Try us FIRST before you spend your hard-earned money.
June 15, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
102 Weeks of Operation and 12,722,785 Page Views (without a penny spent on marketing)
Lesson 73
From: Joe
(a) - We have readers from around the world so I want to tell everyone who is following the World Cup: I hope your team goes all the way!! (You want them to win and they want you to pass the CPA Exam - seems like a fair trade.) I only wish I had a vuvuzela to use to cheer you on.
(1) - Nice email that I just got a few minutes ago. This is exactly what I want to hear from you. This note comes from S. D. "I want to thank all of your staff for building such a wonderful portal for all CPA candidates. I was initially using a well known review provider but they were not updated on most of the latest topics. I used your materials and got through the toughest parts of the exam. Again I thank you all for helping me become a CPA."
Yeah, that's a problem with those other courses - they charge you a lot of money and still are not well updated. You pay a lot for material that is mediocre at best and then blame yourself when you don't pass.
--OUR goal is to get you through the CPA Exam.
--THEIR goal is to get your money from your pocket into their pocket.
And, here's another note from a few days ago-another winner!!!! "I got my FAR score today. I got 80! Thanks for your great website, I would not be able to do well without it! I will notify other scores as soon as I receive them. Once again THANK YOU!"
(2) - Remember, if you want, that you can download all of our questions and answers for a small fee so that you can study 24/7 and not just when you are online. Just go to www.CPAreviewforFREE.com and click on "Store" in the upper right-hand corner. However, of course, the questions are always free and available on line.
(3) - As most of you probably know, we have a Facebook page (just search for CPAreviewforFREE and it'll pop up). A couple of days ago a person wrote in on Facebook to ask what percentage of the questions he should be getting correct to feel comfortable as he studied. That's a common question - people are tense and want some assurance that they are going to make it.
My response was the same one that I have given to this question since I first started in CPA review in 1980. On the CPA Exam some of the questions are relatively simple. You look at it and you wonder if you are misreading it because you automatically know the answer. Other questions are harder - some are almost impossibly hard. It is a wide-ranging test.
Here is my advice. If you are looking at a relatively easy question, you probably need to get 90 percent of those correct. You have to stay focused so that you don't make careless errors. It is easy to throw away points by missing questions that are easy. There is something about seeing an easy question that makes you stop paying close attention to it. You start thinking about what comes next. So, for the easy questions, I would want you to get close to 100 percent of them right - but let's say 90 percent. I think that is a "passing goal."
The other questions, though, are harder-often extremely hard. Obviously, if you just guess randomly you should get 25 percent of the remaining multiple-choice questions. You clearly need to do better than that. My goal, if I were taking the exam again at the current time, would be to shoot for 60 percent of the hard questions correct. Oh, it would be nice to get 90 percent of these right also but I doubt that is a reasonable goal for most of us. As I always say, I just want you to pass; I don't need for you to seek perfection. I think getting 60 percent of the tough questions would probably get you to a grade of about 75.
90 percent of the relatively easy questions
60 percent of the relatively hard questions
--I think that is a good benchmark
--And, I think it is something that you can do with enough time and effort.
--Yeah, you may have to fight for every possible point. You may have to work and think and try to squeeze out a point here and there.
--But, there is no reason why you cannot get 90 percent of the easy ones and 60 percent of the hard ones.
Go for it!!!
(4) - I got a note from a candidate (A. E.) a few days ago who said something like "I passed the CPA Exam using www.CPAreviewforFREE.com and I'm going to unsubscribe to the email lessons now but I just couldn't leave without saying thanks." As always, the kind words are very much appreciated.
We are delighted for you to stay on our subscription list forever. Delighted to have you. However, like A. E. who wrote in, you certainly have the right to unsubscribe. She had passed and was ready to move on. Wonderful!!! I was proud of her. So, please know that you can stay with us or you can unsubscribe whenever you wish. Just scroll to the bottom of any email lesson and click on the appropriate link.
(5) - I was driving through Williamsburg a couple of days ago, one of the real homes of American freedom. At the time, I was listening to one of my favorite songs on my iPod-"Virginia" by a singer named Page Wilson. (Of course, I have lived in the state of Virginia since 1976 so I am biased toward the state.) The song has one line that I like especially when the singer is talking about life: "in the end, it's just a gamble; at least you chased a few dreams."
I think people ought to chase more dreams. Life becomes too ho-hum without some dreams to chase. I like chasing dreams even if I don't really expect to catch them. (That is probably why I put $2 on the lottery every week.)
What are your dreams? What dreams are you chasing at the moment?
I think that is a great question to ask yourself - and demand a serious answer.
Here at www.CPAreviewforFREE.com, we have one overriding dream. We would like, within a couple of more years, for every single person in the entire world who takes the CPA Exam to use our questions and answers to help them pass. I think that is a great goal and one that deserves to be chased. And, I see no reason why it cannot happen.
But that is our goal-what is your goal? Why dreams are you chasing?
Obviously, I hope that one of your top dreams is passing the CPA Exam. If it is a real dream of yours, that alone will give you the energy and courage needed to do the work.
--If you view this whole process as drudgery, it is awfully hard to do the work necessary.
--If you are really not enthusiastic about passing, it is hard to get up the excitement needed to push forward.
--If the CPA Exam for you is more of a nightmare than a dream, you are going to have troubles. No one chases nightmares.
I want passing the CPA Exam to be a dream that you chase. I want passing the CPA Exam to be a desire that burns in your belly. I want this to be real to you.
All over the world, people recognize what it means to pass the CPA Exam. Many people major in accounting but only a few make it all the way through the CPA Exam. It is the pinnacle of the profession. It is the Mt. Everest of accounting. If you are an accountant, passing the CPA Exam really should be a dream that you chase.
In life, attitude is everything.
If you have dreams to chase, you'll be surprised by how many of them you eventually catch and you'll have a wonderful life chasing them.
(6) - When I wrote the line above "In life, attitude is everything" I was reminded of a story that I have told before. My uncle used to tell me about joining the Marines in World War II and being sent to Parris Island, South Carolina to train. He and all the young recruits were scared to death of the obstacle course they had to run there during training. It was supposed to be impossibly hard and it was all they could talk about-how much they dreaded it.
However, after they had all been there for several weeks, they would sneak out of the barracks in the middle of the night and go run the obstacle course just for fun. After a little practice, it went from impossibly hard to something they did for fun.
The only thing that changed was their attitude toward it. Many, many people start the CPA Exam with nothing but dread. But eventually the feeling will change. I cannot possibly tell you how many people over the years have told me (about half way through the exam) "I'm actually getting to enjoy learning this material. I never understood a lot of this stuff before but now as I work through these questions, it feels good to see how much I can learn. I hated it at first but, now, I don't mind studying for a couple of hours each night. It actually feels good."
Marine obstacle course.
CPA Exam.
Same thing (well, kind of).
Don't let your attitude ruin the experience. If you tell yourself that you are going to be miserable and will only study under pain of death, then you are going to have a terrible time and probably fail. But, if you will tell yourself, I'm chasing a dream, I'm adding points, I'm actually learning some interesting stuff, the chance of passing goes way up because you won't mind putting in the work.
It is not about the exam; it is about YOU and what kind of attitude you bring to the exam.
(7) - PRACTICE - Let's have some fun practicing on a couple of questions and adding a few points.
FAR
The Markoff Company buys inventory costing $11,000 from Montclair Corporation. Markoff plans to sell this merchandise for $19,000. The goods are shipping by Montclair on December 28, Year One and received by Markoff on January 3, Year Two. They were listed as FOB shipping point. Markoff uses a periodic inventory system and, on December 28, debited Purchases of Inventory for $11,000 and credited Accounts Payable for the same amount. Markoff failed to count this inventory when it took its December 31, Year One physical count because it had yet arrived. In making its Year One financial statements, which of the following is true for Markoff?
A - Liabilities on the balance sheet is understated by $8,000.
B - Retained earnings on the balance sheet is correctly stated.
C - Net income for the period is overstated by $11,000.
D - Net income for the period is understated by $11,000.
Answer is D
Because of the FOB point, the inventory belongs to Markoff at the end of the year and the journal entry that was recorded was appropriate. However, the inventory was not counted in determining the ending inventory balance. In a periodic system, cost of goods sold is calculated by taking beginning inventory and adding purchases and then subtracting ending inventory. Purchases (as well as accounts payable) are correct because of the entry that was made. Ending inventory, though, is understated because it was not included in the count. Ending inventory is too low and it is a subtraction so the resulting cost of goods sold is too high. Cost of goods sold is an expense so the resulting net income is too low by the $11,000 cost. Because net income is too low, retained earnings is also too low by the same amount.
Regulation
Skiba is a lawyer who does work for one of her clients in Year One. The invoice price for the work done was $2,000 but she agreed to accept shares of another company as payment in full. These shares had cost the client $600 when bought two years earlier as an investment but were worth $1,900 at the time of conveyance. In Year Two, Skiba sells the shares for $2,500 in cash. What gain does Skiba have for income tax purposes at the time of sale?
A - Zero
B - $500
C - $600
D - $2,500
Answer is C
When the shares are received, Skiba records the investment at its fair value of $1,900 and reports taxable revenue of $1,900. She did work and received compensation of $1,900-that is taxable revenue. The shares have a tax basis to her of $1,900 so that when sold for $2,500, she must report a gain for tax purposes of $600.
Auditing and Attestation
The CPA firm of Bryant and Rondo are auditing the financial statements of Rivers, Inc. The CPAs send out positive confirmations of a sample of the accounts receivable being reported by the client. One confirmation of $8,000 is returned from the Jackson Company indicating that the amount is correct. However, the confirmation was returned by fax. Which action is the CPA firm most likely to take?
A - Send another confirmation to Jackson.
B - Call Jackson to confirm that the confirmation was sent by the company.
C - Accept the confirmation and do nothing further.
D - Send another confirmation to a different company that owes approximately $8,000.
Answer is B
The confirmation sent by fax is okay but there needs to be follow up to provide more assurance that the fax was actually sent by the debtor company and came from the proper representative. Usually, the CPA will call and verify that the fax copy is appropriate and also ask for the original confirmation to be mailed so that it is held by the CPA.
BEC
Carmichael Corporation needs to raise $50 million for a major construction project. The company is trying to decide whether to issue bonds to raise this money or common stock. Which of the following is the most likely reason to issue the bonds rather than the stock?
A - There is less risk involved with the debt.
B - Interest is tax deductible whereas dividend distributions are not.
C - Earnings per share will go up and, hence, stock prices will rise.
D - Interest payments can be avoided but dividend payments cannot.
Answer is B
Creditors can force a company into bankruptcy and shareholders cannot so debt is viewed as a more risky method to raise funds. Bankruptcy is possible if interest and principal payments cannot be made when due. It is hard to predict what will happen to earnings per share because the interest drives the net income down but, hopefully, the additional revenue from the completed project will push net income up. However, that rise may not happen for a number of years, if at all. The cost of interest, though, is reduced because interest expense can be deducted from income for tax purposes but dividend payments cannot.
Have a great week - it is too hot to be outside so go somewhere cool and study (and add points)!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Thursday, June 17, 2010
Monday, June 7, 2010
Start Making It Happen Today
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
100 Weeks of Operation and 12,388,928 Page Views (without a penny spent on marketing)
Lesson 72
From: Joe
(1) – Nice note that came in a day or so ago from DA: “I'm glad you mentioned that the questions on your site can be worked on smart phones. I just discovered it myself recently as I was preparing for Audit. That is HUGE!! I can practice anywhere I can get service! No excuses!”
And one from HA: “Thank you! I passed AUDIT 82! I love this feeling of sending an e-mail to let you know how much I appreciate you. I am so fortunate to have come across your free website. I want all the CPA candidates in the world to know about this wonderful web site and want them to experience how I feel. I feel great! Joe, your questions and explanations are the best to put things together to provide me with the whole picture; your explanation helps me to understand the concept which I am then able to apply. So, you set me free from suffering from the vast amount of memorization and being overwhelmed. Thank you. I passed REG and BEC last time by studying your website. Unfortunately, I failed FARE 71 this time. But, I know I can pass FARE my next attempt as long as I practice your questions! Thanks for motivating me and .. helping me " NOT TO GIVE UP." Finally, I feel I am close to accomplishing my goal... it has been about 15 years. Again, thanks very very much.”
I love getting emails like these. This second person came in after struggling in the past and used our website and passed three and needs only four more points to pass that last exam. This is just great!!!
And, you can be the next – get to work and get those points and go do it!!
(2) – Okay, let’s assume you come to me and say “I want to pass the first part of the exam in 5-6 weeks from right now. I want to try my very best to pass this first part without spending a penny. I have a job and a family but I’m willing to put in 1-3 hours each evening. If I fail, I may do something different next time but, first, I want to try to do it quick and dirty and free. What would you recommend? I want to pass the first part in 5-6 weeks, I can spend 1-3 hours per day, and I want to keep my money for my spouse and kids. I don’t need to make 99 or even 76; I just want to make 75.”
Fair question – in fact, I’m surprised that I don’t get asked this question more: the quick and dirty and free approach to passing.
--Pick the part of the exam that you like best.
--Start by trying to work 30 questions each day at www.CPAreviewforFREE.com. If it turns out that you don’t have time for 30, pick some other daily goal that is reasonable for you: 25 or 20, for example.
--When studying, never guess at the answer. Read the question carefully. If you think you can get the answer, go for it.
--Read through the answer carefully. If you got the question right, move on. Don’t dwell on success. If you missed the question, write down 10 words or less that should give you a better chance to get the answer correct the next time. That’s how you add points and “adding points” is the name of the game.
--Get a supportive friend or your spouse or even a parent to play the role of your parental advisor. Lots of friends want to help—give one of the them a chance to do that. Every night when you get finished studying, email this “parental advisor” with the number of questions you did during that day. “Did 32 today” for example– keep it short. There is something about having to report your progress to a parental figure that will make you work harder.
--Ask your parental advisor to respond to every one of these emails but with just a few words. If you managed to hit your daily goal, the person should write back some congratulations. “Wonderful, I knew you could do it.” “That’s the way to make 75.” “Not easy but you made it.” “I’m very proud of you.”
--If you were not able to hit your daily goal, ask the parent to give you some support/encouragement. “you are making progress; you’ll get there,” “don’t get down, we all know you can do it,” “look for those open moments during the day when you can get a question done,” “try to work just a little harder tomorrow.” That kind of encouragement can be ever so helpful.
--If you’ll follow this regiment, you can work all of the questions in a section of www.CPAreviewforFREE.com TWICE in roughly five weeks. There’s obviously no guarantee but if you work all the questions twice in a fairly short period of time and take a few notes to help you add points, I think you’ve got a wonderful chance to make 75 and get on to the next part WITHOUT SPENDING ANY MONEY.
(3) – I send out these emails about every 7 to 10 days to nearly 13,500 accountants around the world. Please feel free to stay on the list just as long as you want. I’ve been writing these emails, off and on now, for about a dozen years – I’m pretty sure I can go for another dozen. However, if you are ever ready to unsubscribe, scroll to the bottom of the page and click on the appropriate link.
(4) – Went to a movie a few days ago about one of my favorite artist: Vincent van Gogh. Absolutely beautiful work – unbelievable, what a wonderful talent. However, one of the things that I found the most interesting was that van Gogh painted around 900 paintings but only managed to sell one. Of course, these same paintings now sell for tens of millions but when he was alive and working, 899 out of 900 (.999) of his work no one wanted to buy. What a horrible batting average.
Think how discouraging that must have been. He did all that work and no one thought the results were worth buying. What would you have done?
In such cases, most people would have given up and assumed they were wasting their time. Fortunately, van Gogh did not give up and our world is richer for his persistence.
When you are studying for the CPA Exam, you’ll often hit patches were you will miss a lot of questions (although I’m not sure any of us will ever miss .999 of the questions we work). As you probably already know, it is really easy to get discouraged and decide that you are wasting your time. It is always easy to push yourself forward when you are getting positive results. If you get question after question right, everyone enjoys doing the work—keeping going is easy. There is no challenge to that.
However, the real test of what we are made of is when we miss a question and then miss another question and then another. It is so easy to get discouraged quickly—that is just human nature. It takes a really tough person to hang in there. That is one of the reasons that I stress so often that the goal is not to focus on where you are at right now but to concentrate on adding points. If you try three questions and get them all correct, you are probably not adding any points. If you try three questions and miss them all, you have a wonderful opportunity to add some points, to get better, to get closer to passing.
I know how hard it is, though, to keep a positive attitude when everything seems negative. That alone may be the single biggest reason why 50 percent of the people fail each of the four parts of the CPA Exam. It is hard to keep pushing when the results are not positive.
So, when you get up in the morning, you have to start out with a push. Start with the right attitude.
--I’m going to add some points today.
--I’m going to work 30 questions today and read those answers carefully.
--I’m going to learn from my mistakes and not get discouraged.
--I’m going to find spare moments when I can work a question or two.
--I can pass and I am going to pass.
In life and the CPA Exam, success is all about attitude. Go for it – you can do it!!!
(5) – Speaking of doing some questions, let’s practice a bit – here’s where you can add a point or two right now.
FAR
The Hammerstein Company produces a balance sheet. Within stockholders’ equity is a rather large figure reported as accumulated other comprehensive income. Which of the following could NOT have led to this recognition?
A. Hammerstein has a subsidiary in Japan which uses the yen as its functional currency.
B. Hammerstein has invested in a bond that was issued at a discount from its face value and is reported as a trading security.
C. Hammerstein bought shares of another company several years ago that are being reported as available for sale.
D. Hammerstein has a defined benefit pension plan where the projected benefit obligation was just increased as a result of an amendment in the plan contract.
Answer is B
Accumulated other comprehensive income is used to recognize specific income effects that are reported but not included within net income. Three of the most common sources of this reporting are foreign currency translation of the statements of a subsidiary in another country, the gains and losses in the value of investments reported as available for sale, and changes in the projected benefit obligation of a defined benefit plan because of contractual adjustments (known as a prior service cost). However, the reporting of an investment classified as a trading security only affects net income and does not impact other comprehensive income.
Regulation
Milano Corporation buys land for $34,000 from John and Susan Orteland. The president of Milano hands them a check for the appropriate amount. Which of the following is true about a check?
A – A check is a promise to pay a certain amount.
B – A check is a written order for the payment of money.
C – A check is the equivalent of an IOU.
D – A check indicates that payment will be made upon the completion of specified actions.
Answer is B
A check is an order to a bank to make cash payment of the amount specified. The Ortelands can take the check they have received and go to the bank on which it is written and receive the $34,000 (assuming that amount of money is held in the appropriate account).
BEC
Company officials for Lastinaff, Inc. are thinking about buying a machine for $300,000 that has a ten-year life and no salvage value. Ignoring any tax effects, they expect this machine to generate net income for the company of $50,000 per year. In deciding whether to make this investment, what is the best estimation of the payback period?
A – 3.75 years
B – 4.50 years
C – 5.00 years
D – 6.00 years
Answer is A
The payback period is the time that it takes a company to generate cash inflows equal to its investment. The quicker the payback period is the better the investment is. If cash is generated evenly over time, the payback period is the cost of the asset divided by the annual cash inflow. Here, the company makes a profit of $50,000 each year. However, depreciation expense is a noncash expense that is subtracted to arrive at this net income. Assuming straight-line depreciation (by far the most common method used in the business community), annual depreciation is $30,000 ($300,000/10 years). Cash revenues and expenses minus noncash revenues and expenses give net income. If the noncash depreciation is $30,000 and net income is $50,000, then the cash revenues and expenses net to $80,000 per year from the machine. The payback period is $300,000 divided by $80,000 or 3.75 years.
Auditing
Jane Simpson works for Shadowline Corporation and is paid $30 per hour. She typically works 28 hours per week but always reports that she works 32 hours per week so that she can receive additional wages from the company. Which of the following internal control activities is most likely to prevent this type of theft?
A – The company’s payroll program is tested each month with test data to ensure that it operates properly.
B – A separate paymaster delivers the checks each pay period to Jane Simpson after verifying her identity.
C – The supervisor for Jane Simpson must review her time sheet each period and indicate approval.
D – Any paychecks that are printed but not picked up must be turned over to an independent group for subsequent handling.
Answer is C
Each of these four is an internal control activity frequently found in a company’s payroll system. However, they are each designed to prevent or discover frauds of a specific type. Here, the problem is extra hours claimed by an employee so that unearned money can be received. Test data is used to verify that the payroll program is working as intended. The paymaster hands out checks to make certain that checks are being prepared for actual individuals who work for the company. That is also the case for following up on checks that are not claimed at the appropriate time. The approval by the supervisor is correct here because the supervisor is the person most likely to know how many hours the employee actually did work. That person is in a position to verify that the number of hours listed is correct.
Have a great week. Remember 30 questions per day is a great pace as you get started working to pass the CPA Exam.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.cpareviewforfree.com
100 Weeks of Operation and 12,388,928 Page Views (without a penny spent on marketing)
Lesson 72
From: Joe
(1) – Nice note that came in a day or so ago from DA: “I'm glad you mentioned that the questions on your site can be worked on smart phones. I just discovered it myself recently as I was preparing for Audit. That is HUGE!! I can practice anywhere I can get service! No excuses!”
And one from HA: “Thank you! I passed AUDIT 82! I love this feeling of sending an e-mail to let you know how much I appreciate you. I am so fortunate to have come across your free website. I want all the CPA candidates in the world to know about this wonderful web site and want them to experience how I feel. I feel great! Joe, your questions and explanations are the best to put things together to provide me with the whole picture; your explanation helps me to understand the concept which I am then able to apply. So, you set me free from suffering from the vast amount of memorization and being overwhelmed. Thank you. I passed REG and BEC last time by studying your website. Unfortunately, I failed FARE 71 this time. But, I know I can pass FARE my next attempt as long as I practice your questions! Thanks for motivating me and .. helping me " NOT TO GIVE UP." Finally, I feel I am close to accomplishing my goal... it has been about 15 years. Again, thanks very very much.”
I love getting emails like these. This second person came in after struggling in the past and used our website and passed three and needs only four more points to pass that last exam. This is just great!!!
And, you can be the next – get to work and get those points and go do it!!
(2) – Okay, let’s assume you come to me and say “I want to pass the first part of the exam in 5-6 weeks from right now. I want to try my very best to pass this first part without spending a penny. I have a job and a family but I’m willing to put in 1-3 hours each evening. If I fail, I may do something different next time but, first, I want to try to do it quick and dirty and free. What would you recommend? I want to pass the first part in 5-6 weeks, I can spend 1-3 hours per day, and I want to keep my money for my spouse and kids. I don’t need to make 99 or even 76; I just want to make 75.”
Fair question – in fact, I’m surprised that I don’t get asked this question more: the quick and dirty and free approach to passing.
--Pick the part of the exam that you like best.
--Start by trying to work 30 questions each day at www.CPAreviewforFREE.com. If it turns out that you don’t have time for 30, pick some other daily goal that is reasonable for you: 25 or 20, for example.
--When studying, never guess at the answer. Read the question carefully. If you think you can get the answer, go for it.
--Read through the answer carefully. If you got the question right, move on. Don’t dwell on success. If you missed the question, write down 10 words or less that should give you a better chance to get the answer correct the next time. That’s how you add points and “adding points” is the name of the game.
--Get a supportive friend or your spouse or even a parent to play the role of your parental advisor. Lots of friends want to help—give one of the them a chance to do that. Every night when you get finished studying, email this “parental advisor” with the number of questions you did during that day. “Did 32 today” for example– keep it short. There is something about having to report your progress to a parental figure that will make you work harder.
--Ask your parental advisor to respond to every one of these emails but with just a few words. If you managed to hit your daily goal, the person should write back some congratulations. “Wonderful, I knew you could do it.” “That’s the way to make 75.” “Not easy but you made it.” “I’m very proud of you.”
--If you were not able to hit your daily goal, ask the parent to give you some support/encouragement. “you are making progress; you’ll get there,” “don’t get down, we all know you can do it,” “look for those open moments during the day when you can get a question done,” “try to work just a little harder tomorrow.” That kind of encouragement can be ever so helpful.
--If you’ll follow this regiment, you can work all of the questions in a section of www.CPAreviewforFREE.com TWICE in roughly five weeks. There’s obviously no guarantee but if you work all the questions twice in a fairly short period of time and take a few notes to help you add points, I think you’ve got a wonderful chance to make 75 and get on to the next part WITHOUT SPENDING ANY MONEY.
(3) – I send out these emails about every 7 to 10 days to nearly 13,500 accountants around the world. Please feel free to stay on the list just as long as you want. I’ve been writing these emails, off and on now, for about a dozen years – I’m pretty sure I can go for another dozen. However, if you are ever ready to unsubscribe, scroll to the bottom of the page and click on the appropriate link.
(4) – Went to a movie a few days ago about one of my favorite artist: Vincent van Gogh. Absolutely beautiful work – unbelievable, what a wonderful talent. However, one of the things that I found the most interesting was that van Gogh painted around 900 paintings but only managed to sell one. Of course, these same paintings now sell for tens of millions but when he was alive and working, 899 out of 900 (.999) of his work no one wanted to buy. What a horrible batting average.
Think how discouraging that must have been. He did all that work and no one thought the results were worth buying. What would you have done?
In such cases, most people would have given up and assumed they were wasting their time. Fortunately, van Gogh did not give up and our world is richer for his persistence.
When you are studying for the CPA Exam, you’ll often hit patches were you will miss a lot of questions (although I’m not sure any of us will ever miss .999 of the questions we work). As you probably already know, it is really easy to get discouraged and decide that you are wasting your time. It is always easy to push yourself forward when you are getting positive results. If you get question after question right, everyone enjoys doing the work—keeping going is easy. There is no challenge to that.
However, the real test of what we are made of is when we miss a question and then miss another question and then another. It is so easy to get discouraged quickly—that is just human nature. It takes a really tough person to hang in there. That is one of the reasons that I stress so often that the goal is not to focus on where you are at right now but to concentrate on adding points. If you try three questions and get them all correct, you are probably not adding any points. If you try three questions and miss them all, you have a wonderful opportunity to add some points, to get better, to get closer to passing.
I know how hard it is, though, to keep a positive attitude when everything seems negative. That alone may be the single biggest reason why 50 percent of the people fail each of the four parts of the CPA Exam. It is hard to keep pushing when the results are not positive.
So, when you get up in the morning, you have to start out with a push. Start with the right attitude.
--I’m going to add some points today.
--I’m going to work 30 questions today and read those answers carefully.
--I’m going to learn from my mistakes and not get discouraged.
--I’m going to find spare moments when I can work a question or two.
--I can pass and I am going to pass.
In life and the CPA Exam, success is all about attitude. Go for it – you can do it!!!
(5) – Speaking of doing some questions, let’s practice a bit – here’s where you can add a point or two right now.
FAR
The Hammerstein Company produces a balance sheet. Within stockholders’ equity is a rather large figure reported as accumulated other comprehensive income. Which of the following could NOT have led to this recognition?
A. Hammerstein has a subsidiary in Japan which uses the yen as its functional currency.
B. Hammerstein has invested in a bond that was issued at a discount from its face value and is reported as a trading security.
C. Hammerstein bought shares of another company several years ago that are being reported as available for sale.
D. Hammerstein has a defined benefit pension plan where the projected benefit obligation was just increased as a result of an amendment in the plan contract.
Answer is B
Accumulated other comprehensive income is used to recognize specific income effects that are reported but not included within net income. Three of the most common sources of this reporting are foreign currency translation of the statements of a subsidiary in another country, the gains and losses in the value of investments reported as available for sale, and changes in the projected benefit obligation of a defined benefit plan because of contractual adjustments (known as a prior service cost). However, the reporting of an investment classified as a trading security only affects net income and does not impact other comprehensive income.
Regulation
Milano Corporation buys land for $34,000 from John and Susan Orteland. The president of Milano hands them a check for the appropriate amount. Which of the following is true about a check?
A – A check is a promise to pay a certain amount.
B – A check is a written order for the payment of money.
C – A check is the equivalent of an IOU.
D – A check indicates that payment will be made upon the completion of specified actions.
Answer is B
A check is an order to a bank to make cash payment of the amount specified. The Ortelands can take the check they have received and go to the bank on which it is written and receive the $34,000 (assuming that amount of money is held in the appropriate account).
BEC
Company officials for Lastinaff, Inc. are thinking about buying a machine for $300,000 that has a ten-year life and no salvage value. Ignoring any tax effects, they expect this machine to generate net income for the company of $50,000 per year. In deciding whether to make this investment, what is the best estimation of the payback period?
A – 3.75 years
B – 4.50 years
C – 5.00 years
D – 6.00 years
Answer is A
The payback period is the time that it takes a company to generate cash inflows equal to its investment. The quicker the payback period is the better the investment is. If cash is generated evenly over time, the payback period is the cost of the asset divided by the annual cash inflow. Here, the company makes a profit of $50,000 each year. However, depreciation expense is a noncash expense that is subtracted to arrive at this net income. Assuming straight-line depreciation (by far the most common method used in the business community), annual depreciation is $30,000 ($300,000/10 years). Cash revenues and expenses minus noncash revenues and expenses give net income. If the noncash depreciation is $30,000 and net income is $50,000, then the cash revenues and expenses net to $80,000 per year from the machine. The payback period is $300,000 divided by $80,000 or 3.75 years.
Auditing
Jane Simpson works for Shadowline Corporation and is paid $30 per hour. She typically works 28 hours per week but always reports that she works 32 hours per week so that she can receive additional wages from the company. Which of the following internal control activities is most likely to prevent this type of theft?
A – The company’s payroll program is tested each month with test data to ensure that it operates properly.
B – A separate paymaster delivers the checks each pay period to Jane Simpson after verifying her identity.
C – The supervisor for Jane Simpson must review her time sheet each period and indicate approval.
D – Any paychecks that are printed but not picked up must be turned over to an independent group for subsequent handling.
Answer is C
Each of these four is an internal control activity frequently found in a company’s payroll system. However, they are each designed to prevent or discover frauds of a specific type. Here, the problem is extra hours claimed by an employee so that unearned money can be received. Test data is used to verify that the payroll program is working as intended. The paymaster hands out checks to make certain that checks are being prepared for actual individuals who work for the company. That is also the case for following up on checks that are not claimed at the appropriate time. The approval by the supervisor is correct here because the supervisor is the person most likely to know how many hours the employee actually did work. That person is in a position to verify that the number of hours listed is correct.
Have a great week. Remember 30 questions per day is a great pace as you get started working to pass the CPA Exam.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.cpareviewforfree.com
Thursday, May 27, 2010
2,100 FREE CPA Review Questions and Answers Available for YOU
99 Weeks of Operation and 12,124,462 Page Views (without a penny spent on marketing)
Lesson 71
From: Joe
(a) – We officially went over 12,000,000 page views last week!!! Hard to believe we’ve been able to do this without advertising but you guys have made it happen. Thanks a million (well 12 million)!!!
And, last week, yet again, our traffic set a new all time high. The average (“average” not “highest”) candidate came to our site 2.39 times during the week and looked at a total of 62.5 pages of information.
That’s a lot of points added and every single one of those points was added for F*R*E*E. Free, Free, Free. Don’t you know that the folks who run those other courses charging $2,800 really hate the word “FREE.”
(1) – Here in the United States, Monday is Memorial Day—a national day that commemorates the men and women who have been willing to die for their country while in the military service. We here at www.CPAreviewforFREE.com want to salute all of the folks (and their families) who serve and sacrifice so that we can stay free. If you know someone in the military or, perhaps, a family who has had a love one die in the military, please pass along a kind, grateful word.
(2) – One of the most common questions that I get concerning www.CPAreviewforFREE.com is “I’m ready to give it a try. I’d like to keep my money in my pocket. What do I have to lose???? How should I get started?”
Good question. Here’s what I would do:
--Go to www.CPAreviewforFREE.com
--Click on “resources” at the top of the screen.
--You should see a section called “Articles”
--Click on “Using CPAreviewforFREE to prepare for success on the CPA Exam”
--Read every word of that essay carefully.
--Click on “Register” and get started.
--Pick a topic
--Start answering questions – when you study, never guess at an answer
--If you get the question right, read the answer quickly and then move on
--If you do not get the question right, read the answer carefully. This is by far the most important part of the entire process. Try to pick up at least one factor that would help you to get this question right if you were to see it again in 2-3 weeks. Preparation is all about improving your ability to get questions right. That is your only goal. Add points. Add points. Add points.
--When you read an answer for a question you missed, try to write down something to help you get the question right the next time. Limit what you write to 10 words or less per question. Don’t write an essay—just a memory kicker (“this will help me remember how to do this next time.”)
--Remember—college classes are designed to teach understand. Our goal is to help you get questions right and add points until you make 75 and pass!!!!
(3) – One of my partners sent along this message. I always want to keep the partners happy since they do all of the real work. “Please mention in your next newsletter that our site is "pf" (phone friendly) meaning that candidates can work our multiple choice questions on their smart phones (iPhone, Blackberry, Droid,etc). They can study on the go (but, of course, not behind the wheel of a car).” We want you to pass the CPA exam – not die trying.
(4) – I have become very fond of a little number game called KenKen. It is a lot like Suduko except that you have to do some simple mathematical computations that you fit together to form a box. I like to do KenKen when I take sauna baths. Doing those puzzles helps distract my mind from the fierce heat and allows me to stay in the sauna for a longer period of time.
Tuesday I got into the sauna and started working one of the KenKen puzzles. About half-way through I got stuck so I tried to quickly start over and managed to get stuck again at the same place. I started to rush through checking my numbers but I also started noticing how hot I was getting. I really wanted to finish that puzzle before I had to get out of the sauna so I started pushing myself to work faster. I kept saying “think, think –you can do this. You’re being dumb.”
I finally just gave up before I melted. I threw the puzzle on the floor and stomped off to take my shower.
Later, I came back all cooled down. I picked up the puzzle and looked at it and knew my mistake immediately. It did not take me two seconds to see that I had reversed two numbers and I then finished the puzzle successfully in just a few minutes.
Why was my problem so hard to work at first and then so easy to work later?
I often tell my students to picture their brains as a big muscle somewhat like the ones in your arm. If I give you a baseball and tell you to throw it and you keep your arm muscle loose, you can throw it for a pretty good distance. But, if you tense up your arm, it becomes more and more difficult to throw the ball. In fact, if you tense up those muscles enough, you cannot even move your arm.
The brain is the same way. If you tense it up, it becomes less and less able to function until, with enough tension, it won’t move at all. It just shuts down. But, if you can loosen it up, it works like the natural marvel it is. Your goal should always be to have a brain that is focused but loose. Focused so you don’t get distracted but loose so it is able to move around and do the thinking necessary. No brain thinks better than a focused but loose brain.
When I was trying to work the KenKen puzzle, I started to get upset and tense because I was hot and in a hurry. The more I rushed, the more tense my brain became. Eventually, there was no chance in the world that I could complete the puzzle. My brain just was not going to work because of the tension I was exerting. However, when I moved on to something else and came back, my brain was back to a loose but focused state. I had the right frame of mind to get it done and, sure enough, I did. The problem was actually easy.
I always tell my students “if your jaw is clenched, your brain is probably too tense. If your jaw is loose, your brain probably is also.”
Whether you are studying tonight or taking the CPA Exam tomorrow, don’t let a tense brain block your chance of making 75 and passing. Keep the jaw loose and if you find yourself too tense over a question, move on to the next one. Getting upset and panicky is not helpful; it is about the worst thing you can do. Loose and focused – that’s the key to brain success.
(5) – Here is a nice note that I received last week from ES. Always makes me smile to hear from folks: “I just wanted to let you know how much I love your emails. I've passed both BEC and AUD on my first attempt thanks to your study tips/questions and XX review. I'm currently studying for REG and am completely overwhelmed by XX review. However, I started working through your questions from the website and from some of your old emails, and I'm finding that I feel much more confident after working your questions. There is just so much detail involved with REG that it is difficult to remember every little piece of information. I kept doing XX questions and kept getting them wrong because I would forget one small thing. But with your questions, I am getting them correct and understanding your explanations as well. So thank you for helping me add points and keep my sanity while studying!”
And, here’s an email I got on the same day from FT: “Thank you for a free website and all the motivating e-mails. I passed BEC and REG using cpareviewforree.com. All personal websites are blocked at my workplace except for yours. I make sure I go through 50 questions per day. I am now struggling with audit and thank you for all those free questions. Too bad there are going to be too many CPAs and not enough jobs for them. I am not giving up though! Thank you Thank you. God sends angels in different forms.”
Well, I’m not sure if we qualify as “angels” but I do appreciate the thought!!!
(6) – As always (we are legally required to make this mention but I hope you understand that the offer is real), do know that you can very easily stop getting these email lessons by scrolling to the bottom of this lesson and clicking on the appropriate button. We want to help. We are delighted to be of assistance. But, the moment you are ready to move on, please feel free to unsubscribe.
(7) – Let’s do some practice. Let’s add some points. You CAN do it!! I know you can.
Here we go.
Financial Accounting and Reporting
The Artichoke Company expects to make $200,000 in net income this year and pay income taxes at a 30 percent rate. In the first quarter of the year, the company makes income of $40,000 and the previous estimations remain the same. In the second quarter, the company makes another $60,000 in income but now believes the effective tax rate for this tax year is probably going to be 32 percent instead of 30 percent. How much income tax expense should the company recognize in the second quarter of the year?
A. $16,000
B. $18,000
C. $19,200
D. $20,000
Answer is D
In the first quarter of the year, the company has income so far of $40,000 and expects a tax rate of 30 percent so an expense of $12,000 is recognized. By the end of the second quarter, the company has earned total income of $100,000 ($40,000 + $60,000) but the expected tax rate is now assumed to be 32 percent or a total of $32,000. In reporting the second quarter, the company has to raise its expense from $12,000 to $32,000. Thus, the expense must be increased by $20,000 for that second period.
BEC
A company has a large building in Detroit. The company can sell the building for $1.7 million or refurbish the building for $220,000 and then rent it for ten years at $370,000 per year. Company officials consider the possibilities and choose to refurbish the building for rental purposes. What is the $1.7 million?
A. A fixed cost
B. A variable cost
C. A sunk cost
D. An opportunity cost
Answer is D
In making decisions about the use of assets, benefits that are passed up are referred to as opportunity costs. In other words, the $1.7 million was an opportunity for the company and the decision was made not to take advantage of that possibility. A sunk cost is a real cost incurred in the past that cannot now be changed. A fixed cost is one that will not increase as production levels increase (within a relevant range). A variable cost is one that will increase as production levels increase.
Regulation
The firm of Assini and Grim CPAs is doing the current year tax return for Mr. and Mrs. Clarence Alexander. The return was done in the previous year by John Roberts CPA. Assini and Grim discover that a $30,000 itemized deduction was incorrectly taken by the taxpayers in the previous year. What should the new CPAs do about this mistake?
A. File an amended return for the previous year.
B. Talk with the taxpayers and urge them to file an amended return.
C. Contact John Roberts CPA and explain the problem and suggest that he take remedial action.
D. Contact the IRS so that they can contact the taxpayers about the problem.
Answer is B
The return is that of the taxpayers so the CPA firm cannot contact any outside party (the previous CPA or the IRS) and cannot file an amended return without the consent of the taxpayer. Thus, the CPA should discuss the issue with the taxpayer and provide clear advice as the appropriate action that should be taken to rectify the problem.
Auditing and Attestation
The CPA firm of Abercrombie & Fitch discovers that the president of its biggest client committed several illegal acts in the name of the company last year. He authorized the payment of bribes to officials of a competing company. The board of directors was informed of this activity but chose to take no action because the amounts were judged to be immaterial in comparison to the reported balances taken as a whole. Which of the following is the most likely decision by the CPA firm?
A. Contact the appropriate government officials to disclose the actions of the president.
B. Provide disclosure of the information in the audit report but do not change the audit opinion being rendered.
C. Provide disclosure of the information in the audit report and do change the audit report to a qualified audit opinion.
D. Consider quitting the engagement.
Answer is D
The board of directors is supposed to set the ethical standards for a company. If no action is taken in this situation when an illegal act has been performed in the name of the company, the CPA firm should consider whether it wants to be associated with an organization which appears to have ethically challenged leadership at both the board of director level as well as the presidential level. The firm might decide not to quit but they need to consider that possibility.
Have a great Memorial Day. Take a few moments out to remember those who have served and died.
99 Weeks of Operation and 12,124,462 Page Views (without a penny spent on marketing)
Lesson 71
From: Joe
(a) – We officially went over 12,000,000 page views last week!!! Hard to believe we’ve been able to do this without advertising but you guys have made it happen. Thanks a million (well 12 million)!!!
And, last week, yet again, our traffic set a new all time high. The average (“average” not “highest”) candidate came to our site 2.39 times during the week and looked at a total of 62.5 pages of information.
That’s a lot of points added and every single one of those points was added for F*R*E*E. Free, Free, Free. Don’t you know that the folks who run those other courses charging $2,800 really hate the word “FREE.”
(1) – Here in the United States, Monday is Memorial Day—a national day that commemorates the men and women who have been willing to die for their country while in the military service. We here at www.CPAreviewforFREE.com want to salute all of the folks (and their families) who serve and sacrifice so that we can stay free. If you know someone in the military or, perhaps, a family who has had a love one die in the military, please pass along a kind, grateful word.
(2) – One of the most common questions that I get concerning www.CPAreviewforFREE.com is “I’m ready to give it a try. I’d like to keep my money in my pocket. What do I have to lose???? How should I get started?”
Good question. Here’s what I would do:
--Go to www.CPAreviewforFREE.com
--Click on “resources” at the top of the screen.
--You should see a section called “Articles”
--Click on “Using CPAreviewforFREE to prepare for success on the CPA Exam”
--Read every word of that essay carefully.
--Click on “Register” and get started.
--Pick a topic
--Start answering questions – when you study, never guess at an answer
--If you get the question right, read the answer quickly and then move on
--If you do not get the question right, read the answer carefully. This is by far the most important part of the entire process. Try to pick up at least one factor that would help you to get this question right if you were to see it again in 2-3 weeks. Preparation is all about improving your ability to get questions right. That is your only goal. Add points. Add points. Add points.
--When you read an answer for a question you missed, try to write down something to help you get the question right the next time. Limit what you write to 10 words or less per question. Don’t write an essay—just a memory kicker (“this will help me remember how to do this next time.”)
--Remember—college classes are designed to teach understand. Our goal is to help you get questions right and add points until you make 75 and pass!!!!
(3) – One of my partners sent along this message. I always want to keep the partners happy since they do all of the real work. “Please mention in your next newsletter that our site is "pf" (phone friendly) meaning that candidates can work our multiple choice questions on their smart phones (iPhone, Blackberry, Droid,etc). They can study on the go (but, of course, not behind the wheel of a car).” We want you to pass the CPA exam – not die trying.
(4) – I have become very fond of a little number game called KenKen. It is a lot like Suduko except that you have to do some simple mathematical computations that you fit together to form a box. I like to do KenKen when I take sauna baths. Doing those puzzles helps distract my mind from the fierce heat and allows me to stay in the sauna for a longer period of time.
Tuesday I got into the sauna and started working one of the KenKen puzzles. About half-way through I got stuck so I tried to quickly start over and managed to get stuck again at the same place. I started to rush through checking my numbers but I also started noticing how hot I was getting. I really wanted to finish that puzzle before I had to get out of the sauna so I started pushing myself to work faster. I kept saying “think, think –you can do this. You’re being dumb.”
I finally just gave up before I melted. I threw the puzzle on the floor and stomped off to take my shower.
Later, I came back all cooled down. I picked up the puzzle and looked at it and knew my mistake immediately. It did not take me two seconds to see that I had reversed two numbers and I then finished the puzzle successfully in just a few minutes.
Why was my problem so hard to work at first and then so easy to work later?
I often tell my students to picture their brains as a big muscle somewhat like the ones in your arm. If I give you a baseball and tell you to throw it and you keep your arm muscle loose, you can throw it for a pretty good distance. But, if you tense up your arm, it becomes more and more difficult to throw the ball. In fact, if you tense up those muscles enough, you cannot even move your arm.
The brain is the same way. If you tense it up, it becomes less and less able to function until, with enough tension, it won’t move at all. It just shuts down. But, if you can loosen it up, it works like the natural marvel it is. Your goal should always be to have a brain that is focused but loose. Focused so you don’t get distracted but loose so it is able to move around and do the thinking necessary. No brain thinks better than a focused but loose brain.
When I was trying to work the KenKen puzzle, I started to get upset and tense because I was hot and in a hurry. The more I rushed, the more tense my brain became. Eventually, there was no chance in the world that I could complete the puzzle. My brain just was not going to work because of the tension I was exerting. However, when I moved on to something else and came back, my brain was back to a loose but focused state. I had the right frame of mind to get it done and, sure enough, I did. The problem was actually easy.
I always tell my students “if your jaw is clenched, your brain is probably too tense. If your jaw is loose, your brain probably is also.”
Whether you are studying tonight or taking the CPA Exam tomorrow, don’t let a tense brain block your chance of making 75 and passing. Keep the jaw loose and if you find yourself too tense over a question, move on to the next one. Getting upset and panicky is not helpful; it is about the worst thing you can do. Loose and focused – that’s the key to brain success.
(5) – Here is a nice note that I received last week from ES. Always makes me smile to hear from folks: “I just wanted to let you know how much I love your emails. I've passed both BEC and AUD on my first attempt thanks to your study tips/questions and XX review. I'm currently studying for REG and am completely overwhelmed by XX review. However, I started working through your questions from the website and from some of your old emails, and I'm finding that I feel much more confident after working your questions. There is just so much detail involved with REG that it is difficult to remember every little piece of information. I kept doing XX questions and kept getting them wrong because I would forget one small thing. But with your questions, I am getting them correct and understanding your explanations as well. So thank you for helping me add points and keep my sanity while studying!”
And, here’s an email I got on the same day from FT: “Thank you for a free website and all the motivating e-mails. I passed BEC and REG using cpareviewforree.com. All personal websites are blocked at my workplace except for yours. I make sure I go through 50 questions per day. I am now struggling with audit and thank you for all those free questions. Too bad there are going to be too many CPAs and not enough jobs for them. I am not giving up though! Thank you Thank you. God sends angels in different forms.”
Well, I’m not sure if we qualify as “angels” but I do appreciate the thought!!!
(6) – As always (we are legally required to make this mention but I hope you understand that the offer is real), do know that you can very easily stop getting these email lessons by scrolling to the bottom of this lesson and clicking on the appropriate button. We want to help. We are delighted to be of assistance. But, the moment you are ready to move on, please feel free to unsubscribe.
(7) – Let’s do some practice. Let’s add some points. You CAN do it!! I know you can.
Here we go.
Financial Accounting and Reporting
The Artichoke Company expects to make $200,000 in net income this year and pay income taxes at a 30 percent rate. In the first quarter of the year, the company makes income of $40,000 and the previous estimations remain the same. In the second quarter, the company makes another $60,000 in income but now believes the effective tax rate for this tax year is probably going to be 32 percent instead of 30 percent. How much income tax expense should the company recognize in the second quarter of the year?
A. $16,000
B. $18,000
C. $19,200
D. $20,000
Answer is D
In the first quarter of the year, the company has income so far of $40,000 and expects a tax rate of 30 percent so an expense of $12,000 is recognized. By the end of the second quarter, the company has earned total income of $100,000 ($40,000 + $60,000) but the expected tax rate is now assumed to be 32 percent or a total of $32,000. In reporting the second quarter, the company has to raise its expense from $12,000 to $32,000. Thus, the expense must be increased by $20,000 for that second period.
BEC
A company has a large building in Detroit. The company can sell the building for $1.7 million or refurbish the building for $220,000 and then rent it for ten years at $370,000 per year. Company officials consider the possibilities and choose to refurbish the building for rental purposes. What is the $1.7 million?
A. A fixed cost
B. A variable cost
C. A sunk cost
D. An opportunity cost
Answer is D
In making decisions about the use of assets, benefits that are passed up are referred to as opportunity costs. In other words, the $1.7 million was an opportunity for the company and the decision was made not to take advantage of that possibility. A sunk cost is a real cost incurred in the past that cannot now be changed. A fixed cost is one that will not increase as production levels increase (within a relevant range). A variable cost is one that will increase as production levels increase.
Regulation
The firm of Assini and Grim CPAs is doing the current year tax return for Mr. and Mrs. Clarence Alexander. The return was done in the previous year by John Roberts CPA. Assini and Grim discover that a $30,000 itemized deduction was incorrectly taken by the taxpayers in the previous year. What should the new CPAs do about this mistake?
A. File an amended return for the previous year.
B. Talk with the taxpayers and urge them to file an amended return.
C. Contact John Roberts CPA and explain the problem and suggest that he take remedial action.
D. Contact the IRS so that they can contact the taxpayers about the problem.
Answer is B
The return is that of the taxpayers so the CPA firm cannot contact any outside party (the previous CPA or the IRS) and cannot file an amended return without the consent of the taxpayer. Thus, the CPA should discuss the issue with the taxpayer and provide clear advice as the appropriate action that should be taken to rectify the problem.
Auditing and Attestation
The CPA firm of Abercrombie & Fitch discovers that the president of its biggest client committed several illegal acts in the name of the company last year. He authorized the payment of bribes to officials of a competing company. The board of directors was informed of this activity but chose to take no action because the amounts were judged to be immaterial in comparison to the reported balances taken as a whole. Which of the following is the most likely decision by the CPA firm?
A. Contact the appropriate government officials to disclose the actions of the president.
B. Provide disclosure of the information in the audit report but do not change the audit opinion being rendered.
C. Provide disclosure of the information in the audit report and do change the audit report to a qualified audit opinion.
D. Consider quitting the engagement.
Answer is D
The board of directors is supposed to set the ethical standards for a company. If no action is taken in this situation when an illegal act has been performed in the name of the company, the CPA firm should consider whether it wants to be associated with an organization which appears to have ethically challenged leadership at both the board of director level as well as the presidential level. The firm might decide not to quit but they need to consider that possibility.
Have a great Memorial Day. Take a few moments out to remember those who have served and died.
Wednesday, May 19, 2010
Go further when everyone expects you to give up
May 19, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
2,100 FREE CPA Review Questions and Answers Available for YOU
98 Weeks of Operation and 11,841,449 Page Views (without a penny spent
on marketing)
Lesson 70
From: Joe
(a) - I know you have heard this before but I am always thrilled to say
it: last week was the busiest week in the history of
www.CPAreviewforFREE.com. The number of individuals who used CPA
Review for FREE was 13.7 percent higher than in any previous week in our
history. Our goal is to have 100 percent (not 98 or 99 but 100
percent) of the people who take the CPA Exam use our website. And, why
not? We have high quality questions and answers available for free.
I'm surprised that we don't have 100 percent already. There must be a
few candidates out there who simply do not fully grasp the concept of
FREE.
(b) - You can help. We get a zillion emails thanking us for our
website and we love getting each one. Brightens up my day every time.
However, you can help us in one very easy way: forward this email to
anyone whom you know who is thinking about taking the CPA Exam. The
message is a simple one: www.CPAreviewforFREE.com has 2,100 excellent
questions and answers covering the entire CPA Exam and they are all
available for free. The person you forward this to may well write back
and thank you profusely. The only candidates who don't use
www.CPAreviewforFREE.com are the ones who do not yet know that it is
available.
(c) - I posted the following message on our Facebook page yesterday. I
am always looking for questions that you can work in order to add
points. These are for Auditing and Attestation candidates. In
fact, I took one of these questions and adapted it below in our practice
section.
"CPA Exam candidates are always looking for more, good questions to
practice on and learn from. The March 2010, Journal of Accountancy has
10 excellent internal control questions and answers. That's a tough
topic for every candidate and these looked good. You can find them at
www.journalofaccountancy.com/Issues/2010/Mar/20092240. They are free and
you can add points - what more can you ask for?"
(1) - A friend of mine at the University of Richmond and I were chatting
last week about Mother Theresa and how she was able to accomplish so
much in her lifetime. She was in a situation where you would have
expected her to get little or nothing done but yet she practically moved
the entire world. And, she did it day after day over a long and
glorious lifetime. We complain about the difficulty of studying for a
few hours each day for a few months so we can pass an exam. She worked
tirelessly for decades to eradicate poverty, hunger, and disease.
The friend later shared with me this quote from Mother Theresa:
"Beyond any success there is another obstacle.
As long as you're alive, feel alive!
If you miss what you used to do, do it again.
Do not get lost in photos yellowed with time.
Go further when everyone expects you to give up.
Do not let your strength erode.
Instead of pity, demand respect.
When you cannot run any more, sprint.
When you can't sprint, walk.
When you can't walk, use a cane.
Most important thing is to never stop!"
I like all of this but especially the line "Go further when everyone
expects you to give up." I sometimes think we have become a
generation that is always quitting so we can go look for something more
interesting to do. We get so busy trying to do everything that is
fun in life that we have no time to do anything that requires real
effort and a sense of accomplishment. You must decide what you really
want to accomplish and then you must fight to do that and not let
yourself get distracted.
Once you make a decision as to what you want to do with your life, you
cannot let tiredness or distractions turn you aside.
When I talk with candidates about the CPA Exam, my first question is
always: "How seriously do you want to pass? Is this just a silly
fantasy or do you seriously want to pass?" And the answers are always
impressive "I would give my right arm to pass the CPA exam." "I want
this more than life itself." "I have dreamed about this for years."
And, then, very quickly, some of them get so easily discouraged. "I
missed a few questions and I want to give up." "I failed when I took
the first part so I quit." "I cannot seem to understand leases and
I'm just not capable of ever learning this stuff."
Or, some of them get so easily distracted. "I couldn't miss my
favorite television program." "I had to continue playing on my local
soccer team." "I couldn't stop my dance class." "I just couldn't
quit drinking beer on Friday and Saturday nights."
I once had a friend tell me: the reason we are not more successful is
that we let short term fun keep us from our long-term ambitions.
I cannot promise you success but no one promised Mother Theresa success.
I cannot promise you that it will be easy but no one promised Mother
Theresa that it would be easy.
I cannot promise you that there won't be setbacks along the way but no
one promised Mother Theresa that there would not be setbacks.
But I can promise you that no one ever succeeded at something like the
CPA Exam if they let themselves get easily discouraged or distracted.
The race does not go to the speedy; the race goes to the one who is
persistent and keeps running.
(2) - Always remember that you have the right to unsubscribe from these
free email lessons. To do so, just scroll to the bottom and click on
the link that indicates "unsubscribe." Love having you; please stay as
long as you wish. But you can remove your name at any time you want.
(3) - Last year, at about this time, I was asked to give a speech. I
was told that I could talk about anything I wanted. Always an
interesting quandary - talk about whatever you wish? I thought long
and hard about what I really wanted to say to the audience and I finally
decided to talk about a quote that I liked from the legendary basketball
player, Michael Jordan: "If you run into a wall, don't turn around and
give up. Figure out how to climb it, go through it, or work around it."
The point I wanted to make to those listening was that this is what life
is all about. You run into a wall and you have a choice. You can
give up and go home or you can work to figure out how to keep pushing
forward. We all face walls in our lives. What we are, what we
become, how we live our lives depends on what we do after we hit one of
those walls.
I know lots of people who hit walls and just lie down and quit. The
wall doesn't have to be too big or too strong. If they hit a wall, that
does them in. They are just overwhelmed by the walls they face in
life. To me, that is so sad because it is the walls that provide the
challenges that make life interesting.
Other people never fuss; they spend their time getting around those
walls. Sometimes over, sometimes around, sometimes through, sometimes
under. There are different ways to get around walls. If one doesn't
work, try another. You can let the walls of life defeat you or you
can look at them as a puzzle to be solved. "I want to move past this
problem. What is the easiest, best, and most efficient method of
continuing to make progress so that I could move forward toward my
goal?"
As you study for the CPA Exam, there are going to be countless walls.
That's life. Your job requires a lot of hours. Your kids have soccer
practice to attend. Your mother-in-law is coming to live with you. I
could list thousands of walls. Some people will just look at those
walls and quit. Hang their heads in defeat. Others will step back and
work to get their minds around the problem: "surely, I can figure this
out so that I can keep heading toward my goal."
You will not find one single successful person in this life who has not
had to get beyond some very high walls. When next a wall pops up in
front of you, I want you to be the person who takes up the challenge and
slams right through (or over or under or around) that wall.
(If you want to see the actual speech that I gave about those walls, you
can watch it at www.youtube.com/watch?v=LjwHxVbZq1o However, you might
want to skip the opening 10 minutes of introduction.)
(4) - A little practice. Someone wrote in and asked if getting 80
percent of the questions right was good. My answer is that this is not
important. The important thing is to always be adding points. Don't
spend two seconds of your time worrying about where you are at. Spend
100 percent of your time figuring out how to add points, one at a time
because, inevitably, you'll get to 75.
Become obsessed about adding points.
Auditing and Attestation
A CPA firm is beginning the audit of Panasian Corporation. One of the
staff auditors has been assigned to gain and then document her
understanding of the internal controls designed to be in place in the
company's payroll system. At the end of the day, the staff
auditor has created a series of flowcharts, questionnaires, and
narrative descriptions based on the understanding she has obtained.
Which of the following is correct?
A. The questionnaire approach is preferred.
B. The flowchart approach is preferred.
C. She was correct in using all three of these techniques to
fulfill this assignment.
D. She only needed to use one of these techniques.
Answer is D.
The auditor's goal was to establish her understanding of the design of
the controls that were supposed to be in place in this payroll system.
All three of these techniques (questionnaire, flowchart, or narrative)
can accomplish this purpose successfully. Therefore, only one is
necessary although sometimes the techniques are grouped together if the
system is particularly complex.
Financial Accounting
The Walmsley Corporation spent $320,000 on rent during the current year.
However, the company's accountant realized that prepaid rent which was
$17,000 on the first day of the year was $25,000 on the last day. In
addition, in connection with another rental property, rent payable was
$19,000 on the first day of the year but had dropped to $5,000 by the
last day. If the company wants to report rent expense according
to accrual accounting, what amount should be recognized?
A. $298,000
B. $314,000
C. $326,000
D. $342,000
Answer is A
The easiest way to switch a cash number of an accrual accounting number
is to make a single journal entry for the entire year. Here, during
that period, cash went down $320,000 (a credit), the asset prepaid rent
went up $8,000 (a debit) and the liability rent payable went down
$14,000 (another debit). To make this entry balance, you need a
$298,000 debit ($320,000 less $8,000 and $14,000). That missing
balancing figure is the rent expense to be recognized according to
accrual accounting.
Regulation
Jack Biggerstaff files his Year One federal income tax return on March
9, Year Two. Sometime later, he realizes that he accidentally omitted
a large charitable contribution and he wants to file an amended return
to increase his itemized deductions. When must he file this return in
order for it to be acceptable?
A. Before April 16, Year Two.
B. Before January 1, Year Three
C. Before March 10, Year Five
D. Before April 16, Year Five
Answer is D
An individual must file an amended income tax return by three years from
the due date of the return. The Year One return is due on April 15,
Year Two so the amended return must be filed before April 16, Year Five
to meet this three-year deadline. However, if the taxpayer filed the
original return after the due date (with an extension, for example), the
term is three years from the date of filing.
BEC
What is the acid-test ratio?
A. Total liabilities divided by total equity
B. Cash, accounts receivable, and short-term investments
divided by current liabilities
C. Cash divided by liabilities due within 60 days.
D. Cash divided by liabilities due within 90 days.
Answer is B
According to Investopedia, the acid-test ratio is: "A stringent test
that indicates whether a firm has enough short-term assets to cover its
immediate liabilities without selling inventory." It is determined by
taking cash, accounts receivable, and short-term investments and divided
that total by the amount of the company's current liabilities.
The most important thing is to never stop!
Joe Hoyle
Co-Founder
CPAreviewforFREE
CPA Review for FREE
www.CPAreviewforFREE.com
2,100 FREE CPA Review Questions and Answers Available for YOU
98 Weeks of Operation and 11,841,449 Page Views (without a penny spent
on marketing)
Lesson 70
From: Joe
(a) - I know you have heard this before but I am always thrilled to say
it: last week was the busiest week in the history of
www.CPAreviewforFREE.com. The number of individuals who used CPA
Review for FREE was 13.7 percent higher than in any previous week in our
history. Our goal is to have 100 percent (not 98 or 99 but 100
percent) of the people who take the CPA Exam use our website. And, why
not? We have high quality questions and answers available for free.
I'm surprised that we don't have 100 percent already. There must be a
few candidates out there who simply do not fully grasp the concept of
FREE.
(b) - You can help. We get a zillion emails thanking us for our
website and we love getting each one. Brightens up my day every time.
However, you can help us in one very easy way: forward this email to
anyone whom you know who is thinking about taking the CPA Exam. The
message is a simple one: www.CPAreviewforFREE.com has 2,100 excellent
questions and answers covering the entire CPA Exam and they are all
available for free. The person you forward this to may well write back
and thank you profusely. The only candidates who don't use
www.CPAreviewforFREE.com are the ones who do not yet know that it is
available.
(c) - I posted the following message on our Facebook page yesterday. I
am always looking for questions that you can work in order to add
points. These are for Auditing and Attestation candidates. In
fact, I took one of these questions and adapted it below in our practice
section.
"CPA Exam candidates are always looking for more, good questions to
practice on and learn from. The March 2010, Journal of Accountancy has
10 excellent internal control questions and answers. That's a tough
topic for every candidate and these looked good. You can find them at
www.journalofaccountancy.com/Issues/2010/Mar/20092240. They are free and
you can add points - what more can you ask for?"
(1) - A friend of mine at the University of Richmond and I were chatting
last week about Mother Theresa and how she was able to accomplish so
much in her lifetime. She was in a situation where you would have
expected her to get little or nothing done but yet she practically moved
the entire world. And, she did it day after day over a long and
glorious lifetime. We complain about the difficulty of studying for a
few hours each day for a few months so we can pass an exam. She worked
tirelessly for decades to eradicate poverty, hunger, and disease.
The friend later shared with me this quote from Mother Theresa:
"Beyond any success there is another obstacle.
As long as you're alive, feel alive!
If you miss what you used to do, do it again.
Do not get lost in photos yellowed with time.
Go further when everyone expects you to give up.
Do not let your strength erode.
Instead of pity, demand respect.
When you cannot run any more, sprint.
When you can't sprint, walk.
When you can't walk, use a cane.
Most important thing is to never stop!"
I like all of this but especially the line "Go further when everyone
expects you to give up." I sometimes think we have become a
generation that is always quitting so we can go look for something more
interesting to do. We get so busy trying to do everything that is
fun in life that we have no time to do anything that requires real
effort and a sense of accomplishment. You must decide what you really
want to accomplish and then you must fight to do that and not let
yourself get distracted.
Once you make a decision as to what you want to do with your life, you
cannot let tiredness or distractions turn you aside.
When I talk with candidates about the CPA Exam, my first question is
always: "How seriously do you want to pass? Is this just a silly
fantasy or do you seriously want to pass?" And the answers are always
impressive "I would give my right arm to pass the CPA exam." "I want
this more than life itself." "I have dreamed about this for years."
And, then, very quickly, some of them get so easily discouraged. "I
missed a few questions and I want to give up." "I failed when I took
the first part so I quit." "I cannot seem to understand leases and
I'm just not capable of ever learning this stuff."
Or, some of them get so easily distracted. "I couldn't miss my
favorite television program." "I had to continue playing on my local
soccer team." "I couldn't stop my dance class." "I just couldn't
quit drinking beer on Friday and Saturday nights."
I once had a friend tell me: the reason we are not more successful is
that we let short term fun keep us from our long-term ambitions.
I cannot promise you success but no one promised Mother Theresa success.
I cannot promise you that it will be easy but no one promised Mother
Theresa that it would be easy.
I cannot promise you that there won't be setbacks along the way but no
one promised Mother Theresa that there would not be setbacks.
But I can promise you that no one ever succeeded at something like the
CPA Exam if they let themselves get easily discouraged or distracted.
The race does not go to the speedy; the race goes to the one who is
persistent and keeps running.
(2) - Always remember that you have the right to unsubscribe from these
free email lessons. To do so, just scroll to the bottom and click on
the link that indicates "unsubscribe." Love having you; please stay as
long as you wish. But you can remove your name at any time you want.
(3) - Last year, at about this time, I was asked to give a speech. I
was told that I could talk about anything I wanted. Always an
interesting quandary - talk about whatever you wish? I thought long
and hard about what I really wanted to say to the audience and I finally
decided to talk about a quote that I liked from the legendary basketball
player, Michael Jordan: "If you run into a wall, don't turn around and
give up. Figure out how to climb it, go through it, or work around it."
The point I wanted to make to those listening was that this is what life
is all about. You run into a wall and you have a choice. You can
give up and go home or you can work to figure out how to keep pushing
forward. We all face walls in our lives. What we are, what we
become, how we live our lives depends on what we do after we hit one of
those walls.
I know lots of people who hit walls and just lie down and quit. The
wall doesn't have to be too big or too strong. If they hit a wall, that
does them in. They are just overwhelmed by the walls they face in
life. To me, that is so sad because it is the walls that provide the
challenges that make life interesting.
Other people never fuss; they spend their time getting around those
walls. Sometimes over, sometimes around, sometimes through, sometimes
under. There are different ways to get around walls. If one doesn't
work, try another. You can let the walls of life defeat you or you
can look at them as a puzzle to be solved. "I want to move past this
problem. What is the easiest, best, and most efficient method of
continuing to make progress so that I could move forward toward my
goal?"
As you study for the CPA Exam, there are going to be countless walls.
That's life. Your job requires a lot of hours. Your kids have soccer
practice to attend. Your mother-in-law is coming to live with you. I
could list thousands of walls. Some people will just look at those
walls and quit. Hang their heads in defeat. Others will step back and
work to get their minds around the problem: "surely, I can figure this
out so that I can keep heading toward my goal."
You will not find one single successful person in this life who has not
had to get beyond some very high walls. When next a wall pops up in
front of you, I want you to be the person who takes up the challenge and
slams right through (or over or under or around) that wall.
(If you want to see the actual speech that I gave about those walls, you
can watch it at www.youtube.com/watch?v=LjwHxVbZq1o However, you might
want to skip the opening 10 minutes of introduction.)
(4) - A little practice. Someone wrote in and asked if getting 80
percent of the questions right was good. My answer is that this is not
important. The important thing is to always be adding points. Don't
spend two seconds of your time worrying about where you are at. Spend
100 percent of your time figuring out how to add points, one at a time
because, inevitably, you'll get to 75.
Become obsessed about adding points.
Auditing and Attestation
A CPA firm is beginning the audit of Panasian Corporation. One of the
staff auditors has been assigned to gain and then document her
understanding of the internal controls designed to be in place in the
company's payroll system. At the end of the day, the staff
auditor has created a series of flowcharts, questionnaires, and
narrative descriptions based on the understanding she has obtained.
Which of the following is correct?
A. The questionnaire approach is preferred.
B. The flowchart approach is preferred.
C. She was correct in using all three of these techniques to
fulfill this assignment.
D. She only needed to use one of these techniques.
Answer is D.
The auditor's goal was to establish her understanding of the design of
the controls that were supposed to be in place in this payroll system.
All three of these techniques (questionnaire, flowchart, or narrative)
can accomplish this purpose successfully. Therefore, only one is
necessary although sometimes the techniques are grouped together if the
system is particularly complex.
Financial Accounting
The Walmsley Corporation spent $320,000 on rent during the current year.
However, the company's accountant realized that prepaid rent which was
$17,000 on the first day of the year was $25,000 on the last day. In
addition, in connection with another rental property, rent payable was
$19,000 on the first day of the year but had dropped to $5,000 by the
last day. If the company wants to report rent expense according
to accrual accounting, what amount should be recognized?
A. $298,000
B. $314,000
C. $326,000
D. $342,000
Answer is A
The easiest way to switch a cash number of an accrual accounting number
is to make a single journal entry for the entire year. Here, during
that period, cash went down $320,000 (a credit), the asset prepaid rent
went up $8,000 (a debit) and the liability rent payable went down
$14,000 (another debit). To make this entry balance, you need a
$298,000 debit ($320,000 less $8,000 and $14,000). That missing
balancing figure is the rent expense to be recognized according to
accrual accounting.
Regulation
Jack Biggerstaff files his Year One federal income tax return on March
9, Year Two. Sometime later, he realizes that he accidentally omitted
a large charitable contribution and he wants to file an amended return
to increase his itemized deductions. When must he file this return in
order for it to be acceptable?
A. Before April 16, Year Two.
B. Before January 1, Year Three
C. Before March 10, Year Five
D. Before April 16, Year Five
Answer is D
An individual must file an amended income tax return by three years from
the due date of the return. The Year One return is due on April 15,
Year Two so the amended return must be filed before April 16, Year Five
to meet this three-year deadline. However, if the taxpayer filed the
original return after the due date (with an extension, for example), the
term is three years from the date of filing.
BEC
What is the acid-test ratio?
A. Total liabilities divided by total equity
B. Cash, accounts receivable, and short-term investments
divided by current liabilities
C. Cash divided by liabilities due within 60 days.
D. Cash divided by liabilities due within 90 days.
Answer is B
According to Investopedia, the acid-test ratio is: "A stringent test
that indicates whether a firm has enough short-term assets to cover its
immediate liabilities without selling inventory." It is determined by
taking cash, accounts receivable, and short-term investments and divided
that total by the amount of the company's current liabilities.
The most important thing is to never stop!
Joe Hoyle
Co-Founder
CPAreviewforFREE
Tuesday, May 18, 2010
Today is the Day to Kick into High Gear
May 12, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
2,100 FREE CPA Review Questions and Answers Available for YOU
97 Weeks of Operation and 11,598,989 Page Views (without a penny spent on marketing)
Lesson 69
From: Joe
(a) – I know I sound like a broken record (although I am delighted, in this case, to sound like a broken record) but we had more visitors last week to www.CPAreviewforFREE.com than in any week of our history. Week after week, the word spreads that our 2,100 free questions and answers can get you through the CPA Exam. And, week after week, more people decide to save their hard-earned money and give us a shot. In fact, I took the results from last week and then backed up 52 weeks and found that our weekly traffic has grown by over 64 percent in the past year. That should tell you something.
(b) – I was at a convention recently and was talking with a person I know who has been in CPA Review for a long time. We were discussing changes in the exam and changes in review programs. I asked him what he thought the next big change was going to be. He responded quite honestly: “people are going to start catching on that the exam is easier to pass than it used to be. The pass rate is 50 percent and not 30 percent and you can take one part at a time. People will realize that you don’t need to pay thousands of dollars if all you want to do is pass and get on with your life. Look what iTunes did for 99 cents per song and what NetFlix did for $4.99 per month. If all you want to do is drive across town, why buy a Rolls Royce?”
(1) – No matter how many questions and answers we provide at www.CPAreviewforFREE.com, people always want more. Periodically, the Journal of Accountancy includes ten questions and answers dealing with fraud. They are not CPA Exam questions but they certainly cover material that looks like it could be from the Auditing and Attestation portion of the CPA Exam. And, like us, they are FREE.
If you are preparing for Auditing, you can get 30 good questions to practice in this way. Go to journalofaccountancy.com. Under the search box, click on “open advanced search.” For the title, type in: What’s Your Fraud IQ? For the date range, type in May, 2009 through January 2010. You should get three hits (May 2009, September 2009, and January 2010) each with 10 excellent questions. More practice for free.
I like free.
I have adapted one of the questions in our Practice section at the end of this email just so you can see it.
(2) – We have approximately 13,000 names on our subscription list and we love sending these emails out to each and every one of you. Those names come from around the world and it is an honor to have the chance to chat with so many wonderful folks. However, you have the right to unsubscribe at any time you wish. Just scroll to the bottom of this email lesson and click on “Unsubscribe” and we will remove your name. Please stay as long as you wish but do feel free to unsubscribe any time that you are ready.
(3) – I watched the movie Crazy Heart last week. Jeff Bridges plays a completely washed up country singer named Bad Blake. He was once a famous entertainer but through heavy drinking and just bad living he really hits rock bottom. He was nearly 60 in the movie and I kept expecting him to have a heart attack and die because of his many bad habits. But, toward the end of the movie, he saw that his life was slipping away and he made a fundamental change in himself and makes a genuine comeback. He didn’t get all the things back that he wanted but he did get clean and got his life back together. Although he was in just terribly shape, he managed to turn his life around.
I know that there are a lot of you reading this email who are studying for the CPA Exam, probably in the current April-May window. I know that it doesn’t always go well. In many cases, you mean to study but there just doesn’t seem to be enough time in the day. Or, you think you know a topic but then you cannot answer the questions. Or, you start to study late at night and you are so tired that you fall asleep. Trust me, there is always a point where every candidate is on the verge of giving up. The desperation cry of the CPA Exam candidate: “This is stupid; I’m just going to quit.”
Well, don’t do it!!!
No matter how far down you are, don’t give up. I realize that I am an optimistic person but tomorrow is a new day. Tomorrow is the chance for you to turn things around. Tomorrow is an opportunity for you to add a point or two and get closer to passing. In fact, today is not over yet. You can begin the climb back up RIGHT NOW.
The past is just that: the past. It has no direct relevance to your work today. Don’t let the past ruin the present. All you’ve got in life is the present. Don’t build up excuses for yourself by dwelling in the past.
Okay, you cannot add 25 points in one day. That’s impossible—no matter how hard you work. But, regardless of what you have done in the past, there is no reason why you cannot add a point or two today. And, another point or two tomorrow. And, then, you are on a roll. The month of May still has 19 days left. If you can average adding 1.5 points per day (and that is a goal that I think everyone can make), you can turn a 47 today into a passing score by the end of May. It is not a miracle. It is not a dream. It is not impossible. It is just a measly 1.5 points per day.
But, the secret is that you have to get started today and you have to make legitimate progress.
You can’t just talk about studying.
You can’t just dream about studying.
You can’t just pray about studying.
You actually have to study.
You have to go to www.CPAreviewforFREE.com and start (a) answering questions and (b) reading the answers carefully, especially for the ones you miss.
Question after question.
My goal would be that you add one point for every 20 questions that you attempt. That is a very reasonable goal. Thus, to get 1.5 points per day, you need to answer 30 questions and read the answers (very carefully for the ones you miss).
Can you do that? Of course, you can. No matter what you have done in the past, you can do 30 questions per day on www.CPAreviewforFREE.com. Today is a good day to kick it into high gear. If you can just do 30 questions per day, there is no reason why you cannot add 28.5 points in the remainder of the time in May (1.5 points per day).
But you can’t dream about it – you have to sit down and block out the time and turn off the television and stop drinking the beer and forget about everything but those 30 questions.
For the rest of May, I want you to be a question answering machine. Whether you’ve been a lazy bum for your entire life or not, for the rest of May, I want you to promise yourself that—at a minimum—you will answer 30 questions per day and you will read those answers and you will take a few quick notes so you can get the question right the next time. “Get the question right the next time” should be your mantra.
Even if you’ve hit the bottom, there is no reason to give up. That doesn’t do you one bit of good. You have to set a reasonable goal for yourself for TODAY and then you have to have the self-discipline to grind out that work. Nothing but today and 30 questions should be on your mind.
Forget what you have done in the past, no matter how bad it has been. Make it happen TODAY – 30 questions and answers and add 1.5 points.
(4) – Practice
Auditing
An independent auditor is examining the financial statements for the Jeter Corporation. The company’s sales have gone up significantly this year and the auditor is afraid that some of the sales are fictitious, simply recorded to make the company look better. The auditor is considering taking each of the following actions during the audit. Which one is most likely to provide evidence of extra sales being added that never actually took place?
A – Investigate complaints by vendors.
B – Credits to accounts receivable in the period after the end of the year are analyzed.
C – A search is made for unrecorded liabilities as of the end of the year.
D – The sales department is questioned about the validity of the final sales figure.
Answer is B
Companies that inflate revenues often do so by recording credit sales near the end of the year and then removing the accounts receivable in the subsequent period as a bad account, a discount, or as a sales return. They put the receivable and revenue on and then subsequently remove the receivable. In that way, no sales invoices are sent out to non-existent customers. Vendors tend to complain about lack of payment so that particular test is done in connection with either inventory or accounts payable and not revenues. Unrecorded liabilities are a potential problem but they have nothing to do with false sales. Finally, asking the sales department only provides information from inside the company which is rarely considered strong evidence. Plus, it may well have been the sales department that instigated the fraud and, thus, is most likely to cover it up.
FAR
A company that sells men’s and women’s fashions is given a building for free by a shopping center to entice the company to open a store in that facility. The building has a fair value of $980,000. How does the company record this donated asset?
A – No entry is made since the building was received as a donation.
B – The building is recorded at $980,000 along with an equal amount of paid-in capital.
C – The building is recorded at $980,000 along with an equal amount of revenue.
D – Recording is optional.
Answer is C
Although the building has no cost to the company, leaving it unrecorded seems very misleading. Therefore, it is recorded at fair value at the time of the gift along with an offsetting entry to a revenue account.
BEC
Several individuals want to create a limited partnership. Which of the following is correct?
A – A limited partnership can be created simply by agreement of these individuals.
B – A limited partnership requires that the individuals comply with applicable state statutes.
C – A limited partnership requires approval by the SEC although a general partnership does not.
D – A limited partnership can only be created by following special provisions passed by the US Congress.
Answer is B
A general partnership can be formed by agreement of the partners or, in some cases, by simply acting like a partnership. A limited partnership, though, is different than a general partnership and requires compliance with applicable state laws.
Regulation
A corporation has qualified as an S corporation for income tax purposes. However, several of the owners want to terminate the S corporation status. What percentage of the stock of this S corporation must these owners hold before revocation will take place?
A – 34 percent or more
B – More than 50 percent
C – 80 percent or more
D – All 100 percent must consent
Answer is B
The tax laws require the termination of S corporation status if shareholders owning more than half of the shares of stock consent to the revocation.
Okay, start today. Start right now. Remember 30 questions and answers every day for the rest of May – you want to add 1.5 points per day. That’s a reasonable goal – go get it.
Joe Hoyle
Co-Founder
CPAreviewforFREE
www.CPAreviewforFREE.com
CPA Review for FREE
www.CPAreviewforFREE.com
2,100 FREE CPA Review Questions and Answers Available for YOU
97 Weeks of Operation and 11,598,989 Page Views (without a penny spent on marketing)
Lesson 69
From: Joe
(a) – I know I sound like a broken record (although I am delighted, in this case, to sound like a broken record) but we had more visitors last week to www.CPAreviewforFREE.com than in any week of our history. Week after week, the word spreads that our 2,100 free questions and answers can get you through the CPA Exam. And, week after week, more people decide to save their hard-earned money and give us a shot. In fact, I took the results from last week and then backed up 52 weeks and found that our weekly traffic has grown by over 64 percent in the past year. That should tell you something.
(b) – I was at a convention recently and was talking with a person I know who has been in CPA Review for a long time. We were discussing changes in the exam and changes in review programs. I asked him what he thought the next big change was going to be. He responded quite honestly: “people are going to start catching on that the exam is easier to pass than it used to be. The pass rate is 50 percent and not 30 percent and you can take one part at a time. People will realize that you don’t need to pay thousands of dollars if all you want to do is pass and get on with your life. Look what iTunes did for 99 cents per song and what NetFlix did for $4.99 per month. If all you want to do is drive across town, why buy a Rolls Royce?”
(1) – No matter how many questions and answers we provide at www.CPAreviewforFREE.com, people always want more. Periodically, the Journal of Accountancy includes ten questions and answers dealing with fraud. They are not CPA Exam questions but they certainly cover material that looks like it could be from the Auditing and Attestation portion of the CPA Exam. And, like us, they are FREE.
If you are preparing for Auditing, you can get 30 good questions to practice in this way. Go to journalofaccountancy.com. Under the search box, click on “open advanced search.” For the title, type in: What’s Your Fraud IQ? For the date range, type in May, 2009 through January 2010. You should get three hits (May 2009, September 2009, and January 2010) each with 10 excellent questions. More practice for free.
I like free.
I have adapted one of the questions in our Practice section at the end of this email just so you can see it.
(2) – We have approximately 13,000 names on our subscription list and we love sending these emails out to each and every one of you. Those names come from around the world and it is an honor to have the chance to chat with so many wonderful folks. However, you have the right to unsubscribe at any time you wish. Just scroll to the bottom of this email lesson and click on “Unsubscribe” and we will remove your name. Please stay as long as you wish but do feel free to unsubscribe any time that you are ready.
(3) – I watched the movie Crazy Heart last week. Jeff Bridges plays a completely washed up country singer named Bad Blake. He was once a famous entertainer but through heavy drinking and just bad living he really hits rock bottom. He was nearly 60 in the movie and I kept expecting him to have a heart attack and die because of his many bad habits. But, toward the end of the movie, he saw that his life was slipping away and he made a fundamental change in himself and makes a genuine comeback. He didn’t get all the things back that he wanted but he did get clean and got his life back together. Although he was in just terribly shape, he managed to turn his life around.
I know that there are a lot of you reading this email who are studying for the CPA Exam, probably in the current April-May window. I know that it doesn’t always go well. In many cases, you mean to study but there just doesn’t seem to be enough time in the day. Or, you think you know a topic but then you cannot answer the questions. Or, you start to study late at night and you are so tired that you fall asleep. Trust me, there is always a point where every candidate is on the verge of giving up. The desperation cry of the CPA Exam candidate: “This is stupid; I’m just going to quit.”
Well, don’t do it!!!
No matter how far down you are, don’t give up. I realize that I am an optimistic person but tomorrow is a new day. Tomorrow is the chance for you to turn things around. Tomorrow is an opportunity for you to add a point or two and get closer to passing. In fact, today is not over yet. You can begin the climb back up RIGHT NOW.
The past is just that: the past. It has no direct relevance to your work today. Don’t let the past ruin the present. All you’ve got in life is the present. Don’t build up excuses for yourself by dwelling in the past.
Okay, you cannot add 25 points in one day. That’s impossible—no matter how hard you work. But, regardless of what you have done in the past, there is no reason why you cannot add a point or two today. And, another point or two tomorrow. And, then, you are on a roll. The month of May still has 19 days left. If you can average adding 1.5 points per day (and that is a goal that I think everyone can make), you can turn a 47 today into a passing score by the end of May. It is not a miracle. It is not a dream. It is not impossible. It is just a measly 1.5 points per day.
But, the secret is that you have to get started today and you have to make legitimate progress.
You can’t just talk about studying.
You can’t just dream about studying.
You can’t just pray about studying.
You actually have to study.
You have to go to www.CPAreviewforFREE.com and start (a) answering questions and (b) reading the answers carefully, especially for the ones you miss.
Question after question.
My goal would be that you add one point for every 20 questions that you attempt. That is a very reasonable goal. Thus, to get 1.5 points per day, you need to answer 30 questions and read the answers (very carefully for the ones you miss).
Can you do that? Of course, you can. No matter what you have done in the past, you can do 30 questions per day on www.CPAreviewforFREE.com. Today is a good day to kick it into high gear. If you can just do 30 questions per day, there is no reason why you cannot add 28.5 points in the remainder of the time in May (1.5 points per day).
But you can’t dream about it – you have to sit down and block out the time and turn off the television and stop drinking the beer and forget about everything but those 30 questions.
For the rest of May, I want you to be a question answering machine. Whether you’ve been a lazy bum for your entire life or not, for the rest of May, I want you to promise yourself that—at a minimum—you will answer 30 questions per day and you will read those answers and you will take a few quick notes so you can get the question right the next time. “Get the question right the next time” should be your mantra.
Even if you’ve hit the bottom, there is no reason to give up. That doesn’t do you one bit of good. You have to set a reasonable goal for yourself for TODAY and then you have to have the self-discipline to grind out that work. Nothing but today and 30 questions should be on your mind.
Forget what you have done in the past, no matter how bad it has been. Make it happen TODAY – 30 questions and answers and add 1.5 points.
(4) – Practice
Auditing
An independent auditor is examining the financial statements for the Jeter Corporation. The company’s sales have gone up significantly this year and the auditor is afraid that some of the sales are fictitious, simply recorded to make the company look better. The auditor is considering taking each of the following actions during the audit. Which one is most likely to provide evidence of extra sales being added that never actually took place?
A – Investigate complaints by vendors.
B – Credits to accounts receivable in the period after the end of the year are analyzed.
C – A search is made for unrecorded liabilities as of the end of the year.
D – The sales department is questioned about the validity of the final sales figure.
Answer is B
Companies that inflate revenues often do so by recording credit sales near the end of the year and then removing the accounts receivable in the subsequent period as a bad account, a discount, or as a sales return. They put the receivable and revenue on and then subsequently remove the receivable. In that way, no sales invoices are sent out to non-existent customers. Vendors tend to complain about lack of payment so that particular test is done in connection with either inventory or accounts payable and not revenues. Unrecorded liabilities are a potential problem but they have nothing to do with false sales. Finally, asking the sales department only provides information from inside the company which is rarely considered strong evidence. Plus, it may well have been the sales department that instigated the fraud and, thus, is most likely to cover it up.
FAR
A company that sells men’s and women’s fashions is given a building for free by a shopping center to entice the company to open a store in that facility. The building has a fair value of $980,000. How does the company record this donated asset?
A – No entry is made since the building was received as a donation.
B – The building is recorded at $980,000 along with an equal amount of paid-in capital.
C – The building is recorded at $980,000 along with an equal amount of revenue.
D – Recording is optional.
Answer is C
Although the building has no cost to the company, leaving it unrecorded seems very misleading. Therefore, it is recorded at fair value at the time of the gift along with an offsetting entry to a revenue account.
BEC
Several individuals want to create a limited partnership. Which of the following is correct?
A – A limited partnership can be created simply by agreement of these individuals.
B – A limited partnership requires that the individuals comply with applicable state statutes.
C – A limited partnership requires approval by the SEC although a general partnership does not.
D – A limited partnership can only be created by following special provisions passed by the US Congress.
Answer is B
A general partnership can be formed by agreement of the partners or, in some cases, by simply acting like a partnership. A limited partnership, though, is different than a general partnership and requires compliance with applicable state laws.
Regulation
A corporation has qualified as an S corporation for income tax purposes. However, several of the owners want to terminate the S corporation status. What percentage of the stock of this S corporation must these owners hold before revocation will take place?
A – 34 percent or more
B – More than 50 percent
C – 80 percent or more
D – All 100 percent must consent
Answer is B
The tax laws require the termination of S corporation status if shareholders owning more than half of the shares of stock consent to the revocation.
Okay, start today. Start right now. Remember 30 questions and answers every day for the rest of May – you want to add 1.5 points per day. That’s a reasonable goal – go get it.
Joe Hoyle
Co-Founder
CPAreviewforFREE
www.CPAreviewforFREE.com
Saturday, May 8, 2010
Every Hand is a Winner!
CPA Review for FREE
www.CPAreviewforFREE.com
2,100 FREE CPA Review Questions and Answers Available for YOU
96 Weeks of Operation and 11,372,887 Page Views (without a penny spent on marketing)
Lesson 68
From: Joe
(a) – First, let me apologize for not sending out one of these email lessons for the past couple of weeks. As most everyone knows, I am on the accounting faculty of the University of Richmond. We have been doing our final exams (you may have seen one of my intermediate accounting questions show up this past week on our Facebook page). However, exams are over and grades have been turned in and I’m ready to get back to writing email lessons for the CPA Exam more frequently.
Apparently, my short absence did not deter anyone from preparing: we had the second biggest week in our history last week. Our growth just keeps, well, growing.
(1) – Nice note from one of our candidates:
“Thank you so much for all your advice and help online. I took audit last week and I felt that your questions were great. It gave me a real chance and I know I am going to pass it this time. I have registered for FAR. Thanks so much and God bless you.”
(2) – I do not watch much television. Always strikes me as a pretty big waste of time. There are always more interesting things to accomplish. However, now and then, I will watch poker on television. I am not actually a card player myself but I find some aspects of poker to be fascinating.
In sports, the person with the most points (unless it is golf) automatically wins. In poker, though, the person who draws the best hand frequently does not win. If you have a horrible hand and play it well, you can always win. It is not the hand you draw but rather how you play it that counts. In fact, a famous song from 1978 says it well “every hand's a winner and every hand's a loser.” There are a lot of things like that in life.
Last night, a guy holding a 2 and a 5 beat another player who had two kings just by playing the game well. The guy with the 2 and the 5 should have given up and quit but he played the hand so well that he won very easily. He got all of the money.
When it comes to the CPA Exam, we all know that some people hold good cards: they are good test takers, they went to a good school, they have plenty of time to study. If this were basketball or football, those people would always win—they would get all the 75s. Everyone else would be stuck.
But the CPA Exam is much more like poker. It is not the cards that you get dealt at the start that count but, rather, how well you play them. Maybe you had a couple of poor teachers in college. Maybe you didn’t have the highest grade point average. Those are bad cards but they shouldn’t keep you from passing. That’s all past history and has less impact on the CPA Exam than you might think. It is not the cards you hold that make the difference but how well you play them.
When it comes to the CPA Exam, a good player shows some special characteristics that indicate that they know how to play the game and win.
--They don’t waste time in areas where they already have good knowledge. Getting those questions correct during a study session might make the candidate feel good but that doesn’t add any points.
--They don’t waste time trying to be perfect. You are not trying to make 100; you are trying to pass and that is a long way from perfect.
--When they miss a question, they try to learn from it. They don’t get upset; they learn. Missing a question provides fertilizer for your knowledge – a chance to learn something.
--They don’t necessarily study everyday but they do study on a very regular, consistent basis.
--They stay away from excuses.
--They try to cut down on their mistakes. Missing a question that you do not know is fine. That is just part of the game. However, you want to work so that you never, never (never) miss a question that you do know. That is careless. That is just giving points away. You want to aim to reduce carelessness to zero.
--They understand the difference between “being tired” and “being tired of it.” Candidates often quit studying because they are “tired.” If that is the case, then they should take a break and get some rest. It does happen; we are human. Too often, though, they are not really tired; they are just tired of sitting there studying. They are tired of it. It is psychological. Try to get yourself pumped back up. Do a little exercise; walk around the house a couple of times. Think about the excitement that will come when you start getting those passing grades.
--They don’t defer learning. Too many people learn the easy stuff today and then promise themselves that they’ll do the hard work tomorrow to learn the complicated stuff. But tomorrow never comes. You cannot always put off the real work. Step up and get it done now.
Lots of ways to play this game well. Whether you had all A’s in college or all C’s, passing the CPA Exam does not depend on the cards you hold as much as it depends on how well you play those cards. Start thinking of yourself as a person who “plays smart.” When it comes to the CPA Exam, you are not a victim so don’t act like one. Think about that “plays smart” label and think about what “plays smart” means when it comes to preparing for the CPA Exam.
(3) – If you want to unsubscribe from these email lessons, you may scroll to the bottom of this lesson and click on the appropriate box. I hope to get back into my regular schedule of a new lesson ever 7 to 10 or maybe 14 days. We love having you with us but if you are ready to unsubscribe, it is certainly your right.
(4) – I’ve been in the process of assigning grades for the spring semester. I had 57 very bright students in Intermediate Accounting II, all of whom were more than capable of doing well. In the end, a lot of them made the grade of C, a pretty good number got a B, but only 12 percent earned an A. I always want more of my students to make an A.
What I find interesting is that the A students know how to make an A but the C students do not. It is almost never a question of smarts or even hard work. An A student just knows what it takes to make an A but a C student does not. There is just not the same level of awareness.
I occasionally sit with students who are struggling and ask quite innocently: “if I offered you $1 million to make an A, how would you change your preparation?” Often, they have no good idea. “How to make an A” is a problem they have never seriously considered.
So, as you study for the CPA Exam, I want you to picture the very best student you’ve ever met. Not the smartest student but the best student. Then make a list of 2 or 3 characteristics that describe why that student was best. What does it take to be the best student? In fact, I just posted this same question on our Facebook page if you want to give me your answer.
But, I have one caveat: you cannot use the word “smart” because I don’t think that is it at all. In fact, I sometimes think smartness is a hindrance because it makes you lazy and inefficient. Some of my smartest students are perpetual C students.
YOU can become the BEST STUDENT but, first, you have to identify what those characteristics are that makes a person the best. Once you know what it takes, then YOU can go do it also.
Think about it – what characteristics would be on your list?
(5) – Practice
FAR – here’s another question from one of my final examinations. As I always say, the CPA Exam is one mile wide and one inch deep whereas Intermediate Accounting II is one mile deep and about two feet wide. However, some of the questions do overlap a bit.
During the current year, a company’s Accumulated Depreciation account went up $33,000 despite recording depreciation expense of $88,000. At the same time, the company’s Equipment account went up $240,000 despite buying $700,000 in new items (half for cash and half on a long-term note payable). On the company’s income statement, there is a gain of $24,000 on the sale of equipment. That was a cash transaction. In connection with Equipment, what is the total amount shown on the company’s statement of cash flows under investing activities?
A - Net Cash Inflow of $74,000
B - Net Cash Inflow of $79,000
C - Net Cash Inflow of $94,000
D - Net Cash Inflow of $104,000
Answer is B
The purchase of $700,000 in equipment required cash of $350,000 because half of the acquisition was paid for with cash. However, the equipment account only went up $240,000. That means that a second $460,000 reduction must also have taken place ($700,000 less $240,000). A gain on a sale is mentioned so this amount of equipment must have been sold. Depreciation expense for the period was $88,000 but accumulated depreciation only went up by $33,000. A reduction of $55,000 must have also occurred. Since no other event is mentioned, that drop was also in connection with the sale. Equipment costing $460,000 with accumulated depreciation of $55,000 has a book value of $405,000. If it is sold at a $24,000 gain, the company must have received $429,000. Cash payment of $350,000 was made on the purchase and cash collection of $429,000 was made on the sale so that a net increase in cash of $79,000 took place during the year. These transactions did not happen on a
daily basis and involved assets so they are listed as investing activities.
Regulation – Here is a question that I took directly from the 2009 instructions for the 1040 form. You cannot confine your knowledge to just those instructions but they do give significant guidance as to what people need to know about individual income taxes.
Which of the following is not deductible by an individual taxpayer in arriving at adjusted gross income?
A – Qualifying moving expenses
B – One-half of self-employment taxes
C – Alimony paid
D – Union dues
Answer is D
If you look at the 1040 form, qualifying moving expenses are deductible on line 26 to arrive at adjusted gross income, one-half of self-employment tax payment is deductible on line 27, and alimony payments are deducted on line 31a. They all can be used to reduce the amount reported by the taxpayer as adjusted gross income. Union dues are deductible on Schedule A as an itemized deduction. They are reported on line 21 as “job expenses and certain miscellaneous deductions.” However, no amount can be deducted except the total amount of these expenses that is in excess of 2 percent of adjusted gross income.
Auditing
What are pro forma financial statements?
A – Statements that are produced based on projections of the future.
B – Historical statements that have been changed to show the impact that would have occurred as a result of a proposed event.
C – Statements that have been created according to a basis of accounting that is not viewed as generally accepted.
D – Financial statements created according to specific government regulations, for example to meet certain banking requirements.
Answer is B
When a transaction (such as the acquisition of another company) is proposed or has already taken place, the parties are often interested in the financial ramifications. Pro forma financial information restates previous numbers to show the effects that would have taken place if the transaction had occurred at an earlier date.
BEC
What is “commercial paper?”
A – All bonds of corporations fall under the term “commercial paper.”
B – Unsecured promissory notes issued to the public by corporations with up to a nine month maturity period.
C – Notes that trade on a bond exchange and have a maturity of two years or less.
D – A debt instrument assigned from one individual to another that is used to purchase property or inventory.
Answer is B
Commercial paper is an unsecured obligation issued by a corporation or bank to finance short-term credit needs. Maturities typically range up to 270 days. Commercial paper is available in a wide range of denominations, can be either discounted or interest-bearing, and usually have a limited or nonexistent secondary market (cannot easily be sold to another investor). Commercial paper is typically issued by companies with high credit ratings, meaning that the investment is almost always viewed as having relatively low risk.
Every hand is a winner and every hand is a loser. Make yours the winning hand.
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
www.CPAreviewforFREE.com
2,100 FREE CPA Review Questions and Answers Available for YOU
96 Weeks of Operation and 11,372,887 Page Views (without a penny spent on marketing)
Lesson 68
From: Joe
(a) – First, let me apologize for not sending out one of these email lessons for the past couple of weeks. As most everyone knows, I am on the accounting faculty of the University of Richmond. We have been doing our final exams (you may have seen one of my intermediate accounting questions show up this past week on our Facebook page). However, exams are over and grades have been turned in and I’m ready to get back to writing email lessons for the CPA Exam more frequently.
Apparently, my short absence did not deter anyone from preparing: we had the second biggest week in our history last week. Our growth just keeps, well, growing.
(1) – Nice note from one of our candidates:
“Thank you so much for all your advice and help online. I took audit last week and I felt that your questions were great. It gave me a real chance and I know I am going to pass it this time. I have registered for FAR. Thanks so much and God bless you.”
(2) – I do not watch much television. Always strikes me as a pretty big waste of time. There are always more interesting things to accomplish. However, now and then, I will watch poker on television. I am not actually a card player myself but I find some aspects of poker to be fascinating.
In sports, the person with the most points (unless it is golf) automatically wins. In poker, though, the person who draws the best hand frequently does not win. If you have a horrible hand and play it well, you can always win. It is not the hand you draw but rather how you play it that counts. In fact, a famous song from 1978 says it well “every hand's a winner and every hand's a loser.” There are a lot of things like that in life.
Last night, a guy holding a 2 and a 5 beat another player who had two kings just by playing the game well. The guy with the 2 and the 5 should have given up and quit but he played the hand so well that he won very easily. He got all of the money.
When it comes to the CPA Exam, we all know that some people hold good cards: they are good test takers, they went to a good school, they have plenty of time to study. If this were basketball or football, those people would always win—they would get all the 75s. Everyone else would be stuck.
But the CPA Exam is much more like poker. It is not the cards that you get dealt at the start that count but, rather, how well you play them. Maybe you had a couple of poor teachers in college. Maybe you didn’t have the highest grade point average. Those are bad cards but they shouldn’t keep you from passing. That’s all past history and has less impact on the CPA Exam than you might think. It is not the cards you hold that make the difference but how well you play them.
When it comes to the CPA Exam, a good player shows some special characteristics that indicate that they know how to play the game and win.
--They don’t waste time in areas where they already have good knowledge. Getting those questions correct during a study session might make the candidate feel good but that doesn’t add any points.
--They don’t waste time trying to be perfect. You are not trying to make 100; you are trying to pass and that is a long way from perfect.
--When they miss a question, they try to learn from it. They don’t get upset; they learn. Missing a question provides fertilizer for your knowledge – a chance to learn something.
--They don’t necessarily study everyday but they do study on a very regular, consistent basis.
--They stay away from excuses.
--They try to cut down on their mistakes. Missing a question that you do not know is fine. That is just part of the game. However, you want to work so that you never, never (never) miss a question that you do know. That is careless. That is just giving points away. You want to aim to reduce carelessness to zero.
--They understand the difference between “being tired” and “being tired of it.” Candidates often quit studying because they are “tired.” If that is the case, then they should take a break and get some rest. It does happen; we are human. Too often, though, they are not really tired; they are just tired of sitting there studying. They are tired of it. It is psychological. Try to get yourself pumped back up. Do a little exercise; walk around the house a couple of times. Think about the excitement that will come when you start getting those passing grades.
--They don’t defer learning. Too many people learn the easy stuff today and then promise themselves that they’ll do the hard work tomorrow to learn the complicated stuff. But tomorrow never comes. You cannot always put off the real work. Step up and get it done now.
Lots of ways to play this game well. Whether you had all A’s in college or all C’s, passing the CPA Exam does not depend on the cards you hold as much as it depends on how well you play those cards. Start thinking of yourself as a person who “plays smart.” When it comes to the CPA Exam, you are not a victim so don’t act like one. Think about that “plays smart” label and think about what “plays smart” means when it comes to preparing for the CPA Exam.
(3) – If you want to unsubscribe from these email lessons, you may scroll to the bottom of this lesson and click on the appropriate box. I hope to get back into my regular schedule of a new lesson ever 7 to 10 or maybe 14 days. We love having you with us but if you are ready to unsubscribe, it is certainly your right.
(4) – I’ve been in the process of assigning grades for the spring semester. I had 57 very bright students in Intermediate Accounting II, all of whom were more than capable of doing well. In the end, a lot of them made the grade of C, a pretty good number got a B, but only 12 percent earned an A. I always want more of my students to make an A.
What I find interesting is that the A students know how to make an A but the C students do not. It is almost never a question of smarts or even hard work. An A student just knows what it takes to make an A but a C student does not. There is just not the same level of awareness.
I occasionally sit with students who are struggling and ask quite innocently: “if I offered you $1 million to make an A, how would you change your preparation?” Often, they have no good idea. “How to make an A” is a problem they have never seriously considered.
So, as you study for the CPA Exam, I want you to picture the very best student you’ve ever met. Not the smartest student but the best student. Then make a list of 2 or 3 characteristics that describe why that student was best. What does it take to be the best student? In fact, I just posted this same question on our Facebook page if you want to give me your answer.
But, I have one caveat: you cannot use the word “smart” because I don’t think that is it at all. In fact, I sometimes think smartness is a hindrance because it makes you lazy and inefficient. Some of my smartest students are perpetual C students.
YOU can become the BEST STUDENT but, first, you have to identify what those characteristics are that makes a person the best. Once you know what it takes, then YOU can go do it also.
Think about it – what characteristics would be on your list?
(5) – Practice
FAR – here’s another question from one of my final examinations. As I always say, the CPA Exam is one mile wide and one inch deep whereas Intermediate Accounting II is one mile deep and about two feet wide. However, some of the questions do overlap a bit.
During the current year, a company’s Accumulated Depreciation account went up $33,000 despite recording depreciation expense of $88,000. At the same time, the company’s Equipment account went up $240,000 despite buying $700,000 in new items (half for cash and half on a long-term note payable). On the company’s income statement, there is a gain of $24,000 on the sale of equipment. That was a cash transaction. In connection with Equipment, what is the total amount shown on the company’s statement of cash flows under investing activities?
A - Net Cash Inflow of $74,000
B - Net Cash Inflow of $79,000
C - Net Cash Inflow of $94,000
D - Net Cash Inflow of $104,000
Answer is B
The purchase of $700,000 in equipment required cash of $350,000 because half of the acquisition was paid for with cash. However, the equipment account only went up $240,000. That means that a second $460,000 reduction must also have taken place ($700,000 less $240,000). A gain on a sale is mentioned so this amount of equipment must have been sold. Depreciation expense for the period was $88,000 but accumulated depreciation only went up by $33,000. A reduction of $55,000 must have also occurred. Since no other event is mentioned, that drop was also in connection with the sale. Equipment costing $460,000 with accumulated depreciation of $55,000 has a book value of $405,000. If it is sold at a $24,000 gain, the company must have received $429,000. Cash payment of $350,000 was made on the purchase and cash collection of $429,000 was made on the sale so that a net increase in cash of $79,000 took place during the year. These transactions did not happen on a
daily basis and involved assets so they are listed as investing activities.
Regulation – Here is a question that I took directly from the 2009 instructions for the 1040 form. You cannot confine your knowledge to just those instructions but they do give significant guidance as to what people need to know about individual income taxes.
Which of the following is not deductible by an individual taxpayer in arriving at adjusted gross income?
A – Qualifying moving expenses
B – One-half of self-employment taxes
C – Alimony paid
D – Union dues
Answer is D
If you look at the 1040 form, qualifying moving expenses are deductible on line 26 to arrive at adjusted gross income, one-half of self-employment tax payment is deductible on line 27, and alimony payments are deducted on line 31a. They all can be used to reduce the amount reported by the taxpayer as adjusted gross income. Union dues are deductible on Schedule A as an itemized deduction. They are reported on line 21 as “job expenses and certain miscellaneous deductions.” However, no amount can be deducted except the total amount of these expenses that is in excess of 2 percent of adjusted gross income.
Auditing
What are pro forma financial statements?
A – Statements that are produced based on projections of the future.
B – Historical statements that have been changed to show the impact that would have occurred as a result of a proposed event.
C – Statements that have been created according to a basis of accounting that is not viewed as generally accepted.
D – Financial statements created according to specific government regulations, for example to meet certain banking requirements.
Answer is B
When a transaction (such as the acquisition of another company) is proposed or has already taken place, the parties are often interested in the financial ramifications. Pro forma financial information restates previous numbers to show the effects that would have taken place if the transaction had occurred at an earlier date.
BEC
What is “commercial paper?”
A – All bonds of corporations fall under the term “commercial paper.”
B – Unsecured promissory notes issued to the public by corporations with up to a nine month maturity period.
C – Notes that trade on a bond exchange and have a maturity of two years or less.
D – A debt instrument assigned from one individual to another that is used to purchase property or inventory.
Answer is B
Commercial paper is an unsecured obligation issued by a corporation or bank to finance short-term credit needs. Maturities typically range up to 270 days. Commercial paper is available in a wide range of denominations, can be either discounted or interest-bearing, and usually have a limited or nonexistent secondary market (cannot easily be sold to another investor). Commercial paper is typically issued by companies with high credit ratings, meaning that the investment is almost always viewed as having relatively low risk.
Every hand is a winner and every hand is a loser. Make yours the winning hand.
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Thursday, April 8, 2010
Keep Pushing
Try us FIRST before you spend your hard-earned money.
April 7, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
2,100 FREE CPA Review Questions and Answers Available for YOU
92 Weeks of Operation and 10,393,997 Page Views (without a penny spent on marketing)
Lesson 67
From: Joe
(a) – We are always delighted to welcome accountants from around the world to our website. We have 2,100 questions and answers available and they are free to anyone and everyone around the world. Look at a map and find Richmond, Virginia, and that is where they came from. Last week (for the countries outside of the US), we got the most visitors from South Korea, Canada, Philippines, India, and Japan in that order. Interestingly, if you take the top ten countries and simply rank them by how long the average person works on our site, the top four are Egypt, Jamaica, United States, and Canada. The average visitor from Egypt stays on the site for 28:10 minutes which barely edges out Jamaica (27:12 minutes).
Welcome to all!!!!
(b) – If you would like to read my new Financial Accounting textbook, the online version is absolutely free (great price).
Go to www.flatworldknowledge.com
Click on “Catalogue”
Click on “Business and Economics”
Click on “Financial Accounting”
And you are ready to read any and all of the 17 chapters.
(1) – Nice notes, recently received:
From HN: Thank you so much for providing us with thousands of free CPA exam questions!!!!! Your questions and explanations rock and are much better than those generic questions from the big name pricey review courses. I just wanted to let you know I have passed BEC (78) and FAR (81) by using your website. I work full time so I found myself having a hard time studying after a long day of work. CPAReviewForFree works very well for me. It makes my study easier, more interesting and more productive. All I need to do is to login and start answering questions. Just like you said, the goal is to add points. I love it!!! I am going to take REG and AUD. For some reason I am a little bit worry about passing auditing... I guess we will find out in a few months. I just wanted to share my happiness with you.
From OO: I just found out I have passed the CPA exam. I don't believe I could have passed Audit, BEC and my nemesis FAR without the questions from your website. I purchased the questions so that I could review them when I wasn't at my computer.
From JD: Please accept my biggest THANK YOU. I have cleared my third section of CPA - REG. I got my result today and it was great. The First Thanks goes to you who has given me inner strength and motivation to study and shown me how to plan my study so that I can achieve my desired goal. The Second Thanks goes for the very helpful questions and answers which provide an in-depth knowledge of the required subject and relieves our tension about not getting passing marks in the toughest exams. I regularly read your emails and thoroughly do all your questions. I passed my first three exams - BEC, FAR, and REG. The fourth and remaining is AUDIT which I am planning in May 2010. Your regular emails really help me pass.
(2) – I was out of town this past week-end. I went to a religious service with members of my family. The speaker was excellent. Toward the end of his remarks, he called out in a loud voice: “be full of hope; be full of joy.” I loved the feeling.
So, not surprisingly, I sat there thinking what I would call out to all of you guys who get these email lessons. What would I exhort you to do if I could stand in front of you?
--Be full of confidence!!! (It is hard to be great if you don’t believe in yourself.)
--Be full of courage!!! (Times are not always great. It is so easy when life goes well. It is much more difficult to push forward when things are not going great.
--Be full of compassion!!! (Humans [and I include myself in this] can be very self-centered. One of the hardest things in life is to feel the pain that others feel.)
--Be full of energy!!! (I think most energy is just a state of mind. If you think tired, you will be tired. If you think energized, you will be energized.)
--Be full of assistance!!! (Take time every day to help others – it is always a sad day if you do not help another person.)
--Be full of perseverance!!! (In life, the race usually goes to the guy who keeps pushing; the guy who won’t give up; the guy who stays on course until the job gets done.)
--Be full of calmness!!! (We live in a hyperactive world but it is hard to do well if you are constantly running around mentally and physically.)
--Be full of knowledge!!! (You need to know yourself and know what you really want in life. I believe that one of the things that can hold us back in life is that we don’t know what we really want and then we do not understand why we don’t push forward more aggressively. You’ve got to really want something deeply before you have the courage and energy to go get it. Know what you truly want in life.)
--Be full of friendship!!! (We all gain energy from being a friend. However, you’ve got to be brave enough to go find those friends. They don’t necessarily come looking for you.)
Yeah – there are a lot of things you can be. But it is very easy to get into a rut and have a life full of nothing but television and beer. That may sound good in a television commercial but it really is lacking in true satisfaction. Don’t let that happen to you – kick yourself out of the rut. Figure out what you want and then go get it!!
(3) – You are always allowed to unsubscribe from these email lessons at any time you wish. I typically send out a new lesson every 7-14 days. If you want to continue to get them, that is great. We love having you. However, if you ever want to unsubscribe, just scroll to the bottom of any lesson and click on the unsubscribe button.
(4) – Like everyone else on the planet, I get a lot of email stuff forwarded to me. 99.9 percent of it I delete. Just not interested and don’t have the time to think about it. However, this morning a friend from Chicago sent me a little essay from a woman who has a family but also is a long-distance runner. She was talking about pushing herself to train. For some reason, I actually read the essay and there were a couple of paragraphs that really spoke to me. I loved the way she was able to change her own way of thinking. That is something I think you and I can both do. Our attitude is not carved in stone. We do have the ability to change the way we look at life and that is what she did.
Here are the two paragraphs that made me stop and think.
“I was chugging up a hill saying to myself, I have to get up this hill. I have to finish this workout. And then all of a sudden, a few people came to mind, some sick, others struggling, and I thought about how much they would love to have the opportunity to tackle this hill. I bet they wouldn't think they had to. In the clarity of thinking that comes with adversity, they would likely say they got to run up this hill. I wondered what might happen if I started to think that way.
“I decided to try it. Instead of thinking or saying, ‘I have to finish this project’ or ‘I have to pick up my kids,’ I stopped myself and tweaked my language: I get to work on this assignment. I get to pick up my children from school. I get to help them with homework. I get to buy groceries and make dinner for my family. I get to do speed work. I get to take Luke to football practice. . . . At first it felt forced and silly, but after a few days, it became natural. I felt freer, more thoughtful, and more aware of why I do what I do. Perhaps I had become so encumbered with my to-dos that I forgot to be thankful for the opportunity to do them. I realized that it's possible to have a reawakening about the beauty in our lives, to understand that we are so damn lucky to be healthy, to have people to love and the ability to care for them.”
My favorite line in all of this is “Perhaps I had become so encumbered with my to-dos that I forgot to be thankful for the opportunity to do them.” Isn’t that easy for all of us to do? It is just easier to whine and moan than to feel grateful for what we are able to do and accomplish.
So, the next time you are fussing about the fact that you “have to study for the CPA Exam” do realize that there are a lot of people in this world that would view that as a privilege, a wonderful opportunity, a great chance to prove themselves. Maybe you can work on your own vocabulary a bit. Doesn’t it feel just a little bit better to say that you “get the chance to study for the CPA Exam” or that you “have the opportunity of studying for the CPA Exam.”
If you are going to do the work anyway, why be a negative person about it? Why not view it as a real chance to show what you can do? Make it seem as positive as possible.
If you view studying as a negative, it will become a real negative.
Don’t let that happen.
(5) – Practice Practice Practice
You “get the chance” to add some points
FAR
A company has a defined benefit pension plan that has a service cost for the current year of $110,000, funding of $90,000, interest on the projected benefit obligation of $50,000, and earnings on the plan assets of $30,000. In addition, a contractual provision was changed at the beginning of the year and the resulting prior service cost was $80,000 because the projected benefit obligation increased. Amortization of that prior service cost was $20,000 for this year. What amount of pension expense should be reported for the year?
A - $70,000
B - $150,000
C - $230,000
D - $240,000
Answer is B
Pension expense is made up of components. There are usually three but can be as many as five. Here there are four. Service cost ($110,000) and interest on the projected benefit obligation ($50,000) make the expense go up. The earnings on plan assets ($30,000) makes the expense go down. Amortization of the prior service cost ($20,000) makes the expense go up if the prior service cost is a loss and makes it go down if the prior service cost is a gain. Here, the projected benefit obligation increased so the prior service cost is a loss. Thus, the expense is $110,000 + $50,000 - $30,000 + $20,000 or $150,000. The fifth component is the amortization of any net gain or net loss and there are no gains or losses mentioned here. Funding and the change created by the prior service cost do not impact the pension expense.
Regulation
On a corporate income tax return, Schedule M-1 and Schedule M-2 must be completed. What is the purpose of these two schedules?
A – Schedule M-1 reports the composition of gross profit and Schedule M-2 reports the distribution of dividends.
B – Schedule M-1 reconciles book income to taxable income and Schedule M-2 reconciles beginning retained earnings to ending retained earnings.
C – Schedule M-1 reconciles income inside of the US with income outside of the US and Schedule M-2 reconciles taxable income to nontaxable income.
D – Schedule M-1 reports payments to the members of the board of directors and Schedule M-2 reports payments to independent contractors not viewed as employees.
Answer B
Schedule M-1 is used to show how a company reconciles the net income that it reports to the public with the taxable income reported to the IRS. Schedule M-2 reports the net income, dividends, and prior period adjustments that has allowed the company to move its beginning retained earnings balance to the ending figure.
BEC
A company buys product XR43 for $3.20 per pound although the standard price is only $3.05 per pound. The company uses this product to manufacture widgets. It is supposed to take two pounds of XR43 to produce a widget. The company created 5,000 widgets this year and the material usage variance was $1,220 unfavorable. How many pounds of product XR43 did the company actually use this year?
A – 10,200
B – 10,400
C – 10,500
D – 10,600
Answer is B
The company should have used 10,000 pounds of XR43 (5,000 widgets times two pounds of material for each one produced). The usage variance is unfavorable indicating that additional pounds were used. A usage variance is measured at the standard price so that no price variance is included. The $1,220 variance was based on a standard price of $3.05 per pound. That indicates 400 extra pounds were used ($1,220 variance/$3.05 standard price per pound). The extra amount means that 10,400 pounds rather than the standard of 10,000 were used in making widgets. That extra amount created the variance that was reported by the company.
Auditing
In auditing, what is known as the “yellow book?”
A – Standards of attestation engagements issued by the AICPA.
B – Generally accepted government auditing standards issued by the Comptroller General of the US
C – Professional and ethical standards for audit engagements issued by the Securities and Exchange Commission.
D – Federal securities regulations issued by the American Bar Association.
Answer is B
The website of the Government Accountability Office (GAO), in discussing the “yellow book,” makes the following statement: “on July 27, 2007, the Comptroller General of the United States issued the 2007 revision of Government Auditing Standards, which supersedes the 2003 revision and updates the January 2007 revision. The July 2007 version contains the January 2007 revision to the standards and updates the quality control and peer review sections in chapter 3.”
Be full of hope!!!!
Be full of joy!!!!
Joe Hoyle
President
www.CPAreviewforFREE.com
April 7, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
2,100 FREE CPA Review Questions and Answers Available for YOU
92 Weeks of Operation and 10,393,997 Page Views (without a penny spent on marketing)
Lesson 67
From: Joe
(a) – We are always delighted to welcome accountants from around the world to our website. We have 2,100 questions and answers available and they are free to anyone and everyone around the world. Look at a map and find Richmond, Virginia, and that is where they came from. Last week (for the countries outside of the US), we got the most visitors from South Korea, Canada, Philippines, India, and Japan in that order. Interestingly, if you take the top ten countries and simply rank them by how long the average person works on our site, the top four are Egypt, Jamaica, United States, and Canada. The average visitor from Egypt stays on the site for 28:10 minutes which barely edges out Jamaica (27:12 minutes).
Welcome to all!!!!
(b) – If you would like to read my new Financial Accounting textbook, the online version is absolutely free (great price).
Go to www.flatworldknowledge.com
Click on “Catalogue”
Click on “Business and Economics”
Click on “Financial Accounting”
And you are ready to read any and all of the 17 chapters.
(1) – Nice notes, recently received:
From HN: Thank you so much for providing us with thousands of free CPA exam questions!!!!! Your questions and explanations rock and are much better than those generic questions from the big name pricey review courses. I just wanted to let you know I have passed BEC (78) and FAR (81) by using your website. I work full time so I found myself having a hard time studying after a long day of work. CPAReviewForFree works very well for me. It makes my study easier, more interesting and more productive. All I need to do is to login and start answering questions. Just like you said, the goal is to add points. I love it!!! I am going to take REG and AUD. For some reason I am a little bit worry about passing auditing... I guess we will find out in a few months. I just wanted to share my happiness with you.
From OO: I just found out I have passed the CPA exam. I don't believe I could have passed Audit, BEC and my nemesis FAR without the questions from your website. I purchased the questions so that I could review them when I wasn't at my computer.
From JD: Please accept my biggest THANK YOU. I have cleared my third section of CPA - REG. I got my result today and it was great. The First Thanks goes to you who has given me inner strength and motivation to study and shown me how to plan my study so that I can achieve my desired goal. The Second Thanks goes for the very helpful questions and answers which provide an in-depth knowledge of the required subject and relieves our tension about not getting passing marks in the toughest exams. I regularly read your emails and thoroughly do all your questions. I passed my first three exams - BEC, FAR, and REG. The fourth and remaining is AUDIT which I am planning in May 2010. Your regular emails really help me pass.
(2) – I was out of town this past week-end. I went to a religious service with members of my family. The speaker was excellent. Toward the end of his remarks, he called out in a loud voice: “be full of hope; be full of joy.” I loved the feeling.
So, not surprisingly, I sat there thinking what I would call out to all of you guys who get these email lessons. What would I exhort you to do if I could stand in front of you?
--Be full of confidence!!! (It is hard to be great if you don’t believe in yourself.)
--Be full of courage!!! (Times are not always great. It is so easy when life goes well. It is much more difficult to push forward when things are not going great.
--Be full of compassion!!! (Humans [and I include myself in this] can be very self-centered. One of the hardest things in life is to feel the pain that others feel.)
--Be full of energy!!! (I think most energy is just a state of mind. If you think tired, you will be tired. If you think energized, you will be energized.)
--Be full of assistance!!! (Take time every day to help others – it is always a sad day if you do not help another person.)
--Be full of perseverance!!! (In life, the race usually goes to the guy who keeps pushing; the guy who won’t give up; the guy who stays on course until the job gets done.)
--Be full of calmness!!! (We live in a hyperactive world but it is hard to do well if you are constantly running around mentally and physically.)
--Be full of knowledge!!! (You need to know yourself and know what you really want in life. I believe that one of the things that can hold us back in life is that we don’t know what we really want and then we do not understand why we don’t push forward more aggressively. You’ve got to really want something deeply before you have the courage and energy to go get it. Know what you truly want in life.)
--Be full of friendship!!! (We all gain energy from being a friend. However, you’ve got to be brave enough to go find those friends. They don’t necessarily come looking for you.)
Yeah – there are a lot of things you can be. But it is very easy to get into a rut and have a life full of nothing but television and beer. That may sound good in a television commercial but it really is lacking in true satisfaction. Don’t let that happen to you – kick yourself out of the rut. Figure out what you want and then go get it!!
(3) – You are always allowed to unsubscribe from these email lessons at any time you wish. I typically send out a new lesson every 7-14 days. If you want to continue to get them, that is great. We love having you. However, if you ever want to unsubscribe, just scroll to the bottom of any lesson and click on the unsubscribe button.
(4) – Like everyone else on the planet, I get a lot of email stuff forwarded to me. 99.9 percent of it I delete. Just not interested and don’t have the time to think about it. However, this morning a friend from Chicago sent me a little essay from a woman who has a family but also is a long-distance runner. She was talking about pushing herself to train. For some reason, I actually read the essay and there were a couple of paragraphs that really spoke to me. I loved the way she was able to change her own way of thinking. That is something I think you and I can both do. Our attitude is not carved in stone. We do have the ability to change the way we look at life and that is what she did.
Here are the two paragraphs that made me stop and think.
“I was chugging up a hill saying to myself, I have to get up this hill. I have to finish this workout. And then all of a sudden, a few people came to mind, some sick, others struggling, and I thought about how much they would love to have the opportunity to tackle this hill. I bet they wouldn't think they had to. In the clarity of thinking that comes with adversity, they would likely say they got to run up this hill. I wondered what might happen if I started to think that way.
“I decided to try it. Instead of thinking or saying, ‘I have to finish this project’ or ‘I have to pick up my kids,’ I stopped myself and tweaked my language: I get to work on this assignment. I get to pick up my children from school. I get to help them with homework. I get to buy groceries and make dinner for my family. I get to do speed work. I get to take Luke to football practice. . . . At first it felt forced and silly, but after a few days, it became natural. I felt freer, more thoughtful, and more aware of why I do what I do. Perhaps I had become so encumbered with my to-dos that I forgot to be thankful for the opportunity to do them. I realized that it's possible to have a reawakening about the beauty in our lives, to understand that we are so damn lucky to be healthy, to have people to love and the ability to care for them.”
My favorite line in all of this is “Perhaps I had become so encumbered with my to-dos that I forgot to be thankful for the opportunity to do them.” Isn’t that easy for all of us to do? It is just easier to whine and moan than to feel grateful for what we are able to do and accomplish.
So, the next time you are fussing about the fact that you “have to study for the CPA Exam” do realize that there are a lot of people in this world that would view that as a privilege, a wonderful opportunity, a great chance to prove themselves. Maybe you can work on your own vocabulary a bit. Doesn’t it feel just a little bit better to say that you “get the chance to study for the CPA Exam” or that you “have the opportunity of studying for the CPA Exam.”
If you are going to do the work anyway, why be a negative person about it? Why not view it as a real chance to show what you can do? Make it seem as positive as possible.
If you view studying as a negative, it will become a real negative.
Don’t let that happen.
(5) – Practice Practice Practice
You “get the chance” to add some points
FAR
A company has a defined benefit pension plan that has a service cost for the current year of $110,000, funding of $90,000, interest on the projected benefit obligation of $50,000, and earnings on the plan assets of $30,000. In addition, a contractual provision was changed at the beginning of the year and the resulting prior service cost was $80,000 because the projected benefit obligation increased. Amortization of that prior service cost was $20,000 for this year. What amount of pension expense should be reported for the year?
A - $70,000
B - $150,000
C - $230,000
D - $240,000
Answer is B
Pension expense is made up of components. There are usually three but can be as many as five. Here there are four. Service cost ($110,000) and interest on the projected benefit obligation ($50,000) make the expense go up. The earnings on plan assets ($30,000) makes the expense go down. Amortization of the prior service cost ($20,000) makes the expense go up if the prior service cost is a loss and makes it go down if the prior service cost is a gain. Here, the projected benefit obligation increased so the prior service cost is a loss. Thus, the expense is $110,000 + $50,000 - $30,000 + $20,000 or $150,000. The fifth component is the amortization of any net gain or net loss and there are no gains or losses mentioned here. Funding and the change created by the prior service cost do not impact the pension expense.
Regulation
On a corporate income tax return, Schedule M-1 and Schedule M-2 must be completed. What is the purpose of these two schedules?
A – Schedule M-1 reports the composition of gross profit and Schedule M-2 reports the distribution of dividends.
B – Schedule M-1 reconciles book income to taxable income and Schedule M-2 reconciles beginning retained earnings to ending retained earnings.
C – Schedule M-1 reconciles income inside of the US with income outside of the US and Schedule M-2 reconciles taxable income to nontaxable income.
D – Schedule M-1 reports payments to the members of the board of directors and Schedule M-2 reports payments to independent contractors not viewed as employees.
Answer B
Schedule M-1 is used to show how a company reconciles the net income that it reports to the public with the taxable income reported to the IRS. Schedule M-2 reports the net income, dividends, and prior period adjustments that has allowed the company to move its beginning retained earnings balance to the ending figure.
BEC
A company buys product XR43 for $3.20 per pound although the standard price is only $3.05 per pound. The company uses this product to manufacture widgets. It is supposed to take two pounds of XR43 to produce a widget. The company created 5,000 widgets this year and the material usage variance was $1,220 unfavorable. How many pounds of product XR43 did the company actually use this year?
A – 10,200
B – 10,400
C – 10,500
D – 10,600
Answer is B
The company should have used 10,000 pounds of XR43 (5,000 widgets times two pounds of material for each one produced). The usage variance is unfavorable indicating that additional pounds were used. A usage variance is measured at the standard price so that no price variance is included. The $1,220 variance was based on a standard price of $3.05 per pound. That indicates 400 extra pounds were used ($1,220 variance/$3.05 standard price per pound). The extra amount means that 10,400 pounds rather than the standard of 10,000 were used in making widgets. That extra amount created the variance that was reported by the company.
Auditing
In auditing, what is known as the “yellow book?”
A – Standards of attestation engagements issued by the AICPA.
B – Generally accepted government auditing standards issued by the Comptroller General of the US
C – Professional and ethical standards for audit engagements issued by the Securities and Exchange Commission.
D – Federal securities regulations issued by the American Bar Association.
Answer is B
The website of the Government Accountability Office (GAO), in discussing the “yellow book,” makes the following statement: “on July 27, 2007, the Comptroller General of the United States issued the 2007 revision of Government Auditing Standards, which supersedes the 2003 revision and updates the January 2007 revision. The July 2007 version contains the January 2007 revision to the standards and updates the quality control and peer review sections in chapter 3.”
Be full of hope!!!!
Be full of joy!!!!
Joe Hoyle
President
www.CPAreviewforFREE.com
Subscribe to:
Posts (Atom)