Lesson 35
From: Joe
(1) - Request-I'm giving a speech next month to a large group of juniors in college who are majoring in accounting. The speech is about the CPA Exam and what they should know. So, I am trying to figure out what I should tell them. Many of them have not even had a tax or an auditing course yet. However, they have already heard a lot about the CPA Exam and I want to help them put all of that into context so they are headed in the right direction.
There are so many rumors and myths about the CPA Exam that I want to give them good, truthful information. I often say that the CPA Exam is made to seem like a terrible old haunted house. Everyone tells you that it is something frightening and scary and that you need to be very afraid. Such nonsense.
What would you suggest that I tell them? Send me an email at Jhoyle@cpareviewforfree.com and let me know. Just a sentence or two or three. What would you have liked for someone to have told you about the CPA Exam when you were a junior in college?
What I hope to do is type up the responses ("I got all of these from the readers of my email lessons - they are taking the CPA Exam right now so their advice is probably worth hearing.") and hand them out at the session. It'll will give you a chance to help someone else-never a bad goal.
No need to include your name but it would be nice if you would include your location.
(2) - It is the very end of the April-May testing window and I know that a lot of you are gearing up to take an exam here at the end of this window. So, here are a few last minute suggestions.
---As I have said often in these email lessons, think seriously about your time management. How long do you have and how are you going to allocate that time? Here is something I want you to write down and remember: in the last day or two, you can probably only add 1 or 2 more points to your score but you can easily lose 10 points by managing your time wrong on the exam. Not thinking about how to allocate your time is just plain dumb.
---If you have not taken the exam before, go to www.cpa-exam.org and look at the tutorial and sample tests. The more you feel comfortable with what you are going to see, the better off you are.
--Make sure to read everything carefully that they send to you about the test and what you can bring with you and do. You absolutely do not want to get there and find that you have left something essential at home.
--Keep in mind that if you have spent a decent amount of time studying, you probably know enough to pass. The key is getting it out of your brain during the test. Stay calm and stay confident. Don't let yourself get flustered.
--You only want to pass. Don't spend too long on any one question. Once you have looked at it for awhile, eliminate all the answers you can and take a guess. You have to keep moving.
--Remember that the communications questions are graded based on the use of the English language. Make sure it is on topic but, after that, don't worry too much about getting it exactly correct. Use small words in small and simple sentences.
--Realize that everyone gets tired and careless as the time passes. Don't let yourself start thinking "tired." You want to get as many of the questions right at the end as you did at the beginning of the test. That alone can add a lot of points to your score.
(3) - Random Information:
---As we always announce, you can unsubscribe from these email lessons by scrolling to the bottom and clicking on the link. Stay with us as long as you are getting benefit but, after that, feel free to unsubscribe.
---Our number of visitors hit YET ANOTHER all time high last week as the number went up 4.1 percent from the previous record.
---Don't forget that all of our questions and answers are free at www.CPAreviewforFREE.com. In addition, if you wish, you can pay a small fee and download the questions so that you can take them with you and study every chance that you get. Just go to the site and click on "Store" in the upper right hand corner.
---I got the following message from one of our readers recently. This email points up an entirely different way that www.CPAreviewforFREE.com can be used: by college students. My own students use the site in this way and I'm glad to see that it is catching on.
"I have advocated your site within my classes at school and have certainly come up against some skeptics (nothing worth anything is free) but there are still those coming around. I hope to send more and more to the site to learn and study as much as they can.
"I am proud to say that anything is possible including the dreaded CPA Exam... I just got my results back from a comprehensive final in Accounting and I had the only !100! in the class. You never expect a perfect score on a comprehensive exam, but with diligence and hard work it is still possible...
"While I realize a single college accounting course does not hold the merit the CPA exam does - I challenge others to knock out a perfect score! I'm not trying to brag just trying to motivate... when you work hard, results will come!
"Thanks for the site and the emails that keep coming...!"
(4) - I was in New York City for Memorial Day. We decided to go to Ellis Island. Seemed like a very appropriate thing to be doing. After you buy your ticket for the ferry, you have to stand in line in Battery Park for about an hour. It was a pleasant day and we chatted and had fun. While we were in line, we passed by a number of street vendors. One was selling posters (the Statue of Liberty and John Lennon in a New York City shirt). However, one poster caught my attention.
This poster shows a little kitten staring into a mirror. But what the kitten was seeing in the reflection was a fierce lion. The caption under the picture said:
What really matters
Is how you look at yourself
I was struck by how true that saying is. How do you see yourself?
---I'm a person preparing to pass the CPA Exam.
---I'm a person who has signed up for the CPA Exam but it is not going well.
---I'm a person who manages to study 90 minutes most evenings.
---I'm a person who just can't seem to find the time to study.
---I'm a person who learns from my mistakes.
---I'm a person who just seems to make the same mistakes over and over.
---I'm a person who is working to cut down on my careless errors.
---I'm a person who always makes the dumbest mistakes.
Tell me, truthfully, haven't you heard people say virtually all of these at one time or another. And, don't they send completely different messages. 1, 3, 5, 7 say "I'm getting there. I am going to keep pushing until I make it. I'm taking responsibility for myself and my success." 2, 4, 6, 8 all say "I have no real control over my life. Everything is out of my hands. Things happen to me and I have no power to take control."
What really matters
Is how you look at yourself
Do an experiment. Start listening to what you say about yourself. Are you challenging yourself to get better? Or, are you accepting the idea that you have no way to get any better?
I honestly think that is one of the most important determinations that you can make in life. Not just about the CPA Exam but about everything. Oh, sure, we are never going to be in complete control of everything. That is impossible. But we are not destined to fail. I just cannot believe that. There has to be the ability to take control and improve.
What really matters
Is how you look at yourself.
Figure that out first and then decide whether your self-image is pushing you forward or holding you back. If it is holding you back, you need to start working to make a change.
(5) - I just finished reading Outliers by Malcolm Gladwell. I am certainly not alone in making that statement because it has been a huge best seller. It is all about the things that make a person a success. On page 246 of the copy that I got from the library, I found a statement that I thought was quite interesting: "Success is a function of persistence and doggedness and the willingness to work hard."
---Persistence
---Doggedness
---The willingness to work hard
That sounds reasonable. Now, here is the important question: which of those do you have when it comes to the CPA Exam and which do you not have? Well, the obvious answer is that you can have all three. They are not forbidden. There is nothing that prevents any of us (you or me) from having persistence, doggedness, and the willingness to work hard. Those are not characteristics like being 6' 7" to play basketball or weigh 320 pounds to play football.
You and I both can have the three elements needed for success.
--Everyone can be persistent
--Everyone can have doggedness
--Everyone can have the willingness to work hard.
We often look around for magic answers, tricks, shortcuts, or other secrets that will lead us to success. I'm sorry, unless you happen to win the lottery, success doesn't happen that way. You need all three: persistence, doggedness, and willingness to work hard.
And that should be very reassuring because there is nothing there to prevent YOU from becoming successful.
(6) - A few quick practice problems to help add a point or two.
Financial Accounting
A company buys inventory on credit on December 9, Year One for 10,000 vilsecks, the local currency of the seller. The inventory is paid for on January 10, Year Two. On December 9, Year One, one vilseck is worth $.50, on December 31, Year One, one vilseck is worth $.60, and on January 10, Year Two, one vilseck is worth $.68. The functional currency of the company is the US dollar. This might be a translation or it might be a remeasurement. What is the income effect on the Year One income statement?
A - In a translation, there is no income effect; in a remeasurement, there is no income effect.
B - In a translation, there is no income effect; in a remeasurement, there is a $1,000 loss.
C - In a translation, there is a $1,000 loss; in a remeasurement, there is no income effect.
D - In a translation, there is a $1,000 loss; in a remeasurement, there is a $1,000 loss.
Answer is B
A translation is used whenever a foreign subsidiary is being consolidated with a US parent. All assets and liabilities are initially recorded at the exchange rate in effect when created. They are then updated to the new exchange rate when financial statements are to be produced. Both the inventory and accounts payable are initially recorded at $5,000 (10,000 x .50/1). On December 31, both are adjusted to $6,000 (10,000 x .60/1). The asset went up $1,000; the liability went up $1,000 so that no net gain or loss is created.
A remeasurement is used whenever a company has individual transactions in a foreign currency. All assets and liabilities are initially recorded at the exchange rate in effect when created. After that, all monetary assets and liabilities (cash, balances to be paid or received in cash, and accounts at fair value) are adjusted based on new exchange rates. Thus, the inventory balance is $5,000 and stays at $5,000 so that no gain or loss is recorded. It is not a monetary asset. The account payable, though, is first recorded at $5,000 and then, when the statements are to be prepared, is adjusted to $6,000. The $1,000 increase in the reported liability creates a $1,000 loss to be recognized. It is a monetary liability because it will be paid in cash.
Auditing and Attestation
Mr. A makes a $3,000 payment on Monday to Acme Company. The money is stolen by one of Acme's employees. On Friday, Ms. B makes a $3,000 payment to Acme Company. The same employee credits this payment to Mr. A's account (rather than to Ms. B's account) so that a second bill will not be sent to him. Several days later, a payment is received from Mr. C and it is posted to Ms. B's account. What is this type of theft known as?
A - Posting Fraud
B - Reconciliation Shortage
C - Lapping
D - Receivable Management Deficiency (RMD)
Answer is C
The term "lapping" has long referred to the coverage of theft by using amounts received from one customer to cover earlier balances received from other customers and then stolen. If lapping is not performed, the original customer will receive a second invoice and any subsequent complaint by the customer will alert management to the problem.
BEC
Heinline starts a business and invites his friend Walsingham to work with him. Heinline makes the following statement: "let's just share profits 50-50." That is all that is ever said. Which of the following is true?
A - This is a partnership unless evidence to the contrary exists.
B - This is not a partnership because the agreement was not in writing.
C - This is not a partnership because the agreement was incomplete-it did not specify the handling of losses.
D - This is not a partnership because Heinline did not specifically mention the word "partner" or "partnership."
Answer is A
A partnership agreement can be very informal and does not have to be in writing or any other specified form. Simply agreeing to split profits is normally an indication that a partnership has been formed. If no statement is made as to losses, the same ratio used for profits is also used for any subsequent losses.
Regulation
A partnership is formed when A contributes $70,000 in cash and B contributes $50,000. The partners share all profits and losses evenly. The partnership borrows $10,000 from the bank. What is partner A's at-risk balance?
A - $60,000
B - $65,000
C - $70,000
D - $75,000
Answer is D
The at-risk balance of a partnership is the maximum amount of loss that a partner can deduct on his or her own income tax return as a result of losses incurred by the partnership. It is the capital balance of the partner plus the portion of any partnership debt that the person is responsible for in case the business fails. Partner A has contributed $70,000 so that is the capital amount. The partnership has a $10,000 liability. Unless some arrangement was made, the partners are responsible for that debt if the business is unable to repay. Because they split profits and losses on an even basis, that means Partner A could have to contribute an additional $5,000 for a total at-risk balance of $70,000 plus $5,000 or $75,000.
Closing Quote from Peter Marshall: "Small deeds done are better than great deeds planned."
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
Saturday, May 30, 2009
Monday, May 11, 2009
Visit our store See upper right hand corner
POSITIVE EVOLUTION IS WHAT YOU NEED
Lesson 32
From: Joe
SPECIAL ANNOUNCEMENT: From the day that CPA Review for FREE first opened, we have had candidates who wanted to buy copies of our questions and answers so they could study when not on-line. On-line is convenient for most candidates but not all.
So, starting a few days ago, you can now buy and download hard copies of every question and answer in our database. Yes, the questions on line are STILL FREE. Please feel free to use them all. However, if you want to download a copy, you can go to www.CPAreviewforFREE.com and click on "Store" in the upper right hand corner and follow the simply directions.
Or, you can go directly to www.CPAreviewforFREE.com/store.cfm if you wish.
Like so many Internet businesses these days, we do accept PayPal.
We hope this offer makes it even easier for you to study and pass the CPA Exam. Just keep in mind that there are a lot of questions in our database. Thus, these are big files and will take some time to download. We designed the printed page to be folded in half lengthwise so that you can work the question without seeing the answer. I thought that would be an easier way to use the questions.
Always remember, though, that our questions are still on-line and still FREE FREE FREE - we just want to give you a way to download the questions and answers if that is more convenient for your studies.
(1) - Thanks to everyone for helping us pass along good words about our site:
--In our most recent weekly statistics, we had 5.5 percent more hits to www.CPAreviewforFREE.com than in any previous week of our existence.
--In our most recent weekly statistics, we had 8.7 percent more page views to www.CPAreviewforFREE.com than in any previous week of our existence. We are now up to approximately 2.7 million page views. That is a LOT of added points.
--We have now had over 3,300 views to my lecture on dreams and heroes and deciding what you really want to do in life and then GOING FOR IT. That video can be viewed at:
www.youtube.com/user/UniversityofRichmond
or
www.youtube.com/watch?v=LjwHxVbZq1o
If you have already watched the video, you'll know why I have had an incredible number of people walk into my office (many that I did not know) to tell me: "I want to see the dagger that you got as a gift." Yeah, it is right there on the wall.
(2) - And, now for the legal requirement: if you want to unsubscribe to these occasional email lessons, please scroll to the end of this email and hit the Unsubscribe button.
However, even if we were not legally required to do that, we do want you to know that you can stop getting these email lessons any time you wish. We love to help but we understand that you may eventually be ready to stop receiving them. Stay as long as you want; leave when you are ready.
(3) - Here is a nice email that I received last week. I love getting emails that indicate that www.CPAreviewforFREE.com is making a real difference in people's lives.
"FAR exam went very well. It was simpler and easier than I had anticipated. I feel good. CPAReviewforfree had prepared me so well, I found the exam easy. Over the last 3 months (from the time I decided to take the CPA exam and started the registration process), I have been using CPAReviewforfree for all the 4 papers. It has been a great experience using the website as well as getting my issues clarified by you. I am hoping to have cleared all 4 parts and I will communicate to you the result when I get! I think I am going to miss using CPAReviewforfree but tomorrow onwards!"
(4) - I had a busy week-end and here are two quick episodes from my last couple of days.
Story One: I have just begun to read the book "Outliers" that has become such a phenomenally popular book. The book has the sub-title "The Story of Success" which gives you a good reason why I have been so interested in reading it. It investigates the real reason that people become successful.
It took me all the way to page 38 to find the one sentence that I had been expecting. Whenever I read about success, this sentence always seems to pop up early and often. In fact, I am not sure I have ever read anything at all on success that has not stressed this one sentence. If I were going to write a book on success, this would be my theme from page one:
"The closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play."
I could not agree more. If you are willing to prepare, you have already taken the single biggest step you will ever take toward passing the CPA Exam.
People worry about the wrong things. They set up walls that keep them from succeeding:
--I didn't get good grades in college.
--I am not a good test taker.
--I did not go to a big name university.
--I always seem to freeze up on tests.
Those are just excuses and probably have nothing to do with whether you will be successful on the CPA Exam. Instead, you should ask yourself one question and one question only: am I willing to do the work necessary to pass (probably a total of 250-400 hours for all four parts)?
That's all you need to know - any other issue is just a wall to slow you down. What you need is a willingness, a dedication that will allow you to prepare for the exam. If you do the work, you can eventually pass the CPA Exam-hopefully the very first time.
Many times people will come to me and say. "I really want to pass the CPA Exam. I am willing to do the work but . . ." And, I stop them right there!!!! I am not the least bit interested in what comes after the word "but." I don't want to hear anything after the word "but." If those candidates are willing to do the work, that is good enough for me. Anything after the word "but" is probably just noise that is going to distract them from the true goal.
"The closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play."
Story Two: I have been giving final exams and awarding grades. I had one student in one class who made low B's on her first two tests during the semester. However, she made a very high A grade on the third test of the semester and also on the final exam and made an A for the semester. She was thrilled. I was impressed by how much improvement she had made. I asked her about that in an email and she responded with "Oh, I finally figured out what you wanted us to learn and decided it really was worth the extra effort."
I sometimes refer to that type of change as "positive evolution" where a student genuinely gets better during the semester. Many students come in as C or B students and walk out three months later as C or B students. No real change. They did not get one bit better the entire semester. No evolution took place at all. There was no improvement. As a teacher, that is frustrating.
A few students, though, like the one above, walk in on the first day as a C or B students and walk out as A students. Now that makes my job feel great.
That never happens by accident. The student makes some significant change; they evolve. Usually, like this student, they come to see what I want them to learn and decide that the material is more interesting and useful than they had expected. Thus, their work just improves, often almost overnight.
As you use www.CPAreviewforFREE.com, that is what I want to see from you: positive evolution. I want you to get better and stronger as the course of your study progresses. I want you to come in as a person who cannot pass and walk out as a 75.
That usually happens because candidates work question after question and begin to see how to read and think about the questions and how to put the answers together to gain understanding. Then, there comes a point when they say to themselves "you know, I CAN pass this exam." At that point, putting in the hours of preparation gets much easier. They have two good reasons to prepare: first, they begin to see how to prepare in a way that is effective and efficient for them and, second, they begin to see the chance for positive results.
There is nothing like realizing that you have a chance to win to make you play harder.
As you prepare today for the CPA Exam, are you getting to that point of personal evolution?
(5) - As always, here is a little practice. In case you are interested, the first question comes directly from my final exam in Intermediate Accounting II that I gave last week. Of course, the students had a big advantage in that they had just studied this material in depth.
FAR
On April 26, Year Four, Harding Corporation owes the local bank $700,000 on an 8 percent note plus $120,000 in accrued interest. The note itself comes due in exactly six more years. Because Harding is undergoing severe financial difficulties, the two parties restructure the note on that date. The accrued interest is eliminated and the principal of the note is reduced to $400,000 which is now due in exactly 10 years. The annual interest rate drops from 8 percent to 5 percent although the current interest rate on such questionable loans is 15 percent. Assume that the present value of these future cash flows at 5 percent interest is $400,000 and at 8 percent is $270,000 and at 15 percent is $160,000. What gain should Harding recognize on this troubled debt restructuring?
A. -0-
B. $220,000
C. $420,000
D. $550,000
Answer is B.
The accounting rule for a debtor (Harding) in a troubled debt restructuring such as this are completely different from that which applies to the creditor (the bank). The debtor starts with the current amount of the debt ($820,000 or $700,000 plus $120,000) and compares that number to the total cash that will ever be received under the new agreement. Here, that amount is $400,000 plus $20,000 per year ($400,000 times 5 percent) for 10 years or $200,000. The total to be paid is $600,000. If that amount is greater than the current debt ($820,000), the debtor recognizes no gain. If that amount is less, the reduction is recognized immediately as a gain. That reduction is $220,000 ($820,000 current debt less $600,000 in total payments). The debtor does not use present value although the creditor (the bank) does in its own computation.
REGULATION
Jeremiah Wilson died on January 11, Year One. The value of several large pieces of estate property fell sharply shortly after his death. Consequently, the executor of his estate chose the alternative valuation date for estate and other tax purposes. The property was all conveyed to the proper recipients on February 9, Year Two. On what date was the property valued?
A. Six months after death
B. December 31, Year One
C. One year after death
D. February 9, Year Two
Answer is A
The executor has the right to choose the alternative valuation date to reduce taxes on the estate. That date is the date of conveyance or six months after death, whichever comes first.
BEC
The Jiminez Corporation buys 10,000 shares of Warrington Corporation at $23 per share because the CEO of Jiminez expects the price of Warrington to rise sharply over the next few months. However, the CEO is concerned that economic conditions might also cause the price of the shares to fall quickly and sharply. He is concerned about explaining a big loss if that might happen. How is Jiminez most likely to protect itself from any such severe market drops?
A. Jiminez could also buy stock warrants in Warrington.
B. Jiminez could also buy a call option for 10,000 shares of Warrington at a properly designated price.
C. Jiminez could also buy a put option for 10,000 shares of Warrington at a properly designated price.
D. Jiminez could also buy convertible bonds issued by Warrington.
Answer is C
A put option allows Jiminez to sell the stock at a specified price. For example, if the put option is for $22, then Jiminez can sell the stock at that price even if it drops much lower. Although there is a cost for the put option, the loss is limited to a specified amount. All of the other possibilities (warrants, call option, and convertible bonds) allow for the acquisition of more shares which does little (unless the conversion price is extremely low) to help protect against a severe fall in stock price. They are all considered strategies to be used when stock prices are expected to rise.
Auditing and Attestation
The Othello Corporation buys and sells widgets. In Year One, the average number of days that it took to sell a widget was 18. In Year Two, because of the downturn in the economy, the average number of days that it took to sell a widget rose to 27. Which of management's assertions about the balance being reported as inventory on the company's balance sheet would be of most concern to the independent auditor?
A. Presentation
B. Valuation
C. Existence
D. Completeness
Answer is B
As inventory gets older, the chance that its value will fall below cost goes up. As goods get older, they tend to get damaged or show other signs of age that may require them to be sold at a reduced amount. Inventory is reported at the lower of cost or market. The increase in age might be a cause for the market value to decline so that a reduction in the reported balance will be necessary.
HAVE A GREAT WEEK - WORK FOR EVERY POSSIBLE POINT. IT MIGHT WELL BE THE ONE THAT GETS YOU TO 75!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Lesson 32
From: Joe
SPECIAL ANNOUNCEMENT: From the day that CPA Review for FREE first opened, we have had candidates who wanted to buy copies of our questions and answers so they could study when not on-line. On-line is convenient for most candidates but not all.
So, starting a few days ago, you can now buy and download hard copies of every question and answer in our database. Yes, the questions on line are STILL FREE. Please feel free to use them all. However, if you want to download a copy, you can go to www.CPAreviewforFREE.com and click on "Store" in the upper right hand corner and follow the simply directions.
Or, you can go directly to www.CPAreviewforFREE.com/store.cfm if you wish.
Like so many Internet businesses these days, we do accept PayPal.
We hope this offer makes it even easier for you to study and pass the CPA Exam. Just keep in mind that there are a lot of questions in our database. Thus, these are big files and will take some time to download. We designed the printed page to be folded in half lengthwise so that you can work the question without seeing the answer. I thought that would be an easier way to use the questions.
Always remember, though, that our questions are still on-line and still FREE FREE FREE - we just want to give you a way to download the questions and answers if that is more convenient for your studies.
(1) - Thanks to everyone for helping us pass along good words about our site:
--In our most recent weekly statistics, we had 5.5 percent more hits to www.CPAreviewforFREE.com than in any previous week of our existence.
--In our most recent weekly statistics, we had 8.7 percent more page views to www.CPAreviewforFREE.com than in any previous week of our existence. We are now up to approximately 2.7 million page views. That is a LOT of added points.
--We have now had over 3,300 views to my lecture on dreams and heroes and deciding what you really want to do in life and then GOING FOR IT. That video can be viewed at:
www.youtube.com/user/UniversityofRichmond
or
www.youtube.com/watch?v=LjwHxVbZq1o
If you have already watched the video, you'll know why I have had an incredible number of people walk into my office (many that I did not know) to tell me: "I want to see the dagger that you got as a gift." Yeah, it is right there on the wall.
(2) - And, now for the legal requirement: if you want to unsubscribe to these occasional email lessons, please scroll to the end of this email and hit the Unsubscribe button.
However, even if we were not legally required to do that, we do want you to know that you can stop getting these email lessons any time you wish. We love to help but we understand that you may eventually be ready to stop receiving them. Stay as long as you want; leave when you are ready.
(3) - Here is a nice email that I received last week. I love getting emails that indicate that www.CPAreviewforFREE.com is making a real difference in people's lives.
"FAR exam went very well. It was simpler and easier than I had anticipated. I feel good. CPAReviewforfree had prepared me so well, I found the exam easy. Over the last 3 months (from the time I decided to take the CPA exam and started the registration process), I have been using CPAReviewforfree for all the 4 papers. It has been a great experience using the website as well as getting my issues clarified by you. I am hoping to have cleared all 4 parts and I will communicate to you the result when I get! I think I am going to miss using CPAReviewforfree but tomorrow onwards!"
(4) - I had a busy week-end and here are two quick episodes from my last couple of days.
Story One: I have just begun to read the book "Outliers" that has become such a phenomenally popular book. The book has the sub-title "The Story of Success" which gives you a good reason why I have been so interested in reading it. It investigates the real reason that people become successful.
It took me all the way to page 38 to find the one sentence that I had been expecting. Whenever I read about success, this sentence always seems to pop up early and often. In fact, I am not sure I have ever read anything at all on success that has not stressed this one sentence. If I were going to write a book on success, this would be my theme from page one:
"The closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play."
I could not agree more. If you are willing to prepare, you have already taken the single biggest step you will ever take toward passing the CPA Exam.
People worry about the wrong things. They set up walls that keep them from succeeding:
--I didn't get good grades in college.
--I am not a good test taker.
--I did not go to a big name university.
--I always seem to freeze up on tests.
Those are just excuses and probably have nothing to do with whether you will be successful on the CPA Exam. Instead, you should ask yourself one question and one question only: am I willing to do the work necessary to pass (probably a total of 250-400 hours for all four parts)?
That's all you need to know - any other issue is just a wall to slow you down. What you need is a willingness, a dedication that will allow you to prepare for the exam. If you do the work, you can eventually pass the CPA Exam-hopefully the very first time.
Many times people will come to me and say. "I really want to pass the CPA Exam. I am willing to do the work but . . ." And, I stop them right there!!!! I am not the least bit interested in what comes after the word "but." I don't want to hear anything after the word "but." If those candidates are willing to do the work, that is good enough for me. Anything after the word "but" is probably just noise that is going to distract them from the true goal.
"The closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play."
Story Two: I have been giving final exams and awarding grades. I had one student in one class who made low B's on her first two tests during the semester. However, she made a very high A grade on the third test of the semester and also on the final exam and made an A for the semester. She was thrilled. I was impressed by how much improvement she had made. I asked her about that in an email and she responded with "Oh, I finally figured out what you wanted us to learn and decided it really was worth the extra effort."
I sometimes refer to that type of change as "positive evolution" where a student genuinely gets better during the semester. Many students come in as C or B students and walk out three months later as C or B students. No real change. They did not get one bit better the entire semester. No evolution took place at all. There was no improvement. As a teacher, that is frustrating.
A few students, though, like the one above, walk in on the first day as a C or B students and walk out as A students. Now that makes my job feel great.
That never happens by accident. The student makes some significant change; they evolve. Usually, like this student, they come to see what I want them to learn and decide that the material is more interesting and useful than they had expected. Thus, their work just improves, often almost overnight.
As you use www.CPAreviewforFREE.com, that is what I want to see from you: positive evolution. I want you to get better and stronger as the course of your study progresses. I want you to come in as a person who cannot pass and walk out as a 75.
That usually happens because candidates work question after question and begin to see how to read and think about the questions and how to put the answers together to gain understanding. Then, there comes a point when they say to themselves "you know, I CAN pass this exam." At that point, putting in the hours of preparation gets much easier. They have two good reasons to prepare: first, they begin to see how to prepare in a way that is effective and efficient for them and, second, they begin to see the chance for positive results.
There is nothing like realizing that you have a chance to win to make you play harder.
As you prepare today for the CPA Exam, are you getting to that point of personal evolution?
(5) - As always, here is a little practice. In case you are interested, the first question comes directly from my final exam in Intermediate Accounting II that I gave last week. Of course, the students had a big advantage in that they had just studied this material in depth.
FAR
On April 26, Year Four, Harding Corporation owes the local bank $700,000 on an 8 percent note plus $120,000 in accrued interest. The note itself comes due in exactly six more years. Because Harding is undergoing severe financial difficulties, the two parties restructure the note on that date. The accrued interest is eliminated and the principal of the note is reduced to $400,000 which is now due in exactly 10 years. The annual interest rate drops from 8 percent to 5 percent although the current interest rate on such questionable loans is 15 percent. Assume that the present value of these future cash flows at 5 percent interest is $400,000 and at 8 percent is $270,000 and at 15 percent is $160,000. What gain should Harding recognize on this troubled debt restructuring?
A. -0-
B. $220,000
C. $420,000
D. $550,000
Answer is B.
The accounting rule for a debtor (Harding) in a troubled debt restructuring such as this are completely different from that which applies to the creditor (the bank). The debtor starts with the current amount of the debt ($820,000 or $700,000 plus $120,000) and compares that number to the total cash that will ever be received under the new agreement. Here, that amount is $400,000 plus $20,000 per year ($400,000 times 5 percent) for 10 years or $200,000. The total to be paid is $600,000. If that amount is greater than the current debt ($820,000), the debtor recognizes no gain. If that amount is less, the reduction is recognized immediately as a gain. That reduction is $220,000 ($820,000 current debt less $600,000 in total payments). The debtor does not use present value although the creditor (the bank) does in its own computation.
REGULATION
Jeremiah Wilson died on January 11, Year One. The value of several large pieces of estate property fell sharply shortly after his death. Consequently, the executor of his estate chose the alternative valuation date for estate and other tax purposes. The property was all conveyed to the proper recipients on February 9, Year Two. On what date was the property valued?
A. Six months after death
B. December 31, Year One
C. One year after death
D. February 9, Year Two
Answer is A
The executor has the right to choose the alternative valuation date to reduce taxes on the estate. That date is the date of conveyance or six months after death, whichever comes first.
BEC
The Jiminez Corporation buys 10,000 shares of Warrington Corporation at $23 per share because the CEO of Jiminez expects the price of Warrington to rise sharply over the next few months. However, the CEO is concerned that economic conditions might also cause the price of the shares to fall quickly and sharply. He is concerned about explaining a big loss if that might happen. How is Jiminez most likely to protect itself from any such severe market drops?
A. Jiminez could also buy stock warrants in Warrington.
B. Jiminez could also buy a call option for 10,000 shares of Warrington at a properly designated price.
C. Jiminez could also buy a put option for 10,000 shares of Warrington at a properly designated price.
D. Jiminez could also buy convertible bonds issued by Warrington.
Answer is C
A put option allows Jiminez to sell the stock at a specified price. For example, if the put option is for $22, then Jiminez can sell the stock at that price even if it drops much lower. Although there is a cost for the put option, the loss is limited to a specified amount. All of the other possibilities (warrants, call option, and convertible bonds) allow for the acquisition of more shares which does little (unless the conversion price is extremely low) to help protect against a severe fall in stock price. They are all considered strategies to be used when stock prices are expected to rise.
Auditing and Attestation
The Othello Corporation buys and sells widgets. In Year One, the average number of days that it took to sell a widget was 18. In Year Two, because of the downturn in the economy, the average number of days that it took to sell a widget rose to 27. Which of management's assertions about the balance being reported as inventory on the company's balance sheet would be of most concern to the independent auditor?
A. Presentation
B. Valuation
C. Existence
D. Completeness
Answer is B
As inventory gets older, the chance that its value will fall below cost goes up. As goods get older, they tend to get damaged or show other signs of age that may require them to be sold at a reduced amount. Inventory is reported at the lower of cost or market. The increase in age might be a cause for the market value to decline so that a reduction in the reported balance will be necessary.
HAVE A GREAT WEEK - WORK FOR EVERY POSSIBLE POINT. IT MIGHT WELL BE THE ONE THAT GETS YOU TO 75!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Wednesday, April 22, 2009
Dream Big--It All Starts with a Dream
Lesson 31
From: Joe
(1) - I know a lot of you have watched my recent "Last Lecture" on YouTube (www.youtube.com/user/UniversityofRichmond). In that lecture, I talk about having a dream. I urge the audience to have a big dream and then to go for it. Don't shoot for mediocre: DREAM BIG. I use, as an example, a former student of mine who set out to be the youngest person in history to climb the tallest mountain in each of the seven continents (known as "the Seven Summits").
What a dream!! Can you imagine? He was about 20 and set out to climb Everest, Kilimanjaro, Elbrus, and all the rest. Win, lose, or draw he tried something that he could talk about for the rest of his life.
I personally believe that you need to have dreams. And, those dreams need to be BIG, dreams that are going to stretch you and make you a better person. I honestly think that it is very difficult to accomplish much in this life without some dreams.
I once dreamed of writing a textbook and I have now had the number one selling Advanced Accounting in the country for quite a number of years.
I once dreamed of starting a CPA Exam review course and I have now started three different programs that have all been successful.
I once dreamed of being a great college teacher and I was named the Virginia Professor of the Year in 2007.
I once dreamed of passing the CPA Exam and I managed to pass the whole thing at one time.
It all starts with a dream. Okay, I have had a number of dreams that I didn't manage to achieve. Life just works like that. You don't win them all. No one ever expects to win them all. But, I am convinced that you are never going to get anywhere in this life without serious dreams.
Passing the CPA Exam starts with a dream. For some, it is just a casual dream "if they will give me 75 points, I'd kind of like to pass." For many others, it is an absolutely serious dream "I'm willing to work as hard as I can to pass that CPA Exam. I want it to help my career and I want it to show myself that I'm as good as anyone. I WANT TO PASS THE CPA EXAM."
How BIG is your dream of passing the CPA Exam?
--If the dream is not very big, it is hard to do the work necessary to pass.
--If the dream is not very big, it is easy to get distracted from studying-night after night.
--If the dream is not very big, it is hard to stay on track when things get tough.
--If the dream is not very big, it is easy to give up when you have a bad day.
Probably ten times a day, you face a choice: do I study for the CPA Exam or do I do something else? How you answer that question probably tells whether you will be successful. How you answer that question probably depends on whether passing the CPA Exam is a true dream and not just a casual desire.
I sometimes think that once people get involved with all of the studying, they lose track of their dreams. Don't ever lose sight of your dream.
If you are tired and beginning to struggle, take some time off and have a serious talk with yourself. What was your dream when you first began? Were you serious about that dream or were you just pretending? Did you seriously want to pass or was it just a whim?
Keeping that dream first and foremost, right in front of you, is always a good strategy from the first day until the last. It is easy to get tired; it is easy to get discouraged. It is easy to choose to do something else. But like climbing a tall mountain, having YOUR dream squarely out in front of you can keep pushing you forward.
Okay, stop for a second. I don't want these email lessons to go in one ear and out the other. I'm not writing these to amuse me.
Take a sheet of paper and start writing down exactly why you want to pass the CPA Exam. Everyone has different reason. What is yours? List out as many as you can. Why is passing the CPA Exam a dream of yours? Don't give me vague reasons-be as specific and as honest as you can. List out all the reasons that apply to you. Then put that list in order of importance. Make sure to identify the number one reason why you dream of passing the CPA Exam. That needs to be constantly out in front. Type up the list and place a copy or two in the areas where you typically study. Make sure to put the list in a place where you can see it every day. Don't take for granted that you'll remember your dreams. Put them right in front of you.
Keeping that list visible will help you to push forward toward that goal.
You can do it.
(2) - If you have not seen my "Last Lecture," go to www.YouTube.com and type in Joe Hoyle at University of Richmond and it should pop up. You'll learn about Dreams and a number of other things that were on my mind that evening.
(3) - Five quick things:
--If you want to unsubscribe from getting these email lessons, just scroll down to the bottom of this lesson (or any lesson) and click on the unsubscribe button.
--If you know someone who wants to get these weekly email lessons, just send their email address to Jhoyle@cpareviewforfree.com. I'll enter their address into the files but they will still have to opt-in when they get our confirmation email.
--Last week was a major holiday and we still had our second biggest week in history. Thanks to all of you who use our site or recommend our site. To me, our growth is just phenomenal. The other programs have advertising, mailers, posters, paid representations. We have YOU. That's it. Without any paid advertising, we are helping more and more people each window to achieve their dream of passing the CPA Exam. Please pass along this message, especially to anyone who may be out of work or looking for a job.
--Don't forget that if you know someone who is looking into the CFA Exam, they can get 10 percent off on purchases of review materials at
www.professionalexamreview.com/CPAReviewForFree
--And, finally, we get a lot of emails from people who want to know the best way to use www.CPAreviewforFREE.com. We always direct them to our website and tell them to look under "CPA Exam Resources" and then to read "Using CPAreviewforFREE" - there is no reason to guess. We tell you exactly how our program can get you to pass while you save $2,000-$3,000.
(4) - My students here at the University are in their last week of the semester. They have worked incredibly hard this semester. However, I noticed today in class that they had begun to slack off. Suddenly, you could just tell that they were NOT putting out the same energy level as previously. They were slowing down like they were stuck in molasses.
That always concerns me. I don't mind people getting some rest (in fact, in any CPA Review, I think you should schedule in one or two break days every week). I do mind people slowing down. Taking a break and slowing down are radically different.
Assume you are running a mile race or a 10K. You run the race and you are 100 yards from the finish line and you have a chance to win. Would you slow down? Of course NOT, that is ridiculous. The fact that you were getting close to a victory would spur you on and raise your energy levels. Almost without exception you would run the last 100 yards faster than you ran the first 100 yards. The excitement at the end will kick in and raise your adrenaline levels so you can accomplish more than you expected.
However, on the CPA Exam, the attitude seems to be exactly the opposite. If a person works hard and gets close to the finish line, there is a tendency to moan, complain, whine, feel self-pity, fuss, and just generally feel an obsessive need to slow way down.
It may be human nature but THAT MAKES NO SENSE.
When you are getting close to the finish, then is when you should be getting excited. That is when the thrill of possible victory should push you to work even harder.
IT IS ALL IN YOUR MIND.
You can tell yourself, I'm close to the finish, I'm tired, I'm going to slow down or quit.
Or
You can tell yourself, I'm close to the finish, I'm tired, but I really want to win so I'm going to keep on pushing myself until the very end.
That is clearly up to you. I do know you are tired. I have no argument with that. If you need to, take a break-get away from it all for a day or two.
It is your response that is important. You cannot blame that response on anyone else. Your response to being tired will either
(a) slow you down
Or
(b) speed you up.
That is up to YOU.
(5) - Practice Problems - See if you can work each of these in order to add one extra point to your scores.
FAR - as usual, this came from yesterday's intermediate accounting class.
The Sain Company has 100,000 shares of common stock on January 1, Year One but issued a 20 percent stock dividend on July 1 of that year. Cash dividends of $80,000 were paid on the common stock shares during the year. The company also had 30,000 shares of $100 preferred stock paying a 4 percent per year cumulative dividend. This year the company reported net income of $500,000. What should be reported as earnings per share? (round to the nearest penny)
A - $2.50
B - $2.73
C - $3.17
D - $3.45
Answer is C
Earnings per share is a common stock computation. The earnings figure is the net income of the company after preferred stock dividends have been removed to arrive at the residual number left over for the common stockholders. The preferred stock cash dividend is $100 times 4 percent or $4 per share times 30,000 shares or $120,000. The income for common stock is the $500,000 reported total less $120,000 distributed to preferred stock or $380,000. This amount is then divided by the weighted-average number of shares. A stock dividend or stock split is not the same as the issuance of new shares but rather is a division of old shares. Thus, for this computation, the previous shares (100,000 shares on 1/1) are assumed to now include the results of the division. Because of the 20 percent stock dividend, the 100,000 shares have literally become 120,000 shares. Those 120,000 are said to exist from the original January 1 date so the common shares for that year are 120,000 and
earnings per share is $380,000 divided by 120,000 shares or $3.17.
Regulation
For the current year, a partnership has sales revenue of $500,000, cost of goods sold of $300,000, capital gains of $60,000, salary expenses of $120,000, and charitable contributions of $30,000. If there are two equal partners, what does each report of their separate income tax returns?
A - Partnership income of $40,000, capital gains of $30,000, and charitable contributions of $15,000.
B - Partnership income of $25,000 and capital gain of $30,000.
C - Partnership income of $55,000
D - Partnership income of $70,000 and charitable contributions of $15,000
Answer is A
In a partnership, certain income and expense items (including capital gains and charitable contributions) are passed through directly to the partner's own individual tax return. All other items (such as revenues, cost of goods sold, and other expenses such as salary expense) are netted together to form the basic partnership income that is also allocated to the separate partners based on the appropriate ratio which, in this case, was 50-50.
Auditing and Attestation
One of the components of internal control that an independent auditor must come to understand about each audit client is "information and communication." What is meant by this term?
A - The ability of the management of the company to communicate its priorities to the appropriate staff levels within the organization.
B - The ability of the accounting system to generate reliable information and convey it in a timely manner to those parties within the organization that need it.
C - The ability of employees in a company to warn the independent auditor of fraudulent actions within the organization.
D - The ability of the internal auditor to communicate information about the various systems to people within the organization at an appropriate level of authority.
Answer is B
Internal control includes any policies and procedures within the company designed to ensure that the accounting systems are functioning effectively as designed by the management of the company. One general goal is to make sure that the information produced by the accounting system is reliable and reaches the correct party in time to be used in making appropriate decisions. In looking at a particular system and its internal control, the auditor evaluates the ability to generate information and then communicate it to the parties who can make use of it.
BEC
A company sells widgets for $100 each and demand is10,000 units per year. The company is thinking of raising the price to $102. Which of the following statements is true?
A - If 10,000 units are now demanded by customers, demand is said to be elastic.
B - If 9,900 units are now demanded by customers, demand is said to be inelastic.
C - If 9,800 units are now demanded by customers, demand is said to be inelastic.
D - If 9,700 units are now demanded by customers, demand is said to be inelastic.
Answer is B.
The price of the goods has gone up 2 percent ($2/$100). The fall in demand is 0 (10,000 units), 1 percent (9,900 units), 2 percent (9,800 units), or 3 percent (9,700 units). Demand elasticity is found by taking the change in quantity demand and dividing it by the change in price. If the ratio is greater than 1, demand is said to be elastic (people move to other products to avoid the increase). If the ratio is less than 1, demand is inelastic (people stick with the product despite the rise in prices). If the ratio is 1, demand is unitary. Since the price went up 2 percent, any drop of more than 2 percent gives a ratio of more than one and demand is elastic. Since the price went up 2 percent, any drop of less than 2 percent gives a ratio of less than one and demand is inelastic. (A) is less than 2 percent so the ratio is less than one and that is inelastic. (C) is exactly 2 percent so that is unitary. (D) is more than 2 percent which gives a ratio of more than one
and demand is elastic. (B) is the answer because demand fell only 1 percent which makes the ratio 1/2 or less than 1. Demand is inelastic; few people switched to other products despite the increase in price.
"You learn you can do your best even when it's hard, even when you're tired and maybe hurting a little bit. It feels good to show some courage."
Joe Namath
Have a great week - DREAM BIG!!!
Joe Hoyle
Co-Founder
CPA Review For FREE
From: Joe
(1) - I know a lot of you have watched my recent "Last Lecture" on YouTube (www.youtube.com/user/UniversityofRichmond). In that lecture, I talk about having a dream. I urge the audience to have a big dream and then to go for it. Don't shoot for mediocre: DREAM BIG. I use, as an example, a former student of mine who set out to be the youngest person in history to climb the tallest mountain in each of the seven continents (known as "the Seven Summits").
What a dream!! Can you imagine? He was about 20 and set out to climb Everest, Kilimanjaro, Elbrus, and all the rest. Win, lose, or draw he tried something that he could talk about for the rest of his life.
I personally believe that you need to have dreams. And, those dreams need to be BIG, dreams that are going to stretch you and make you a better person. I honestly think that it is very difficult to accomplish much in this life without some dreams.
I once dreamed of writing a textbook and I have now had the number one selling Advanced Accounting in the country for quite a number of years.
I once dreamed of starting a CPA Exam review course and I have now started three different programs that have all been successful.
I once dreamed of being a great college teacher and I was named the Virginia Professor of the Year in 2007.
I once dreamed of passing the CPA Exam and I managed to pass the whole thing at one time.
It all starts with a dream. Okay, I have had a number of dreams that I didn't manage to achieve. Life just works like that. You don't win them all. No one ever expects to win them all. But, I am convinced that you are never going to get anywhere in this life without serious dreams.
Passing the CPA Exam starts with a dream. For some, it is just a casual dream "if they will give me 75 points, I'd kind of like to pass." For many others, it is an absolutely serious dream "I'm willing to work as hard as I can to pass that CPA Exam. I want it to help my career and I want it to show myself that I'm as good as anyone. I WANT TO PASS THE CPA EXAM."
How BIG is your dream of passing the CPA Exam?
--If the dream is not very big, it is hard to do the work necessary to pass.
--If the dream is not very big, it is easy to get distracted from studying-night after night.
--If the dream is not very big, it is hard to stay on track when things get tough.
--If the dream is not very big, it is easy to give up when you have a bad day.
Probably ten times a day, you face a choice: do I study for the CPA Exam or do I do something else? How you answer that question probably tells whether you will be successful. How you answer that question probably depends on whether passing the CPA Exam is a true dream and not just a casual desire.
I sometimes think that once people get involved with all of the studying, they lose track of their dreams. Don't ever lose sight of your dream.
If you are tired and beginning to struggle, take some time off and have a serious talk with yourself. What was your dream when you first began? Were you serious about that dream or were you just pretending? Did you seriously want to pass or was it just a whim?
Keeping that dream first and foremost, right in front of you, is always a good strategy from the first day until the last. It is easy to get tired; it is easy to get discouraged. It is easy to choose to do something else. But like climbing a tall mountain, having YOUR dream squarely out in front of you can keep pushing you forward.
Okay, stop for a second. I don't want these email lessons to go in one ear and out the other. I'm not writing these to amuse me.
Take a sheet of paper and start writing down exactly why you want to pass the CPA Exam. Everyone has different reason. What is yours? List out as many as you can. Why is passing the CPA Exam a dream of yours? Don't give me vague reasons-be as specific and as honest as you can. List out all the reasons that apply to you. Then put that list in order of importance. Make sure to identify the number one reason why you dream of passing the CPA Exam. That needs to be constantly out in front. Type up the list and place a copy or two in the areas where you typically study. Make sure to put the list in a place where you can see it every day. Don't take for granted that you'll remember your dreams. Put them right in front of you.
Keeping that list visible will help you to push forward toward that goal.
You can do it.
(2) - If you have not seen my "Last Lecture," go to www.YouTube.com and type in Joe Hoyle at University of Richmond and it should pop up. You'll learn about Dreams and a number of other things that were on my mind that evening.
(3) - Five quick things:
--If you want to unsubscribe from getting these email lessons, just scroll down to the bottom of this lesson (or any lesson) and click on the unsubscribe button.
--If you know someone who wants to get these weekly email lessons, just send their email address to Jhoyle@cpareviewforfree.com. I'll enter their address into the files but they will still have to opt-in when they get our confirmation email.
--Last week was a major holiday and we still had our second biggest week in history. Thanks to all of you who use our site or recommend our site. To me, our growth is just phenomenal. The other programs have advertising, mailers, posters, paid representations. We have YOU. That's it. Without any paid advertising, we are helping more and more people each window to achieve their dream of passing the CPA Exam. Please pass along this message, especially to anyone who may be out of work or looking for a job.
--Don't forget that if you know someone who is looking into the CFA Exam, they can get 10 percent off on purchases of review materials at
www.professionalexamreview.com/CPAReviewForFree
--And, finally, we get a lot of emails from people who want to know the best way to use www.CPAreviewforFREE.com. We always direct them to our website and tell them to look under "CPA Exam Resources" and then to read "Using CPAreviewforFREE" - there is no reason to guess. We tell you exactly how our program can get you to pass while you save $2,000-$3,000.
(4) - My students here at the University are in their last week of the semester. They have worked incredibly hard this semester. However, I noticed today in class that they had begun to slack off. Suddenly, you could just tell that they were NOT putting out the same energy level as previously. They were slowing down like they were stuck in molasses.
That always concerns me. I don't mind people getting some rest (in fact, in any CPA Review, I think you should schedule in one or two break days every week). I do mind people slowing down. Taking a break and slowing down are radically different.
Assume you are running a mile race or a 10K. You run the race and you are 100 yards from the finish line and you have a chance to win. Would you slow down? Of course NOT, that is ridiculous. The fact that you were getting close to a victory would spur you on and raise your energy levels. Almost without exception you would run the last 100 yards faster than you ran the first 100 yards. The excitement at the end will kick in and raise your adrenaline levels so you can accomplish more than you expected.
However, on the CPA Exam, the attitude seems to be exactly the opposite. If a person works hard and gets close to the finish line, there is a tendency to moan, complain, whine, feel self-pity, fuss, and just generally feel an obsessive need to slow way down.
It may be human nature but THAT MAKES NO SENSE.
When you are getting close to the finish, then is when you should be getting excited. That is when the thrill of possible victory should push you to work even harder.
IT IS ALL IN YOUR MIND.
You can tell yourself, I'm close to the finish, I'm tired, I'm going to slow down or quit.
Or
You can tell yourself, I'm close to the finish, I'm tired, but I really want to win so I'm going to keep on pushing myself until the very end.
That is clearly up to you. I do know you are tired. I have no argument with that. If you need to, take a break-get away from it all for a day or two.
It is your response that is important. You cannot blame that response on anyone else. Your response to being tired will either
(a) slow you down
Or
(b) speed you up.
That is up to YOU.
(5) - Practice Problems - See if you can work each of these in order to add one extra point to your scores.
FAR - as usual, this came from yesterday's intermediate accounting class.
The Sain Company has 100,000 shares of common stock on January 1, Year One but issued a 20 percent stock dividend on July 1 of that year. Cash dividends of $80,000 were paid on the common stock shares during the year. The company also had 30,000 shares of $100 preferred stock paying a 4 percent per year cumulative dividend. This year the company reported net income of $500,000. What should be reported as earnings per share? (round to the nearest penny)
A - $2.50
B - $2.73
C - $3.17
D - $3.45
Answer is C
Earnings per share is a common stock computation. The earnings figure is the net income of the company after preferred stock dividends have been removed to arrive at the residual number left over for the common stockholders. The preferred stock cash dividend is $100 times 4 percent or $4 per share times 30,000 shares or $120,000. The income for common stock is the $500,000 reported total less $120,000 distributed to preferred stock or $380,000. This amount is then divided by the weighted-average number of shares. A stock dividend or stock split is not the same as the issuance of new shares but rather is a division of old shares. Thus, for this computation, the previous shares (100,000 shares on 1/1) are assumed to now include the results of the division. Because of the 20 percent stock dividend, the 100,000 shares have literally become 120,000 shares. Those 120,000 are said to exist from the original January 1 date so the common shares for that year are 120,000 and
earnings per share is $380,000 divided by 120,000 shares or $3.17.
Regulation
For the current year, a partnership has sales revenue of $500,000, cost of goods sold of $300,000, capital gains of $60,000, salary expenses of $120,000, and charitable contributions of $30,000. If there are two equal partners, what does each report of their separate income tax returns?
A - Partnership income of $40,000, capital gains of $30,000, and charitable contributions of $15,000.
B - Partnership income of $25,000 and capital gain of $30,000.
C - Partnership income of $55,000
D - Partnership income of $70,000 and charitable contributions of $15,000
Answer is A
In a partnership, certain income and expense items (including capital gains and charitable contributions) are passed through directly to the partner's own individual tax return. All other items (such as revenues, cost of goods sold, and other expenses such as salary expense) are netted together to form the basic partnership income that is also allocated to the separate partners based on the appropriate ratio which, in this case, was 50-50.
Auditing and Attestation
One of the components of internal control that an independent auditor must come to understand about each audit client is "information and communication." What is meant by this term?
A - The ability of the management of the company to communicate its priorities to the appropriate staff levels within the organization.
B - The ability of the accounting system to generate reliable information and convey it in a timely manner to those parties within the organization that need it.
C - The ability of employees in a company to warn the independent auditor of fraudulent actions within the organization.
D - The ability of the internal auditor to communicate information about the various systems to people within the organization at an appropriate level of authority.
Answer is B
Internal control includes any policies and procedures within the company designed to ensure that the accounting systems are functioning effectively as designed by the management of the company. One general goal is to make sure that the information produced by the accounting system is reliable and reaches the correct party in time to be used in making appropriate decisions. In looking at a particular system and its internal control, the auditor evaluates the ability to generate information and then communicate it to the parties who can make use of it.
BEC
A company sells widgets for $100 each and demand is10,000 units per year. The company is thinking of raising the price to $102. Which of the following statements is true?
A - If 10,000 units are now demanded by customers, demand is said to be elastic.
B - If 9,900 units are now demanded by customers, demand is said to be inelastic.
C - If 9,800 units are now demanded by customers, demand is said to be inelastic.
D - If 9,700 units are now demanded by customers, demand is said to be inelastic.
Answer is B.
The price of the goods has gone up 2 percent ($2/$100). The fall in demand is 0 (10,000 units), 1 percent (9,900 units), 2 percent (9,800 units), or 3 percent (9,700 units). Demand elasticity is found by taking the change in quantity demand and dividing it by the change in price. If the ratio is greater than 1, demand is said to be elastic (people move to other products to avoid the increase). If the ratio is less than 1, demand is inelastic (people stick with the product despite the rise in prices). If the ratio is 1, demand is unitary. Since the price went up 2 percent, any drop of more than 2 percent gives a ratio of more than one and demand is elastic. Since the price went up 2 percent, any drop of less than 2 percent gives a ratio of less than one and demand is inelastic. (A) is less than 2 percent so the ratio is less than one and that is inelastic. (C) is exactly 2 percent so that is unitary. (D) is more than 2 percent which gives a ratio of more than one
and demand is elastic. (B) is the answer because demand fell only 1 percent which makes the ratio 1/2 or less than 1. Demand is inelastic; few people switched to other products despite the increase in price.
"You learn you can do your best even when it's hard, even when you're tired and maybe hurting a little bit. It feels good to show some courage."
Joe Namath
Have a great week - DREAM BIG!!!
Joe Hoyle
Co-Founder
CPA Review For FREE
Monday, April 13, 2009
Make Today Count
MAKE TODAY COUNT
Lesson 30
From: Joe
(1) - As I have mentioned in previous email lessons, I gave a speech this past Tuesday here on campus. In it, I talked about a person making the transition to greatness (and you can define the word "greatness" as you see fit). The speech went well (I thought). We had 300 chairs and well over 500 people. So, a lot of folks wound up sitting on the floor. Students are young, sitting on the floor is not a big deal to them.
If you are interested in seeing and hearing the speech, it is available at:
www.youtube.com/user/UniversityofRichmond
or, you can just go to www.YouTube.com and search for: Joe Hoyle University of Richmond and the speech should come up.
(2) - Last week, we had over 107,000 page views in that one week alone at www.CPAreviewforFREE.com. That is an amazing amount of points being earned FOR FREE. In addition, the number of people who visited our site was up 10.7 percent over our previous weekly high. That is just amazing to me. I was thrilled. It is neat when you can help so many people to work toward their goal.
Thanks to everyone who forwards our emails along to others. Our goal is to help EVERYONE. Not just the rich and famous; we want to help EVERYONE.
(3) - Several emails came to us in the last few days. Here are a couple. The first is from Sandra: "Thank you for posting the quote from the person whose goal is to pass the CPA exam when he or she turns 55. I am 55 and hope to pass the remaining 3 sections this year. Knowing that I am not the only 50+ out there is a real encouragement. Thank you for your website, to which I attribute my passing grade on the first attempt on the Audit and Attest section, and for your encouraging emails."
And from Beth: "Thank you for your inspiring emails and CPA review questions. I've been studying for the Exam for the past two years, and my hard work has finally paid off. I recently found out that I passed my last exam in the nick of time, and I am so excited!! I used your review questions along with another program, and it really helped. The toughest part for me was not letting myself get discouraged when I would repeatedly fail a part, but I refused to quit and believed in myself. Your inspirational emails helped encourage me along the way. My best advice to other candidates would be to not be afraid of failure. Through this process, I've learned that you have to be willing to deal with failure sometimes in order to reap the rewards of success. Overcoming my failed attempts has only made this victory sweeter! I like the reference that one motivational speaker, Willie Jolley, uses in regards to the role of failure: 'a setback is a setup for a comeback,' as it has
certainly been for me. Thanks again for your encouragement and support along my journey!"
(4) - As always, if you want to unsubscribe to these weekly (or so) email lessons, just scroll to the end of this email and click on the link that is provided.
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
(5) - I was in Manhattan this past Wednesday for an all-day meeting with the people at the AICPA who create and prepare the CPA Exam. Twice a year, they hold meetings with all the people who produce review materials for the CPA Exam so that they can keep us informed of upcoming changes. Nothing radical is going to happen to the exam for another 12-18 months and that is about as far out as they ever project.
However, in this meeting, they asked all of the review providers to pass along some tips to our candidates to ensure that everything runs smoothly. So, here are the tips that they wanted you to know as you prepare to take (and pass) the CPA Exam.
A - Schedule to take your exam well in advance and think about problems that might come up such as weather issues. They suggest scheduling at least 45 days in advance especially if you want one of the busy times (usually near the end of a window). They said to warn you that the July-August and October-November windows are the busiest and therefore require the most advance planning.
Their final advice was to look for testing sites that are close to you even if they are in another state. If you live in northern Virginia, for example, a Maryland site might well be much closer than many of the sites in Virginia. Once you have your notice to schedule (NTS), you can take the exam at any approved location. You don't have to stay inside your state of application.
B - Be ready when you come to the test center. You don't want to get to the site and have a problem. They strongly suggest that you read the candidate bulletin carefully in advance. It is available at the following URL: www.cpa-exam.org/cpa/bulletin.html.
Be sure to bring two forms of government issued identification. Apparently, one must have a picture and signature and the other a signature. Also make sure to bring your valid NTS (notice to schedule) because it identifies your launch code to start the computer program. They said that a lot of people who were retaking parts would accidently bring an old NTS and then have to return home to get the right one. Trust me: on that day, you want everything to work out with no stress or surprises.
They also said not to bring large bags, suitcases, or other large items to the test site. Lockers are provided at the facility for cell phones, purses, and jackets. A list of prohibited items is included in the candidate bulletin.
They indicated that the check-in process is as follows:
--Present NTS
--Present your two forms of identification
--Complete electronic finger printing process
--Have your digital image taken by a camera
--Sign the sign-in log
The AICPA also said to tell you that you could "test drive" the process in advance if you are concerned. Apparently, you can make an appointment with the Prometric test center for a 30 minute trial run just to make sure you are familiar with the process. If you are worried in the least, I would take advantage of that service. On the real test day, you want to arrive with nothing on your mind except getting questions correct.
C - When you get ready to start your exam, do not delay after entering your launch code into the computer. Apparently, you have to go through four opening screens before you officially start the test: welcome screen, confidentiality, copyright, and directions. When you go through the fourth screen, the exam then starts and your test time begins. However, you have a maximum of 10 minutes to go through those first four screens (they probably take a total of one minute or less). After 10 minutes, if you have not started, the exam shuts down and it is over. They said that occasionally people get to the first screen and pray or meditate and literally don't get through the first four screens in 10 minutes so that their exam is finished without ever getting started. (To my knowledge, I've never known anyone who had that problem so I personally don't think it is a huge risk but don't take 10 minutes.)
D - Learn all you can in advance about the exam so you know what you are going to see. Go to: www.cpa-exam.org/lrc/exam_tutorial_parallel.html for tutorial and sample questions.
Read all the information that you receive about the exam and make sure that you make some time to wander around at www.cpa-exam.org just to learn about the exam. Again, the candidate bulletin has a lot of helpful information that you should be aware of before you arrive at the site.
E - During the exam, read everything carefully. If a message pops up, they did that because they wanted you to read the message NOT IGNORE IT. They told a few stories about people who ignored messages and then encountered problems with the exam. (Again, this is a possible problem but I wouldn't worry much about it - just read the messages.)
There are virtually no computer glitches in the exam at the present time. They said that 99.9 percent of the candidates have no problems with the computers at all. Problems tend to occur only because candidates fail to read a message.
They did ask that candidates make sure to get their confirmation of attendance which apparently is printed out from the computer when you log off at the end of the exam. They urged everyone to read this confirmation because it has some helpful information on it.
When the CPA Exam first became computerized back in 2004, there was a fair amount of confusion and some problems. The AICPA has really worked hard to make the CPA Exam a nonstressful situation for candidates. They want you to pass or fail based of what you know and do not know rather than on how well you navigate the mechanics of the exam. I wouldn't have said this five years ago but, if you will read what they send you and follow what they tell you, your experience should work out fine. There is no guarantee and problems do arise but, if I were you, I would worry about learning the material and not about whether the test is going to work or not.
(6) - I was talking with someone recently who asked what advice I would give to a candidate if I could boil it all day to one single word? It is really an interesting question. What is the one word that you should think about when getting ready to pass the CPA Exam?
When pondering this question, I was reminded of John Ruskin who was an English social critic and author who was said to have a stone that lay on his desk with one word carved on it: Today.
I think that would be my one word of advice for most questions. You have one day and one day only when you can accomplish something. That one day is Today. That's true for the CPA Exam and everything else you want to accomplish.
When you wake up in the morning, you are being given a golden opportunity. About 16 hours later you go to bed and you have made something great or something small of Today. Success in life often hinges on how well you utilize Today.
I know a lot of people who dwell in the past. They talk about past victories, excitement in the past. They seem to be stuck in some previous era. Their triumphs and successes are gone, never to be revisited.
I know a lot other people who constantly plot and plan the future. All of their actions focus on getting ready to accomplish something in some future time. Plotting is more fun than doing. They would rather get everything lined up for future success than actually accomplish anything Today.
However, I do know people who are able to wake up with their concentration entirely on how to best utilize the time they have been given right now.
The only time you can add points is TODAY.
The only time you can learn something about a topic is TODAY.
The only time you can make progress is TODAY.
It is not easy to focus on today. I know that as well as anyone. It is easier and more fun to set up how you are going to do something and just not worry about doing it. Or, it is safer to think about past victories and not have to face the difficulty of today.
The brain is a funny thing. Thinking, working out problems, learning rules, figuring out processes is real work for the brain. Consequently, the brain (which is often lazy) wants you to think about something else, almost anything else, rather than the material at hand.
So, the brain tells you: "don't worry about computing that capitalized lease, let's think about how we did so well in high school. That will make us feel good without having to do any difficult work right now."
The brain tells you: "don't worry about determining earnings per share, we can do that tomorrow. It is always more fun to plan to do work than it is to do it. Deferral is the best way to prepare."
If you want to pass the CPA Exam and you want one word of advice that would be truly helpful, remember Today. I honestly cannot think of anything more important to dwell on. You absolutely have to make good use of Today if you are going to gain the points you need. And, that is not easy. Spending time locked away in the past or the future will make you smile and feel good but it won't get you those 75 points that you need for success.
The only time you can do that is TODAY.
(7) - Let's do a few quick practice problems.
Financial Accounting and Reporting. This first problem comes from my Intermediate Accounting class today.
A company has a defined benefit pension plan. On January 1, Year One, a contractual provision was changed and the projected benefit obligation increased at that moment by $400,000. Which of the following statements is true?
A - Pension expense is not affected on January 1, Year One, but is gradually increased over the next several years.
B - Pension expense is increased immediately by $400,000.
C - Pension expense is increased on January 1, Year One, by a portion of the $400,000 with the remaining amount added to pension expense over the next few years.
D - Pension expense is never affected because the $400,000 is retained within accumulated other comprehensive income on the balance sheet.
Answer is A.
This change in the projected benefit obligation (PBO) is known as a prior service cost and comes from a change in a contractual provision. In this case, the change makes the liability larger and should decrease net income by increasing pension expense. Because the PBO is a large estimation of questionable reliability, FASB chose not to drop the entire amount into pension expense immediately because that would cause a significant swing in reported net income. Instead, the entire prior service cost is amortized to expense over several years based on the length of employee service. This is accomplished by first recording the $400,000 in accumulated other comprehensive income on the balance sheet and then gradually moving it from that account into pension expense.
Auditing and Attestation
Blue Company hopes to sell 500,000 shares of its common stock to the public. The company has prepared the appropriate documentation for the Securities and Exchange Commission. When properly approved, the shares will be conveyed to Lance & Woodruff, an underwriting firm that will actually sell the shares to the public. Hammer and Dove CPAs is the firm that audits Blue Company. Hammer and Dove have been hired to provide a comfort letter. Which of the following is not true?
A - The comfort letter will be addressed to Lance & Woodruff, the underwriting firm.
B - The comfort letter is a restatement of the final audit report prepared for Blue Company.
C - The comfort letter is not included in the documentation provided to the public in connection with the sale of these securities.
D - The comfort letter is likely to include negative assurance on unaudited information in the materials given to the SEC.
Answer is B
The underwriter is legally required to get expert advice on the financial information presented by the issuing company. The comfort letter, addressed and provided to the underwriter, meets this requirement. It provides reasonable assurance on much of the financial information that is included by the client because an audit has been carried out. However, it also provides negative assurance ("nothing came to our attention that would indicate a material difference from US generally accepted accounting principles") on some information where an audit is not possible.
Regulation
Walters owns land with a tax basis of $125,000 but a value of $160,000. This land is traded for like-kind land with a value of $150,000. To even up the trade, cash of $10,000 is also conveyed to Walters. What taxable gain should Walters report on the exchange in filing his federal income taxes?
A - Zero
B - $10,000
C - $25,000
D - $35,000
Answer is B
Normally, the exchange of like-kind property is tax free. However, Walters also received boot (the $10,000 in cash) that was not like-kind. The receipt of boot changes the rule. Then, the taxable gain is the lower of the boot ($10,000) or the exchange gain. The exchange gain is the difference in the fair value received ($150,000 plus $10,000 or $160,000) and its tax basis ($125,000). The exchange gain is $35,000 ($160,000 less $125,000). That is more than the cash collected so the lower number (the $10,000 in cash) is the taxable gain.
BEC
On January 1, Year One, the Aragoni Company is given the opportunity to pay $50,000 today to get a four-year annuity paying $20,000 per year for four years with each payment made on December 31. The company has a desired rate of return of 8 percent per year. The present value of a four-year ordinary annuity of $1 at an 8 percent annual rate is 3.3121. The present value of a four-year annuity due of $1 at an 8 percent annual rate is 3.5771. The present value of $1in four years at an 8 percent annual rate is .7350. Aragoni believes this to be a good investment. Which of the following statements is true?
A - The net present value is a positive $8,800.
B - The net present value is a positive $16,242.
C - The net present value is a positive $21,542.
D - The net present value is a positive $30,000.
Answer is B.
Since the payments are made at the end of each year, this is an ordinary annuity and the present value of the future cash flows is $66,242 ($20,000 times 3.3121). Net present value is the difference in the cost of an investment ($50,000) and the present value of the future cash flows ($66,242) or $16,242. If the present value is larger, this net present value is said to be positive and the investment meets the investment criterion of the company.
Have a great week and make each Today count.
Joe Hoyle
Co-Founder
CPA Review for FREE
Lesson 30
From: Joe
(1) - As I have mentioned in previous email lessons, I gave a speech this past Tuesday here on campus. In it, I talked about a person making the transition to greatness (and you can define the word "greatness" as you see fit). The speech went well (I thought). We had 300 chairs and well over 500 people. So, a lot of folks wound up sitting on the floor. Students are young, sitting on the floor is not a big deal to them.
If you are interested in seeing and hearing the speech, it is available at:
www.youtube.com/user/UniversityofRichmond
or, you can just go to www.YouTube.com and search for: Joe Hoyle University of Richmond and the speech should come up.
(2) - Last week, we had over 107,000 page views in that one week alone at www.CPAreviewforFREE.com. That is an amazing amount of points being earned FOR FREE. In addition, the number of people who visited our site was up 10.7 percent over our previous weekly high. That is just amazing to me. I was thrilled. It is neat when you can help so many people to work toward their goal.
Thanks to everyone who forwards our emails along to others. Our goal is to help EVERYONE. Not just the rich and famous; we want to help EVERYONE.
(3) - Several emails came to us in the last few days. Here are a couple. The first is from Sandra: "Thank you for posting the quote from the person whose goal is to pass the CPA exam when he or she turns 55. I am 55 and hope to pass the remaining 3 sections this year. Knowing that I am not the only 50+ out there is a real encouragement. Thank you for your website, to which I attribute my passing grade on the first attempt on the Audit and Attest section, and for your encouraging emails."
And from Beth: "Thank you for your inspiring emails and CPA review questions. I've been studying for the Exam for the past two years, and my hard work has finally paid off. I recently found out that I passed my last exam in the nick of time, and I am so excited!! I used your review questions along with another program, and it really helped. The toughest part for me was not letting myself get discouraged when I would repeatedly fail a part, but I refused to quit and believed in myself. Your inspirational emails helped encourage me along the way. My best advice to other candidates would be to not be afraid of failure. Through this process, I've learned that you have to be willing to deal with failure sometimes in order to reap the rewards of success. Overcoming my failed attempts has only made this victory sweeter! I like the reference that one motivational speaker, Willie Jolley, uses in regards to the role of failure: 'a setback is a setup for a comeback,' as it has
certainly been for me. Thanks again for your encouragement and support along my journey!"
(4) - As always, if you want to unsubscribe to these weekly (or so) email lessons, just scroll to the end of this email and click on the link that is provided.
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
(5) - I was in Manhattan this past Wednesday for an all-day meeting with the people at the AICPA who create and prepare the CPA Exam. Twice a year, they hold meetings with all the people who produce review materials for the CPA Exam so that they can keep us informed of upcoming changes. Nothing radical is going to happen to the exam for another 12-18 months and that is about as far out as they ever project.
However, in this meeting, they asked all of the review providers to pass along some tips to our candidates to ensure that everything runs smoothly. So, here are the tips that they wanted you to know as you prepare to take (and pass) the CPA Exam.
A - Schedule to take your exam well in advance and think about problems that might come up such as weather issues. They suggest scheduling at least 45 days in advance especially if you want one of the busy times (usually near the end of a window). They said to warn you that the July-August and October-November windows are the busiest and therefore require the most advance planning.
Their final advice was to look for testing sites that are close to you even if they are in another state. If you live in northern Virginia, for example, a Maryland site might well be much closer than many of the sites in Virginia. Once you have your notice to schedule (NTS), you can take the exam at any approved location. You don't have to stay inside your state of application.
B - Be ready when you come to the test center. You don't want to get to the site and have a problem. They strongly suggest that you read the candidate bulletin carefully in advance. It is available at the following URL: www.cpa-exam.org/cpa/bulletin.html.
Be sure to bring two forms of government issued identification. Apparently, one must have a picture and signature and the other a signature. Also make sure to bring your valid NTS (notice to schedule) because it identifies your launch code to start the computer program. They said that a lot of people who were retaking parts would accidently bring an old NTS and then have to return home to get the right one. Trust me: on that day, you want everything to work out with no stress or surprises.
They also said not to bring large bags, suitcases, or other large items to the test site. Lockers are provided at the facility for cell phones, purses, and jackets. A list of prohibited items is included in the candidate bulletin.
They indicated that the check-in process is as follows:
--Present NTS
--Present your two forms of identification
--Complete electronic finger printing process
--Have your digital image taken by a camera
--Sign the sign-in log
The AICPA also said to tell you that you could "test drive" the process in advance if you are concerned. Apparently, you can make an appointment with the Prometric test center for a 30 minute trial run just to make sure you are familiar with the process. If you are worried in the least, I would take advantage of that service. On the real test day, you want to arrive with nothing on your mind except getting questions correct.
C - When you get ready to start your exam, do not delay after entering your launch code into the computer. Apparently, you have to go through four opening screens before you officially start the test: welcome screen, confidentiality, copyright, and directions. When you go through the fourth screen, the exam then starts and your test time begins. However, you have a maximum of 10 minutes to go through those first four screens (they probably take a total of one minute or less). After 10 minutes, if you have not started, the exam shuts down and it is over. They said that occasionally people get to the first screen and pray or meditate and literally don't get through the first four screens in 10 minutes so that their exam is finished without ever getting started. (To my knowledge, I've never known anyone who had that problem so I personally don't think it is a huge risk but don't take 10 minutes.)
D - Learn all you can in advance about the exam so you know what you are going to see. Go to: www.cpa-exam.org/lrc/exam_tutorial_parallel.html for tutorial and sample questions.
Read all the information that you receive about the exam and make sure that you make some time to wander around at www.cpa-exam.org just to learn about the exam. Again, the candidate bulletin has a lot of helpful information that you should be aware of before you arrive at the site.
E - During the exam, read everything carefully. If a message pops up, they did that because they wanted you to read the message NOT IGNORE IT. They told a few stories about people who ignored messages and then encountered problems with the exam. (Again, this is a possible problem but I wouldn't worry much about it - just read the messages.)
There are virtually no computer glitches in the exam at the present time. They said that 99.9 percent of the candidates have no problems with the computers at all. Problems tend to occur only because candidates fail to read a message.
They did ask that candidates make sure to get their confirmation of attendance which apparently is printed out from the computer when you log off at the end of the exam. They urged everyone to read this confirmation because it has some helpful information on it.
When the CPA Exam first became computerized back in 2004, there was a fair amount of confusion and some problems. The AICPA has really worked hard to make the CPA Exam a nonstressful situation for candidates. They want you to pass or fail based of what you know and do not know rather than on how well you navigate the mechanics of the exam. I wouldn't have said this five years ago but, if you will read what they send you and follow what they tell you, your experience should work out fine. There is no guarantee and problems do arise but, if I were you, I would worry about learning the material and not about whether the test is going to work or not.
(6) - I was talking with someone recently who asked what advice I would give to a candidate if I could boil it all day to one single word? It is really an interesting question. What is the one word that you should think about when getting ready to pass the CPA Exam?
When pondering this question, I was reminded of John Ruskin who was an English social critic and author who was said to have a stone that lay on his desk with one word carved on it: Today.
I think that would be my one word of advice for most questions. You have one day and one day only when you can accomplish something. That one day is Today. That's true for the CPA Exam and everything else you want to accomplish.
When you wake up in the morning, you are being given a golden opportunity. About 16 hours later you go to bed and you have made something great or something small of Today. Success in life often hinges on how well you utilize Today.
I know a lot of people who dwell in the past. They talk about past victories, excitement in the past. They seem to be stuck in some previous era. Their triumphs and successes are gone, never to be revisited.
I know a lot other people who constantly plot and plan the future. All of their actions focus on getting ready to accomplish something in some future time. Plotting is more fun than doing. They would rather get everything lined up for future success than actually accomplish anything Today.
However, I do know people who are able to wake up with their concentration entirely on how to best utilize the time they have been given right now.
The only time you can add points is TODAY.
The only time you can learn something about a topic is TODAY.
The only time you can make progress is TODAY.
It is not easy to focus on today. I know that as well as anyone. It is easier and more fun to set up how you are going to do something and just not worry about doing it. Or, it is safer to think about past victories and not have to face the difficulty of today.
The brain is a funny thing. Thinking, working out problems, learning rules, figuring out processes is real work for the brain. Consequently, the brain (which is often lazy) wants you to think about something else, almost anything else, rather than the material at hand.
So, the brain tells you: "don't worry about computing that capitalized lease, let's think about how we did so well in high school. That will make us feel good without having to do any difficult work right now."
The brain tells you: "don't worry about determining earnings per share, we can do that tomorrow. It is always more fun to plan to do work than it is to do it. Deferral is the best way to prepare."
If you want to pass the CPA Exam and you want one word of advice that would be truly helpful, remember Today. I honestly cannot think of anything more important to dwell on. You absolutely have to make good use of Today if you are going to gain the points you need. And, that is not easy. Spending time locked away in the past or the future will make you smile and feel good but it won't get you those 75 points that you need for success.
The only time you can do that is TODAY.
(7) - Let's do a few quick practice problems.
Financial Accounting and Reporting. This first problem comes from my Intermediate Accounting class today.
A company has a defined benefit pension plan. On January 1, Year One, a contractual provision was changed and the projected benefit obligation increased at that moment by $400,000. Which of the following statements is true?
A - Pension expense is not affected on January 1, Year One, but is gradually increased over the next several years.
B - Pension expense is increased immediately by $400,000.
C - Pension expense is increased on January 1, Year One, by a portion of the $400,000 with the remaining amount added to pension expense over the next few years.
D - Pension expense is never affected because the $400,000 is retained within accumulated other comprehensive income on the balance sheet.
Answer is A.
This change in the projected benefit obligation (PBO) is known as a prior service cost and comes from a change in a contractual provision. In this case, the change makes the liability larger and should decrease net income by increasing pension expense. Because the PBO is a large estimation of questionable reliability, FASB chose not to drop the entire amount into pension expense immediately because that would cause a significant swing in reported net income. Instead, the entire prior service cost is amortized to expense over several years based on the length of employee service. This is accomplished by first recording the $400,000 in accumulated other comprehensive income on the balance sheet and then gradually moving it from that account into pension expense.
Auditing and Attestation
Blue Company hopes to sell 500,000 shares of its common stock to the public. The company has prepared the appropriate documentation for the Securities and Exchange Commission. When properly approved, the shares will be conveyed to Lance & Woodruff, an underwriting firm that will actually sell the shares to the public. Hammer and Dove CPAs is the firm that audits Blue Company. Hammer and Dove have been hired to provide a comfort letter. Which of the following is not true?
A - The comfort letter will be addressed to Lance & Woodruff, the underwriting firm.
B - The comfort letter is a restatement of the final audit report prepared for Blue Company.
C - The comfort letter is not included in the documentation provided to the public in connection with the sale of these securities.
D - The comfort letter is likely to include negative assurance on unaudited information in the materials given to the SEC.
Answer is B
The underwriter is legally required to get expert advice on the financial information presented by the issuing company. The comfort letter, addressed and provided to the underwriter, meets this requirement. It provides reasonable assurance on much of the financial information that is included by the client because an audit has been carried out. However, it also provides negative assurance ("nothing came to our attention that would indicate a material difference from US generally accepted accounting principles") on some information where an audit is not possible.
Regulation
Walters owns land with a tax basis of $125,000 but a value of $160,000. This land is traded for like-kind land with a value of $150,000. To even up the trade, cash of $10,000 is also conveyed to Walters. What taxable gain should Walters report on the exchange in filing his federal income taxes?
A - Zero
B - $10,000
C - $25,000
D - $35,000
Answer is B
Normally, the exchange of like-kind property is tax free. However, Walters also received boot (the $10,000 in cash) that was not like-kind. The receipt of boot changes the rule. Then, the taxable gain is the lower of the boot ($10,000) or the exchange gain. The exchange gain is the difference in the fair value received ($150,000 plus $10,000 or $160,000) and its tax basis ($125,000). The exchange gain is $35,000 ($160,000 less $125,000). That is more than the cash collected so the lower number (the $10,000 in cash) is the taxable gain.
BEC
On January 1, Year One, the Aragoni Company is given the opportunity to pay $50,000 today to get a four-year annuity paying $20,000 per year for four years with each payment made on December 31. The company has a desired rate of return of 8 percent per year. The present value of a four-year ordinary annuity of $1 at an 8 percent annual rate is 3.3121. The present value of a four-year annuity due of $1 at an 8 percent annual rate is 3.5771. The present value of $1in four years at an 8 percent annual rate is .7350. Aragoni believes this to be a good investment. Which of the following statements is true?
A - The net present value is a positive $8,800.
B - The net present value is a positive $16,242.
C - The net present value is a positive $21,542.
D - The net present value is a positive $30,000.
Answer is B.
Since the payments are made at the end of each year, this is an ordinary annuity and the present value of the future cash flows is $66,242 ($20,000 times 3.3121). Net present value is the difference in the cost of an investment ($50,000) and the present value of the future cash flows ($66,242) or $16,242. If the present value is larger, this net present value is said to be positive and the investment meets the investment criterion of the company.
Have a great week and make each Today count.
Joe Hoyle
Co-Founder
CPA Review for FREE
Saturday, April 4, 2009
How Hard Are You Working
Thousands of Free Questions Available to Everyone
www.CPAreviewforFREE.com
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.
www.CPAreviewforFREE.com
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.
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
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