratulating themselves.
--Of course, my point was that every time they worked a problem, especially a slightly different problem, those holes begin to get smaller. If they keep practicing, quite quickly that Swiss cheese knowledge becomes completely solid. Every question they work helps to fill in a hole. It is not enough to follow an explanation; you have to know that you can do the problem yourself.
Unfortunately, college students have a tendency to quit too soon. They often move on before they get all the holes filled in. They then come to a test and the questions are written to find the holes. The students then come to my office, often in tears, with the following story: "I knew that material until I got to the test." I don't want to be mean but the truth is:
---their knowledge looked solid but really did have holes.
---I wrote questions that exposed those holes.
---If they had just worked more problems in advance, those holes would have gone away.
That is exactly why I wanted www.CPAreviewforFREE.com to have thousands of questions and answers. I firmly believe this is the best way to fill in the holes in your knowledge. Work problem and read the answers. Work problems and read the answers.
You can pass this exam. You can get the 75 points you need. But you cannot quit your study until you have knowledge without any serious holes. And, the only way to do that is keep working questions and keep reading those answers and keep taking 10 word notes on the ones you missed. That will do it.
Don't fool yourself. Don't walk into the testing center with Swiss cheese knowledge that has a whole lot of holes. If you seriously want to pass, you have to put in the hours of practice that are necessary to gain the knowledge that will eliminate the holes in your knowledge. Then, when you take the CPA Exam, it is NOT a question of luck. No matter what questions you get, you will be able to answer enough to get that magic grade of 75.
(6) - Time for some practice.
Financial Accounting and Reporting-it seems only fair that I give you a version of the question that I asked my intermediate accounting II students yesterday. With practice, they can get it and so can you.
On January 1, Year One, the Hermione Company leases a machine for $14,000 per year for five years with the first payment made immediately. The asset has an expected life of six years. At the end of five years, Hermione can buy the machine for $5,000 which is viewed as a bargain. The lessor's implicit interest rate (which is known by Hermione) is 10 percent per year. Hermione's own incremental borrowing rate is 6 percent. The present value of $1 in five years at 6 percent is .75 and at 10 percent is .62. The present value of an ordinary annuity of $1 for five years at 6 percent is 4.21 and at 10 percent is 3.79. The present value of an annuity due of $1 for five years at 6 percent is 4.47 and at 10 percent is 4.17. How much expense should Hermione recognize in Year One?
A-$14,000
B-$14,195
C-$15,035
D-$16,406
Answer is B
Because of the bargain purchase option, this a capital lease and the cash flows are recorded at present value. The incremental borrowing rate of 6 percent is used because it is lower than the implicit rate. The first payment is made immediately so the $14,000 payments represent an annuity due. The $5,000 purchase option is a single amount at the end of the fifth year. Present value is $14,000 times 4.47 or $62,580 plus $5,000 times .75 or $3,750 for a total present value of $66,330. Because of the bargain purchase option, depreciation each year will be $11,055 ($66,330/6 years). The lessee expects to use the asset for its entire life. The initial liability is $66,330 but that amount is reduced immediately by the first $14,000 payment to $52,330. When multiplied by the 6 percent annual rate, interest expense of $3,140 is reported for Year One. Total expense is $11,055 (depreciation) plus $3,140 (interest) for a total of $14,195.
Regulation
The Weasley Company had sales in Year One of $500,000 plus dividend income from other domestic corporations of $100,000. The company had ordinary and necessary business expenses of $400,000. All dividends came from companies in which Weasley held 8 percent ownership. The company also made charitable contributions of $40,000 during the year. What is its taxable income?
A-$90,000
B-$100,000
C-$110,000
D-$117,000
Answer is C
The company's operating income is $200,000 ($500,000 plus $100,000 less $400,000). However, the company also gets a deduction for charitable contributions even though it is not an ordinary and necessary business expense. The amount of that deduction in any one year is limited to 10 percent of this operating income figure or $20,000 in this problem (10 percent of $200,000). In addition, because Weasley holds ownership of less than 20 percent of the domestic companies paying dividends, a 70 percent dividends received deduction is available or $70,000. Thus, taxable income is $500,000 plus $100,000 less $400,000 less $20,000 less $70,000 or $110,000.
Auditing and Attestation
A CPA is performing an audit examination of Malfoy, Inc. The CPA has already done the work necessary to gain a general understanding of the company's internal control. The CPA is now looking at the internal control policies and procedures within the accounting system for accounts receivable. The CPA has decided to perform a test of controls in this area. Which is the following is least likely to be true?
A-The system contains an excess number of possible problems so that testing is required.
B-The system appears to be well designed.
C-The CPA hopes to reduce the amount of substantive testing to be necessary.
D-The CPA hopes to reduce overall audit time.
Answer is A
Once a general understanding of internal control has been obtained, the auditor only needs to test specific controls if it is efficient to do so. If the system is well designed, testing specific controls to verify their efficiency can lead to a reduction in the assessed level of control risk. Hopefully, the amount of substantive testing can then be reduced because the desired level of detection risk does not need to be so low. This decrease in substantive testing can lead, possibly, to an overall reduction in the time and cost of performing the audit. If the internal control appears to be weak, no benefit is gained by testing those controls further. It is not likely that the weaknesses can be overcome.
BEC
The Snape Corporation plans to raise $1 million for operating purposes by either issuing a number of bonds to the public or by issuing shares of common stock. Which of the following is not an advantage of issuing the bonds?
A-It is possible for owners to have an increase in profits without making any additional investment.
B-There is less risk associated with the bonds.
C-The cost of bonds is lowered because the resulting interest is deductible for tax purposes.
D-If inflation results between the date of issuance and the maturity date, the money paid back is worth less than the money originally received.
Answer is B
All debt raises the risk of company bankruptcy. If a cash flow problem arises and debts cannot be paid as they come due, the possibility of bankruptcy is always a possibility. However, debts do have advantages. If the company can use the money to increase income by more than the cost of the interest, this leveraging increases net income without any additional funds from the owners. Furthermore, interest expense is tax deductible so that its cost is reduced significantly (whereas dividend payouts are not tax deductible). Finally, if inflation takes place (which is common), the dollars that are eventually used to repay the bonds are worth less than the ones that were received on the day of issuance-a financial benefit.
Have a great week.
Believe in yourself (it really helps).
And
Go out there and help others to believe in themselves.
Joe Hoyle
Co-Founder
CPA Review for FREE
Thursday, February 19, 2009
Dreams Are Worth Pursuing -- CPA Review For FREE
What Does It Really Take To Be Successful
From: Joe
(1) - I realize that a lot of our readers are gearing up to take a part or two of the CPA Exam here at the end of the January-February window. A couple of last minute pieces of advice:
---Work as hard as you can here at the end. Every point you add might be the one point that gets you from 74 to 75.
---Try to review everything one final time between now and the exam so that it is all fresh in your mind. Anything you review now will still be in your head when you take the exam.
---Read the information carefully that came with your Notice To Schedule so you know everything you can about taking the exam. You don't want any surprises at the testing center.
---Think about how much time you have on the exam and how you want to allocate that time. Remember that time management is essential on the CPA Exam.
---Get as relaxed as you can. A small (very small) amount of tension can keep you focused. However, anything more than a small amount of tension ties you in knots and keeps you from doing your best.
---Get a normal amount of sleep the night before the exam. Taking the exam when you are groggy is not a smart move.
---Never think "tired" while you are going through the exam. Okay, that takes discipline but you can do it. You want to have as much energy and concentration on the last question as you had on the first.
---If you see a question that you don't know, don't get rattled. Eliminate as many answers as you can and make a guess. Remember that (except in BEC) about 15-20 percent of the questions are not even graded. They are being tested. Assume the weird questions are the ones not being graded.
---If you've put in the hours, have some confidence. There is no reason that you cannot pass. Confidence is one of the world's best characteristics. I always say that you want to be confident without being cocky.
Finally, if you do take the exam in the near future, or if you have taken it recently, hit reply and drop me a note and tell me how it went. You cannot talk about specific questions-just tell me about the experience in general.
And, tell me: what is the one piece of advice that you would give your best friend if he or she were getting ready to take the CPA Exam?
(2) - I have said this before but I find that I must say it again: last week was our most successful one yet on www.CPAreviewforFREE.com!!!! We had more visitors than in any other week of our entire history. Moreover, we have now had well over 1.7 million page views. We are not to our 10 million goal (yet) but we are certainly getting there. And, that is entirely thanks to you. We do not advertise; we have no money to advertise. That is the only way we can afford to stay free. We depend on you to spread the word. How did you hear about www.CPAreviewforFREE.com? More than likely someone was nice enough to tell you or forward one of our lessons to you or the like. Now, it is your turn. I do hope you'll take a second to tell someone else about us. We love providing thousands of questions for free but we have to depend on you to spread the word.
One of my favorite parts of CPA Review for FREE is getting to work with people all around the world. As you would imagine, a vast majority of our visitors come from inside of the US. However, last week alone, we had visitors from 78 different countries. That's like the United Nations. Last week, the countries with the most visitors to our site were: Canada, South Korea, the Philippines, India, Saudi Arabia, the United Arab Emirates, the Bahamas, Australia, and China. No matter where you are from, everyone is more than welcome to use the information that we provide at www.CPAreviewforFREE.com.
(3) - I am currently reading a book that I find fascinating. It is "Born Standing Up," an autobiography written by the comedian Steve Martin. He talks about growing up in a working class family and, through years of hard work, becoming a famous entertainer.
In reading this book, Martin has said two things that I thought were so interesting that I stopped immediately and wrote them down.
"Perseverance is a great substitute for talent." Martin talks about how he performed his act in hundreds of tiny clubs for about a decade. In those places, a lot of the customers did not think he was funny at all. The feedback was not always encouraging. But he persevered and finally when he was almost broke and about ready to quit, he became a big star. How many of us would have worked for a short while and then gotten totally discouraged and said "I give up. I obviously do not have what it takes to make it as a comedian. I need to quit and get a real job and settle down."
As everyone knows by now, I have worked for nearly 30 years with thousands upon thousands of CPA candidates. I never fail to be surprised by how many people give up on their dreams so quickly. "I want to be a CPA but if I don't pass in a couple of months I'm just giving up." I've heard that line way too many times in my life.
Golly, with that type of attitude, Christopher Columbus would not have made it very far beyond the harbor.
I know everyone wants to get the exam out of the way but this is not a speed race. Failing the CPA Exam does not make you the subject of public ridicule. Taking awhile to pass the CPA Exam does not mean that you should give up on your dream of becoming a CPA and take up dog catching.
Dreams are worth pursuing.
I worry that people put too much pressure on themselves to pass the exam in record time. I have known people who have passed quickly and I have known people who passed slowly (very slowly, in some cases). To be honest, I have never noticed that the people who took longer to pass had a poorer career. In fact, in some cases, they moved on to become quite successful.
We have a fast-paced society, one that often moves at break-neck speed. At times, it is reassuring to know that "Perseverance is a great substitute for talent." I don't know how it is going for you at this very moment. Just remember: if you really want to pass the CPA Exam, then keep working at it because you will pass.
And, as soon as you pass, no one is ever going to ask you how long it took or how many points you got.
When you pass, people will simply come up to you and say: "Congratulations!!! I hear you passed the CPA Exam. I have always been told that the CPA Exam can be a bear; you must really be smart to have passed it when so many people fail." Trust me: that is going to feel good.
The other thing that Steve Martin said that I wrote down was the following. And, I really do think this applies to a lot of successful people. It is one of those weird situations where having problems in life can actually make you a better person. "I was not naturally talented. I did not sing, dance, or act. But working around that minor detail made me inventive." What a great attitude!!!
None of us are as smart as we would like to be.
None of us remember as much from our college courses as we feel we should.
None of us is ever a perfect test-taker.
However, we can look at those minor details as huge road-blocks to prevent us from ever be successful. A lot of folks do look at themselves and their talents in that way.
Or
We can look at those minor details as something we recognize and understand and will just work around AND the working around will actually make us better at what we are doing. Too much talent can actually be bad because it makes us lazy and careless and can prevent us from developing strong habits. A little shortage of talent can actually make us stronger people. It makes us more inventive. Our strength can come from our weakness.
Yes, we have to learn to compensate; we have to learn how best to deal with our shortcomings but, as Steve Martin says, that just makes us more inventive.
So, as you are studying, think of ways that you can take notes in a better fashion or consider new ways of reviewing material that might help you become a better student. Don't just say "darn, I'm just no good at this." That attitude does not do you one bit of good. That is a road block that is going to keep you from success. Instead, ask yourself: "Okay, I missed this question. What can I do to make sure that I will get it right the next time? I know myself better than anyone else. What can I do to get this concept in my head? Be inventive.
Perseverance
And
Inventive
When you are thinking about passing the CPA Exam, those are two words that can go a long way in helping you gain the success that you want.
(4) - As always, if you want to unsubscribe from these email lessons, just scroll to the bottom and click on the link. That takes you off. We love having you but you have the right to come and go as you please.
At www.CPAreviewforFREE.com, we are delighted to offer you
--thousands of excellent questions and well-written answers.
--instructions on using our website to prepare yourself to pass the CPA Exam.
--information about the CPA Exam itself.
This is the kind of information you need to make sure you are ready when you walk into the testing site. AND IT IS ALL FREE!!!!
(5) - In these lessons, I often say that the CPA Exam is a mile wide and an inch deep. Along those same lines, I have said that the questions on the CPA Exam are actually easier than the questions that I give in my intermediate accounting tests. So, even if you did not do great in your college classes, there is no reason why you cannot pass the CPA Exam. In all honesty, the Exam really is all about Perseverance more than any other skill or quality.
So, I thought I would show you my point today by giving a demonstration. I gave a test to my Intermediate Accounting II classes last week. I want to take the first two questions on that test (there were seven questions in total) and compare how I asked the question to how I think those same questions would have been asked on the CPA Exam. Remember, you are preparing for the CPA Exam, not for Intermediate Accounting. This comparison might well help you understand how to prepare yourself for the exam.
Question One on Intermediate Accounting Test: On January 1, Year One, the Robious Company issues a 5 year $50,000 bond that pays 5 percent interest each year starting on December 31, Year One. The negotiated rate is 8 percent per year. The bond is issued for $43,900. The accountant was informed of the transaction and the cash payment of $43,900 but was erroneously told that the negotiated rate had been 10 percent. The accountant made the December 31, Year One and Year Two entries based on that information. In Year Three, the error was discovered. Assume the present value of $1 in five years at 8 percent is .68 and at 10 percent is .45. Assume the present value of an ordinary annuity of $1 for five years at 8 percent is $3.96 and at 10 percent is $3.25. Assume the present value of an annuity due of $1 for five years at 8 percent is $4.28 and at 10 percent is $3.80. Circle any and all of the following that are correct. Some, all, or none may be correct.
A - Net income in Year One was misstated but by less than $632
B - Net income in Year One was misstated by between $631 and $883
C - Net income in Year One was misstated but by more than $882
D - Net income in Year Two was misstated but by less than $745
E - Net income in Year Two was misstated by between $744 and $977
F - Net income in Year Two was misstated but by more than $976
G - At the end of Year Two, the reported liability was misstated but by less than $1,346
H - At the end of Year Two, the reported liability was misstated by between $1,345 and $1,858
I - At the end of Year Two, the reported liability was misstated but by more than $1,857
ANSWER: Here is my quick explanation that I gave to my students for the answer to this question.
The accountant should have multiplied the $43,900 by 8 percent to get $3,512 to be recognized as interest expense in Year One. Since only $2,500 was paid ($50,000 times 5 percent), the extra $1,012 ($3,512 less $2,500) should have been compounded raising the liability from $43,900 to $44,912. In Year Two, the $44,912 should have been multiplied again by 8 percent to get interest expense of $3,593. Only $2,500 was paid so the extra $1,093 ($3,593 less $2,500) should have been compounded to bring the liability up to $46,005.
However, the accountant incorrectly used 10 percent and not 8 percent. The interest expense for Year One was reported as $4,390 ($43,900 times 10 percent). Because $2,500 was paid, the extra $1,890 ($4,390 minus $2,500) was compounded to raise the principal to $45,790. The interest expense for Year Two was then recognized as $4,579 based on the wrong 10 percent rate. Only $2,500 was paid so the extra $2,079 ($4,579 minus $2,500) was compounded to bring the principal up to $47,869.
---Year One expense: should have been $3,512 but was reported as $4,390. The misstatement was the difference of $878.
---Year Two expense: should have been $3,593 but was reported as $4,579. The misstatement was the difference of $986.
---December 31, Year Two liability: should have been $46,005 but was reported as $47,869. The misstatement was the difference of $1,864
CORRECT ANSWERS: B, F, I
CPA EXAM: I think the above question is a good one and in fact most of my students did fine on it. But it would never never never have been on the CPA Exam because there are way too many steps in the process. Questions on the CPA Exam (at least the ones that have been released) tend to focus on one or two steps and that is it. The examiners want to know if you know how to do a very particular task. They test you by setting up questions to address that task. In the above question, you had to read carefully and then do way too many different things and then also make comparisons. Too complicated for the CPA Exam.
Here is how I think this question would have appeared on the CPA Exam:
On January 1, Year One, the Robious Company issues a 5 year $50,000 bond that pays 5 percent interest each year starting on December 31, Year One. The negotiated rate is 8 percent per year. The bond is issued for $43,900.
Question One: What amount of interest expense will the company report on its income statement for Year Two?
A - $2,195
B - $2,500
C - $3,512
D - $3,593
Question Two: What will be the reported balance of the liability on the balance sheet at the end of Year Two?
A - $43,900
B - $44,912
C - $45,775
D - $46,005
Now, these questions really look like CPA Exam questions. The variables and the complexity have been removed. The examiners want to see if you understand how to do a specific task: use the effective rate method to record a bond or note over two years.
The answers to both questions are D and the explanation is as follows:
The accountant should have multiplied the $43,900 by 8 percent to get $3,512 to be recognized as interest expense in Year One. Since only $2,500 was paid ($50,000 times 5 percent), the extra $1,012 ($3,512 less $2,500) should have been compounded raising the liability from $43,900 to $44,912. In Year Two, the $44,912 should have been multiplied again by 8 percent to get interest expense of $3,593. Only $2,500 was paid so the extra $1,093 ($3,593 less $2,500) should have been compounded to bring the liability up to $46,005.
Question Two on Intermediate Accounting Test: Ace Company is a local fitness center in Richmond. To boost sales, it sells a package to its customers which is made up of two pieces of paper. Paper One is the right to a free massage with a retail value of $100. Paper Two is the right to a second massage at a reduced price. The first massage is taken in Year One when the package is bought. The second massage is taken in Year Two. Assume $100 is paid to Ace for the package. Paper Two gives $10 off the retail price of the second massage (a relatively minor amount). Paper Two cannot be transferred so it has no sales value. United States GAAP is fuzzy in this area. Describe three ways that the "$10 off" coupon can be reported.
ANSWER: The $10 off coupon can be ignored completely. No expense is recorded and no liability is recorded. Revenue is recorded for $100 for the first massage and for $90 for the second massage. (This is my preference.)
Or, the company can record the $10 off as a liability in Year One along with an expense of $10. Thus, the $10 reduction in income is associated with the first massage and not the second.
Or, the company can record the $10 off as a liability in Year One along with a $10 deferred expense which is not reclassified as an expense until Year Two. Thus, the reduction in income is associated with the second massage and not the first.
CPA EXAM: This is an interesting question but there is absolutely no way that it could have been given on the CPA Exam because there is no definitive answer. The examiners give questions where there is one and only one right way to handle the problem and that way is usually found in an authoritative pronouncement. If they can help it, there are no gray areas on the CPA Exam. If there are alternative possibilities, they must be based on well-known methods. For example, if they ask about inventory costing, they want to be able to tell you to use FIFO or, possibly, LIFO. On the CPA Exam, every question needs a clear cut and obviously correct answer.
Here is how I think this question would have appeared on the CPA Exam:
Ace Company is a local fitness center in Richmond. To boost sales, it sells a package to its customers which is made up of two pieces of paper. Paper One is the right to a massage. Paper Two is a coupon that can be presented for a $10 cash rebate. One hundred packages are sold for $100 each in Year One. All 100 massages are taken in Year One. The company expects 70 percent of the coupons to be redeemed but not until Year Two. What is net income for Year One?
A - $9,000
B - $9,300
C - $9,500
D - $10,000
Answer is B
Answer: The earning process for the massages is substantially complete in Year One so the $10,000 revenue is recognized at that point. However, because cash must be paid based on the cash rebate, the company also records a liability. The cash payout is estimated based on a 70 percent return rate. The total amount of these cash rebates could be as high as $1,000 (100 times $10) but since only 70 percent are anticipated, the expense and liability are only $700. That amount is recognized in Year One when the debt is incurred. Thus, net income for Year One is $10,000 minus $700 or $9,300.
Notice, here that there are clear rules for handling cash payments where an obligation has been accepted. To the examiners, there is one correct answer and the question is structured to see if you know how to derive that one correct answer.
I hope this demonstration gives you a better feel for how the CPA Exam might be structured a bit differently than the tests you took in college. At least in my opinion, the questions on the CPA Exam are not nearly as complex. If you know the rule, you can almost always get the question correct.
When I run live classes, I almost always start asking the candidates: What rule are they testing in this particular question? That is not a bad way to look at the questions as you go through our questions at www.CPAreviewforFREE.com.
Have a great week.
Remember---every point you get may be the one that moves you from 74 to 75 so go get those points.
From: Joe
(1) - I realize that a lot of our readers are gearing up to take a part or two of the CPA Exam here at the end of the January-February window. A couple of last minute pieces of advice:
---Work as hard as you can here at the end. Every point you add might be the one point that gets you from 74 to 75.
---Try to review everything one final time between now and the exam so that it is all fresh in your mind. Anything you review now will still be in your head when you take the exam.
---Read the information carefully that came with your Notice To Schedule so you know everything you can about taking the exam. You don't want any surprises at the testing center.
---Think about how much time you have on the exam and how you want to allocate that time. Remember that time management is essential on the CPA Exam.
---Get as relaxed as you can. A small (very small) amount of tension can keep you focused. However, anything more than a small amount of tension ties you in knots and keeps you from doing your best.
---Get a normal amount of sleep the night before the exam. Taking the exam when you are groggy is not a smart move.
---Never think "tired" while you are going through the exam. Okay, that takes discipline but you can do it. You want to have as much energy and concentration on the last question as you had on the first.
---If you see a question that you don't know, don't get rattled. Eliminate as many answers as you can and make a guess. Remember that (except in BEC) about 15-20 percent of the questions are not even graded. They are being tested. Assume the weird questions are the ones not being graded.
---If you've put in the hours, have some confidence. There is no reason that you cannot pass. Confidence is one of the world's best characteristics. I always say that you want to be confident without being cocky.
Finally, if you do take the exam in the near future, or if you have taken it recently, hit reply and drop me a note and tell me how it went. You cannot talk about specific questions-just tell me about the experience in general.
And, tell me: what is the one piece of advice that you would give your best friend if he or she were getting ready to take the CPA Exam?
(2) - I have said this before but I find that I must say it again: last week was our most successful one yet on www.CPAreviewforFREE.com!!!! We had more visitors than in any other week of our entire history. Moreover, we have now had well over 1.7 million page views. We are not to our 10 million goal (yet) but we are certainly getting there. And, that is entirely thanks to you. We do not advertise; we have no money to advertise. That is the only way we can afford to stay free. We depend on you to spread the word. How did you hear about www.CPAreviewforFREE.com? More than likely someone was nice enough to tell you or forward one of our lessons to you or the like. Now, it is your turn. I do hope you'll take a second to tell someone else about us. We love providing thousands of questions for free but we have to depend on you to spread the word.
One of my favorite parts of CPA Review for FREE is getting to work with people all around the world. As you would imagine, a vast majority of our visitors come from inside of the US. However, last week alone, we had visitors from 78 different countries. That's like the United Nations. Last week, the countries with the most visitors to our site were: Canada, South Korea, the Philippines, India, Saudi Arabia, the United Arab Emirates, the Bahamas, Australia, and China. No matter where you are from, everyone is more than welcome to use the information that we provide at www.CPAreviewforFREE.com.
(3) - I am currently reading a book that I find fascinating. It is "Born Standing Up," an autobiography written by the comedian Steve Martin. He talks about growing up in a working class family and, through years of hard work, becoming a famous entertainer.
In reading this book, Martin has said two things that I thought were so interesting that I stopped immediately and wrote them down.
"Perseverance is a great substitute for talent." Martin talks about how he performed his act in hundreds of tiny clubs for about a decade. In those places, a lot of the customers did not think he was funny at all. The feedback was not always encouraging. But he persevered and finally when he was almost broke and about ready to quit, he became a big star. How many of us would have worked for a short while and then gotten totally discouraged and said "I give up. I obviously do not have what it takes to make it as a comedian. I need to quit and get a real job and settle down."
As everyone knows by now, I have worked for nearly 30 years with thousands upon thousands of CPA candidates. I never fail to be surprised by how many people give up on their dreams so quickly. "I want to be a CPA but if I don't pass in a couple of months I'm just giving up." I've heard that line way too many times in my life.
Golly, with that type of attitude, Christopher Columbus would not have made it very far beyond the harbor.
I know everyone wants to get the exam out of the way but this is not a speed race. Failing the CPA Exam does not make you the subject of public ridicule. Taking awhile to pass the CPA Exam does not mean that you should give up on your dream of becoming a CPA and take up dog catching.
Dreams are worth pursuing.
I worry that people put too much pressure on themselves to pass the exam in record time. I have known people who have passed quickly and I have known people who passed slowly (very slowly, in some cases). To be honest, I have never noticed that the people who took longer to pass had a poorer career. In fact, in some cases, they moved on to become quite successful.
We have a fast-paced society, one that often moves at break-neck speed. At times, it is reassuring to know that "Perseverance is a great substitute for talent." I don't know how it is going for you at this very moment. Just remember: if you really want to pass the CPA Exam, then keep working at it because you will pass.
And, as soon as you pass, no one is ever going to ask you how long it took or how many points you got.
When you pass, people will simply come up to you and say: "Congratulations!!! I hear you passed the CPA Exam. I have always been told that the CPA Exam can be a bear; you must really be smart to have passed it when so many people fail." Trust me: that is going to feel good.
The other thing that Steve Martin said that I wrote down was the following. And, I really do think this applies to a lot of successful people. It is one of those weird situations where having problems in life can actually make you a better person. "I was not naturally talented. I did not sing, dance, or act. But working around that minor detail made me inventive." What a great attitude!!!
None of us are as smart as we would like to be.
None of us remember as much from our college courses as we feel we should.
None of us is ever a perfect test-taker.
However, we can look at those minor details as huge road-blocks to prevent us from ever be successful. A lot of folks do look at themselves and their talents in that way.
Or
We can look at those minor details as something we recognize and understand and will just work around AND the working around will actually make us better at what we are doing. Too much talent can actually be bad because it makes us lazy and careless and can prevent us from developing strong habits. A little shortage of talent can actually make us stronger people. It makes us more inventive. Our strength can come from our weakness.
Yes, we have to learn to compensate; we have to learn how best to deal with our shortcomings but, as Steve Martin says, that just makes us more inventive.
So, as you are studying, think of ways that you can take notes in a better fashion or consider new ways of reviewing material that might help you become a better student. Don't just say "darn, I'm just no good at this." That attitude does not do you one bit of good. That is a road block that is going to keep you from success. Instead, ask yourself: "Okay, I missed this question. What can I do to make sure that I will get it right the next time? I know myself better than anyone else. What can I do to get this concept in my head? Be inventive.
Perseverance
And
Inventive
When you are thinking about passing the CPA Exam, those are two words that can go a long way in helping you gain the success that you want.
(4) - As always, if you want to unsubscribe from these email lessons, just scroll to the bottom and click on the link. That takes you off. We love having you but you have the right to come and go as you please.
At www.CPAreviewforFREE.com, we are delighted to offer you
--thousands of excellent questions and well-written answers.
--instructions on using our website to prepare yourself to pass the CPA Exam.
--information about the CPA Exam itself.
This is the kind of information you need to make sure you are ready when you walk into the testing site. AND IT IS ALL FREE!!!!
(5) - In these lessons, I often say that the CPA Exam is a mile wide and an inch deep. Along those same lines, I have said that the questions on the CPA Exam are actually easier than the questions that I give in my intermediate accounting tests. So, even if you did not do great in your college classes, there is no reason why you cannot pass the CPA Exam. In all honesty, the Exam really is all about Perseverance more than any other skill or quality.
So, I thought I would show you my point today by giving a demonstration. I gave a test to my Intermediate Accounting II classes last week. I want to take the first two questions on that test (there were seven questions in total) and compare how I asked the question to how I think those same questions would have been asked on the CPA Exam. Remember, you are preparing for the CPA Exam, not for Intermediate Accounting. This comparison might well help you understand how to prepare yourself for the exam.
Question One on Intermediate Accounting Test: On January 1, Year One, the Robious Company issues a 5 year $50,000 bond that pays 5 percent interest each year starting on December 31, Year One. The negotiated rate is 8 percent per year. The bond is issued for $43,900. The accountant was informed of the transaction and the cash payment of $43,900 but was erroneously told that the negotiated rate had been 10 percent. The accountant made the December 31, Year One and Year Two entries based on that information. In Year Three, the error was discovered. Assume the present value of $1 in five years at 8 percent is .68 and at 10 percent is .45. Assume the present value of an ordinary annuity of $1 for five years at 8 percent is $3.96 and at 10 percent is $3.25. Assume the present value of an annuity due of $1 for five years at 8 percent is $4.28 and at 10 percent is $3.80. Circle any and all of the following that are correct. Some, all, or none may be correct.
A - Net income in Year One was misstated but by less than $632
B - Net income in Year One was misstated by between $631 and $883
C - Net income in Year One was misstated but by more than $882
D - Net income in Year Two was misstated but by less than $745
E - Net income in Year Two was misstated by between $744 and $977
F - Net income in Year Two was misstated but by more than $976
G - At the end of Year Two, the reported liability was misstated but by less than $1,346
H - At the end of Year Two, the reported liability was misstated by between $1,345 and $1,858
I - At the end of Year Two, the reported liability was misstated but by more than $1,857
ANSWER: Here is my quick explanation that I gave to my students for the answer to this question.
The accountant should have multiplied the $43,900 by 8 percent to get $3,512 to be recognized as interest expense in Year One. Since only $2,500 was paid ($50,000 times 5 percent), the extra $1,012 ($3,512 less $2,500) should have been compounded raising the liability from $43,900 to $44,912. In Year Two, the $44,912 should have been multiplied again by 8 percent to get interest expense of $3,593. Only $2,500 was paid so the extra $1,093 ($3,593 less $2,500) should have been compounded to bring the liability up to $46,005.
However, the accountant incorrectly used 10 percent and not 8 percent. The interest expense for Year One was reported as $4,390 ($43,900 times 10 percent). Because $2,500 was paid, the extra $1,890 ($4,390 minus $2,500) was compounded to raise the principal to $45,790. The interest expense for Year Two was then recognized as $4,579 based on the wrong 10 percent rate. Only $2,500 was paid so the extra $2,079 ($4,579 minus $2,500) was compounded to bring the principal up to $47,869.
---Year One expense: should have been $3,512 but was reported as $4,390. The misstatement was the difference of $878.
---Year Two expense: should have been $3,593 but was reported as $4,579. The misstatement was the difference of $986.
---December 31, Year Two liability: should have been $46,005 but was reported as $47,869. The misstatement was the difference of $1,864
CORRECT ANSWERS: B, F, I
CPA EXAM: I think the above question is a good one and in fact most of my students did fine on it. But it would never never never have been on the CPA Exam because there are way too many steps in the process. Questions on the CPA Exam (at least the ones that have been released) tend to focus on one or two steps and that is it. The examiners want to know if you know how to do a very particular task. They test you by setting up questions to address that task. In the above question, you had to read carefully and then do way too many different things and then also make comparisons. Too complicated for the CPA Exam.
Here is how I think this question would have appeared on the CPA Exam:
On January 1, Year One, the Robious Company issues a 5 year $50,000 bond that pays 5 percent interest each year starting on December 31, Year One. The negotiated rate is 8 percent per year. The bond is issued for $43,900.
Question One: What amount of interest expense will the company report on its income statement for Year Two?
A - $2,195
B - $2,500
C - $3,512
D - $3,593
Question Two: What will be the reported balance of the liability on the balance sheet at the end of Year Two?
A - $43,900
B - $44,912
C - $45,775
D - $46,005
Now, these questions really look like CPA Exam questions. The variables and the complexity have been removed. The examiners want to see if you understand how to do a specific task: use the effective rate method to record a bond or note over two years.
The answers to both questions are D and the explanation is as follows:
The accountant should have multiplied the $43,900 by 8 percent to get $3,512 to be recognized as interest expense in Year One. Since only $2,500 was paid ($50,000 times 5 percent), the extra $1,012 ($3,512 less $2,500) should have been compounded raising the liability from $43,900 to $44,912. In Year Two, the $44,912 should have been multiplied again by 8 percent to get interest expense of $3,593. Only $2,500 was paid so the extra $1,093 ($3,593 less $2,500) should have been compounded to bring the liability up to $46,005.
Question Two on Intermediate Accounting Test: Ace Company is a local fitness center in Richmond. To boost sales, it sells a package to its customers which is made up of two pieces of paper. Paper One is the right to a free massage with a retail value of $100. Paper Two is the right to a second massage at a reduced price. The first massage is taken in Year One when the package is bought. The second massage is taken in Year Two. Assume $100 is paid to Ace for the package. Paper Two gives $10 off the retail price of the second massage (a relatively minor amount). Paper Two cannot be transferred so it has no sales value. United States GAAP is fuzzy in this area. Describe three ways that the "$10 off" coupon can be reported.
ANSWER: The $10 off coupon can be ignored completely. No expense is recorded and no liability is recorded. Revenue is recorded for $100 for the first massage and for $90 for the second massage. (This is my preference.)
Or, the company can record the $10 off as a liability in Year One along with an expense of $10. Thus, the $10 reduction in income is associated with the first massage and not the second.
Or, the company can record the $10 off as a liability in Year One along with a $10 deferred expense which is not reclassified as an expense until Year Two. Thus, the reduction in income is associated with the second massage and not the first.
CPA EXAM: This is an interesting question but there is absolutely no way that it could have been given on the CPA Exam because there is no definitive answer. The examiners give questions where there is one and only one right way to handle the problem and that way is usually found in an authoritative pronouncement. If they can help it, there are no gray areas on the CPA Exam. If there are alternative possibilities, they must be based on well-known methods. For example, if they ask about inventory costing, they want to be able to tell you to use FIFO or, possibly, LIFO. On the CPA Exam, every question needs a clear cut and obviously correct answer.
Here is how I think this question would have appeared on the CPA Exam:
Ace Company is a local fitness center in Richmond. To boost sales, it sells a package to its customers which is made up of two pieces of paper. Paper One is the right to a massage. Paper Two is a coupon that can be presented for a $10 cash rebate. One hundred packages are sold for $100 each in Year One. All 100 massages are taken in Year One. The company expects 70 percent of the coupons to be redeemed but not until Year Two. What is net income for Year One?
A - $9,000
B - $9,300
C - $9,500
D - $10,000
Answer is B
Answer: The earning process for the massages is substantially complete in Year One so the $10,000 revenue is recognized at that point. However, because cash must be paid based on the cash rebate, the company also records a liability. The cash payout is estimated based on a 70 percent return rate. The total amount of these cash rebates could be as high as $1,000 (100 times $10) but since only 70 percent are anticipated, the expense and liability are only $700. That amount is recognized in Year One when the debt is incurred. Thus, net income for Year One is $10,000 minus $700 or $9,300.
Notice, here that there are clear rules for handling cash payments where an obligation has been accepted. To the examiners, there is one correct answer and the question is structured to see if you know how to derive that one correct answer.
I hope this demonstration gives you a better feel for how the CPA Exam might be structured a bit differently than the tests you took in college. At least in my opinion, the questions on the CPA Exam are not nearly as complex. If you know the rule, you can almost always get the question correct.
When I run live classes, I almost always start asking the candidates: What rule are they testing in this particular question? That is not a bad way to look at the questions as you go through our questions at www.CPAreviewforFREE.com.
Have a great week.
Remember---every point you get may be the one that moves you from 74 to 75 so go get those points.
Sunday, February 8, 2009
What Does the CPA Exam Look Like
What Does the CPA Exam Look Like
From: Joe
If you are taking a part of the exam at the end of the January-February window and you work just 20 questions per day at www.cpareviewforfree.com, you can get 300 questions done and that ought to get you very close to a passing score. Even if you have not studied one bit so far, you can still pass in February if you get to work right now.
(a) - On Friday, it is Valentine's Day here in the United States (I am not sure if Valentine's Day is observed in other countries). I sent the following note to my college students today. It probably applies to everyone out there. Think of someone you love and write them a note.
"I am going to give you some fatherly advice that I wish someone had given me when I was your age. Valentine's Day is coming up on Saturday. If you are lucky and your mother is still alive, go to Hallmark or some other card shop and buy her a real card. Then, write her a few lines in your own handwriting and tell her how much you love her. Don't leave it to an email or to a phone call. Those don't show any imagination or creativity or caring - they are just overly convenient. Don't take the people in your family and in your life for granted. Life should be lived with some imagination and some caring. Go out of your way to do something personal. If you buy a card and especially if you write a note, there will come a day when you will be glad that you did."
(b)-In case you have not already done so, go to www.youtube.com and type in (without spaces) CPAreviewforfree. You should get three videos that I made about preparing for the CPA Exam. My spring break is coming up in a few weeks and I hope to make 2-3 more videos to put up on YouTube. I am always trying to think of every possible way to encourage people to get the points they need to pass the CPA Exam.
(c)-Got another great email today. Always makes me smile.
"Thanks for the valuable help. I really appreciate it, your questions are unique and the explanations are awesome. Also I like the names that are used in the questions. For sure I will inform you about my grades since you are my partner in any success."
Hey, we are always delighted to be of help to every person who wants to pass the CPA Exam. We know times are tough and not everyone can afford to pay $2,500 for a review program. Money should not be a barrier that keeps you from reaching your career goal. Life should reward the people who work, not just the people with money.
(1)-One of my senior students came by last week to chat about the CPA Exam. She graduates in 2 1/2 months and wants to get the exam done over the summer. She asked me to list out the things that were most important for her to know as she gets started.
My goodness, that was an interesting question. A list of the things that are most important to know about the CPA Exam. I thought for awhile and then gave her the following TOP TEN. I have pondered it for several days since that time and still like the choices.
(a)-Nothing beats hours studied. There are no short-cuts. You need to plan to study at least 60 hours per part. Anyone who tells you differently is giving you bad advice.
(b)-The exam is one mile wide and one inch deep. They want to see if you know a little bit about everything. They have very few topics where the depth of coverage is much more than shallow. It is a comprehensive exam of the basics.
(c)-You do not have to be perfect. You only need to pass. Learn each topic enough to pass and then move on.
(d)-On the exam itself, time management is critical. Always know how much time you have and how much time you can afford to spend on each question.
(e)-As you study, you need some easy way to review and keep the material fresh in your mind. I told her about the 10-word notes and the three-second questions that I have mentioned in these email lessons. It is shocking as to how quickly you will lose knowledge without some review process.
(f)-Knowing material is not the key; the key is being able to answer questions. For the CPA Exam, you have no other goal than being able to answer questions.
(g)-Learn from your mistakes. To pass you must constantly get better and you do that by learning from the problems you miss. Any time you miss a question, you have a golden opportunity to make improvement.
(h)-Consistency is a real key. Too many people study hard for a day and then take five days off. I really like for people to study 60-90 minutes per day 5-6 days per week. I think that is a schedule that works.
(i)-Study as early in the day as you can. If you put off studying, it is easy to get to the end of the day and be too tired to do any at all. Study first and then you cannot put it off. Procrastination is your biggest enemy.
(j)-I then gave her our Lesson 23 that I send out to all of our readers on February 3 and told her to read the 22 steps that I had listed for success using CPA Review For FREE. I think everyone who is taking the CPA Exam should read those 22 steps carefully. I believe they provide perfect guidance for passing the CPA Exam without spending one penny for review materials. Never forget our motto: Try us FIRST before you spend your hard-earned money.
(2)-Always know that you can very easily unsubscribe to these email lessons. Just scroll to the bottom of this lesson or any lesson and click on the appropriate button.
And, anyone who wants to automatically receive these email lessons can do so by going to www.CPAreviewforFREE.com and registering and then make sure the box is checked to get extra materials. These lessons ARE the extra material.
(3)-I am always surprised as to how many people go into the CPA Exam without a real understanding of the exam itself. I thought I would remind you of how the CPA Exam is structured.
(a)-Time:
Auditing-4.5 hours
BEC-2.5 hours
Financial Accounting and Reporting-4.0 hours
Regulation-3.0 hours
(b)-Composition of Exam:
Each part except BEC is made up of three testlets and two simulations.
BEC is made up of three testlets only.
(c)-Composition of Testlet:
In each part except Regulation, a testlet holds 30 multiple-choice questions.
In Regulation, a testlet holds 24 multiple-choice questions.
(d)-Graded Questions in a Testlet:
In each part except Regulation, 25 out of the 30 multiple-choice questions are graded. The other five are being tested to see if they are good questions.
In Regulation, 20 out of the 24 multiple-choice questions are graded. The other four are being tested to if they are good questions.
(e)-Passing Grade:
75 is the passing grade in all four parts.
However, because different questions have different weighted values, that does not mean that you need to get 75 percent of the questions correct in order to pass.
(f)-Grading Points:
Because BEC only has multiple-choice questions, 100 percent of the grade comes from those questions.
For all other parts, 70 percent of the grade comes from the multiple-choice questions, 10 percent from the written communications question, and 20 percent from the rest of the simulations.
(g)-Variability of Difficulty
In BEC, there is no variability in difficulty from one testlet to the next.
In all of the other parts, if you do well on the first testlet, the next testlet has harder questions. If you do well on the second testlet, the third testlet also has questions that are judged to be harder. You want harder questions because they have a higher point value.
(h)-Examination Windows
Each part of the exam can be taken one time per exam window. Those exam windows are January-February, April-May, July-August, October-November.
(i)-Time Limit for Passing
Each state sets a limit in which all four parts must be passed. Many states use 18 months.
(j)-Number of Tests Per Window
A vast majority of candidates take one or two parts of the CPA Exam per window. A few candidates do attempt all four parts in a single two-month window.
(k)-Getting More Information
There is a lot of information about the CPA Exam at www.cpa-exam.org. I would especially recommend the CPA Candidate Bulletin, Tutorial and Sample Exams, and CPA Examination Newsletters. In addition, the Notice to Schedule that you receive when you are approved to take the exam provides a significant amount of information.
(4)-Okay, let's practice a bit. Think through each of the following questions and see if we can add a point or so. Every point moves you that much closer to passing.
---Financial Accounting
The Mulieri Company was authorized to issue 100,000 shares of common stock with a $10 par value. The company issued 30,000 shares for cash of $15 per share. Later, when the shares were selling for $20 per share on a stock exchange, the company issued another 9,000 shares as a stock dividend. Which of the following statements is true about the recording of the stock dividend?
A-The total amount of stockholders' equity is not affected but retained earnings is reduced by $90,000.
B-Stockholders' equity is reduced by $180,000 and retained earnings is also reduced by $180,000.
C-Stockholders' equity is reduced by $90,000 and retained earnings is reduced by $135,000.
D-The total amount of stockholders' equity is not effected but retained earnings is reduced by $180,000.
Answer is A.
When a stock dividend is above 20-25 percent, it is recorded at the par value of the shares issued. Here, that is 9,000 shares times $10 per share are $90,000. Retained earnings is reduced by that amount and common stock is increased by that same amount. The increase in common stock and the decrease in retained earnings offset each other so that total stockholders' equity is not affected.
---Auditing and Attestation
The CPA firm of Bryant and James is auditing Garnett Corporation and has made the decision that there is a increased amount of risk that the financial statements being issued contain a material misstatement. Which of the following is most likely to have led to that assessment?
A-The board of directors takes an active role in the oversight of company management.
B-Garnett is a bank in a region where several banks have failed in recent months.
C-The company recently sold land and has reporting a gain on that transaction.
D-The president of Garnett holds two percent of the outstanding shares of the company.
Answer is B.
There are many factors that can lead to special concern by the auditors. The board of directors being actively involved with the company is considered beneficial and might actually reduce the risk of a misstatement. The sale of land would probably warrant examination by the auditor but the mere sale does not increase the risk of a misstatement. The president holding stock in the company is not unusual and, again, by itself does not lead to an increase in the level of assessed risk. However, when an audit client is in a declining industry, the auditor knows that market conditions are already bad. The fact that the company faces such adverse times means that the likelihood of material misstatements (especially from fraud) is elevated.
Regulation
The Oregon Company has a large donut maker used in its business which has a tax basis of $14,000 but a fair value of $11,000. It is exchanged for a new donut maker worth $10,000. Oregon also collected $1,000 in cash to even up the trade. What is the tax basis to Oregon of the new donut maker after the trade?
A--$10,000
B--$11,000
C--$13,000
D--$14,000
Answer is C.
In a like-kind exchange, the taxable gain is the lower of the gain on the trade or the cash (boot) received. Here, the gain is actually a loss of $3,000 so no gain is recognized. The loss is the tax basis given up ($14,000) less the fair value received ($11,000 or $10,000 plus $1,000). So, if Oregon is given up a tax basis of $14,000 and no gain is recognized, the items received must have a tax basis of that same $14,000. The cash has to have a tax basis of $1,000. That leaves $13,000 as the remaining tax basis for the new donut-maker.
BEC
Which of the following is the best explanation of an enterprise resource planning system or ERP?
A-It is a computer system designed to make certain that all raw materials are received as needed within an organization.
B-It is an attempt to consolidate all of a company's departments and functions into a single computer system that services each department's individual needs through the use of a common database.
C-It is a computer program that should maintain proper cash resources within a company at all times and places.
D-It is an ongoing planning process that measures labor input and related output in an attempt to maximize efficiency.
Answer is B.
According to Wikipedia: "Enterprise resource planning (ERP) is an enterprise-wide information system designed to coordinate all the resources, information, and activities needed to complete business processes such as order fulfillment or billing. An ERP system supports most of the business system that maintains - in a single database - the data needed for a variety of business functions such as manufacturing, supply chain management, financials, projects, human resources and customer relationship management."
Have a great week!!!
From: Joe
If you are taking a part of the exam at the end of the January-February window and you work just 20 questions per day at www.cpareviewforfree.com, you can get 300 questions done and that ought to get you very close to a passing score. Even if you have not studied one bit so far, you can still pass in February if you get to work right now.
(a) - On Friday, it is Valentine's Day here in the United States (I am not sure if Valentine's Day is observed in other countries). I sent the following note to my college students today. It probably applies to everyone out there. Think of someone you love and write them a note.
"I am going to give you some fatherly advice that I wish someone had given me when I was your age. Valentine's Day is coming up on Saturday. If you are lucky and your mother is still alive, go to Hallmark or some other card shop and buy her a real card. Then, write her a few lines in your own handwriting and tell her how much you love her. Don't leave it to an email or to a phone call. Those don't show any imagination or creativity or caring - they are just overly convenient. Don't take the people in your family and in your life for granted. Life should be lived with some imagination and some caring. Go out of your way to do something personal. If you buy a card and especially if you write a note, there will come a day when you will be glad that you did."
(b)-In case you have not already done so, go to www.youtube.com and type in (without spaces) CPAreviewforfree. You should get three videos that I made about preparing for the CPA Exam. My spring break is coming up in a few weeks and I hope to make 2-3 more videos to put up on YouTube. I am always trying to think of every possible way to encourage people to get the points they need to pass the CPA Exam.
(c)-Got another great email today. Always makes me smile.
"Thanks for the valuable help. I really appreciate it, your questions are unique and the explanations are awesome. Also I like the names that are used in the questions. For sure I will inform you about my grades since you are my partner in any success."
Hey, we are always delighted to be of help to every person who wants to pass the CPA Exam. We know times are tough and not everyone can afford to pay $2,500 for a review program. Money should not be a barrier that keeps you from reaching your career goal. Life should reward the people who work, not just the people with money.
(1)-One of my senior students came by last week to chat about the CPA Exam. She graduates in 2 1/2 months and wants to get the exam done over the summer. She asked me to list out the things that were most important for her to know as she gets started.
My goodness, that was an interesting question. A list of the things that are most important to know about the CPA Exam. I thought for awhile and then gave her the following TOP TEN. I have pondered it for several days since that time and still like the choices.
(a)-Nothing beats hours studied. There are no short-cuts. You need to plan to study at least 60 hours per part. Anyone who tells you differently is giving you bad advice.
(b)-The exam is one mile wide and one inch deep. They want to see if you know a little bit about everything. They have very few topics where the depth of coverage is much more than shallow. It is a comprehensive exam of the basics.
(c)-You do not have to be perfect. You only need to pass. Learn each topic enough to pass and then move on.
(d)-On the exam itself, time management is critical. Always know how much time you have and how much time you can afford to spend on each question.
(e)-As you study, you need some easy way to review and keep the material fresh in your mind. I told her about the 10-word notes and the three-second questions that I have mentioned in these email lessons. It is shocking as to how quickly you will lose knowledge without some review process.
(f)-Knowing material is not the key; the key is being able to answer questions. For the CPA Exam, you have no other goal than being able to answer questions.
(g)-Learn from your mistakes. To pass you must constantly get better and you do that by learning from the problems you miss. Any time you miss a question, you have a golden opportunity to make improvement.
(h)-Consistency is a real key. Too many people study hard for a day and then take five days off. I really like for people to study 60-90 minutes per day 5-6 days per week. I think that is a schedule that works.
(i)-Study as early in the day as you can. If you put off studying, it is easy to get to the end of the day and be too tired to do any at all. Study first and then you cannot put it off. Procrastination is your biggest enemy.
(j)-I then gave her our Lesson 23 that I send out to all of our readers on February 3 and told her to read the 22 steps that I had listed for success using CPA Review For FREE. I think everyone who is taking the CPA Exam should read those 22 steps carefully. I believe they provide perfect guidance for passing the CPA Exam without spending one penny for review materials. Never forget our motto: Try us FIRST before you spend your hard-earned money.
(2)-Always know that you can very easily unsubscribe to these email lessons. Just scroll to the bottom of this lesson or any lesson and click on the appropriate button.
And, anyone who wants to automatically receive these email lessons can do so by going to www.CPAreviewforFREE.com and registering and then make sure the box is checked to get extra materials. These lessons ARE the extra material.
(3)-I am always surprised as to how many people go into the CPA Exam without a real understanding of the exam itself. I thought I would remind you of how the CPA Exam is structured.
(a)-Time:
Auditing-4.5 hours
BEC-2.5 hours
Financial Accounting and Reporting-4.0 hours
Regulation-3.0 hours
(b)-Composition of Exam:
Each part except BEC is made up of three testlets and two simulations.
BEC is made up of three testlets only.
(c)-Composition of Testlet:
In each part except Regulation, a testlet holds 30 multiple-choice questions.
In Regulation, a testlet holds 24 multiple-choice questions.
(d)-Graded Questions in a Testlet:
In each part except Regulation, 25 out of the 30 multiple-choice questions are graded. The other five are being tested to see if they are good questions.
In Regulation, 20 out of the 24 multiple-choice questions are graded. The other four are being tested to if they are good questions.
(e)-Passing Grade:
75 is the passing grade in all four parts.
However, because different questions have different weighted values, that does not mean that you need to get 75 percent of the questions correct in order to pass.
(f)-Grading Points:
Because BEC only has multiple-choice questions, 100 percent of the grade comes from those questions.
For all other parts, 70 percent of the grade comes from the multiple-choice questions, 10 percent from the written communications question, and 20 percent from the rest of the simulations.
(g)-Variability of Difficulty
In BEC, there is no variability in difficulty from one testlet to the next.
In all of the other parts, if you do well on the first testlet, the next testlet has harder questions. If you do well on the second testlet, the third testlet also has questions that are judged to be harder. You want harder questions because they have a higher point value.
(h)-Examination Windows
Each part of the exam can be taken one time per exam window. Those exam windows are January-February, April-May, July-August, October-November.
(i)-Time Limit for Passing
Each state sets a limit in which all four parts must be passed. Many states use 18 months.
(j)-Number of Tests Per Window
A vast majority of candidates take one or two parts of the CPA Exam per window. A few candidates do attempt all four parts in a single two-month window.
(k)-Getting More Information
There is a lot of information about the CPA Exam at www.cpa-exam.org. I would especially recommend the CPA Candidate Bulletin, Tutorial and Sample Exams, and CPA Examination Newsletters. In addition, the Notice to Schedule that you receive when you are approved to take the exam provides a significant amount of information.
(4)-Okay, let's practice a bit. Think through each of the following questions and see if we can add a point or so. Every point moves you that much closer to passing.
---Financial Accounting
The Mulieri Company was authorized to issue 100,000 shares of common stock with a $10 par value. The company issued 30,000 shares for cash of $15 per share. Later, when the shares were selling for $20 per share on a stock exchange, the company issued another 9,000 shares as a stock dividend. Which of the following statements is true about the recording of the stock dividend?
A-The total amount of stockholders' equity is not affected but retained earnings is reduced by $90,000.
B-Stockholders' equity is reduced by $180,000 and retained earnings is also reduced by $180,000.
C-Stockholders' equity is reduced by $90,000 and retained earnings is reduced by $135,000.
D-The total amount of stockholders' equity is not effected but retained earnings is reduced by $180,000.
Answer is A.
When a stock dividend is above 20-25 percent, it is recorded at the par value of the shares issued. Here, that is 9,000 shares times $10 per share are $90,000. Retained earnings is reduced by that amount and common stock is increased by that same amount. The increase in common stock and the decrease in retained earnings offset each other so that total stockholders' equity is not affected.
---Auditing and Attestation
The CPA firm of Bryant and James is auditing Garnett Corporation and has made the decision that there is a increased amount of risk that the financial statements being issued contain a material misstatement. Which of the following is most likely to have led to that assessment?
A-The board of directors takes an active role in the oversight of company management.
B-Garnett is a bank in a region where several banks have failed in recent months.
C-The company recently sold land and has reporting a gain on that transaction.
D-The president of Garnett holds two percent of the outstanding shares of the company.
Answer is B.
There are many factors that can lead to special concern by the auditors. The board of directors being actively involved with the company is considered beneficial and might actually reduce the risk of a misstatement. The sale of land would probably warrant examination by the auditor but the mere sale does not increase the risk of a misstatement. The president holding stock in the company is not unusual and, again, by itself does not lead to an increase in the level of assessed risk. However, when an audit client is in a declining industry, the auditor knows that market conditions are already bad. The fact that the company faces such adverse times means that the likelihood of material misstatements (especially from fraud) is elevated.
Regulation
The Oregon Company has a large donut maker used in its business which has a tax basis of $14,000 but a fair value of $11,000. It is exchanged for a new donut maker worth $10,000. Oregon also collected $1,000 in cash to even up the trade. What is the tax basis to Oregon of the new donut maker after the trade?
A--$10,000
B--$11,000
C--$13,000
D--$14,000
Answer is C.
In a like-kind exchange, the taxable gain is the lower of the gain on the trade or the cash (boot) received. Here, the gain is actually a loss of $3,000 so no gain is recognized. The loss is the tax basis given up ($14,000) less the fair value received ($11,000 or $10,000 plus $1,000). So, if Oregon is given up a tax basis of $14,000 and no gain is recognized, the items received must have a tax basis of that same $14,000. The cash has to have a tax basis of $1,000. That leaves $13,000 as the remaining tax basis for the new donut-maker.
BEC
Which of the following is the best explanation of an enterprise resource planning system or ERP?
A-It is a computer system designed to make certain that all raw materials are received as needed within an organization.
B-It is an attempt to consolidate all of a company's departments and functions into a single computer system that services each department's individual needs through the use of a common database.
C-It is a computer program that should maintain proper cash resources within a company at all times and places.
D-It is an ongoing planning process that measures labor input and related output in an attempt to maximize efficiency.
Answer is B.
According to Wikipedia: "Enterprise resource planning (ERP) is an enterprise-wide information system designed to coordinate all the resources, information, and activities needed to complete business processes such as order fulfillment or billing. An ERP system supports most of the business system that maintains - in a single database - the data needed for a variety of business functions such as manufacturing, supply chain management, financials, projects, human resources and customer relationship management."
Have a great week!!!
Tuesday, February 3, 2009
Try us FIRST before you spend your hard-earned money
Don't Limit Yourself
From: Joe
(a) - It snowed in Richmond this morning, about an inch. Did not stick to the road but it clung heavily to every tree limb. I drove out at around 7 and the white snow filling the dark woods was lovely. Even when you are buried deep in preparing for the CPA Exam, it is good idea to notice the beauty around you. Makes the whole experience much easier. All work and no play is never a perfect strategy.
(1) - I usually don't watch the Super Bowl. It is a lot of time spent watching other people. But, for some reason, I did pay attention to the game on Sunday. I saw two teams who really seemed to enjoy the challenge of the battle. They kept slugging until the very end. Great effort is something that should always be prized and both teams put out a great effort.
You will probably never play in the Super Bowl (although I have had, at least one former student play in a Super Bowl). However, there are a few times in life when you have your own chance to put out a great effort.
The CPA Exam is one of those times.
Passing the CPA Exam requires a great effort. You need to put in about 60-90 hours per part and that is never easy to do. You need to put in time almost every day. You need to stay focused. You need to be efficient and make progress. But, if you put in that great effort, you will never regret it.
When the players left the field on Sunday, they could all say "we did it; we gave it our very best." What more can you ask from yourself? When you are faced with a real challenge, that kind of statement is something special.
That is what I want from you on the CPA Exam. When you leave the testing center, I want you to smile and say "I did it; I gave it my very best!!!"
(2) - In operating a live CPA Exam Review program, I had the great pleasure of working with 300-500 people per year who were getting ready for the big challenge. When you work with so many people, you start to notice habits. One that was very prevalent was the tendency to start off from the very beginning with an excuse:
---"Hi, my name is X and I don't do well on tests."
---"Hi, I'm X and I get really nervous during exams."
---"I'm X and I seem to make an incredible number of careless errors."
My response was always the same to such personal apologies: "DON'T BE SO NEGATIVE ABOUT YOURSELF." I could never see any advantages in making people think you were going to fail. How does that help? It is like giving yourself an excuse to fail.
Do you have such negative habits?
Are you letting your own habits limit what you can accomplish?
As you talk about the CPA Exam with others, listen to what you have to say. Why is it so important to have excuses? Why not start out with
"My name is X and I'm going to give it my best shot."
"I'm X and I realize that this is a challenge but I like challenges and I'm looking forward to this one."
"Hi, I'm X and if I put in the time, I can lick this thing."
Don't give yourself an excuse for failure.
Don't give yourself a reason not to try.
Don't give yourself a pass so you can avoid putting in a good effort.
So, here is an exercise that I want you to consider over the next week. Pay close attention to what you tell your friends and family about the CPA Exam. If I were to then ask them how you talk about the exam, what would they tell me?
--Would they say that you are upbeat and optimistic or that you always expect the worse?
--Would they say that you make good things happen or that you seem to have no control over your own life?
--Would they say that you seem to think of yourself as a winner or a loser?
--Would that say that you were pushing toward victory or sliding toward defeat?
Okay, you don't have to be a cheerleader for yourself if that is not your style. However, I see no reason why you should define yourself and your battle with the CPA Exam in a negative way. That just limits who you can be. That just puts you in a box and says "you are stuck."
I don't believe that. I believe that, with work and patience and thought, you can achieve what you want to achieve.
Don't put limits on yourself. There is nothing in your DNA that means that you cannot stay calm and focused and do a good job on the CPA Exam. People just like YOU pass that exam every day. They prepare, they learn, they pass. If they can do it, so can you. You don't have to be Superman. You don't have to leap tall buildings with a single bound. You just have to put in a reasonable amount of time and effort. And, you can do that.
(3) - Here is another nice email that we received recently.
"Just want to say thank you for all that you do. Your CPA review site is FREE and your encouraging words are PRICELESS. Yesterday I took my first part (BEC) of the CPA exam. It was very hard for me. Just thinking that I'll have to do it at least 3 more times made me want to quit. I was thinking that I don't have to do it and maybe don't have to be a CPA. Just being an accountant will do. After reading your e-mail I knew what I need to do - I need to change my attitude and face the challenges. Your interpretation of the president's words gave me a boost of energy and desire to 'give my all to the difficult task.'"
(4) - We send out email lessons like this one about every 7-10 days. If you ever want to UNSUBCRIBE, just scroll to the bottom of any lesson and click on the appropriate link.
We are delighted to have you with us but you always have the right to unsubscribe.
Thanks as always to everyone who has passed along information about www.CPAreviewforFREE.com. We have now had over 1.6 million page views since we started operations. Our goal is to help 100 percent of the CPA Exam candidates to get the points they need in order to pass this exam. 100 PERCENT!! We want to help everyone-not just the rich or the well-employed.
With your help, we can make it!!! Thanks!!!
(5) - In case you have not really tried CPA Review for FREE yet, let me make the following suggestion. Put your money back in your pocket. Then, use us for one part of the exam and see how you do. We think you will be very pleased and you will have saved thousands of dollars. It makes no sense to pay for a program (especially a mediocre program) and then realize that we can get you the points you need to pass for FREE.
Here is one way that we recommend using CPA Review for FREE.
(1) - Make sure that you are qualified to take the CPA Exam. Start the process by going to www.nasba.org and review the requirements of your state. It is probably going to take a month or so for the state to review your application so get the process going.
(2) - Pick the part of the exam that you like the most. It is always easier to get started with a part you like. I am personally a big fan of starting with Financial Accounting.
(3) - Once you get your official Notice to Schedule, schedule to take that part of the exam in roughly 40 days. There is absolutely no reason to study for six months. Let's get started and get it done. Pick a day in about 6 weeks and reserve your seat. Having a date set will get you fired up to do the work.
(4)-Go to www.CPAreviewforFREE.com and read all the information under "resources." It is all important so read it all.
(5)-Start answering at least 15-18 questions per day. It is probably a good idea to go one topic at a time. Make a list of the categories and check them off as you go. Seeing the progress will make you feel good. Work six days per week. Take off one day each week completely and get some real rest and relaxation. Try to average at least 90 minutes per day the rest of the week.
(6)-Do 15 minutes or so of exercise each day to keep the blood pumping. You will feel better and you will do better.
(7)-Never guess at answers when you study. On the exam, you need to guess but not when you are preparing.
(8)-Never worry about how many questions you are getting right or wrong. That is a distraction that does not help one bit. The only thing you want to worry about is getting better.
(9)-If you get a question correct, move on. Don't sit and congratulate yourself.
(10)-If you miss a question, read the answer carefully and find the step you missed and figure out what you missed in that step. Write down 10 words or less to help you get the question/step right the next time you see it. Don't spend time writing pages-keep it to 10 words. You want to improve the odds that you can get the question right the next time. Reading the answer for missed questions may be the single most important thing you do in this process.
(11)-Keep a list of "three-second questions." Those are the very basics-questions that you should be able to read, count to three, and give an answer off the top of your head. Having the basics down is so very vital to learning. "How is interest expense computed?" "Interest expense is the book value of the debt times the effective or yield rate." "How is the amount of cash interest to be paid on a debt computed?" "Cash interest is the face value of the debt times the stated rate of interest." Those are three second questions.
(12)-Never forget that you only need to get 75 points to pass. You are not seeking perfection. Because of the grading system, 75 points does not even mean 75 percent of the questions.
(13)-Once a week, walk back through your three-second questions. You just want to keep the basics fresh in your mind.
(14)-When you get to the final 7-10 days, start going methodically back through your 10 word notes. You want to work on increasing the number of questions that you can answer. That is your only real goal.
(15)-When you get to the final 7-10 days, start answering questions at www.CPAreviewforFREE.com in random mode. You want to get used to seeing questions move quickly from one topic to the next.
(16)-When you get to the final 7-10 days, go to www.cpa-exam.org and go through the tutorial and sample tests. Read everything and just get a feel for how the questions (both multiple choice and simulations) are presented. Don't worry about trying to figure out answers.
(17)-Make sure you read all of the information that came with your Notice to Schedule. They try to explain everything to you in advance to make the testing experience less stressful. Read this material carefully.
(18)-Make sure you know the location of the testing center. Estimate how long the drive will take and what time you need to get there comfortably. You want to avoid any and all stress. You want 100 percent of your energy focused on getting points.
(19)-On the night before the exam, eat normally and get a typical amount of sleep. You will think more clearly during the exam if nothing has upset the normal rhythm of your life. You want to be loose but focused. I am totally against losing sleep to study on the night before the exam. Sleepy people do not pass the CPA Exam.
(20)-During the exam, watch your time very closely. You want to finish with about 10 seconds left. Don't waste time but don't get too rushed.
(21)-If you do not know a question, eliminate as many answers as possible and take a guess. Do not let a tough question get you rattled. Don't spend time on a question that you really do not know. No one is seeking perfection from you.
(22)-- When you leave the testing center, smile and say "I did it; I gave it my very best!!!"
(6)-One more email from one of our "customers."
"I just found this web-site last night and I have already done some questions. At first I was skeptical about it. I thought, 'CPA review for free, how can that be? Maybe there are errors in the questions and answers.' But having read one of the articles on the site and seen the name of the co-founder Joe Hoyle, I am now convinced and feel very fortunate to have found this site. I have used lectures delivered by Mr. Hoyle (in another program) and have found his lectures very easy to understand and follow. I think this is a wonderful resource for CPA students and I wish to say many thanks to Mr. Hoyle and others for creating this."
(7)-Okay, time for some practice questions. Let's see if we can add a point with a bit of practice.
Financial Accounting and Reporting
The Hathaway Company buys land on January 1, Year One for $300,000. The company agrees to pay $6,000 in interest each December 31 for five years and then the entire $300,000. A reasonable interest rate is 10 percent. The present value of $1 in five years at a 10 percent annual rate is .62. The present value of a five-year ordinary annuity of $1 at a 10 percent annual rate is 3.89. Later, Hathaway holds surplus cash and on July 1, Year Two, agrees to pay off the remaining liability for exactly $310,000. What loss is recognized by Hathaway on the extinguishment of the debt? (round all computations to the nearest dollar).
A - $74,512
B - $76,922
C - $80,435
D - $82,867
Answer is A.
The interest of $6,000 per year was not a reasonable rate so that the debt must be recorded at its present value of $209,340. That is $300,000 times .62 ($186,000) plus $6,000 times 3.89 ($23,340). In Year One, the interest expense is 10 percent times the book value of $209,340 or $20,934. Because only $6,000 was paid this period, the remaining $14,934 has to be compounded or added to the book value of the liability. That raises the book value from $209,340 to $224,274. The interest expense for the next six months (until date of payment) is $11,214. That is $224,274 times 10 percent times 6/12 year. Payment for half year of interest is $3,000 (which is assumed to be included in the $310,000) so an extra interest of $8,214 is recognized ($11,214 less $3,000). Since it was not paid as interest, it is also compounded bringing the book value from $224,274 up to $232,488 as of the date of the final payment. Of the $310,000, $3,000 pays off the cash interest for the first
six months so the other $307,000 is paid on the debt. That creates a loss to be recognized of $74,512 ($307,000 less $232,488).
Auditing and Attestation
An auditor is analyzing documents creating by a client company in connection with the purchase of a large warehouse. In studying the ten-year loan that was taken out to pay for the acquisition, the auditor discovers that the company must maintain a current ratio of at least 2 to 1 or the debt can be immediately called by the bank. The current ratio is well over 2 to 1. What impact does this have on the auditor's investigation of the financial statements?
A - The loan must be recorded as a current liability rather than as a noncurrent liability.
B - The requirement impacts the capitalized cost of the warehouse.
C - The requirement impacts the book value reported for the liability.
D - The requirement must be disclosed in the notes to the financial statements.
Answer is D.
Because the requirement has been met to date, there is no change in any reported balances. However, the presentation of the financial statements is still in question because the information about the loan covenant must be properly disclosed. Because of the requirement, the auditor is concerned with the presentation and disclosure assertion in connection with the financial statements.
Regulation
The Andrews Company makes sales on credit of $400,000 in Year One and $500,000 in Year Two and recognizes those amounts for income tax purposes. The company believes that 2 percent of all credit sales will prove to be worthless. In Year One, $3,000 in accounts are judged to be completely worthless along with another $12,000 in Year Two. What is reported by the company as its bad debt expense for income tax purposes?
A - $8,000 in Year One and $10,000 in Year Two
B - $3,000 in Year One and $12,000 in Year Two
C - $3,000 in Year One and $10,000 in Year Two
D - $8,000 in Year One and $12,000 in Year Two
Answer is B.
For income tax purposes, bad debts cannot be anticipated. They can only be deducted when they prove to be worthless and only if they were recognized as income at the time of sale.
BEC
Which of the following measures the average change over time in the selling prices received by domestic producers for their output?
A - Producer price index
B - The US index of domestic production.
C - The inflation index for domestic production.
D - The sales index for domestic output of durable goods
Answer is A
According to the Department of Labor Statistics, "the Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services."
Have a great week. Keep focused and adding points. If you do that, there is nothing that can keep you from passing the CPA Exam.
Joe Hoyle
Co-Founder
From: Joe
(a) - It snowed in Richmond this morning, about an inch. Did not stick to the road but it clung heavily to every tree limb. I drove out at around 7 and the white snow filling the dark woods was lovely. Even when you are buried deep in preparing for the CPA Exam, it is good idea to notice the beauty around you. Makes the whole experience much easier. All work and no play is never a perfect strategy.
(1) - I usually don't watch the Super Bowl. It is a lot of time spent watching other people. But, for some reason, I did pay attention to the game on Sunday. I saw two teams who really seemed to enjoy the challenge of the battle. They kept slugging until the very end. Great effort is something that should always be prized and both teams put out a great effort.
You will probably never play in the Super Bowl (although I have had, at least one former student play in a Super Bowl). However, there are a few times in life when you have your own chance to put out a great effort.
The CPA Exam is one of those times.
Passing the CPA Exam requires a great effort. You need to put in about 60-90 hours per part and that is never easy to do. You need to put in time almost every day. You need to stay focused. You need to be efficient and make progress. But, if you put in that great effort, you will never regret it.
When the players left the field on Sunday, they could all say "we did it; we gave it our very best." What more can you ask from yourself? When you are faced with a real challenge, that kind of statement is something special.
That is what I want from you on the CPA Exam. When you leave the testing center, I want you to smile and say "I did it; I gave it my very best!!!"
(2) - In operating a live CPA Exam Review program, I had the great pleasure of working with 300-500 people per year who were getting ready for the big challenge. When you work with so many people, you start to notice habits. One that was very prevalent was the tendency to start off from the very beginning with an excuse:
---"Hi, my name is X and I don't do well on tests."
---"Hi, I'm X and I get really nervous during exams."
---"I'm X and I seem to make an incredible number of careless errors."
My response was always the same to such personal apologies: "DON'T BE SO NEGATIVE ABOUT YOURSELF." I could never see any advantages in making people think you were going to fail. How does that help? It is like giving yourself an excuse to fail.
Do you have such negative habits?
Are you letting your own habits limit what you can accomplish?
As you talk about the CPA Exam with others, listen to what you have to say. Why is it so important to have excuses? Why not start out with
"My name is X and I'm going to give it my best shot."
"I'm X and I realize that this is a challenge but I like challenges and I'm looking forward to this one."
"Hi, I'm X and if I put in the time, I can lick this thing."
Don't give yourself an excuse for failure.
Don't give yourself a reason not to try.
Don't give yourself a pass so you can avoid putting in a good effort.
So, here is an exercise that I want you to consider over the next week. Pay close attention to what you tell your friends and family about the CPA Exam. If I were to then ask them how you talk about the exam, what would they tell me?
--Would they say that you are upbeat and optimistic or that you always expect the worse?
--Would they say that you make good things happen or that you seem to have no control over your own life?
--Would they say that you seem to think of yourself as a winner or a loser?
--Would that say that you were pushing toward victory or sliding toward defeat?
Okay, you don't have to be a cheerleader for yourself if that is not your style. However, I see no reason why you should define yourself and your battle with the CPA Exam in a negative way. That just limits who you can be. That just puts you in a box and says "you are stuck."
I don't believe that. I believe that, with work and patience and thought, you can achieve what you want to achieve.
Don't put limits on yourself. There is nothing in your DNA that means that you cannot stay calm and focused and do a good job on the CPA Exam. People just like YOU pass that exam every day. They prepare, they learn, they pass. If they can do it, so can you. You don't have to be Superman. You don't have to leap tall buildings with a single bound. You just have to put in a reasonable amount of time and effort. And, you can do that.
(3) - Here is another nice email that we received recently.
"Just want to say thank you for all that you do. Your CPA review site is FREE and your encouraging words are PRICELESS. Yesterday I took my first part (BEC) of the CPA exam. It was very hard for me. Just thinking that I'll have to do it at least 3 more times made me want to quit. I was thinking that I don't have to do it and maybe don't have to be a CPA. Just being an accountant will do. After reading your e-mail I knew what I need to do - I need to change my attitude and face the challenges. Your interpretation of the president's words gave me a boost of energy and desire to 'give my all to the difficult task.'"
(4) - We send out email lessons like this one about every 7-10 days. If you ever want to UNSUBCRIBE, just scroll to the bottom of any lesson and click on the appropriate link.
We are delighted to have you with us but you always have the right to unsubscribe.
Thanks as always to everyone who has passed along information about www.CPAreviewforFREE.com. We have now had over 1.6 million page views since we started operations. Our goal is to help 100 percent of the CPA Exam candidates to get the points they need in order to pass this exam. 100 PERCENT!! We want to help everyone-not just the rich or the well-employed.
With your help, we can make it!!! Thanks!!!
(5) - In case you have not really tried CPA Review for FREE yet, let me make the following suggestion. Put your money back in your pocket. Then, use us for one part of the exam and see how you do. We think you will be very pleased and you will have saved thousands of dollars. It makes no sense to pay for a program (especially a mediocre program) and then realize that we can get you the points you need to pass for FREE.
Here is one way that we recommend using CPA Review for FREE.
(1) - Make sure that you are qualified to take the CPA Exam. Start the process by going to www.nasba.org and review the requirements of your state. It is probably going to take a month or so for the state to review your application so get the process going.
(2) - Pick the part of the exam that you like the most. It is always easier to get started with a part you like. I am personally a big fan of starting with Financial Accounting.
(3) - Once you get your official Notice to Schedule, schedule to take that part of the exam in roughly 40 days. There is absolutely no reason to study for six months. Let's get started and get it done. Pick a day in about 6 weeks and reserve your seat. Having a date set will get you fired up to do the work.
(4)-Go to www.CPAreviewforFREE.com and read all the information under "resources." It is all important so read it all.
(5)-Start answering at least 15-18 questions per day. It is probably a good idea to go one topic at a time. Make a list of the categories and check them off as you go. Seeing the progress will make you feel good. Work six days per week. Take off one day each week completely and get some real rest and relaxation. Try to average at least 90 minutes per day the rest of the week.
(6)-Do 15 minutes or so of exercise each day to keep the blood pumping. You will feel better and you will do better.
(7)-Never guess at answers when you study. On the exam, you need to guess but not when you are preparing.
(8)-Never worry about how many questions you are getting right or wrong. That is a distraction that does not help one bit. The only thing you want to worry about is getting better.
(9)-If you get a question correct, move on. Don't sit and congratulate yourself.
(10)-If you miss a question, read the answer carefully and find the step you missed and figure out what you missed in that step. Write down 10 words or less to help you get the question/step right the next time you see it. Don't spend time writing pages-keep it to 10 words. You want to improve the odds that you can get the question right the next time. Reading the answer for missed questions may be the single most important thing you do in this process.
(11)-Keep a list of "three-second questions." Those are the very basics-questions that you should be able to read, count to three, and give an answer off the top of your head. Having the basics down is so very vital to learning. "How is interest expense computed?" "Interest expense is the book value of the debt times the effective or yield rate." "How is the amount of cash interest to be paid on a debt computed?" "Cash interest is the face value of the debt times the stated rate of interest." Those are three second questions.
(12)-Never forget that you only need to get 75 points to pass. You are not seeking perfection. Because of the grading system, 75 points does not even mean 75 percent of the questions.
(13)-Once a week, walk back through your three-second questions. You just want to keep the basics fresh in your mind.
(14)-When you get to the final 7-10 days, start going methodically back through your 10 word notes. You want to work on increasing the number of questions that you can answer. That is your only real goal.
(15)-When you get to the final 7-10 days, start answering questions at www.CPAreviewforFREE.com in random mode. You want to get used to seeing questions move quickly from one topic to the next.
(16)-When you get to the final 7-10 days, go to www.cpa-exam.org and go through the tutorial and sample tests. Read everything and just get a feel for how the questions (both multiple choice and simulations) are presented. Don't worry about trying to figure out answers.
(17)-Make sure you read all of the information that came with your Notice to Schedule. They try to explain everything to you in advance to make the testing experience less stressful. Read this material carefully.
(18)-Make sure you know the location of the testing center. Estimate how long the drive will take and what time you need to get there comfortably. You want to avoid any and all stress. You want 100 percent of your energy focused on getting points.
(19)-On the night before the exam, eat normally and get a typical amount of sleep. You will think more clearly during the exam if nothing has upset the normal rhythm of your life. You want to be loose but focused. I am totally against losing sleep to study on the night before the exam. Sleepy people do not pass the CPA Exam.
(20)-During the exam, watch your time very closely. You want to finish with about 10 seconds left. Don't waste time but don't get too rushed.
(21)-If you do not know a question, eliminate as many answers as possible and take a guess. Do not let a tough question get you rattled. Don't spend time on a question that you really do not know. No one is seeking perfection from you.
(22)-- When you leave the testing center, smile and say "I did it; I gave it my very best!!!"
(6)-One more email from one of our "customers."
"I just found this web-site last night and I have already done some questions. At first I was skeptical about it. I thought, 'CPA review for free, how can that be? Maybe there are errors in the questions and answers.' But having read one of the articles on the site and seen the name of the co-founder Joe Hoyle, I am now convinced and feel very fortunate to have found this site. I have used lectures delivered by Mr. Hoyle (in another program) and have found his lectures very easy to understand and follow. I think this is a wonderful resource for CPA students and I wish to say many thanks to Mr. Hoyle and others for creating this."
(7)-Okay, time for some practice questions. Let's see if we can add a point with a bit of practice.
Financial Accounting and Reporting
The Hathaway Company buys land on January 1, Year One for $300,000. The company agrees to pay $6,000 in interest each December 31 for five years and then the entire $300,000. A reasonable interest rate is 10 percent. The present value of $1 in five years at a 10 percent annual rate is .62. The present value of a five-year ordinary annuity of $1 at a 10 percent annual rate is 3.89. Later, Hathaway holds surplus cash and on July 1, Year Two, agrees to pay off the remaining liability for exactly $310,000. What loss is recognized by Hathaway on the extinguishment of the debt? (round all computations to the nearest dollar).
A - $74,512
B - $76,922
C - $80,435
D - $82,867
Answer is A.
The interest of $6,000 per year was not a reasonable rate so that the debt must be recorded at its present value of $209,340. That is $300,000 times .62 ($186,000) plus $6,000 times 3.89 ($23,340). In Year One, the interest expense is 10 percent times the book value of $209,340 or $20,934. Because only $6,000 was paid this period, the remaining $14,934 has to be compounded or added to the book value of the liability. That raises the book value from $209,340 to $224,274. The interest expense for the next six months (until date of payment) is $11,214. That is $224,274 times 10 percent times 6/12 year. Payment for half year of interest is $3,000 (which is assumed to be included in the $310,000) so an extra interest of $8,214 is recognized ($11,214 less $3,000). Since it was not paid as interest, it is also compounded bringing the book value from $224,274 up to $232,488 as of the date of the final payment. Of the $310,000, $3,000 pays off the cash interest for the first
six months so the other $307,000 is paid on the debt. That creates a loss to be recognized of $74,512 ($307,000 less $232,488).
Auditing and Attestation
An auditor is analyzing documents creating by a client company in connection with the purchase of a large warehouse. In studying the ten-year loan that was taken out to pay for the acquisition, the auditor discovers that the company must maintain a current ratio of at least 2 to 1 or the debt can be immediately called by the bank. The current ratio is well over 2 to 1. What impact does this have on the auditor's investigation of the financial statements?
A - The loan must be recorded as a current liability rather than as a noncurrent liability.
B - The requirement impacts the capitalized cost of the warehouse.
C - The requirement impacts the book value reported for the liability.
D - The requirement must be disclosed in the notes to the financial statements.
Answer is D.
Because the requirement has been met to date, there is no change in any reported balances. However, the presentation of the financial statements is still in question because the information about the loan covenant must be properly disclosed. Because of the requirement, the auditor is concerned with the presentation and disclosure assertion in connection with the financial statements.
Regulation
The Andrews Company makes sales on credit of $400,000 in Year One and $500,000 in Year Two and recognizes those amounts for income tax purposes. The company believes that 2 percent of all credit sales will prove to be worthless. In Year One, $3,000 in accounts are judged to be completely worthless along with another $12,000 in Year Two. What is reported by the company as its bad debt expense for income tax purposes?
A - $8,000 in Year One and $10,000 in Year Two
B - $3,000 in Year One and $12,000 in Year Two
C - $3,000 in Year One and $10,000 in Year Two
D - $8,000 in Year One and $12,000 in Year Two
Answer is B.
For income tax purposes, bad debts cannot be anticipated. They can only be deducted when they prove to be worthless and only if they were recognized as income at the time of sale.
BEC
Which of the following measures the average change over time in the selling prices received by domestic producers for their output?
A - Producer price index
B - The US index of domestic production.
C - The inflation index for domestic production.
D - The sales index for domestic output of durable goods
Answer is A
According to the Department of Labor Statistics, "the Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services."
Have a great week. Keep focused and adding points. If you do that, there is nothing that can keep you from passing the CPA Exam.
Joe Hoyle
Co-Founder
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