Lesson 41
From: Joe
(1) – Greetings from Richmond, Virginia – hope you are having a great day. We only have a finite number of days. You might as well put the best spin on each one of them that you can. Seriously, are you a “glass is half full” or “glass is half empty” type of person? I hope you are a “half full” type because life is just so much better that way. It is all a question of attitude and you can help make yourself feel better (and everyone around you feel better) just based on your attitude.
**
Okay, back to the CPA Exam. Last week, President Obama was giving a speech to the (I think) NAACP. I only heard a couple of sentences on the radio but I thought they were just great. I even stopped exercising to run get a pencil and write them down.
“No one has written your destiny for you. Your destiny is in your own hands.”
Whether you are conservative or liberal, whether you are a Democrat or Republican, you’ve got to like those sentiments. No one has written your destiny for you. Your destiny is in your own hands.
I know that we have a lot of people who receive these lessons who are going to be taking the CPA Exam during the last days of July and then into August. The time is now. People all across the country and the rest of the world are preparing for THE exam, right now—today. Roughly half of those people will pass. Roughly have of the people will fail. The math is simple. Which will you be? To a large extent, your destiny really is in your own hands. When all is said and done, it is up to you as to which half you will be in.
You don’t have to make 100.
You don’t have to be perfect.
You don’t have to know everything.
You don’t have to be at the top of the class.
You just have to be in the upper half. Anywhere in the upper half is probably good enough to get 75 points and pass.
When you are preparing for the CPA Exam, you cannot do anything about your age, your education, your intelligence. But, on the CPA Exam, those are not terribly important. Their value is vastly overstated. The great thing is that you can do something about the most important ingredient: how many hours you study and how much you concentrate during those hours. Both of those are in your hands and your hands only.
I would bet that the half of the candidates who study the most hours and study them with the most focus will be the half that is going to pass. It is not a guarantee, it is not an absolute but, for the most part, that is who is going to pass. It is just common sense. Amount of hours and quality of those hours. Tell me where you rank on those two and I’ll tell you whether you are going to pass.
So, your destiny really is in your hands. If you can push yourself to put in those hours and really stay focused, you can get into that upper half and, then, you can PASS.
In a recent one of these email lessons, I talked about the importance of “urgency.” That is something I have been practicing myself: figuring out what I want to get done each day and then trying to realize that it is urgent to get it accomplished.
Figure out what you want your destiny to be and then put in some urgency to get yourself moving in that direction.
Goals Plus Urgency = Success
(2) – Back on February 3, I talked about how to use CPA Review for FREE to pass the CPA Exam. I realized this morning as I started this lesson that probably half of the folks who get these email lessons have signed up since that time. So, I want to repeat my instructions. I’d love to see you use www.CPAreviewforFREE.com and save yourself thousands of dollars.
From my February 3, 2009 lesson: In case you have not really tried CPA Review for FREE yet, let me make the following suggestion. Put your money back in your pocket. Then, use us for one part of the exam and see how you do. We think you will be very pleased and you will have saved thousands of dollars. It makes no sense to pay for a program (especially a mediocre program) and then realize that you could have gotten the points you need to pass for FREE.
Here is one way that we recommend using CPA Review for FREE.
(a) – Make sure that you are qualified to take the CPA Exam. Start the process by going to www.nasba.org and review the requirements of your state. It is probably going to take a month or so for the state to review your application so get this process started quickly.
(b) – Pick the part of the exam that you like the most. It is always easier to get started with a part you like. I am personally a big fan of starting with Financial Accounting. Getting started is often the toughest step in the whole process. Don’t set the wall too high at the beginning.
(c) – Once you get your official Notice to Schedule indicating that your application has been approved, schedule to take that first part of the exam in roughly 40 days. There is absolutely no reason to study for six months. That is inefficient; you’ll forget it all. Let’s get started now and get it done. Pick a day in about 6 weeks and reserve your seat. Having a date set will get you fired up to do the work. (You might want to go back to Lesson 40 and read about buying marbles and putting them into a jar—that really is helpful.)
(d)—Go to www.CPAreviewforFREE.com and read all the information under “resources.” It is all important so read it.
(e)—Start answering at least 15-18 questions per day from our website. It is probably a good idea to go one topic at a time. Make a list of the categories and check them off as you go. Seeing the progress will make you feel good and give you energy. Work six days per week. Take off one day each week completely and get some real rest and relaxation. Try to average at least 90 minutes per day the rest of the week.
(f)—Do 15 minutes or so of physical exercise each day to keep the blood pumping. You will feel better and you will do better. I cannot possibly stress how important it is to get a little exercise every day. Your body and brain will wear out on you if you don’t and that’s no way to pass.
(g)—At this point, never guess at answers when you study. On the exam, you will need to guess but not when you are preparing. Guessing during study adds no value whatsoever and can mislead you about you know.
(h)—Never worry about how many questions you are getting right or wrong. That is a distraction that does not help you one bit. The only thing you want to worry about is getting better.
(i)—If you get a question correct, move on. Don’t sit and congratulate yourself.
(j)—Here’s a very important point. If you miss a question, read the answer carefully and find the step you missed and figure out what you missed in doing that step. Write down 10 words or less to help you get the question/step right the next time you see it. Don’t spend time writing pages—keep it to 10 words. You want to improve the odds that you can get the question right the next time.. Reading the answer for missed questions may be the single most important thing you do in this process. I cannot stress how important this list of 10 word explanations can be for you in the end.
(k)—As you work, keep a list of “three-second questions..” Those are the very basics—questions that you should be able to read, count to three, and give an answer off the top of your head. Having the basics down is so very vital to learning. “How is interest expense computed?” “Interest expense is the book value of the debt times the effective or yield rate.” “How is the amount of cash interest to be paid on a debt computed?” “Cash interest is the face value of the debt times the stated rate of interest.” Those are three second questions and their answers.
(l)—Never forget that you only need to get 75 points to pass. You are not seeking perfection. Because of the grading system, 75 points does not even mean 75 percent of the questions.
(m)—Once a week, walk back through your three-second questions. You just want to keep the basics fresh in your mind. You will forget things quickly; you need a way to keep the basics in your mind.
(n)—When you get to the final 7-10 days, start going methodically back through your 10 word notes. You want to work on increasing the number of questions that you can answer. That is your only real goal.
(o)—When you get to the final 7-10 days, start answering questions at www.CPAreviewforFREE.com in random mode rather than by topic. You want to get used to seeing questions move quickly from one topic to the next. That is an important step that I think too many people ignore.
(p)—When you get to the final 7-10 days, go to www.cpa-exam.org and go through the tutorial and sample tests. Read everything and just get a feel for how the questions (both multiple choice and simulations) are presented. Don’t worry about trying to figure out answers on that site, that’s not the purpose.
(q)—Make sure you read all of the information again that came with your Notice to Schedule. They really do try to explain everything to you in advance to make the testing experience less stressful. Read this material carefully.
(r)—Make sure you know the location of the testing center. Estimate how long the drive will take and what time you need to leave to get there comfortably. You want to avoid any and all stress. You want 100 percent of your energy focused on getting points.
(s)—On the night before the exam, eat normally and get a typical amount of sleep. You will think more clearly during the exam if nothing has upset the normal rhythm of your life. You will have more energy and more confidence. You want to be loose but focused. I am totally against losing sleep to study on the night or two before the exam. Sleepy people do not pass the CPA Exam.
(t)—During the exam, watch your time very closely. You want to finish with about 10 seconds left. Don’t waste time but don’t get too rushed. On the day of the exam, time management is your biggest enemy.
(u)—If you do not know a question on the exam, eliminate as many answers as possible and take a guess. Do not let a tough question get you rattled. Don’t spend time on a question that you really do not know. No one is seeking perfection from you. But you do need to have an answer or a guess down for every question.
(v)-- When you leave the testing center, smile and say “I did it; I gave it my very best!!!” That is really the attitude that you want to have.
Try it – try CPA Review for FREE - it will work and you’ll have all of your money still in your pocket. For heaven’s sake, there is a recession going on; be a wise shopper.
(3) – Just a reminder as always: if you want to unsubscribe to these lessons, you can do that by scrolling to the end of this lesson and clicking on the appropriate link.
(4) – At the end of last week, we moved over 4,250,000 page views as we head toward our goal of 10 million by the end of 2009.
(5) – And, finally, as always, here is some practice to help you ADD THOSE POINTS.
Financial Accounting -- Another practice question from my new Financial Accounting textbook (if you know any college accounting profs, tell them to be on the watch. CJ Skender and I have authored an innovative new textbook that will be released this fall).
John Doe successfully creates an invention at a cost of $1.6 million and, on January 1, Year One, receives a patent that gives him the exclusive rights to that invention for 20 years. One year later, John Doe sells all rights to the patent to Nahquan Corporation for $3 million. Nahquan pays another $400,000 to a legal firm to help ensure that the right to this patent is properly transferred. Nahquan hopes to use the patent for five years and then sell it for $200,000. On December 31, Year Two, another company offers to pay Nahquan $4 million for this intangible asset but that amount is rejected as being too low. On its balance sheet at that time, what balance is reported by Nahquan for the patent?
A - $2,560,000
B - $2,760,000
C - $3,040,000
D - $3,221,053
Answer is B.
For Nahquan, the capitalized cost of this intangible asset is $3.4 million. That amount is the normal and necessary cost of acquiring the patent so that it could be used by the company to generate future revenues. The company plans to make use of it for five years and then sell it for a $200,000 residual value. Annual amortization for that period will be $640,000 per year ([$3.4 million less $200,000] divided by 5 years). After Nahquan holds the patent for its first year (Year Two), the reported value is reduced to $2,760,000 ($3.4 million less $640,000). The $4 million offer does not affect Nahquan’s reporting since it was not accepted. The amortized historical cost remains the basis for financial reporting unless the value becomes impaired.
Regulation
The Waynesboro Corporation is located in Michigan. Recently, it has begun negotiated to acquire a controlling interest in Havenford Corporation, located in Indiana. Havenford has 1,000,000 issued and outstanding shares of common stock but no shares of preferred stock. Waynesboro wants to buy enough shares so that a consolidated tax return can be filed. How many shares must Waynesboro acquire?
A – 500,001
B – 800,000
C – 950,000
D – 1,000,000
Answer is B
In order to file a consolidated tax return (which is allowed but not required), the parent must own at least 80 percent of the outstanding shares of the subsidiary. Here, is one area where financial accounting and tax accounting differ. For financial accounting, consolidation is mandated with any number of shares is acquired in excess of 50 percent. For tax accounting, consolidation is allowed once 80 percent of the stock is owned.
Auditing & Attestation
The CPA firm of Borgin & Burke is coming to the end of an audit engagement and has just mailed a letter to the client’s lawyers. What is the primary purpose of such a lawyer’s letter?
A – To discover any unreported contingent liabilities.
B – To ensure that all stock transactions engaged in by the client have been legal.
C – To confirm the legal expense balance reported by the audit client on its income statement.
D – To corroborate information obtained from the client about contingent losses.
Answer is D.
The financial information reported in financial statements is always the representation of the company’s management. The auditor seeks to gain corroborating evidence so as to provide reasonable assurance that this information contains no material misstatements according to US GAAP. Thus, the client creates a list of all contingencies and then provides estimations of the likelihood of loss as well as the most likely amounts. This information is then sent to the company’s lawyer whose response will hopefully help the firm by providing supportive evidence..
BEC
Which of the following is true about the International Monetary Fund (IMF)?
A – It prints money to be used by member countries.
B – It has a pool of currencies from which member countries can borrow to meet short-term deficits in balance of payments.
C – It serves as an investment resource for member countries allowing them to make extremely high rates of return on invested capital.
D – It allows deposits by member countries which are then allocated each year as a way to reward countries which have made the most progress economically.
Answer is B
According to its website, “the IMF promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction.”
I opened with a Barack Obama quote so I’ll close with one also. If you want to pass the CPA Exam, you cannot wait for someone else. You are the person that you have been waiting for.
“Change will not come if we wait for some other person or some other time. We are the ones we've been waiting for. We are the change that we seek.”
Monday, July 27, 2009
Thursday, June 18, 2009
Hours plus Planning plus Self-Discipline = Success
What Are Your Plans TODAY
www.CPAreviewforFREE.com
Lesson 37
From: Joe
(1) - Just a quick reminder. It is Father's Day on Sunday. If you are lucky enough that your father is still alive, make sure to give him a big hug. Never pass up those chances. Some things (well, a few things) are even more important than the CPA Exam.
(2) - In less than a year, we have gone over 3.5 million page views. Great job!!! You guys are the best!!! You have spread the word about www.CPAreviewforFREE.com. We could not do this without you. Give yourselves a big pat on the back.
(3) - It is raining and cool here in Richmond, Virginia today. It is a great day to add some points to your CPA Exam score. (Of course, I would assert that every day is a great day to add some points.)
Which raises some important questions. When you got out of bed this morning:
--How many points did you plan to add to your score today?
--How many minutes or hours did you plan to spend studying today?
--What times did you have blocked off to study today?
--Specifically, what were you planning to do in your studies today to add the desired points?
If you have followed these email lessons for long, you know how much I stress putting in the time. You have heard me say, more than once, Hours Equal Points.
However, it is not just hours alone that make good things happen. It is Hours plus Planning. Humans often waste too much time being disorganized. I'll take an organized hour of study over a disorganized two hours any day.
If you are keeping a list, Hours and Planning go on the good side and Procrastination and Disorganization go on the bad side.
And, you can get organized by simply answering a couple of questions each night before you go to bed as you look toward the following day: how much time do I want to study, when am I going to study, what am I going to do during this study time???
Simple questions but they make all the difference in the world.
Once you have those questions answered, you are set but only if you have the self-discipline to stick with the plan. In fact, I think my real equation should be:
Hours plus Planning plus Self-Discipline = A Passing Grade
Two simple questions: look at your watch-what time is it right now? How much time have you spent on the CPA Exam so far TODAY? If you don't plan, time gets away from you.
Here's the most important equation you can learn for the CPA Exam.
Hours plus Planning plus Self-Discipline = A Passing Grade
(4) - I received several wonderfully nice emails over the last week or so. Always brightens up my day.
"I want to thank you for offering this FREE site....thought the only free commodity in the world was air until a friend introduced me to your site. I used it and continue to use it to assist with preparing for
the CPA exam. As a mother of 2, I do not have time to go to class and spend the funds but I can study when my kids go to bed....about an hour or 2 so I fall into the category of those who need at least 60 days before taking any part."
"Thanks for always believing in us (the CPA candidates) Mr. Hoyle. God bless you for making a site that I can go on every night and do problems! I WILL PASS--I KNOW IT!! Keep up the good work!"
"Thanks for the opportunity and the wonderfully constructed questions on your website. It has been a great tool in my preparation along with the inspirational stories (excellent)."
"I used CPAreviewforFREE.com to study for my last two exams. I had consistently been failing BEC with low 70s. I started doing your questions, and passed with 75 and Audit with 77. I was going to lose my credit for REG if I didn't pass these last two. Whew! What a relief! I have been studying for two years and I finally did it. I studied so much. I spent hours every night through tax season because I had no choice. Anyway, your questions are different than those at (big review program) so I'm sure just seeing different ones helped a lot. Thanks for your very supportive and uplifting emails. That in itself made a difference to me and helped me to never give up."
(5) - As always, please understand that you can unsubscribe from these emails just by scrolling to the bottom and clicking on the appropriate button. I love writing them and I hope you enjoy reading them. However, your time is valuable. When you are ready to leave, please feel free to do so.
(6) - Remember that all CPAreviewforFREE.com questions and answers can be downloaded for a small fee. You are certainly welcome to work them online for free. However, if you want a paper copy that you can carry around with you, just go to "Store" in the upper right hand corner of www.CPAreviewforFREE.com.
(7) - June is a "dark month" in that the CPA Exam is not given at this time. Everyone who is currently studying is getting ready for July and/or August. No one is taking the exam tomorrow. Usually, people start out strong in their studies and over time find it more and more difficult to put in the time especially when the exam is still weeks away. They begin to fade.
If you have started to fade a bit and are finding it harder to put in the necessary study time and effort, let me make a couple of suggestions.
---Moderate exercise (I'll let you decide what "moderate" means) will always increase energy. Go out and take a 15 minute walk 3-4 times a week. I know many of you are saying "I just don't have time to go for a walk." Well, my response is: "MAKE TIME!!" Prepare a sandwich and then go for a walk at lunch. As soon as dinner is over and before you start anything else, go for a quick stroll. You will just feel better and if you feel better, you'll accomplish more. Give me 15 minutes 3-4 times per week and your chances to pass go way up.
---Change where you study. If you study at the same desk and chair day in and day out, the atmosphere starts to get tiring. At least once a week, at least for one day, study some place completely different. You want to keep from getting into a rut and a different room can help.
---Give yourself rewards. For example, if you like chocolate, buy yourself some of your favorite brand. Then, promise yourself a piece of chocolate when you finish 30 questions and answers. Don't make it dependent on getting them right or wrong because that gets depressing if you miss questions. You want to reward yourself for just doing the work.
---Figure out what time of day you feel strongest and try to study at that time. Unfortunately, many people wind up studying when they are already tired and worn out at the end of the day. I'm convinced that we all have strong periods of time during each day and it is helpful to study at those times.
---One day a week, if you can, study with a friend. It is helpful to share this experience. It provides a different perspective. Even if you just sit for an hour asking questions back and forth, it is a more active way of preparing and will make you feel better. I'm not a big believer in studying together every day but once a week is a nice change.
---At least once a week, do something that is fun. Go swimming, go to a movie, go to an amusement park. Studying can get to be drudgery. Miserable people don't do well. You want to have something fun to look forward to. When I was studying for the exam, I liked going to movies. For two hours, you are in a dark room and you cannot study. You've paid your money so you just cannot get up and leave. I always walked out of each movie feeling refreshed and ready to get back to work.
---If possible, try to avoid whining about all the work. I know some people think that whining is a good release. I tend to believe whining just makes the misery more real. Listen to the things you say about the CPA Exam and try to make as many of them as positive as possible. Keep a list so you can gauge how much whining you are doing.
It is easy to start feeling like you are pushing a huge boulder up a steep hill. That is not helpful. Suffering does not add points. Experiment with ways to make the experience more palatable. If you feel better, you will do better.
(8) - Time for a bit of practice. I am getting ready to add these questions to our database but, before I do, I will run them past you folks.
BEC
A company is producing wagons. The company expects to produce 10,000 wagons this year and take three hours of direct labor to complete each one. The direct labor is supposed to cost $15 per hour. The company actually works 31,000 hours but only produces 9,800 wagons. The labor cost is $496,000 or $16 per hour. In a standard cost accounting system, what is the labor rate variance?
A - $29,400 unfavorable
B - $30,000 unfavorable
C - $30,600 unfavorable
D - $31,000 unfavorable
Answer is D
Company employees were paid a rate $1 per hour over the standard ($16 per hour less $15 per hour). The company employees worked a total of 31,000 hours. For each of those hours, the employee was paid $1 over standard. The labor rate variance is unfavorable (company paid more than standard) and equals $31,000 ($1 per hour for 31,000 hours).
Regulation
Morris Ronaldo runs a small sole proprietorship that has one truck that is used solely in the business. It had a cost of $70,000 but a tax basis of only $19,000. However, it has a fair value of $22,000. It is traded for a similar truck with a list sales price of $80,000. To make the sale, the dealer reduced the price by $24,000 as a trade-in allowance for the old truck. What is the basis of the new truck for federal income tax purposes?
A - $75,000
B - $76,000
C - $77,000
D - $78,000
Answer is A
This is a trade of like-kind assets. For tax purposes, the basis of the new property equals the basis given up. The old truck has a tax basis of $19,000. In addition, the company pays cash of $56,000. That is the $80,000 price less the $24,000 trade-in allowance. The company gives up a basis of $19,000 and cash of $56,000. The amount surrendered is the total tax basis surrendered or $75,000 ($19,000 plus $56,000). That is the basis for the new property received in the trade.
Financial Accounting
Ronald Morrisson runs a small sole proprietorship that has one truck that is used solely in the business. It had a cost of $70,000 but a book value of only $19,000 after years of depreciation. However, it has a fair value of $22,000. It is traded for a similar truck with list sales price of $80,000. To make the sale, the dealer reduced the price by $24,000 because of the trade in of the old truck. What is the reported cost of the new truck according to US GAAP?
A - $75,000
B - $76,000
C - $77,000
D - $78,000
Answer is D
For financial reporting purposes, an exchange is reported by taking off the old book value and putting on the fair value of the assets surrendered to create the trade. The fair value of the old truck is $22,000. The cash surrendered is $56,000, the $80,000 sales price less the $24,000 trade-in allowance. If the company gives up assets of $22,000 and $56,000, the new asset is recorded at its cost of $78,000.
Auditing and Attestation
Clemmons CPA is performing an audit of a company and is required to follow the regulations of the PCAOB. At the end of the engagement, audit documentation must be kept to demonstrate how the audit opinion was derived. How long is this retention period?
A - 3 years
B - 5 years
C - 7 years
D - 10 years
Answer is C
The PCAOB wanted auditors to retain audit documentation for a sufficient period of time so that information would be available as long as necessary to support the opinion that was rendered. This retention period was set at 7 years.
Again - tell you father how much you appreciate him!!!
"The only sin is mediocrity." Martha Graham (good words to live by).
Joe
www.CPAreviewforFREE.com
Lesson 37
From: Joe
(1) - Just a quick reminder. It is Father's Day on Sunday. If you are lucky enough that your father is still alive, make sure to give him a big hug. Never pass up those chances. Some things (well, a few things) are even more important than the CPA Exam.
(2) - In less than a year, we have gone over 3.5 million page views. Great job!!! You guys are the best!!! You have spread the word about www.CPAreviewforFREE.com. We could not do this without you. Give yourselves a big pat on the back.
(3) - It is raining and cool here in Richmond, Virginia today. It is a great day to add some points to your CPA Exam score. (Of course, I would assert that every day is a great day to add some points.)
Which raises some important questions. When you got out of bed this morning:
--How many points did you plan to add to your score today?
--How many minutes or hours did you plan to spend studying today?
--What times did you have blocked off to study today?
--Specifically, what were you planning to do in your studies today to add the desired points?
If you have followed these email lessons for long, you know how much I stress putting in the time. You have heard me say, more than once, Hours Equal Points.
However, it is not just hours alone that make good things happen. It is Hours plus Planning. Humans often waste too much time being disorganized. I'll take an organized hour of study over a disorganized two hours any day.
If you are keeping a list, Hours and Planning go on the good side and Procrastination and Disorganization go on the bad side.
And, you can get organized by simply answering a couple of questions each night before you go to bed as you look toward the following day: how much time do I want to study, when am I going to study, what am I going to do during this study time???
Simple questions but they make all the difference in the world.
Once you have those questions answered, you are set but only if you have the self-discipline to stick with the plan. In fact, I think my real equation should be:
Hours plus Planning plus Self-Discipline = A Passing Grade
Two simple questions: look at your watch-what time is it right now? How much time have you spent on the CPA Exam so far TODAY? If you don't plan, time gets away from you.
Here's the most important equation you can learn for the CPA Exam.
Hours plus Planning plus Self-Discipline = A Passing Grade
(4) - I received several wonderfully nice emails over the last week or so. Always brightens up my day.
"I want to thank you for offering this FREE site....thought the only free commodity in the world was air until a friend introduced me to your site. I used it and continue to use it to assist with preparing for
the CPA exam. As a mother of 2, I do not have time to go to class and spend the funds but I can study when my kids go to bed....about an hour or 2 so I fall into the category of those who need at least 60 days before taking any part."
"Thanks for always believing in us (the CPA candidates) Mr. Hoyle. God bless you for making a site that I can go on every night and do problems! I WILL PASS--I KNOW IT!! Keep up the good work!"
"Thanks for the opportunity and the wonderfully constructed questions on your website. It has been a great tool in my preparation along with the inspirational stories (excellent)."
"I used CPAreviewforFREE.com to study for my last two exams. I had consistently been failing BEC with low 70s. I started doing your questions, and passed with 75 and Audit with 77. I was going to lose my credit for REG if I didn't pass these last two. Whew! What a relief! I have been studying for two years and I finally did it. I studied so much. I spent hours every night through tax season because I had no choice. Anyway, your questions are different than those at (big review program) so I'm sure just seeing different ones helped a lot. Thanks for your very supportive and uplifting emails. That in itself made a difference to me and helped me to never give up."
(5) - As always, please understand that you can unsubscribe from these emails just by scrolling to the bottom and clicking on the appropriate button. I love writing them and I hope you enjoy reading them. However, your time is valuable. When you are ready to leave, please feel free to do so.
(6) - Remember that all CPAreviewforFREE.com questions and answers can be downloaded for a small fee. You are certainly welcome to work them online for free. However, if you want a paper copy that you can carry around with you, just go to "Store" in the upper right hand corner of www.CPAreviewforFREE.com.
(7) - June is a "dark month" in that the CPA Exam is not given at this time. Everyone who is currently studying is getting ready for July and/or August. No one is taking the exam tomorrow. Usually, people start out strong in their studies and over time find it more and more difficult to put in the time especially when the exam is still weeks away. They begin to fade.
If you have started to fade a bit and are finding it harder to put in the necessary study time and effort, let me make a couple of suggestions.
---Moderate exercise (I'll let you decide what "moderate" means) will always increase energy. Go out and take a 15 minute walk 3-4 times a week. I know many of you are saying "I just don't have time to go for a walk." Well, my response is: "MAKE TIME!!" Prepare a sandwich and then go for a walk at lunch. As soon as dinner is over and before you start anything else, go for a quick stroll. You will just feel better and if you feel better, you'll accomplish more. Give me 15 minutes 3-4 times per week and your chances to pass go way up.
---Change where you study. If you study at the same desk and chair day in and day out, the atmosphere starts to get tiring. At least once a week, at least for one day, study some place completely different. You want to keep from getting into a rut and a different room can help.
---Give yourself rewards. For example, if you like chocolate, buy yourself some of your favorite brand. Then, promise yourself a piece of chocolate when you finish 30 questions and answers. Don't make it dependent on getting them right or wrong because that gets depressing if you miss questions. You want to reward yourself for just doing the work.
---Figure out what time of day you feel strongest and try to study at that time. Unfortunately, many people wind up studying when they are already tired and worn out at the end of the day. I'm convinced that we all have strong periods of time during each day and it is helpful to study at those times.
---One day a week, if you can, study with a friend. It is helpful to share this experience. It provides a different perspective. Even if you just sit for an hour asking questions back and forth, it is a more active way of preparing and will make you feel better. I'm not a big believer in studying together every day but once a week is a nice change.
---At least once a week, do something that is fun. Go swimming, go to a movie, go to an amusement park. Studying can get to be drudgery. Miserable people don't do well. You want to have something fun to look forward to. When I was studying for the exam, I liked going to movies. For two hours, you are in a dark room and you cannot study. You've paid your money so you just cannot get up and leave. I always walked out of each movie feeling refreshed and ready to get back to work.
---If possible, try to avoid whining about all the work. I know some people think that whining is a good release. I tend to believe whining just makes the misery more real. Listen to the things you say about the CPA Exam and try to make as many of them as positive as possible. Keep a list so you can gauge how much whining you are doing.
It is easy to start feeling like you are pushing a huge boulder up a steep hill. That is not helpful. Suffering does not add points. Experiment with ways to make the experience more palatable. If you feel better, you will do better.
(8) - Time for a bit of practice. I am getting ready to add these questions to our database but, before I do, I will run them past you folks.
BEC
A company is producing wagons. The company expects to produce 10,000 wagons this year and take three hours of direct labor to complete each one. The direct labor is supposed to cost $15 per hour. The company actually works 31,000 hours but only produces 9,800 wagons. The labor cost is $496,000 or $16 per hour. In a standard cost accounting system, what is the labor rate variance?
A - $29,400 unfavorable
B - $30,000 unfavorable
C - $30,600 unfavorable
D - $31,000 unfavorable
Answer is D
Company employees were paid a rate $1 per hour over the standard ($16 per hour less $15 per hour). The company employees worked a total of 31,000 hours. For each of those hours, the employee was paid $1 over standard. The labor rate variance is unfavorable (company paid more than standard) and equals $31,000 ($1 per hour for 31,000 hours).
Regulation
Morris Ronaldo runs a small sole proprietorship that has one truck that is used solely in the business. It had a cost of $70,000 but a tax basis of only $19,000. However, it has a fair value of $22,000. It is traded for a similar truck with a list sales price of $80,000. To make the sale, the dealer reduced the price by $24,000 as a trade-in allowance for the old truck. What is the basis of the new truck for federal income tax purposes?
A - $75,000
B - $76,000
C - $77,000
D - $78,000
Answer is A
This is a trade of like-kind assets. For tax purposes, the basis of the new property equals the basis given up. The old truck has a tax basis of $19,000. In addition, the company pays cash of $56,000. That is the $80,000 price less the $24,000 trade-in allowance. The company gives up a basis of $19,000 and cash of $56,000. The amount surrendered is the total tax basis surrendered or $75,000 ($19,000 plus $56,000). That is the basis for the new property received in the trade.
Financial Accounting
Ronald Morrisson runs a small sole proprietorship that has one truck that is used solely in the business. It had a cost of $70,000 but a book value of only $19,000 after years of depreciation. However, it has a fair value of $22,000. It is traded for a similar truck with list sales price of $80,000. To make the sale, the dealer reduced the price by $24,000 because of the trade in of the old truck. What is the reported cost of the new truck according to US GAAP?
A - $75,000
B - $76,000
C - $77,000
D - $78,000
Answer is D
For financial reporting purposes, an exchange is reported by taking off the old book value and putting on the fair value of the assets surrendered to create the trade. The fair value of the old truck is $22,000. The cash surrendered is $56,000, the $80,000 sales price less the $24,000 trade-in allowance. If the company gives up assets of $22,000 and $56,000, the new asset is recorded at its cost of $78,000.
Auditing and Attestation
Clemmons CPA is performing an audit of a company and is required to follow the regulations of the PCAOB. At the end of the engagement, audit documentation must be kept to demonstrate how the audit opinion was derived. How long is this retention period?
A - 3 years
B - 5 years
C - 7 years
D - 10 years
Answer is C
The PCAOB wanted auditors to retain audit documentation for a sufficient period of time so that information would be available as long as necessary to support the opinion that was rendered. This retention period was set at 7 years.
Again - tell you father how much you appreciate him!!!
"The only sin is mediocrity." Martha Graham (good words to live by).
Joe
Monday, June 8, 2009
Don't Get Stuck In Your Own Dreams
Don't Get Stuck In Your Own Dreams
www.CPAreviewforFREE.com
Lesson 36
From: Joe
(1) - I was watching the Tony Awards last night on television. They are given each year for the best plays on Broadway in New York City. I had seen a couple of the plays so I was interested to see what won.
During the program, they had a short tribute to Natasha Richardson, a relatively young actress who died last winter in (I think it was) a skiing accident. They said that one of Ms. Richardson's favorite lines was "Stop dreaming and do it!!!"
A lot of us, certainly including me, talk about how wonderful it is to have dreams. And, yes, it is great to have large and bold dreams. We need those for life. But she was absolutely right. Sometimes, we get stuck in our dreams and have more enjoyment from the dream than we do from the reality.
You need reality if you are going to pass the CPA Exam and not just dream about passing.
I hear these all the time:
---I really really want to make an A in Intermediate Accounting.
---Well, what have you done so far to achieve that dream?
---Nothing so far but I plan to really start work sometime in the next week or so.
---I really really want to pass the CPA Exam.
---Well, that is great. How much studying have you done?
---Not much so far. I've spent my time buying books and note cards and getting all my materials ready.
---I really really want to knock out the first part of the CPA Exam soon.
---Well, that's a good goal. How much of the material have you gotten covered so far?
---Not much yet. I always used to cram in college so I'm kind of waiting until the exam date gets closer before I get down to serious work.
If you ask these people, they could probably talk your ear off about how much they want to succeed, how they think about achieving their goals all the time. They really love those dreams. They don't really want to pass; they just want to dream about passing.
And, I understand. There is something exciting about planning to win. There is something stimulating about envisioning the winning score and the glory of being the champion. However, at some point, you have to switch over from dreams to reality. That usually means doing some hard work and doing it on a very consistent basis.
Dreams are fun. Hard work can be tedious.
Dreams feel good. Hard work can be very uncomfortable.
Dreams can get you excited. Hard work is best done at a slow and meticulous pace.
But, dreams along GET YOU NOTHING.
I love dreams and I always encourage everyone to dream. At some point, though, dreams can be addictive and lead to nothing. You have to break through and push yourself to actually achieve success.
If you are having trouble moving toward your goal of passing the CPA Exam, it may well be that you are stuck in your own dreams. The dream of passing the exam is all you need. And, it is a lot more fun than doing the serious work to get those points.
Stop dreaming and DO IT!!!
(2)
(A) - As always, do not forget that you can unsubscribe from this service at any time that you wish. Our weekly emails go to thousands and thousands of CPA Exam candidates each week located around the world. We are delighted to have you as part of that community. Do understand, though, that you can unsubscribe by simply scrolling to the end of this email and clicking on the appropriate link.
(B) - We just ended our 49th week of operation on www.CPAreviewforFREE.com. When we got started last summer, we had no money for advertising so we just hoped people would hear about us through word-of-mouth. When we started, my dream was that we would have one million page views in our first year. That seemed like an incredibly high number without advertising. That just seemed like a huge number of points to help add to the scores of our candidates. Well, last week, we moved over 3.4 million page views. So, I guess you could say that I underestimated a bit. Thanks to everyone who has told others about www.CPAreviewforFREE.com. We could not be doing this without you.
(C) - Just a reminder that all of our questions and answers are free. However, if you want to buy and download a copy so that you can put them in your brief case and take them with you, just go to www.CPAreviewforFREE.com and click on Store.
(D) - Thanks to everyone who sent in information that I can share with college students at my speech this Saturday on the CPA Exam. I always appreciate your assistance.
(3) - Questions. I give presentations around Virginia about the CPA Exam and, of course, I help run www.CPAreviewforFREE.com. I get a lot of questions. So, I thought I would list some of the most prevalent questions and my typical answers.
Question: Should I take the CPA Exam right out of college?
Joe's Response: There are certainly some advantages in taking the CPA Exam soon after college. First, you are used to studying. Second, you are used to taking tests. Third, you have (or should have) a lot of knowledge already in your head from the college classes. However, I've known a lot of students who graduated from college and took the CPA Exam because everyone told them to and then failed miserably. Sometimes those candidates were so discouraged that they never took the exam again. Be a little careful before you rush to take the CPA Exam right out of college.
I believe you should know two things before you decide to take the exam. First, you really need to know why YOU want to pass the CPA Exam. Not your neighbor or your friend or your mom or your spouse. Why do YOU want to pass the CPA Exam? It is hard to do all of that work if you don't have a good reason. You need an anchor and that anchor is your reason for wanting to pass. Be sure you know that.
Second, you need to be able to put in enough hours. It is virtually impossible to pass the exam if you don't study enough. If you can put in 60-100 hours per part, you should be ready.
Be honest with yourself: Why do you want to pass? Will you be able to put in the necessary hours? Those questions are both really important. Until you can answer both of those, you probably should wait on taking the CPA Exam.
Question: Don't I need to take a CPA Review course and pay a couple thousand to them?
Joe's Ideas: I am obviously biased but I am always shocked by people who have a need for money and are still willing to give two or three thousand dollars away without first trying to save the money. With that kind of logic, it is no wonder that we are in a recession. If it were me, I'd try CPA Review for Free for 4 weeks and then make a decision. I firmly believe you can pass without giving away your money and I would sure as heck take a shot at it if it were my money.
Question: What's the major reason that people fail the CPA Exam?
Joe's Gut Reaction: Failure to put in enough hours, without a doubt. The exam is built to reward hours of study. It is very difficult to pass if you have studied 20 hours and the guy beside of you has spent 75 hours. It is not the money or the teacher or much else - it is the hours.
Question: Okay, well, what is the most likely reason that a person can do enough study and still fail?
Joe's Thoughts: This is just speculation on my part but I imagine that it is time management problems at the site. You can be an absolute genius but if you don't finish more than 3/4 of the exam, it is not likely that you are going to pass. You can know everything about everything but it is tough to get enough questions right if you rush through the questions like the room is on fire and finish 90 minutes early. There are no guarantees but if you (a) put in enough hours and (b) manage your time well, you should have a very good chance to pass.
Question: How many parts should I take in one window?
Joe's Feelings: That depends entirely on how much time you have to study. If you can put in a legitimate three hours per day, it is going to take you 20 days to study 60 hours. So, taking an exam every 20 days is certainly possible. On the other hand, if you can only average one hour per day, it will take 60 days to get in 60 hours and you probably can only take one test per window.
I must admit that I would like the idea of getting the exam finished so I could get on with life. That appeals to me. I typically like to see people take at least two parts per window. However, I think everyone has to remember that there is no one right answer to that question. How much time do you have to spend studying?
Question: Which part should I take first?
Joe's Best Guess: That's actually an easy question. I am always in favor of taking the part that you like best first. It is a good idea to do a part where you will not mind spending the time and, hopefully, are most likely to pass. I am an accountant; I like numbers; I would start with FAR. However, each person is different. Think about the parts and go for the one that you like best.
If you have questions for Joe, send them in. If I can give a legitimate and reasonable answer, I'll be glad to let you know what I think.
(4) - Here are a few practice questions to get your mind thinking today. If you go to www.CPAreviewforFREE.com, you will find that we have 2,000 well written questions and answers that should give you the 75 points you need for success on the CPA Exam. Most of them look kind of like the ones here.
Financial Accounting
On January 1, Year One, Company P has land with a cost of $100,000 and a fair value of $130,000. On the same date, Company S has land with a cost of $80,000 and a fair value of $90,000. On that date, Company P bought Company S and paid enough money that goodwill was recognized. One year later, on December 31, Year One, Company P has land with a cost of $120,000 and a fair value of $160,000. On the same date, Company S has land with a cost of $100,000 and a fair value of $130,000. What is the balance in the consolidated land account on December 31, Year One?
A - $220,000
B - $230,000
C - $250,000
D - $290,000
Answer is B
When Company P bought Company S, it paid an additional $10,000 because Company S's land had cost $80,000 but was actually worth $90,000. This cost paid by Company P in acquiring Company S is viewed as another cost paid for this land. At the end of Year One, the land held by Company P now has a cost of $120,000. Land held by Company S has a cost of $100,000. Company P has the additional cost of $10,000 because of its acquisition of Company S. The consolidated balance for land is $120,000 + $100,000 + $10,000 or $230,000. The information about goodwill simply indicates that Company P was not able to buy Company S at a bargain purchase price.
Auditing and Attestation
Jones and Winehouse CPAs are doing an audit and are currently carrying out analytical procedures. The age of accounts receivable is computed and compared to the prior year. The age has increased by a large amount. Which of the following is the independent auditor least likely to say as a result of uncovering this information.
A - The client may have loosened up its credit terms so that a larger bad debt expense is needed than in the past.
B - The client may have started selling its accounts receivable to a bank so that a loss should be recognized.
C - Economic times might have gotten worse so we need to look more closely to make sure all bad accounts have been written off.
D - Someone inside of the company might have begun lapping as a way of stealing money.
Answer is B
When receivables are sold before they are collected (they certainly would not be sold after they were collected), the age should get shorter. The company is getting its money faster as a result of the sale. Thus, B is a possible answer if the average age had gotten shorter. However, if the age gets higher, it could be that the credit terms have been loosened so that customers with less money are able to buy on credit. They typically take longer to pay with more risk of becoming uncollectible. When economic times are bad, people also tend to pay more slowly and the number of bad accounts goes up. And, in lapping, money from a customer is stolen. Several days later, to keep the customer from finding out that the money was never recorded by the company, money from a second customer is diverted into the account of the first customer. The period in between makes the age of the accounts longer.
Regulation
Walker Ambrose owns three acres of land in Tennessee with a cost of $70,000 and a fair value of $110,000. The state of Tennessee condemns the land and takes ownership so that a road can be built through the property. The state pays Ambrose $114,000 for the land it took. Ambrose takes this money and buys similar land four miles away for $111,000. What is the tax effect of these events?
A - No taxable gain or loss.
B - Ambrose has a taxable gain of $44,000.
C - Ambrose has a taxable gain of $3,000.
D - Ambrose has a taxable gain of $4,000.
Answer is C
This is an involuntary conversion since the property was sold without the owner's consent. More money was received then the tax basis of this property so there was a gain of $44,000 ($114,000 less $70,000). Part of the money was then used to buy similar replacement property. In an involuntary conversion, the taxable gain is the lower of the actual gain on the transaction ($44,000) or the money left over after the replacement ($3,000 or $114,000 less $111,000). Thus, if all of the money is used in buying a replacement, there is no taxable gain. Here, $3,000 was left and that was less than the $44,000 gain.
BEC
In information technology, what is a LAN?
A - A computer network across more than one continent.
B - A computer network between groups of a similar type such as customers
C - A computer network that contains data subject to random access.
D - A computer network within a single building or relatively small geographic area.
Answer is D
A local area network (LAN) is a privately owned network that allows people within a small geographical region (possibly a single building) so that the employees of a company can perform specified operating activities.
Here is a quote that I like from Dale Carnegie. I think it tells us a lot about accomplishment: "Do the hard jobs first. The easy jobs will take care of themselves."
www.CPAreviewforFREE.com
Lesson 36
From: Joe
(1) - I was watching the Tony Awards last night on television. They are given each year for the best plays on Broadway in New York City. I had seen a couple of the plays so I was interested to see what won.
During the program, they had a short tribute to Natasha Richardson, a relatively young actress who died last winter in (I think it was) a skiing accident. They said that one of Ms. Richardson's favorite lines was "Stop dreaming and do it!!!"
A lot of us, certainly including me, talk about how wonderful it is to have dreams. And, yes, it is great to have large and bold dreams. We need those for life. But she was absolutely right. Sometimes, we get stuck in our dreams and have more enjoyment from the dream than we do from the reality.
You need reality if you are going to pass the CPA Exam and not just dream about passing.
I hear these all the time:
---I really really want to make an A in Intermediate Accounting.
---Well, what have you done so far to achieve that dream?
---Nothing so far but I plan to really start work sometime in the next week or so.
---I really really want to pass the CPA Exam.
---Well, that is great. How much studying have you done?
---Not much so far. I've spent my time buying books and note cards and getting all my materials ready.
---I really really want to knock out the first part of the CPA Exam soon.
---Well, that's a good goal. How much of the material have you gotten covered so far?
---Not much yet. I always used to cram in college so I'm kind of waiting until the exam date gets closer before I get down to serious work.
If you ask these people, they could probably talk your ear off about how much they want to succeed, how they think about achieving their goals all the time. They really love those dreams. They don't really want to pass; they just want to dream about passing.
And, I understand. There is something exciting about planning to win. There is something stimulating about envisioning the winning score and the glory of being the champion. However, at some point, you have to switch over from dreams to reality. That usually means doing some hard work and doing it on a very consistent basis.
Dreams are fun. Hard work can be tedious.
Dreams feel good. Hard work can be very uncomfortable.
Dreams can get you excited. Hard work is best done at a slow and meticulous pace.
But, dreams along GET YOU NOTHING.
I love dreams and I always encourage everyone to dream. At some point, though, dreams can be addictive and lead to nothing. You have to break through and push yourself to actually achieve success.
If you are having trouble moving toward your goal of passing the CPA Exam, it may well be that you are stuck in your own dreams. The dream of passing the exam is all you need. And, it is a lot more fun than doing the serious work to get those points.
Stop dreaming and DO IT!!!
(2)
(A) - As always, do not forget that you can unsubscribe from this service at any time that you wish. Our weekly emails go to thousands and thousands of CPA Exam candidates each week located around the world. We are delighted to have you as part of that community. Do understand, though, that you can unsubscribe by simply scrolling to the end of this email and clicking on the appropriate link.
(B) - We just ended our 49th week of operation on www.CPAreviewforFREE.com. When we got started last summer, we had no money for advertising so we just hoped people would hear about us through word-of-mouth. When we started, my dream was that we would have one million page views in our first year. That seemed like an incredibly high number without advertising. That just seemed like a huge number of points to help add to the scores of our candidates. Well, last week, we moved over 3.4 million page views. So, I guess you could say that I underestimated a bit. Thanks to everyone who has told others about www.CPAreviewforFREE.com. We could not be doing this without you.
(C) - Just a reminder that all of our questions and answers are free. However, if you want to buy and download a copy so that you can put them in your brief case and take them with you, just go to www.CPAreviewforFREE.com and click on Store.
(D) - Thanks to everyone who sent in information that I can share with college students at my speech this Saturday on the CPA Exam. I always appreciate your assistance.
(3) - Questions. I give presentations around Virginia about the CPA Exam and, of course, I help run www.CPAreviewforFREE.com. I get a lot of questions. So, I thought I would list some of the most prevalent questions and my typical answers.
Question: Should I take the CPA Exam right out of college?
Joe's Response: There are certainly some advantages in taking the CPA Exam soon after college. First, you are used to studying. Second, you are used to taking tests. Third, you have (or should have) a lot of knowledge already in your head from the college classes. However, I've known a lot of students who graduated from college and took the CPA Exam because everyone told them to and then failed miserably. Sometimes those candidates were so discouraged that they never took the exam again. Be a little careful before you rush to take the CPA Exam right out of college.
I believe you should know two things before you decide to take the exam. First, you really need to know why YOU want to pass the CPA Exam. Not your neighbor or your friend or your mom or your spouse. Why do YOU want to pass the CPA Exam? It is hard to do all of that work if you don't have a good reason. You need an anchor and that anchor is your reason for wanting to pass. Be sure you know that.
Second, you need to be able to put in enough hours. It is virtually impossible to pass the exam if you don't study enough. If you can put in 60-100 hours per part, you should be ready.
Be honest with yourself: Why do you want to pass? Will you be able to put in the necessary hours? Those questions are both really important. Until you can answer both of those, you probably should wait on taking the CPA Exam.
Question: Don't I need to take a CPA Review course and pay a couple thousand to them?
Joe's Ideas: I am obviously biased but I am always shocked by people who have a need for money and are still willing to give two or three thousand dollars away without first trying to save the money. With that kind of logic, it is no wonder that we are in a recession. If it were me, I'd try CPA Review for Free for 4 weeks and then make a decision. I firmly believe you can pass without giving away your money and I would sure as heck take a shot at it if it were my money.
Question: What's the major reason that people fail the CPA Exam?
Joe's Gut Reaction: Failure to put in enough hours, without a doubt. The exam is built to reward hours of study. It is very difficult to pass if you have studied 20 hours and the guy beside of you has spent 75 hours. It is not the money or the teacher or much else - it is the hours.
Question: Okay, well, what is the most likely reason that a person can do enough study and still fail?
Joe's Thoughts: This is just speculation on my part but I imagine that it is time management problems at the site. You can be an absolute genius but if you don't finish more than 3/4 of the exam, it is not likely that you are going to pass. You can know everything about everything but it is tough to get enough questions right if you rush through the questions like the room is on fire and finish 90 minutes early. There are no guarantees but if you (a) put in enough hours and (b) manage your time well, you should have a very good chance to pass.
Question: How many parts should I take in one window?
Joe's Feelings: That depends entirely on how much time you have to study. If you can put in a legitimate three hours per day, it is going to take you 20 days to study 60 hours. So, taking an exam every 20 days is certainly possible. On the other hand, if you can only average one hour per day, it will take 60 days to get in 60 hours and you probably can only take one test per window.
I must admit that I would like the idea of getting the exam finished so I could get on with life. That appeals to me. I typically like to see people take at least two parts per window. However, I think everyone has to remember that there is no one right answer to that question. How much time do you have to spend studying?
Question: Which part should I take first?
Joe's Best Guess: That's actually an easy question. I am always in favor of taking the part that you like best first. It is a good idea to do a part where you will not mind spending the time and, hopefully, are most likely to pass. I am an accountant; I like numbers; I would start with FAR. However, each person is different. Think about the parts and go for the one that you like best.
If you have questions for Joe, send them in. If I can give a legitimate and reasonable answer, I'll be glad to let you know what I think.
(4) - Here are a few practice questions to get your mind thinking today. If you go to www.CPAreviewforFREE.com, you will find that we have 2,000 well written questions and answers that should give you the 75 points you need for success on the CPA Exam. Most of them look kind of like the ones here.
Financial Accounting
On January 1, Year One, Company P has land with a cost of $100,000 and a fair value of $130,000. On the same date, Company S has land with a cost of $80,000 and a fair value of $90,000. On that date, Company P bought Company S and paid enough money that goodwill was recognized. One year later, on December 31, Year One, Company P has land with a cost of $120,000 and a fair value of $160,000. On the same date, Company S has land with a cost of $100,000 and a fair value of $130,000. What is the balance in the consolidated land account on December 31, Year One?
A - $220,000
B - $230,000
C - $250,000
D - $290,000
Answer is B
When Company P bought Company S, it paid an additional $10,000 because Company S's land had cost $80,000 but was actually worth $90,000. This cost paid by Company P in acquiring Company S is viewed as another cost paid for this land. At the end of Year One, the land held by Company P now has a cost of $120,000. Land held by Company S has a cost of $100,000. Company P has the additional cost of $10,000 because of its acquisition of Company S. The consolidated balance for land is $120,000 + $100,000 + $10,000 or $230,000. The information about goodwill simply indicates that Company P was not able to buy Company S at a bargain purchase price.
Auditing and Attestation
Jones and Winehouse CPAs are doing an audit and are currently carrying out analytical procedures. The age of accounts receivable is computed and compared to the prior year. The age has increased by a large amount. Which of the following is the independent auditor least likely to say as a result of uncovering this information.
A - The client may have loosened up its credit terms so that a larger bad debt expense is needed than in the past.
B - The client may have started selling its accounts receivable to a bank so that a loss should be recognized.
C - Economic times might have gotten worse so we need to look more closely to make sure all bad accounts have been written off.
D - Someone inside of the company might have begun lapping as a way of stealing money.
Answer is B
When receivables are sold before they are collected (they certainly would not be sold after they were collected), the age should get shorter. The company is getting its money faster as a result of the sale. Thus, B is a possible answer if the average age had gotten shorter. However, if the age gets higher, it could be that the credit terms have been loosened so that customers with less money are able to buy on credit. They typically take longer to pay with more risk of becoming uncollectible. When economic times are bad, people also tend to pay more slowly and the number of bad accounts goes up. And, in lapping, money from a customer is stolen. Several days later, to keep the customer from finding out that the money was never recorded by the company, money from a second customer is diverted into the account of the first customer. The period in between makes the age of the accounts longer.
Regulation
Walker Ambrose owns three acres of land in Tennessee with a cost of $70,000 and a fair value of $110,000. The state of Tennessee condemns the land and takes ownership so that a road can be built through the property. The state pays Ambrose $114,000 for the land it took. Ambrose takes this money and buys similar land four miles away for $111,000. What is the tax effect of these events?
A - No taxable gain or loss.
B - Ambrose has a taxable gain of $44,000.
C - Ambrose has a taxable gain of $3,000.
D - Ambrose has a taxable gain of $4,000.
Answer is C
This is an involuntary conversion since the property was sold without the owner's consent. More money was received then the tax basis of this property so there was a gain of $44,000 ($114,000 less $70,000). Part of the money was then used to buy similar replacement property. In an involuntary conversion, the taxable gain is the lower of the actual gain on the transaction ($44,000) or the money left over after the replacement ($3,000 or $114,000 less $111,000). Thus, if all of the money is used in buying a replacement, there is no taxable gain. Here, $3,000 was left and that was less than the $44,000 gain.
BEC
In information technology, what is a LAN?
A - A computer network across more than one continent.
B - A computer network between groups of a similar type such as customers
C - A computer network that contains data subject to random access.
D - A computer network within a single building or relatively small geographic area.
Answer is D
A local area network (LAN) is a privately owned network that allows people within a small geographical region (possibly a single building) so that the employees of a company can perform specified operating activities.
Here is a quote that I like from Dale Carnegie. I think it tells us a lot about accomplishment: "Do the hard jobs first. The easy jobs will take care of themselves."
Saturday, May 30, 2009
Persistence and Doggedness (with CPAreviewforFREE)
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
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
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.
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(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.
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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.
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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.
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--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
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