May 4, 2011
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Lesson 93
From: Joe
(1) – Would you like to help www.CPAreviewforFREE.com? We always tell people that we are only able to continue our operations because of the kindness of so many people. How can YOU help so that we can keep our 2,200 questions and answers available for FREE?
The answer is easy: Simply forward this email to a friend, acquaintance, stranger or someone else who might be interested in taking the CPA Exam. That’s the best way you can help us. Forward this email and just say – these email lessons are free and they’ll help you learn more about passing the CPA Exam. After that, it is up to the other person to go on to our website and register and check the box that they want to get CPA Exam information (these email lessons).
Especially in May and June, it is helpful if we can get the word out to college students who are graduating and, thus, starting to do some serious thinking about the CPA Exam. At this time of the year, those are some of our prime targets. They often spent $2,500-$3,000 (that they probably don’t have) before they even know that we exist. The big courses want you to think that you have no alternative. Don’t let that happen.
(2) – By the way, those of you who are teachers might be interested in reading my teaching blog that I created in connection with my Financial Accounting textbook.
http://m1e.net/c?128895165-44nNhN/l.klSs%406419717-DhrtMNOAYMhwE
If you know a teacher, forward the URL.
(3) – I know we have a lot of international candidates who read these email lessons. You may have seen the following announcement from the AICPA on our Facebook page:
International applications for the Uniform CPA Examination are now being accepted by participating state boards of accountancy. Candidates who wish to sit for the Exam in Japan, Bahrain, Kuwait, Lebanon, or the United Arab Emirates should visit NASBA’s website for the updated list of state boards, a breakdown of fees, and the updated Candidate Bulletin:
http://m1e.net/c?128895165-2EWBD3juWEuF6%406419718-02j786rs0vu36
If you’re unsure of your eligibility or would like more information, the AICPA Exam website’s International Examination FAQs provide a good starting point:
http://m1e.net/c?128895165-voKD1BqEZuT02%406419719-o6iKRAXYjZZAk
(4) – We have a lot of people preparing to take one or more sections of the CPA Exam before the end of the April-May testing window. As in many endeavors in life, it is important to finish up your study strong. You want to go into the testing site with a lot of momentum. You want to make the last days and weeks of study your very best.
We wake up each morning bearing a lot of chains that hold us back from reaching our goals. These are self-inflicted weaknesses that we cling to which keep us from shining and keep us from achieving our potential.
---We believe that we are not smart enough to pass the CPA Exam. That is just a chain that we cling to that holds us back.
---We believe that we are not able to find the time needed for study—another chain that we use to keep ourselves from advancing. It is easy to blame family, friends, and job.
---We judge ourselves to be lazy or weak. You are only as lazy and weak as you think you are. It is the thinking that makes it so.
“I’m just not strong enough to pass the CPA Exam” is easy to say and easy to believe but all it does is hold us back.
We hide under these chains so that we don’t have to face the responsibilities of being successful. A lot of us just don’t want to deal with being successful. It’s easier to wallow around and make excuses and stay lazy.
The world needs for you to stop being timid and push yourself to success.
When you wake up tomorrow morning, wake up a different person. Don’t wake up as a scared person who feels that they are incapable of winning. That is pure baloney. Wake up a different person tomorrow – a person who has put fears and self-doubts and excuses behind. Wake up a different person tomorrow – if you can simply get rid of (a) your fears, (b) your self-doubt, and (c) your excuses, if you can break through your own chains, then that person tomorrow will have a better chance of passing the CPA Exam.
My younger daughter has cerebral palsy. Despite the problems that CP creates, she is the hardest working person that I know. Last month, she received her Gold Award – the highest award that any Girl Scout can achieve. At the ceremony, the leaders read a poem by Marianne Williamson that I think applies to us all. It talks about having the courage to break through your chains to use your talents well and wisely. It was perfect for the Girl Scouts but it was also perfect for people taking the CPA Exam. My two favorite lines are “your playing small does not serve the world” and “we are all meant to shine.” I think that is true about everyone and everything we do.
“Our deepest fear is not that we are inadequate.
Our deepest fear is that we are powerful beyond measure.
It is our light, not our darkness that most frightens us.
We ask ourselves,
Who am I to be brilliant, gorgeous, talented, fabulous?
Actually, who are you not to be?
You are a child of God.
Your playing small does not serve the world.
There is nothing enlightened about shrinking
so that other people won't feel insecure around you.
We are all meant to shine, as children do.
We were born to make manifest the glory of God that is within us.
It's not just in some of us; it's in everyone.
And as we let our own light shine,
we unconsciously give other people permission to do the same.
As we are liberated from our own fear,
our presence automatically liberates others.”
Okay, tomorrow morning, when you get out of bed, it is going to be a new day. Start by leaving your old chains behind. Walk away from those things that you are using to hold yourself back. Forget the excuses. Throw out the self-doubt. You have the ability to pass the CPA Exam if you will just finish strong, if you’ll just put in the hours you need here at the end.
Shine – do the work – make the progress. Answer as many questions as you can. Learn from your mistakes.
This is accounting. It is not easy but it is not rocket science either. You don’t have to be perfect. You merely have to pass. People just like you pass every day. It takes time and patience and perseverance but it doesn’t take any quality that you don’t already have.
Go get it – wake up tomorrow a new person – a person who is going to get the points needed to pass the CPA Exam. Leave your chains of fear and doubt behind.
(5) – As always, we are legally bound to tell you that you can unsubscribe from these emails. If we weren’t legally bound, we wouldn’t tell you because we hope you’ll stay. There is no variable cost (using a good old accounting term) of one more subscriber. So please stay as long as you can.
But, if you ever do want to unsubscribe, scroll to the bottom of any email lesson and you’ll find the appropriate button and it will remove you from our list.
(6) – I am always thrilled to get emails from successful candidates who have made good use of all our free questions and answers. Here are a couple of recent emails. (This is the part of this email lesson that the leaders of all those big programs don’t want you to hear. YOUR money is paying for THEIR Mercedes-Benz. Our success scares them.)
From KM: I finally did it on my own and without taking a class. I wanted to thank you for recommending cpareviewforfree.com because it really helped me target what areas were my weaknesses. It was nice to be able to do multiple choice questions online where the answer is presented to me instantly, instead of having to flip through pages and pages to find the right answer. I couldn't have done it without it.
From KW: I was one that you encouraged through this tedious process. Each week, I looked forward to receiving your e-mails because it seemed I was out of gas! I studied using many sources and tested with your questions to gauge myself. I am excited to tell you I no longer need the encouraging words or questions. I mean that in the best way. On 3/24/2011, I received my FAR grade (final section). I have passed all sections! Thank you, Thank you, Thank you!
From OP: Just a thank you note for all your help over the past year or more. I just got word last week that I passed the last section of my exam. I am so happy, especially at 58 years old. God Bless you for all your efforts in helping so many to achieve their dreams.....
And, I know what some of you are going to ask: I drive a 1997 Subaru station wagon (which is red and has 119,000 miles on it).
(7) – Okay, let’s do some practice – time to add some points. That should be your constant chant: add points, add points.
---FAR – Here is one of the 37 questions that I asked on my final exam for Intermediate Accounting II last week. Most of my students did well on this question; let’s see how well you do.
In Year One, the Alba Company has sales revenues of $600,000. The company has no other revenues and expenses except for a warranty expense of $160,000. The company expects these warranties to be satisfied as follows: $30,000 in Year Two, $60,000 in Year Three, and $70,000 in Year Four. The enacted tax rate is 24 percent. The company believes that there is 58 percent chance that it will have adequate taxable income in Year Two to absorb the warranty expense but that likelihood drops to 51 percent in Year Three, and 39 percent in Year Four. On its December 31, Year One balance sheet, what does this company report as its total net deferred income tax asset (noncurrent)?
A. $14,400
B. $16,800
C. $21,600
D. $31,200
Answer is A
The $30,000 temporary difference in Year Two creates a deferred tax asset but it relates to a Warranty Payable that will be settled next year and, thus, is reported as a current liability. Deferred tax effects created by current accounts are themselves reported as current. The question is asking for the noncurrent asset to be reported. The $60,000 and $70,000 temporary differences will not be settled until Years Three and Four. For those two, the related Warranty Payable is noncurrent. Thus, the deferred tax asset is also noncurrent which is what the question is asking. The total asset would be $130,000 times 24 percent or $31,200. However, the likelihood of receiving the benefit of the Year Four figure (the $70,000 temporary difference) is not more likely than not (not over 50 percent). Thus, that part of the deferred tax asset ($70,000 times 24 percent or $16,800) must be removed by establishing a valuation allowance. The deferred tax asset to be
recognized is $31,200 but the valuation allowance for that amount is $16,800 so that the net deferred tax asset is $31,200 less $16,800 or $14,400.
---Auditing & Attestation - The following question comes from one of our ten audit simulations that we will have in our subscription service for Auditing that we hope to have available within the next week.
Cox Company is being audited by Brown & Yellow CPAs. This public accounting firm has offices in five locations but this audit is primarily performed out of the Baltimore office. Smith is a partner in this firm and works out of the Baltimore office but does not participate in the Cox Company audit. Jones is also a partner in this firm but works out of the Philadelphia office and does not participate in the Cox Company audit. The CPA firm is now trying to determine who in the firm qualifies as a covered member of this engagement so audit independence rules can be verified. Which of the following is true?
A. Smith and Jones are both covered members for this audit engagement.
B. Smith is a covered member but Jones is not
C. Jones is a covered member but Smith is not
D. Neither Smith nor Jones is a covered member
Answer is B
A covered member is any individual on the audit engagement team, anyone who can influence either the engagement or the members of the engagement team, and the partners in the office in which the engagement is primarily performed. Thus, all partners in the Baltimore office would be covered members whereas other partners would only be covered members if they were part of the engagement team or had some influence on it. The designation of the covered members is important because those individuals must abide by specific independence rules toward the audit client.
---Regulation – I wrote the following question by looking (randomly) at the 2010 IRS instruction book for the 1040 form. I have always thought that was one of the very best ways to prepare for the individual income tax part of the Regulation exam—use the instruction manual.
Mr. Jones is a high school counselor and Mrs. Jones is an elementary school aide who works 1,000 hours per year. Mr. Jones spent $200 of his own money for educational software that was common and accepted in his field. Mrs. Jones spent $320 of her own money for books that were also ordinary and necessary for her job. If a joint return is filed, how much of a deduction can they take in arriving at their adjusted gross income for the tax year?
A. $200
B. $450
C. $500
D. $520
Answer is B
I might as well quote the 1040 instructions for this one. “If you were an eligible educator in 2010, you can deduct on line 23 up to $250 of qualified expenses you paid in 2010. If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. However, neither spouse can deduct more than $250 of his or her qualified expenses on line 23. You may be able to deduct expenses that are more than the $250 (or $500) limit on Schedule A, line 21. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during a school year. Qualified expenses include ordinary and necessary expenses . . . .” So, Mr. Jones can deduct his $200 but Mrs. Jones can only deduct $250 of her expenses. The remaining expenses can be listed as an itemized deduction on Schedule A.
---BEC – I was reading a friend’s managerial accounting textbook recently and came upon the question “what is a cost driver?” so I wrote the following question based on the reading I was doing.
Buffalo Bakery produces donuts but has had trouble determining an accurate cost for its overhead and, thus, has been uncomfortable with setting a price. The accountant is unsure about the cost driver that has been utilized. In this situation, what is meant by a cost driver?
A. The quantity of expensive materials (such as sugar) used in the production process.
B. The number of hours that the machine operators must work.
C. The actions that cause increases in costs such as electricity, rent, and indirect materials
D. The potential for shortages in vital items both in material and equipment.
Answer is C.
According to my friend’s textbook, a cost driver is the action that causes (or “drives”) the costs associated with the activity. Company officials are concerned about the cost of overhead (all costs associated with production other than direct material and direct labor). In determining the cost for a manufactured item, costs must be anticipated for overhead such as electricity, rent, and indirect materials. Such costs do not change randomly. All changes have a cause and those causes are referred to as cost drivers. By determining the cost driver for each cost, the accountant can anticipate the amount that will have to be spent at different levels of production.
We are into the month of May – time to push off chains and start making good things happen that will bring you those points that you need to pass the CPA Exam.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Wednesday, May 4, 2011
Sunday, April 10, 2011
Find Your Mistake and Use It to Improve
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April 10, 2011
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Lesson 92
From: Joe
(1) – Some great news – we just added eight brand new task-based simulations for FAR to our subscription service. Now, for just $15 per month (50 cents per day), you get hundreds of slides of content, separated out by topic for easy access. You also get a study guide. And you get task-based simulations that cover:
--Land Buildings and Equipment
--Bond Investments
--Leases
--Cash Flows
--Earnings per Share
--Current Assets
--Consolidations
--Government Accounting I
--Government Accounting II
--Not-for-Profit Accounting
More good news: we just added eight brand new task-based simulations for Regulation to our subscription service. Regulation is also just $15 per month for hundreds of content slides and you get task-based simulations that cover:
--Sales and Exchanges
--Corporate Income and Expenses
--Deductions
--Itemized Deductions
--Individual Taxes-Income
--Corporate Taxes-Other Issues
--Partnership Income Taxes
--Other Areas of Taxation
--Bankruptcy
--Sales
Our subscription service for BEC ($15 per month) currently has 29 written communication questions that cover a variety of areas such as financial management, economics, managerial accounting, and corporate governance (plus, of course, all of the hundreds of content slides).
Obviously, our 2,200 questions and answers are free and will always stay free. But if you need additional help at a reasonable price, try our subscription service for a month and see if it won’t add the points you need to pass your next part of the CPA Exam.
(2) – Several people have asked when our subscription service for Auditing and Attestation will be ready. Unfortunately, my elder daughter spent most of March in the hospital and that has thrown my work schedule behind a bit. She is out now, though, so I hope to get Auditing and Attestation up and running shortly.
(3) – We’ve received a number of nice notes recently. Can’t publish them all but here are a few. This is EXACTLY what I want from you – to hear the good news that you have passed that exam. And, also, that you have saved a ton of money.
FROM MH: “I just wanted to say thanks for the site. Using only this site I received scores of 78 - BEC, 77 - FAR, 75 - REG and 70 - AUD. I ended up retaking AUD and just received my score of 88. This site saved me a ton of money.”
FROM RR: “I'm RR from Los Angeles, CA. I cried this morning when I saw that I passed AUD with 84. This is my last part of the CPA Exams. This has been a very long journey for me. I graduated from College more than 25 years ago in a foreign country so it was really difficult for me but when a friend introduced me to your website, I found a new hope. Your inspiring words kept me going. I used your free questions to better understand what I could hardly understand from the review materials that I paid for in the big CPA review. Joe, you are my hero, you are a very nice person and I thank God for people like you.”
FROM TL: “For the last 18 months I have always read your emails, and I prayed that one day I could write to you and let you know that I passed all sections... Here is that email: It was a long journey and I almost lost my BEC credit. I took FAR twice and every time I missed it by 2-3 point. I had studied for that section probably 1,000 hours by the third and last time, but for the last time I only had a chance to study 20 hours. I knew it would be impossible to pass, but nothing is impossible with God. With being 8 months pregnant and working full time, I needed all the help and support and encouragement, and your emails and online questions were defiantly among the top resources I used. Thank you and you may know that you are making a difference in people's lives and it is very appreciated. THANK YOU, and may God bless you and your family.”
Gosh, everyone here at www.CPAreviewforFREE.com is just delighted to be able to help such wonderful folks reach their dreams. I really do appreciate all the emails.
(4) – Here is one more email that I have separated out because the writer actually includes some studying advice that I give within the subscription service. Not bad advice to think about no matter how you are going about studying.
FROM MH: “I want to thank you for your devotion to the profession and the support you provide to all future CPAs. I just retrieved my score online on Regulations which was my last section to pass and I could not believe my eye when I saw 80! I have been trying to pass since I graduated from college in ’02. I failed many times but I would always get back up and try again. I had all the excuses to fail: full time job, married with two children, and I doubted myself because English is not my first language and I was not the smartest student in my class. You got me through when you said all these excuses do not matter, but what matters the most is how hard you work. One of my favorite quotes which is put on my Outlook reminder is “You have one day and one day only when you can accomplish something”. Then I followed the study plan that you laid-out. Which is where you said that ‘I think you can boil the exam preparation down to four things at its very core:
A – Work as many problems as you possibly can. Problems are like physical exercise—the more you do the stronger you get.
B – Read the answers very carefully, especially for the problems you miss. The answers help you fill in the gaps in your knowledge. The single best way to add points is to miss a question and then figure out how to get it right the next time.
C – Take short notes. I like 3 by 5 cards with a basic question on one side and a short answer on the other. Whatever form they take, keep them to a few words and only the stuff that really makes a difference. Carry them with you everywhere.
D – Review your notes on a regular basis to keep everything as fresh in your head as you can. If you have not reviewed a topic in the last 10-14 days, the knowledge is probably beginning to fade.’”
I realize that I wrote that myself so I am biased but that does seem like excellent advice in preparing for the CPA Exam. Work those questions, read those answers, keep note cards with only a few essential words, carry those cards with you everywhere, and review those cards whenever you have ten free seconds.
(5) – We have a gazillion or maybe two gazillion good folks who get these email lessons every week or two (more often when my daughter is out of the hospital). We love having you; we love working with you; we love hearing from you; and—most of all—we love celebrating your success with you. It doesn’t always happen on the first time but if you keep adding points, you are going to make it.
However, if you are ready to stop getting these email lessons, always know that you can scroll to the bottom of any lesson and there will be a link that will allow you to unsubscribe and have your name removed. Stay as long as you want but when you are ready to leave, don’t hesitate to unsubscribe.
(6) – I was lying in bed this morning wondering what I could write that would help you add points and the words conveyed by MH (above) ran through my head “The single best way to add points is to miss a question and then figure out how to get it right the next time.”
I have long believed that the answer to virtually all questions is developed in a sequential pattern. You figure out A, then you figure out B, then you figure out C, and eventually you arrive at the answer. Some questions only have 2-3 steps whereas others might have a dozen. The answer is really a puzzle where you put the pieces together in the proper order.
Therefore, if you miss a question, it doesn’t mean that you missed the entire question. Rather, it means that at some point in this series you made a misstep. I believe it is locating that misstep that is essential to your adding points and passing the CPA Exam. It just seems to me that missing a question does not do you any good unless you can isolate the step that tripped you up. Saying you missed a lease question is not helpful. Saying you missed a particular step (such as determining the life of the asset) is quite helpful especially if you follow up with “and now I know how to get that step correct myself.”
Let’s do a question together so I can show you what I mean by working the question as a series of steps.
Assume you go to take the FAR part of the CPA Exam and you get 74 points and you have one more question left. If you get it right, you’ll probably pass but if you miss it you’ll get the dreaded grade of 74. Here is the question. (And before someone asks – no, you do not actually know your score while you are taking the exam. This is just hypothetical.)
On January 1, Year One, Company A leases equipment for eight years for $10,000 per year with the first payment to be made immediately and every January 1 thereafter. The equipment has a ten-year life. At the end of eight years, Company A can buy the equipment for $9,000. That $9,000 is not viewed as a bargain because the asset is only expected to be worth $7,000 at that time. Company A has an incremental borrowing rate of 10 percent but does not know the implicit interest rate that the lessor built into the contract. The present value of $1 in eight years at a 10 percent annual rate is .424. The present value of an annuity due of $1 for eight years at a 10 percent annual rate is 5.868. The present value of an ordinary annuity of $1 for eight years at a 10 percent annual rate is 5.335. Company A uses the straight-line method of depreciation. What is the total expense that Company A should recognize for Year Two?
GETTING TO THE ANSWER: Here is the sequence of steps that I would follow to get this question answered correctly. Could you make it through each of these steps? If not, where would you falter? It is THAT step that you want to focus your attention on.
--ONE – What is the question asking? It is amazing to me how often students/candidates try to answer a question without getting a handle on what the question is. They are nervous and want to get started. Thus, that start trying to solve a question and they don’t even know what the question is. Take a deep breath and make sure you are comfortable that you know what is being asked. Here, Company A has leased an asset and you are asked for the total expense in the SECOND YEAR. If it is an operating lease, that will be rent expense based on the amount paid. If it is a capital lease, there will be depreciation expense for the cost of the asset and interest expense on the liability.
--TWO – Is it a capital lease or an operating lease? The lease is for 8 years out of 10. That is 75 percent or more of the life of the asset. That meets one of the four criteria so it must be reported as a capital lease.
--THREE – As a capital lease, you must start off by determining the cash flows. Here that is $10,000 per year at the start of each of the next eight years. The $9,000 is not included because it is not viewed as a bargain. The lessee does not expect to make that payment.
--FOUR – You find the present value of the future cash flows (which basically removes all future interest from those cash flows). Since the first payment is made immediately, it is an annuity due and the present value is $10,000 times 5.868 or $58,680.
--FIVE – The asset is only to be used for the eight-year life of the lease. Straight-line depreciation is used to allocate the cost of the asset to expense so depreciation each year will be $58,680 divided by 8 years is $7,335. At the end of those eight years, Company A will give the equipment back to the owner/lessor so the $7,000 residual value has nothing to do with Company A.
--SIX – The first $10,000 payment is made immediately so the liability for this capital lease falls from $58,680 to $48,680 and remains at that figure for all of Year One. Interest is determined at 10 percent so interest expense for the first year is $4,868. Interest is not explicitly paid in a lease so the amount is computed and recognized by compounding—it is added to the liability. That increases the liability from $48,680 to $53,548. The next $10,000 payment reduces that liability to $43,548 at the beginning of the second year. That is the balance for the second year so interest is 10 percent of $43,548 or $4,355 rounded.
--SEVEN – Question asks for total expense for Year Two. Depreciation expense is $7,335. Interest expense is $4,355. Total expense is $11,690
The problem seemed terribly difficult but in seven, fairly easy steps, you walked right through it to the correct answer to get that point you needed to get from 74 to 75. YOU CAN DO THIS!!!
The key, though, is that if you missed any one of these seven steps did you stop right then and read the answer very carefully to figure out what you missed and how to get it right the next time. That is the key to getting better. That is the key to adding points. To me, that is the key to passing the CPA Exam.
(7) – Okay time for you to practice.
FAR
Company A leases a car on January 1, Year One for $20,000 per year for five years—the entire life of the vehicle. The first payment is made immediately with additional payments every January 1 in the future. Company A has an incremental borrowing rate of 10 percent per year but knows that the lessor built in an implicit interest rate (in setting the annual payments) of 12 percent per year. The present value of an annuity due for 5 years at 10 percent annual interest is 4.170. The present value of an annuity due for 5 years at 12 percent annual interest is 4.037. What does Company A report as its net liability for this lease on the December 31, Year Two balance sheet?
A. $54,714
B. $56,724
C. $57,832
D. $58,152
Answer is A
The lessee (Company A) uses its own incremental borrowing rate unless the lessor’s implicit rate is known and it is less. Here, the implicit rate is known but it is more so the lessee uses its own 10 percent rate. The cash flows are $20,000 per year and the present value factor for 10 percent and five years is 4.170. Present value of these cash flows is $20,000 times 4.170 or $83,400. Here, you are not worried with the asset but just with the liability. It is $83,400 at first but an immediate payment reduces it by $20,000 to $63,400. Interest for the first year is 10 percent or $6,340. In a lease, that is not paid but, rather, compounded bringing the total up to $69,740 ($63,400 + $6,340). The second payment (made on January 1, Year Two) reduces the liability by $20,000 to $49,740. Based on that balance, interest for the second year is $4,974. Compounding that expense at the end of the second year brings the balance up to $54,714 ($49,740 + $4,974).
BEC
A company makes widgets using 3 pounds of product X with a standard cost of $4.00 per pound. The company bought 11,000 pounds of product X for $45,700 and then used 9,100 pounds to produce 3,000 widgets. What was the unfavorable material price variance?
A. $1,391
B. $1,406
C. $1,635
D. $1,700
Answer is D
The 11,000 pounds that were acquired should have cost $4.00 per pound or $44,000. Those pounds actually cost $45,700 which was an extra (unfavorable) amount of $1,700.
Regulation
On January 1, Year One, the Jones family refinanced the mortgage loan on their home in order to reduce the previous 9 percent interest rate to a 5 percent rate. The old loan had a remaining life of 15 years while the new loan is for 20 years. The Jones family was required to pay $3,000 in points at that time as one of the costs of the refinanced loan. What amount of this $3,000 can the Jones family deduct in Year One?
A. Zero
B. $150
C. $200
D. $3,000
Answer is B
According to the instructions for the form 1040, “generally, you must deduct points you paid to refinance a mortgage over the life of the loan.” Here, the loan was for 20 years, so $150 of these points can be deducted each year ($3,000/20 years).
Auditing and Attestation
The independent audit firm of Zeller and Henson has been engaged to audit the Williams Corporation. In performing an audit, an assessment must be made of inherent risk. Which of the following situations would indicate that the level of inherent risk here should be assessed at a particularly high level?
A. The CPA assigned by Zeller and Henson to manage this audit has never worked on an engagement of this type before.
B. A particularly important control procedure is performed by a relatively new company employee.
C. The CPA firm has decided to perform negative confirmations of accounts receivable rather than positive confirmations.
D. The company employee who codes checks for recording purposes is relatively inexperienced.
Answer is D
The chance that a material misstatement will occur within the reporting company’s accounting system is known as inherent risk. If coding (assigning accounts for journal entry purposes) is done by an inexperienced person, the chances of errors occurring will go up. That increases the level of inherent risk. The chance that company control procedures will not discover or prevent a material misstatement is referred to as control risk (answer B). The chance that the independent auditor will fail to detect a material misstatement is known as detection risk (answer A). Positive and negative confirmations are used to gather evidence in hopes of reducing the overall audit risk to an acceptably low level.
Have a great week – add lots of points.
Let’s get this exam finished off sooner rather than later.
Joe Hoyle
Co-Founder
CPA Review for FREE
April 10, 2011
CPA Review for FREE
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Lesson 92
From: Joe
(1) – Some great news – we just added eight brand new task-based simulations for FAR to our subscription service. Now, for just $15 per month (50 cents per day), you get hundreds of slides of content, separated out by topic for easy access. You also get a study guide. And you get task-based simulations that cover:
--Land Buildings and Equipment
--Bond Investments
--Leases
--Cash Flows
--Earnings per Share
--Current Assets
--Consolidations
--Government Accounting I
--Government Accounting II
--Not-for-Profit Accounting
More good news: we just added eight brand new task-based simulations for Regulation to our subscription service. Regulation is also just $15 per month for hundreds of content slides and you get task-based simulations that cover:
--Sales and Exchanges
--Corporate Income and Expenses
--Deductions
--Itemized Deductions
--Individual Taxes-Income
--Corporate Taxes-Other Issues
--Partnership Income Taxes
--Other Areas of Taxation
--Bankruptcy
--Sales
Our subscription service for BEC ($15 per month) currently has 29 written communication questions that cover a variety of areas such as financial management, economics, managerial accounting, and corporate governance (plus, of course, all of the hundreds of content slides).
Obviously, our 2,200 questions and answers are free and will always stay free. But if you need additional help at a reasonable price, try our subscription service for a month and see if it won’t add the points you need to pass your next part of the CPA Exam.
(2) – Several people have asked when our subscription service for Auditing and Attestation will be ready. Unfortunately, my elder daughter spent most of March in the hospital and that has thrown my work schedule behind a bit. She is out now, though, so I hope to get Auditing and Attestation up and running shortly.
(3) – We’ve received a number of nice notes recently. Can’t publish them all but here are a few. This is EXACTLY what I want from you – to hear the good news that you have passed that exam. And, also, that you have saved a ton of money.
FROM MH: “I just wanted to say thanks for the site. Using only this site I received scores of 78 - BEC, 77 - FAR, 75 - REG and 70 - AUD. I ended up retaking AUD and just received my score of 88. This site saved me a ton of money.”
FROM RR: “I'm RR from Los Angeles, CA. I cried this morning when I saw that I passed AUD with 84. This is my last part of the CPA Exams. This has been a very long journey for me. I graduated from College more than 25 years ago in a foreign country so it was really difficult for me but when a friend introduced me to your website, I found a new hope. Your inspiring words kept me going. I used your free questions to better understand what I could hardly understand from the review materials that I paid for in the big CPA review. Joe, you are my hero, you are a very nice person and I thank God for people like you.”
FROM TL: “For the last 18 months I have always read your emails, and I prayed that one day I could write to you and let you know that I passed all sections... Here is that email: It was a long journey and I almost lost my BEC credit. I took FAR twice and every time I missed it by 2-3 point. I had studied for that section probably 1,000 hours by the third and last time, but for the last time I only had a chance to study 20 hours. I knew it would be impossible to pass, but nothing is impossible with God. With being 8 months pregnant and working full time, I needed all the help and support and encouragement, and your emails and online questions were defiantly among the top resources I used. Thank you and you may know that you are making a difference in people's lives and it is very appreciated. THANK YOU, and may God bless you and your family.”
Gosh, everyone here at www.CPAreviewforFREE.com is just delighted to be able to help such wonderful folks reach their dreams. I really do appreciate all the emails.
(4) – Here is one more email that I have separated out because the writer actually includes some studying advice that I give within the subscription service. Not bad advice to think about no matter how you are going about studying.
FROM MH: “I want to thank you for your devotion to the profession and the support you provide to all future CPAs. I just retrieved my score online on Regulations which was my last section to pass and I could not believe my eye when I saw 80! I have been trying to pass since I graduated from college in ’02. I failed many times but I would always get back up and try again. I had all the excuses to fail: full time job, married with two children, and I doubted myself because English is not my first language and I was not the smartest student in my class. You got me through when you said all these excuses do not matter, but what matters the most is how hard you work. One of my favorite quotes which is put on my Outlook reminder is “You have one day and one day only when you can accomplish something”. Then I followed the study plan that you laid-out. Which is where you said that ‘I think you can boil the exam preparation down to four things at its very core:
A – Work as many problems as you possibly can. Problems are like physical exercise—the more you do the stronger you get.
B – Read the answers very carefully, especially for the problems you miss. The answers help you fill in the gaps in your knowledge. The single best way to add points is to miss a question and then figure out how to get it right the next time.
C – Take short notes. I like 3 by 5 cards with a basic question on one side and a short answer on the other. Whatever form they take, keep them to a few words and only the stuff that really makes a difference. Carry them with you everywhere.
D – Review your notes on a regular basis to keep everything as fresh in your head as you can. If you have not reviewed a topic in the last 10-14 days, the knowledge is probably beginning to fade.’”
I realize that I wrote that myself so I am biased but that does seem like excellent advice in preparing for the CPA Exam. Work those questions, read those answers, keep note cards with only a few essential words, carry those cards with you everywhere, and review those cards whenever you have ten free seconds.
(5) – We have a gazillion or maybe two gazillion good folks who get these email lessons every week or two (more often when my daughter is out of the hospital). We love having you; we love working with you; we love hearing from you; and—most of all—we love celebrating your success with you. It doesn’t always happen on the first time but if you keep adding points, you are going to make it.
However, if you are ready to stop getting these email lessons, always know that you can scroll to the bottom of any lesson and there will be a link that will allow you to unsubscribe and have your name removed. Stay as long as you want but when you are ready to leave, don’t hesitate to unsubscribe.
(6) – I was lying in bed this morning wondering what I could write that would help you add points and the words conveyed by MH (above) ran through my head “The single best way to add points is to miss a question and then figure out how to get it right the next time.”
I have long believed that the answer to virtually all questions is developed in a sequential pattern. You figure out A, then you figure out B, then you figure out C, and eventually you arrive at the answer. Some questions only have 2-3 steps whereas others might have a dozen. The answer is really a puzzle where you put the pieces together in the proper order.
Therefore, if you miss a question, it doesn’t mean that you missed the entire question. Rather, it means that at some point in this series you made a misstep. I believe it is locating that misstep that is essential to your adding points and passing the CPA Exam. It just seems to me that missing a question does not do you any good unless you can isolate the step that tripped you up. Saying you missed a lease question is not helpful. Saying you missed a particular step (such as determining the life of the asset) is quite helpful especially if you follow up with “and now I know how to get that step correct myself.”
Let’s do a question together so I can show you what I mean by working the question as a series of steps.
Assume you go to take the FAR part of the CPA Exam and you get 74 points and you have one more question left. If you get it right, you’ll probably pass but if you miss it you’ll get the dreaded grade of 74. Here is the question. (And before someone asks – no, you do not actually know your score while you are taking the exam. This is just hypothetical.)
On January 1, Year One, Company A leases equipment for eight years for $10,000 per year with the first payment to be made immediately and every January 1 thereafter. The equipment has a ten-year life. At the end of eight years, Company A can buy the equipment for $9,000. That $9,000 is not viewed as a bargain because the asset is only expected to be worth $7,000 at that time. Company A has an incremental borrowing rate of 10 percent but does not know the implicit interest rate that the lessor built into the contract. The present value of $1 in eight years at a 10 percent annual rate is .424. The present value of an annuity due of $1 for eight years at a 10 percent annual rate is 5.868. The present value of an ordinary annuity of $1 for eight years at a 10 percent annual rate is 5.335. Company A uses the straight-line method of depreciation. What is the total expense that Company A should recognize for Year Two?
GETTING TO THE ANSWER: Here is the sequence of steps that I would follow to get this question answered correctly. Could you make it through each of these steps? If not, where would you falter? It is THAT step that you want to focus your attention on.
--ONE – What is the question asking? It is amazing to me how often students/candidates try to answer a question without getting a handle on what the question is. They are nervous and want to get started. Thus, that start trying to solve a question and they don’t even know what the question is. Take a deep breath and make sure you are comfortable that you know what is being asked. Here, Company A has leased an asset and you are asked for the total expense in the SECOND YEAR. If it is an operating lease, that will be rent expense based on the amount paid. If it is a capital lease, there will be depreciation expense for the cost of the asset and interest expense on the liability.
--TWO – Is it a capital lease or an operating lease? The lease is for 8 years out of 10. That is 75 percent or more of the life of the asset. That meets one of the four criteria so it must be reported as a capital lease.
--THREE – As a capital lease, you must start off by determining the cash flows. Here that is $10,000 per year at the start of each of the next eight years. The $9,000 is not included because it is not viewed as a bargain. The lessee does not expect to make that payment.
--FOUR – You find the present value of the future cash flows (which basically removes all future interest from those cash flows). Since the first payment is made immediately, it is an annuity due and the present value is $10,000 times 5.868 or $58,680.
--FIVE – The asset is only to be used for the eight-year life of the lease. Straight-line depreciation is used to allocate the cost of the asset to expense so depreciation each year will be $58,680 divided by 8 years is $7,335. At the end of those eight years, Company A will give the equipment back to the owner/lessor so the $7,000 residual value has nothing to do with Company A.
--SIX – The first $10,000 payment is made immediately so the liability for this capital lease falls from $58,680 to $48,680 and remains at that figure for all of Year One. Interest is determined at 10 percent so interest expense for the first year is $4,868. Interest is not explicitly paid in a lease so the amount is computed and recognized by compounding—it is added to the liability. That increases the liability from $48,680 to $53,548. The next $10,000 payment reduces that liability to $43,548 at the beginning of the second year. That is the balance for the second year so interest is 10 percent of $43,548 or $4,355 rounded.
--SEVEN – Question asks for total expense for Year Two. Depreciation expense is $7,335. Interest expense is $4,355. Total expense is $11,690
The problem seemed terribly difficult but in seven, fairly easy steps, you walked right through it to the correct answer to get that point you needed to get from 74 to 75. YOU CAN DO THIS!!!
The key, though, is that if you missed any one of these seven steps did you stop right then and read the answer very carefully to figure out what you missed and how to get it right the next time. That is the key to getting better. That is the key to adding points. To me, that is the key to passing the CPA Exam.
(7) – Okay time for you to practice.
FAR
Company A leases a car on January 1, Year One for $20,000 per year for five years—the entire life of the vehicle. The first payment is made immediately with additional payments every January 1 in the future. Company A has an incremental borrowing rate of 10 percent per year but knows that the lessor built in an implicit interest rate (in setting the annual payments) of 12 percent per year. The present value of an annuity due for 5 years at 10 percent annual interest is 4.170. The present value of an annuity due for 5 years at 12 percent annual interest is 4.037. What does Company A report as its net liability for this lease on the December 31, Year Two balance sheet?
A. $54,714
B. $56,724
C. $57,832
D. $58,152
Answer is A
The lessee (Company A) uses its own incremental borrowing rate unless the lessor’s implicit rate is known and it is less. Here, the implicit rate is known but it is more so the lessee uses its own 10 percent rate. The cash flows are $20,000 per year and the present value factor for 10 percent and five years is 4.170. Present value of these cash flows is $20,000 times 4.170 or $83,400. Here, you are not worried with the asset but just with the liability. It is $83,400 at first but an immediate payment reduces it by $20,000 to $63,400. Interest for the first year is 10 percent or $6,340. In a lease, that is not paid but, rather, compounded bringing the total up to $69,740 ($63,400 + $6,340). The second payment (made on January 1, Year Two) reduces the liability by $20,000 to $49,740. Based on that balance, interest for the second year is $4,974. Compounding that expense at the end of the second year brings the balance up to $54,714 ($49,740 + $4,974).
BEC
A company makes widgets using 3 pounds of product X with a standard cost of $4.00 per pound. The company bought 11,000 pounds of product X for $45,700 and then used 9,100 pounds to produce 3,000 widgets. What was the unfavorable material price variance?
A. $1,391
B. $1,406
C. $1,635
D. $1,700
Answer is D
The 11,000 pounds that were acquired should have cost $4.00 per pound or $44,000. Those pounds actually cost $45,700 which was an extra (unfavorable) amount of $1,700.
Regulation
On January 1, Year One, the Jones family refinanced the mortgage loan on their home in order to reduce the previous 9 percent interest rate to a 5 percent rate. The old loan had a remaining life of 15 years while the new loan is for 20 years. The Jones family was required to pay $3,000 in points at that time as one of the costs of the refinanced loan. What amount of this $3,000 can the Jones family deduct in Year One?
A. Zero
B. $150
C. $200
D. $3,000
Answer is B
According to the instructions for the form 1040, “generally, you must deduct points you paid to refinance a mortgage over the life of the loan.” Here, the loan was for 20 years, so $150 of these points can be deducted each year ($3,000/20 years).
Auditing and Attestation
The independent audit firm of Zeller and Henson has been engaged to audit the Williams Corporation. In performing an audit, an assessment must be made of inherent risk. Which of the following situations would indicate that the level of inherent risk here should be assessed at a particularly high level?
A. The CPA assigned by Zeller and Henson to manage this audit has never worked on an engagement of this type before.
B. A particularly important control procedure is performed by a relatively new company employee.
C. The CPA firm has decided to perform negative confirmations of accounts receivable rather than positive confirmations.
D. The company employee who codes checks for recording purposes is relatively inexperienced.
Answer is D
The chance that a material misstatement will occur within the reporting company’s accounting system is known as inherent risk. If coding (assigning accounts for journal entry purposes) is done by an inexperienced person, the chances of errors occurring will go up. That increases the level of inherent risk. The chance that company control procedures will not discover or prevent a material misstatement is referred to as control risk (answer B). The chance that the independent auditor will fail to detect a material misstatement is known as detection risk (answer A). Positive and negative confirmations are used to gather evidence in hopes of reducing the overall audit risk to an acceptably low level.
Have a great week – add lots of points.
Let’s get this exam finished off sooner rather than later.
Joe Hoyle
Co-Founder
CPA Review for FREE
Monday, March 28, 2011
Break Through the Wall of Procrastination
CPA Review for FREE
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Over 2,200 FREE CPA Review Questions and Answers Available for YOU
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Lesson 91
From: Joe
(a) – Sitting here on Saturday evening working to help everyone pass the CPA Exam. I wonder if the folks who run those big courses are working right now to help their candidates pass. It is 8:33 p.m., March 26 -- if you are an officer for a big CPA review course and you are working for your candidates TONIGHT, drop me an email at Jhoyle@cpareviewforfree.com and let me know. I’m curious (maybe “skeptical” is a better term) to know which review courses really put in the work for you guys.
(1) – We have a lot of readers who live and work in Japan. We here at www.CPAreviewforFREE.com want to express our deepest sympathies for all that your country has been through in recent days as a result of the recent earthquake. From what I can see on television, the devastation seems unbelievable. Every person in Japan is certainly in our thoughts.
(2) – I’ve received a lot of really nice emails in the last few days from CPA Exam candidates. Wish I could include a copy of every one that I receive but here are a couple.
From LQ: “Just found out I passed REG which means I completed all four parts!! Joe, many thanks to you and your team for such wonderful questions. I used the subscriptions also for practicing simulations. These helped me add a few points to my score for sure. I'm very excited and can't thank CPAreviewforFREE enough!"
From KC: "Thanks to CPA Review for free I passed all four sections my first time around. (Within a six month time frame.) Your site is an amazing resource and motivational tool. I bought one other study book per section for reference (except REG - I used your paid information) and spent under $140 on all my exam materials. I would suggest to anyone to try to pass one section with this site before spending hundreds of dollars on study materials. Thank you!!!!"
From RA: “I would like to thank you for this great website. I used it to prepare my CPA exam and today I got the result for the last part (REG). I have passed all the four parts thanks to the information that I learned from your website. This achievement is very important to me given I graduated more than twenty years ago and lot of the material was completely new for me.”
From CK: “I just got my score for REG - my final part - and I passed! I want to thank you for your help. Your words of wisdom really kept me going. Your words of encouragement kept me going. I have a wife and 7 children at home. I used to sit here at 11:30 PM and study. That's after a day's full of work and helping at home. I locked myself in a room and studied (not at home). I can tell you that I felt miserable. And then your emails arrived. It was like fresh cold water on a hot day. You wrote points like don't give up, keep going, focus on getting more points every day, etc. That gave me the push to continue studying. You made all the difference. It was the difference between sluggishly going thru the materials, and between enthusiastically going forward. I thank you very much. God should repay you for your help.”
From HK: “So, it’s been a really long journey, but I just found out today that I finally passed my last section. FAR no less. FAR was the section I struggled with most and I am just so grateful that I passed. This was also this first implementation of the new 2011 exam. Anyway, the passing of these exams could not have been done without your website, FOR SURE. You have all my gratitude, and my thanks. So Thank you, thank you, thank you... The questions on cpareviewforfree.com gave me the points needed to pass.”
All of these people saved their money and used www.CPAreviewforFREE.com and have achieved success on the CPA Exam. In these difficult times, there is no good reason to throw your money away. Give us a shot and see how you do. Pick a part that you like and use www.CPAreviewforFREE.com and go for it.
(3) – I know we have a lot of college students who use our materials and read these email lessons. In case you are interested (or in case you think one of your teachers would be interested), I do write a blog about teaching in college. I want to encourage better teaching because I think that will lead to better learning—something that is important for our country and our world. In case you are interested, the blog can be found at:
www.joehoyle-teaching.blogspot.com/
My most recent posting provides my thoughts on “The Top Five Mistakes that College Teachers Make.”
(4) – If, by chance, you are ready to unsubscribe from these lessons, please scroll to the end of this email lesson and click on the appropriate link.
(5) - As the spring gets here, more and more accountants begin to think about passing the CPA Exam. How do you manage to do the work that is needed for success? As I have said often in these email lessons over the years, your biggest enemy is procrastination. There just seems to be a thousand reasons in life pushing you to put off studying. It is such a difficult task to break through the wall of procrastination in order to do the necessary work that you need for success.
My wife takes “Good Housekeeping” magazine. I almost never even open the magazine. However, this morning, for no good reason, I picked up the new copy (April 2011) sitting on a table and found a fascinating article by Gretchin Rubin about how to beat our human tendency to procrastinate. I was immediately very interested. I like articles like this. She put forth a number of recommendations that should help you to stop putting off the study you really need to be doing. Here are a couple that she mentioned that were my favorites.
---“Do it first thing in the morning.” If you don’t like to do something (and studying isn’t always the most fun you can have), get it over with as quickly as you can. The longer you put it off during the day, the more likely it is that you will never get around to doing the work. As the day moves along, you get tired and your schedule gets full. Suddenly, it is bedtime and you haven’t studied for one minute. You have lost the entire day. Get up early and get some study time in before anything else happens. Then, no matter what takes place for the rest of the day, you’ll have added points to your score. You’ll never have a lost day. That’s a good motto for success: never lose a day.
---“Become a regular.” If you are constantly looking for time to study, you may never be able to find any. It is always a game of hide and seek with time. Thus, set aside one period of time, (even if it is only 20 minutes) to study every single day. During that time, study every day no matter what else happens. Having a defined time when you always study just helps make that a normal part of your life. When it becomes a normal part of your life, you won’t even consider putting it off.
---“Find ways to make the task more pleasant.” Yeah, studying can be a drag occasionally. In fact, as you study, it will seem more and more painful as time passes. Pretty soon, it can become almost impossible to keep going. Build in a reward mechanism. For example, promise yourself a small piece of chocolate or 4-5 jelly beans after each 15 minutes that you study. That gives you a good reason to study. Then, it is no longer about an exam that you might not be taking for months; you are working for a piece of candy that you’ll get in 15 minutes. Instant reward. Or, play music while you study. The words to songs may distract you but upbeat instrumental music can just make you feel better about the whole study process. When I am at work, I have a whole list of instrumental music that I listen to for energy.
---“Protect yourself from interruption.” If you start and stop studying ever 5 minutes, you’ll never get anything accomplished. Turn off your cell phone. Unplug your computer. Hang a sign on your door “Go away and leave me alone – I’m working to pass the CPA Exam.” If you find yourself praying for an interruption as you study, you are not going to be able to focus on the materials you need to learn. Once you start studying, you want to stay at study. So, think of every possible way that you could be interrupted and, before you start, try to rid yourself of those potential distractions.
--“Take a baby step.” You are never going to pass the CPA Exam in one day. Won’t happen. Success on the CPA Exam is the culmination of a long string of small improvements. So, every time that you sit down to study, remind yourself that you don’t have to hit a homerun. All you have to do is have an efficient study session so that you can add a point or two. Somehow, having a reasonable goal just makes the entire study process easier. It is terribly important that you get away from thinking of the CPA Exam as overwhelmingly difficult or even impossible. Who could possibly want to do a lot of work if they believe the goal cannot be achieved? Your goal today (and every day) is to make a baby step forward as you get closer and closer to passing the CPA Exam.
Okay, there were several more ideas in the article but this gives you some thoughts. You face procrastination every day; you need a plan to get over the wall that it creates to keep you from studying.
(6) – My younger daughter (Lara) hopes to become a pastry chef. So, last Sunday, we drove to Norfolk, Virginia to see “the Cake Boss” who is – I now know – a gentleman named Buddy Valastro who runs a family bakery in New Jersey. More importantly, I suppose, he has become famous on cable television as he tells viewers how to make great cakes and, also, how to deal with this family.
Here is a person who has taken a normal job and used it to become famous. There were 700 people in that room who hung on every word he had to say for nearly four hours.
Personally, I found three things he had to say to be especially interesting.
--First, he told the audience that he was a truly lucky guy but that he had also worked incredibly hard. He talked about getting up at 4 in the morning to go to the bakery. He talked about dropping out of high school to help in the bakery when his father got sick and died. The point that I took away: virtually all success (even on cable television) goes back to hard work. Few people succeed at anything whether it is making cakes or passing the CPA Exam without hard work. If you spend your time looking for shortcuts, you may simply not be cut out for success.
--Second, when he was given the chance to succeed in television, his wife told him that she was sure he would succeed because he was the most determined person in the world. The point that I took away: there are a lot of things in this world that will come between you and your goals. It is easy to let them throw you off the track. If you are going to succeed, you must learn to fight through adversity. If you don’t want success enough to fight through the problems, you really don’t want it. Be determined or don’t get started.
--Third, he had a problem with one of the demonstrations and he had to improvise. He turned to the audience and said that this is just what you have to do—take what you have and make the most of it. People are always looking for one more CPA review product. They are always looking for one more book or one more CD. It is usually not the review materials that are the problem. It is what you do with them that counts. Make the most of what you have been given.
Yeah, it was an interesting day. But I was surprised by how much the Cake Boss said that applied to any challenge, even the CPA Exam, and not just to the making of cakes. I am convinced that people who are successful tend to follow the same pattern, no matter what the field.
---Work incredibly hard,
---Be completed determined, and
---Make the best of what you have.
(7) – Practice time. Let’s add some points.
FAR
The City of Singler has a capital projects fund. The highest-level of decision-making authority for the city transfers $9 million from the general fund to this capital projects fund with the stipulation that the money must be used to construct Highway 66 out of town. In the balance sheet for this fund, the cash is shown as an asset. How is the fund balance reported?
A. Fund balance—restricted
B. Fund balance—committed
C. Fund balance—assigned
D. Fund balance—unassigned
Answer is B
Assets that have been designated for a particular purpose—not by an outside party but rather internally by the highest-level of decision-making authority—is reported as a “fund-balance committed.” The term “restricted” is used if the designation of purpose is made by an outside party. The term “assigned” is used if the decision about the asset’s use is made within the government but not by the highest-level of decision-making authority. The term “unassigned” is appropriate for assets where no stipulation of the future use has been made.
Auditing & Attestation
Jane Eyre works as a staff auditor for the CPA firm of East & West. She is currently working on the audit engagement of the Hitckcock Corporation. Her daughter is employed by Hitchcock. Her daughter is 27 years old and not a dependent of Jane Eyre. The firm is trying to determine whether Jane Eyre must be removed from the audit team because of a lack of independence. In applying these rules, which designation is applied to the daughter?
A. Close relative
B. Distant relative
C. Member of immediate family
D. General member of family
Answer is A
The AICPA defines a close relative as a parent, sibling, or nondependent child. A dependent child would be considered a member of the staff auditor’s immediate family.
BEC
A company has cost of goods sold for the past year of $900,000 and average inventory for the period of $100,000. The cost of goods sold is divided by average inventory to arrive at 9. What does the 9 represent?
A. Inventory density
B. Cost availability
C. Inventory turnover
D. Cost performance analysis
Answer is C
Cost of goods sold divided by the average amount of inventory for the same period gives the inventory turnover (also known as inventory turnover ratio) which reflects how many times during the year that the reporting company sells an amount equal to its average inventory. It is used to measure the speed at which a company is able to sell its inventory.
Regulation
What is a gift causa mortis?
A. A gift of real property
B. A conditional gift in contemplation of death
C. A gift that will only occur after a specified event (a cause) has taken place
D. A gift that is transferred as part of a will.
Answer is B.
A gift causa mortis is a conditional gift made in contemplation of death. It is automatically revoked if the donor does not die of the impending illness or crisis. Such gifts can only be made when the donor is in a terminable condition.
Spring is coming and the air feels good. It is a great time to sit down and start studying to pass the CPA Exam. Why not make it a goal that you will pass several parts (if not all) of the CPA Exam by the end of the summer. Put in the time and effort and YOU CAN DO IT!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
www.CPAreviewforFREE.com
Over 2,200 FREE CPA Review Questions and Answers Available for YOU
142 Weeks of Operation and 22,224,136 Page Views (without a penny spent on marketing)
Lesson 91
From: Joe
(a) – Sitting here on Saturday evening working to help everyone pass the CPA Exam. I wonder if the folks who run those big courses are working right now to help their candidates pass. It is 8:33 p.m., March 26 -- if you are an officer for a big CPA review course and you are working for your candidates TONIGHT, drop me an email at Jhoyle@cpareviewforfree.com and let me know. I’m curious (maybe “skeptical” is a better term) to know which review courses really put in the work for you guys.
(1) – We have a lot of readers who live and work in Japan. We here at www.CPAreviewforFREE.com want to express our deepest sympathies for all that your country has been through in recent days as a result of the recent earthquake. From what I can see on television, the devastation seems unbelievable. Every person in Japan is certainly in our thoughts.
(2) – I’ve received a lot of really nice emails in the last few days from CPA Exam candidates. Wish I could include a copy of every one that I receive but here are a couple.
From LQ: “Just found out I passed REG which means I completed all four parts!! Joe, many thanks to you and your team for such wonderful questions. I used the subscriptions also for practicing simulations. These helped me add a few points to my score for sure. I'm very excited and can't thank CPAreviewforFREE enough!"
From KC: "Thanks to CPA Review for free I passed all four sections my first time around. (Within a six month time frame.) Your site is an amazing resource and motivational tool. I bought one other study book per section for reference (except REG - I used your paid information) and spent under $140 on all my exam materials. I would suggest to anyone to try to pass one section with this site before spending hundreds of dollars on study materials. Thank you!!!!"
From RA: “I would like to thank you for this great website. I used it to prepare my CPA exam and today I got the result for the last part (REG). I have passed all the four parts thanks to the information that I learned from your website. This achievement is very important to me given I graduated more than twenty years ago and lot of the material was completely new for me.”
From CK: “I just got my score for REG - my final part - and I passed! I want to thank you for your help. Your words of wisdom really kept me going. Your words of encouragement kept me going. I have a wife and 7 children at home. I used to sit here at 11:30 PM and study. That's after a day's full of work and helping at home. I locked myself in a room and studied (not at home). I can tell you that I felt miserable. And then your emails arrived. It was like fresh cold water on a hot day. You wrote points like don't give up, keep going, focus on getting more points every day, etc. That gave me the push to continue studying. You made all the difference. It was the difference between sluggishly going thru the materials, and between enthusiastically going forward. I thank you very much. God should repay you for your help.”
From HK: “So, it’s been a really long journey, but I just found out today that I finally passed my last section. FAR no less. FAR was the section I struggled with most and I am just so grateful that I passed. This was also this first implementation of the new 2011 exam. Anyway, the passing of these exams could not have been done without your website, FOR SURE. You have all my gratitude, and my thanks. So Thank you, thank you, thank you... The questions on cpareviewforfree.com gave me the points needed to pass.”
All of these people saved their money and used www.CPAreviewforFREE.com and have achieved success on the CPA Exam. In these difficult times, there is no good reason to throw your money away. Give us a shot and see how you do. Pick a part that you like and use www.CPAreviewforFREE.com and go for it.
(3) – I know we have a lot of college students who use our materials and read these email lessons. In case you are interested (or in case you think one of your teachers would be interested), I do write a blog about teaching in college. I want to encourage better teaching because I think that will lead to better learning—something that is important for our country and our world. In case you are interested, the blog can be found at:
www.joehoyle-teaching.blogspot.com/
My most recent posting provides my thoughts on “The Top Five Mistakes that College Teachers Make.”
(4) – If, by chance, you are ready to unsubscribe from these lessons, please scroll to the end of this email lesson and click on the appropriate link.
(5) - As the spring gets here, more and more accountants begin to think about passing the CPA Exam. How do you manage to do the work that is needed for success? As I have said often in these email lessons over the years, your biggest enemy is procrastination. There just seems to be a thousand reasons in life pushing you to put off studying. It is such a difficult task to break through the wall of procrastination in order to do the necessary work that you need for success.
My wife takes “Good Housekeeping” magazine. I almost never even open the magazine. However, this morning, for no good reason, I picked up the new copy (April 2011) sitting on a table and found a fascinating article by Gretchin Rubin about how to beat our human tendency to procrastinate. I was immediately very interested. I like articles like this. She put forth a number of recommendations that should help you to stop putting off the study you really need to be doing. Here are a couple that she mentioned that were my favorites.
---“Do it first thing in the morning.” If you don’t like to do something (and studying isn’t always the most fun you can have), get it over with as quickly as you can. The longer you put it off during the day, the more likely it is that you will never get around to doing the work. As the day moves along, you get tired and your schedule gets full. Suddenly, it is bedtime and you haven’t studied for one minute. You have lost the entire day. Get up early and get some study time in before anything else happens. Then, no matter what takes place for the rest of the day, you’ll have added points to your score. You’ll never have a lost day. That’s a good motto for success: never lose a day.
---“Become a regular.” If you are constantly looking for time to study, you may never be able to find any. It is always a game of hide and seek with time. Thus, set aside one period of time, (even if it is only 20 minutes) to study every single day. During that time, study every day no matter what else happens. Having a defined time when you always study just helps make that a normal part of your life. When it becomes a normal part of your life, you won’t even consider putting it off.
---“Find ways to make the task more pleasant.” Yeah, studying can be a drag occasionally. In fact, as you study, it will seem more and more painful as time passes. Pretty soon, it can become almost impossible to keep going. Build in a reward mechanism. For example, promise yourself a small piece of chocolate or 4-5 jelly beans after each 15 minutes that you study. That gives you a good reason to study. Then, it is no longer about an exam that you might not be taking for months; you are working for a piece of candy that you’ll get in 15 minutes. Instant reward. Or, play music while you study. The words to songs may distract you but upbeat instrumental music can just make you feel better about the whole study process. When I am at work, I have a whole list of instrumental music that I listen to for energy.
---“Protect yourself from interruption.” If you start and stop studying ever 5 minutes, you’ll never get anything accomplished. Turn off your cell phone. Unplug your computer. Hang a sign on your door “Go away and leave me alone – I’m working to pass the CPA Exam.” If you find yourself praying for an interruption as you study, you are not going to be able to focus on the materials you need to learn. Once you start studying, you want to stay at study. So, think of every possible way that you could be interrupted and, before you start, try to rid yourself of those potential distractions.
--“Take a baby step.” You are never going to pass the CPA Exam in one day. Won’t happen. Success on the CPA Exam is the culmination of a long string of small improvements. So, every time that you sit down to study, remind yourself that you don’t have to hit a homerun. All you have to do is have an efficient study session so that you can add a point or two. Somehow, having a reasonable goal just makes the entire study process easier. It is terribly important that you get away from thinking of the CPA Exam as overwhelmingly difficult or even impossible. Who could possibly want to do a lot of work if they believe the goal cannot be achieved? Your goal today (and every day) is to make a baby step forward as you get closer and closer to passing the CPA Exam.
Okay, there were several more ideas in the article but this gives you some thoughts. You face procrastination every day; you need a plan to get over the wall that it creates to keep you from studying.
(6) – My younger daughter (Lara) hopes to become a pastry chef. So, last Sunday, we drove to Norfolk, Virginia to see “the Cake Boss” who is – I now know – a gentleman named Buddy Valastro who runs a family bakery in New Jersey. More importantly, I suppose, he has become famous on cable television as he tells viewers how to make great cakes and, also, how to deal with this family.
Here is a person who has taken a normal job and used it to become famous. There were 700 people in that room who hung on every word he had to say for nearly four hours.
Personally, I found three things he had to say to be especially interesting.
--First, he told the audience that he was a truly lucky guy but that he had also worked incredibly hard. He talked about getting up at 4 in the morning to go to the bakery. He talked about dropping out of high school to help in the bakery when his father got sick and died. The point that I took away: virtually all success (even on cable television) goes back to hard work. Few people succeed at anything whether it is making cakes or passing the CPA Exam without hard work. If you spend your time looking for shortcuts, you may simply not be cut out for success.
--Second, when he was given the chance to succeed in television, his wife told him that she was sure he would succeed because he was the most determined person in the world. The point that I took away: there are a lot of things in this world that will come between you and your goals. It is easy to let them throw you off the track. If you are going to succeed, you must learn to fight through adversity. If you don’t want success enough to fight through the problems, you really don’t want it. Be determined or don’t get started.
--Third, he had a problem with one of the demonstrations and he had to improvise. He turned to the audience and said that this is just what you have to do—take what you have and make the most of it. People are always looking for one more CPA review product. They are always looking for one more book or one more CD. It is usually not the review materials that are the problem. It is what you do with them that counts. Make the most of what you have been given.
Yeah, it was an interesting day. But I was surprised by how much the Cake Boss said that applied to any challenge, even the CPA Exam, and not just to the making of cakes. I am convinced that people who are successful tend to follow the same pattern, no matter what the field.
---Work incredibly hard,
---Be completed determined, and
---Make the best of what you have.
(7) – Practice time. Let’s add some points.
FAR
The City of Singler has a capital projects fund. The highest-level of decision-making authority for the city transfers $9 million from the general fund to this capital projects fund with the stipulation that the money must be used to construct Highway 66 out of town. In the balance sheet for this fund, the cash is shown as an asset. How is the fund balance reported?
A. Fund balance—restricted
B. Fund balance—committed
C. Fund balance—assigned
D. Fund balance—unassigned
Answer is B
Assets that have been designated for a particular purpose—not by an outside party but rather internally by the highest-level of decision-making authority—is reported as a “fund-balance committed.” The term “restricted” is used if the designation of purpose is made by an outside party. The term “assigned” is used if the decision about the asset’s use is made within the government but not by the highest-level of decision-making authority. The term “unassigned” is appropriate for assets where no stipulation of the future use has been made.
Auditing & Attestation
Jane Eyre works as a staff auditor for the CPA firm of East & West. She is currently working on the audit engagement of the Hitckcock Corporation. Her daughter is employed by Hitchcock. Her daughter is 27 years old and not a dependent of Jane Eyre. The firm is trying to determine whether Jane Eyre must be removed from the audit team because of a lack of independence. In applying these rules, which designation is applied to the daughter?
A. Close relative
B. Distant relative
C. Member of immediate family
D. General member of family
Answer is A
The AICPA defines a close relative as a parent, sibling, or nondependent child. A dependent child would be considered a member of the staff auditor’s immediate family.
BEC
A company has cost of goods sold for the past year of $900,000 and average inventory for the period of $100,000. The cost of goods sold is divided by average inventory to arrive at 9. What does the 9 represent?
A. Inventory density
B. Cost availability
C. Inventory turnover
D. Cost performance analysis
Answer is C
Cost of goods sold divided by the average amount of inventory for the same period gives the inventory turnover (also known as inventory turnover ratio) which reflects how many times during the year that the reporting company sells an amount equal to its average inventory. It is used to measure the speed at which a company is able to sell its inventory.
Regulation
What is a gift causa mortis?
A. A gift of real property
B. A conditional gift in contemplation of death
C. A gift that will only occur after a specified event (a cause) has taken place
D. A gift that is transferred as part of a will.
Answer is B.
A gift causa mortis is a conditional gift made in contemplation of death. It is automatically revoked if the donor does not die of the impending illness or crisis. Such gifts can only be made when the donor is in a terminable condition.
Spring is coming and the air feels good. It is a great time to sit down and start studying to pass the CPA Exam. Why not make it a goal that you will pass several parts (if not all) of the CPA Exam by the end of the summer. Put in the time and effort and YOU CAN DO IT!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Friday, March 25, 2011
Exam Grades Released
Congrats to all of you who passed the CPA exam as well as those that passed the next part!
To those who didn't pass, here is Joe's "secret sauce" to help you pass the exam:
(1) – Pick the part of the exam that you like the most. It’s always easier to get started with a part you like.
(2) – Schedule to take that exam in roughly 40 days, let’s say the end of January.
(3)—Go to www.CPAreviewforFREE.com and read all the information under “resources.”
(4)—Start answering at least 15 questions per day.
(5)—Never guess. On the exam, you need to guess. In studying, never guess.
(6)—If you get a question correct, move on. Don’t sit and congratulate yourself.
(7)—If you miss a question, find the step you missed (see above) and figure out what you missed in that step. Write down 10 words or less to help you get the question/step right the next time you see it.
(8)—Never forget that you only need to get 75 points to pass. You are not seeking perfection.
(9)—When you get to the final 7-10 days, start going methodically back through your 10 word notes. You want to make sure you can get as many questions right as possible.
(10)—During the exam, watch your time very closely. You want to finish with about 10 seconds left. Don’t waste time but don’t get too rushed.
(11)—If you don’t know a question, eliminate as many answers as possible and take a guess. Don’t let a tough question get you rattled.
To those who didn't pass, here is Joe's "secret sauce" to help you pass the exam:
(1) – Pick the part of the exam that you like the most. It’s always easier to get started with a part you like.
(2) – Schedule to take that exam in roughly 40 days, let’s say the end of January.
(3)—Go to www.CPAreviewforFREE.com and read all the information under “resources.”
(4)—Start answering at least 15 questions per day.
(5)—Never guess. On the exam, you need to guess. In studying, never guess.
(6)—If you get a question correct, move on. Don’t sit and congratulate yourself.
(7)—If you miss a question, find the step you missed (see above) and figure out what you missed in that step. Write down 10 words or less to help you get the question/step right the next time you see it.
(8)—Never forget that you only need to get 75 points to pass. You are not seeking perfection.
(9)—When you get to the final 7-10 days, start going methodically back through your 10 word notes. You want to make sure you can get as many questions right as possible.
(10)—During the exam, watch your time very closely. You want to finish with about 10 seconds left. Don’t waste time but don’t get too rushed.
(11)—If you don’t know a question, eliminate as many answers as possible and take a guess. Don’t let a tough question get you rattled.
Tuesday, March 15, 2011
Help for Japan's Victims
Our hearts and prayers go out to the victims and their families of the Japan earthquake and tsunami. It humbles us to see dreams interrupted to deal with tasks at hand that take immediate precedent. Our thoughts also go out to the brave men and women working with the damaged nuclear reactors.
Google has set up an info page which includes an easy way to donate to The Japanese Red Cross Society
For family members, the Japanese Red Cross Society has also provided the following link: Family link web site has been opened in cooperation with ICRC:
http://www.familylinks.icrc.org/eng/familylinks-japan
Thank you! Lynn
Google has set up an info page which includes an easy way to donate to The Japanese Red Cross Society
For family members, the Japanese Red Cross Society has also provided the following link: Family link web site has been opened in cooperation with ICRC:
http://www.familylinks.icrc.org/eng/familylinks-japan
Thank you! Lynn
Sunday, March 13, 2011
Characteristics for Success of the CPA Exam
Try us FIRST before you spend your hard-earned money.
March 9, 2011
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,200 FREE CPA Review Questions and Answers Available for YOU
140 Weeks of Operation and 21,985,330 Page Views (without a penny spent on marketing)
Lesson 90
From: Joe
(1) – I want to start with the same information that I sent out last week about the CPA Exam going international. I know that, for a lot of our readers, this is exciting news.
Starting in 2011, the Uniform CPA Examination will be offered during the month of August in Japan, Bahrain, Kuwait, Lebanon and the United Arab Emirates. The international exam, which will be offered in English, is the same as the U.S. exam administered by the AICPA, NASBA, and Prometric in the United States. Future testing months during which the exam will be administered in Japan and the Middle East will be November 2011 and February, May 2012. Licensure requirements for international candidates are the same as for U.S. CPA candidates. Along with passing the Uniform CPA Examination, international candidates must meet educational and experience requirements as mandated by U.S. state boards of accountancy. In the United States, state boards have the governmental legal authority to award the U.S. CPA license. Registration for the international exam will begin on May 1, and applications may be made through certain U.S. state boards of accountancy offering eligibility for
international candidates. A list of participating state boards and information about fees will be posted on the NASBA website in April at www.nasba.org. Testing in the new international locations will be open to citizens and long-term residents of the countries in which the exam is being administered. In the Middle East, citizens of Egypt, Jordan, Oman, Qatar and Saudi Arabia may take the exam in one of the Middle East locations. U.S. citizens living abroad are eligible to test at any location.
(2) – Okay, we’ve got thousands of people who use www.CPAreviewforFREE.com for our free questions and answers each and every week.
--Most of them are preparing for the CPA Exam. Many of those folks have become disenchanted with the mediocre review programs that charge them thousands and are poorly put together.
--Others simply decided (as our motto suggests) to try us for free first before investing even a penny in a review program.
--Some use us along with other books and programs; some use our free questions along with our subscription service ($15 per month per part); and some folks use our questions all by themselves to pass.
--We also assist college students who are desperately trying to get an A in Intermediate Accounting, Advanced Accounting, Auditing, Business Law, Income Taxes, or the like. They use our questions as a way to practice and review.
--Other folks just use our questions to keep themselves in touch with a wide variety of accounting questions. I’m always fascinated by how many people write in to say “I passed the exam years ago but I still enjoy working 5-10 of your question each day to stay sharp.”
How you make use of www.CPAreviewforFREE.com is up to you. The 2,200 questions and answers are there for YOU. We are happy to make them available. When we first started, we would get a lot of questions like “what’s the catch?” There is no catch. By now, nearly three years in, most people have come to understand that. We are happy to be of help to you.
We do need to make enough money to support our site so when you pay to download the questions and answers or when you use our subscription service ($15 per month per part), you are really helping to keep us in business so that we can continue to help others. THANKS!!! We very much appreciate your support.
So, if you have never looked at our questions and answers, go online and start working. One hour per day working with our questions and answers and you have a great chance of passing the entire CPA Exam in 2011 FOR FREE.
We don’t want to see the high cost (and low quality) of other CPA review programs keep you out of the Accounting profession. I have long argued that the cost of CPA review is entirely unfair. The Accounting profession should be open to everyone, not just those people who can afford expensive review programs.
I was reminded of this last week when I got a wonderful email from an accountant in Iran who thanked me for what we were doing. Do you think those big review programs get many grateful emails from Iran? We are not out to save the world but we are glad to be of help to everyone who wants to be able to enter the Accounting profession—no matter where you live and no matter how much money you have.
And, of course, we are grateful for your support.
(3) – How Good Do You Have To Be? I am convinced that everyone is always a bit insecure about most important things. That is just human nature. So, when you start to consider taking the CPA Exam, there is always the sinking feeling that you are just not smart enough to be able to pass. Well, I’m here to tell you that is pure NONSENSE!!!! Yes, the CPA Exam is tough and requires work but anyone who is willing to put in the time and stays persistent should be able to pass the CPA Exam in a reasonable period of time. No matter how many doubts you may have-YOU CAN DO IT!!!
Assume that you bring in 100 candidates who are thinking about taking the CPA Exam. Do you have to be the smartest person in the room to pass? Of course not. Do you have to be one of the best prepared candidates in that room to succeed? No way. In school, we tend to focus on the very top students—that upper 10 percent that seem to know all the answers. Passing the CPA Exam isn’t like school. In most cases, the top 50 percent of the people (roughly) are going to pass each part while many of the rest are going to come close. And, in that bottom half are an awful lot of people who never got around to studying at all. Or, they studied a few hours, got distracted, and never got back to it.
In other words, most people who try do pretty well. That’s just the statistics. That’s the secret that those big review courses don’t want you to know.
So, yes, you do have to study and certainly you can fail. But you don’t have to be a genius to pass. You don’t have to be an A plus student to succeed. That’s all just a myth. You just have to get in the upper 50 percent. That bar is not set terribly high.
How do you get into the upper 50 percent? You study. You study. You study. It is not magic. You study. I always suggest that if you just want to pass (make 75) you should spend 60-100 hours per part. That is one hour per day for between 8 months to a bit over a year. That is not easy but it certainly is not impossible. If you get up a bit early, you can have that done every day before breakfast.
How do you spend 60-100 hours of studying per part?
It doesn’t take smarts.
What characteristics does it take? What helps people become winners on the exam?
--Desire
--Ambition
--Determination
--Self-control
--Patience
--Planning
--Being Methodical
--Persistency
--Being Driven
Yeah, when it comes to the CPA Exam, I would take any one of those characteristics over smarts. Anyone can have smarts and waste them away. But if you give me a person with the above characteristics, I’ll show you a real winner.
You can do it.
(4) – Need to unsubscribe? Well, we hate for you to leave us but you have the right to unsubscribe. Just scroll to the bottom of this email and you’ll find an unsubscribe button. Use it and we shall part. However, before you do so, why not forward this lesson to a friend who might be thinking of taking the CPA Exam and tell them they should go to www.CPAreviewforFREE.com and register and check the box for additional materials and those additional materials ONLY include these email lessons. And, before you leave, let me say one final time “Thanks so much for being with us.”
(5) – Time to practice. Notice that this first question is very similar to the first question in our previous lesson but with some small changes. Often in accounting, understanding the importance of small changes can make all the difference in the world.
FAR
On January 1, Year One, Ace Company completes construction work on a warehouse at a cost of $2 million and sells it to a bank for $2.3 million. It has a useful life of 30 years. Ace immediately leases it back for two years. What amount of gain is recognized by Ace during Year One?
A. Zero
B. $10,000
C. $150,000
D. $300,000
Answer is D
In a sale-leaseback arrangement, any gain on the sale is normally deferred and then written off as a reduction to the depreciation expense recognized in connection with the leased asset. However, if the leaseback is for a period of 10 percent or less of the life of the asset, the entire gain is recognized immediately. Here, the leaseback is for only two out of 30 years so that the gain is not deferred but recognized entirely at the time of sale.
Regulation (I went to our subscription service and picked this information at random).
A calendar-year corporation was organized and incurred organizational expenditures of $6,000. Assume the corporation begins business on April 1, Year One, and wants to maximize its deduction for organizational expenditures in that year. What amount can be deducted in Year One?
A. Zero
B. $300
C. $5,000
D. $5,050
Answer is D
Because the company has elected to maximize its deductions in Year One, they can deduct the first $5,000 immediately. The remaining $1,000 is amortized to expense over 180 months or $1,000 x 9/180 = $50. Although it does not apply here, if the organization expenditures are over $50,000, the company begins to lose the right to the initial $5,000 deduction so that more is subject to amortization.
Auditing and Attestation.
A publicly-held corporation is in the process of changing its president. Which of the following forms should be filed with the SEC to disclose this event?
A. Form 10-K
B. Form S-1
C. Form S-3
D. Form 8-K
Answer is D
According to the SEC’s website, “Form 8-K is the ‘current report’ companies must file with the SEC to announce major events that shareholders should know about.”
BEC
Numerous companies produce widgets. However, the only company that buys widgets on the market is the Ace Corporation which uses the widgets in its uniquely designed aircraft. In economics, how is this market described?
A. As a floating market
B. As a monopsony
C. As a category 2 market
D. As a market dominated by the Wilson effect
Answer is B
Candidates are likely to know of a monopoly—a situation where there is only one seller so that unfair pricing advantage can be taken over customers. A monopsony is the opposite situation where there are many sellers but only a single buyer. This buyer can often demand unreasonably low prices because the sellers have no other alternative sales for their goods.
Hope the sun is shining where you are today. Start using www.CPAreviewforFREE.com to add those points that you need in order to pass the CPA Exam. Let’s get it done in 2011.
Joe Hoyle
President and Co-Founder
CPAreviewforFREE
www.CPAreviewforFREE.com
March 9, 2011
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,200 FREE CPA Review Questions and Answers Available for YOU
140 Weeks of Operation and 21,985,330 Page Views (without a penny spent on marketing)
Lesson 90
From: Joe
(1) – I want to start with the same information that I sent out last week about the CPA Exam going international. I know that, for a lot of our readers, this is exciting news.
Starting in 2011, the Uniform CPA Examination will be offered during the month of August in Japan, Bahrain, Kuwait, Lebanon and the United Arab Emirates. The international exam, which will be offered in English, is the same as the U.S. exam administered by the AICPA, NASBA, and Prometric in the United States. Future testing months during which the exam will be administered in Japan and the Middle East will be November 2011 and February, May 2012. Licensure requirements for international candidates are the same as for U.S. CPA candidates. Along with passing the Uniform CPA Examination, international candidates must meet educational and experience requirements as mandated by U.S. state boards of accountancy. In the United States, state boards have the governmental legal authority to award the U.S. CPA license. Registration for the international exam will begin on May 1, and applications may be made through certain U.S. state boards of accountancy offering eligibility for
international candidates. A list of participating state boards and information about fees will be posted on the NASBA website in April at www.nasba.org. Testing in the new international locations will be open to citizens and long-term residents of the countries in which the exam is being administered. In the Middle East, citizens of Egypt, Jordan, Oman, Qatar and Saudi Arabia may take the exam in one of the Middle East locations. U.S. citizens living abroad are eligible to test at any location.
(2) – Okay, we’ve got thousands of people who use www.CPAreviewforFREE.com for our free questions and answers each and every week.
--Most of them are preparing for the CPA Exam. Many of those folks have become disenchanted with the mediocre review programs that charge them thousands and are poorly put together.
--Others simply decided (as our motto suggests) to try us for free first before investing even a penny in a review program.
--Some use us along with other books and programs; some use our free questions along with our subscription service ($15 per month per part); and some folks use our questions all by themselves to pass.
--We also assist college students who are desperately trying to get an A in Intermediate Accounting, Advanced Accounting, Auditing, Business Law, Income Taxes, or the like. They use our questions as a way to practice and review.
--Other folks just use our questions to keep themselves in touch with a wide variety of accounting questions. I’m always fascinated by how many people write in to say “I passed the exam years ago but I still enjoy working 5-10 of your question each day to stay sharp.”
How you make use of www.CPAreviewforFREE.com is up to you. The 2,200 questions and answers are there for YOU. We are happy to make them available. When we first started, we would get a lot of questions like “what’s the catch?” There is no catch. By now, nearly three years in, most people have come to understand that. We are happy to be of help to you.
We do need to make enough money to support our site so when you pay to download the questions and answers or when you use our subscription service ($15 per month per part), you are really helping to keep us in business so that we can continue to help others. THANKS!!! We very much appreciate your support.
So, if you have never looked at our questions and answers, go online and start working. One hour per day working with our questions and answers and you have a great chance of passing the entire CPA Exam in 2011 FOR FREE.
We don’t want to see the high cost (and low quality) of other CPA review programs keep you out of the Accounting profession. I have long argued that the cost of CPA review is entirely unfair. The Accounting profession should be open to everyone, not just those people who can afford expensive review programs.
I was reminded of this last week when I got a wonderful email from an accountant in Iran who thanked me for what we were doing. Do you think those big review programs get many grateful emails from Iran? We are not out to save the world but we are glad to be of help to everyone who wants to be able to enter the Accounting profession—no matter where you live and no matter how much money you have.
And, of course, we are grateful for your support.
(3) – How Good Do You Have To Be? I am convinced that everyone is always a bit insecure about most important things. That is just human nature. So, when you start to consider taking the CPA Exam, there is always the sinking feeling that you are just not smart enough to be able to pass. Well, I’m here to tell you that is pure NONSENSE!!!! Yes, the CPA Exam is tough and requires work but anyone who is willing to put in the time and stays persistent should be able to pass the CPA Exam in a reasonable period of time. No matter how many doubts you may have-YOU CAN DO IT!!!
Assume that you bring in 100 candidates who are thinking about taking the CPA Exam. Do you have to be the smartest person in the room to pass? Of course not. Do you have to be one of the best prepared candidates in that room to succeed? No way. In school, we tend to focus on the very top students—that upper 10 percent that seem to know all the answers. Passing the CPA Exam isn’t like school. In most cases, the top 50 percent of the people (roughly) are going to pass each part while many of the rest are going to come close. And, in that bottom half are an awful lot of people who never got around to studying at all. Or, they studied a few hours, got distracted, and never got back to it.
In other words, most people who try do pretty well. That’s just the statistics. That’s the secret that those big review courses don’t want you to know.
So, yes, you do have to study and certainly you can fail. But you don’t have to be a genius to pass. You don’t have to be an A plus student to succeed. That’s all just a myth. You just have to get in the upper 50 percent. That bar is not set terribly high.
How do you get into the upper 50 percent? You study. You study. You study. It is not magic. You study. I always suggest that if you just want to pass (make 75) you should spend 60-100 hours per part. That is one hour per day for between 8 months to a bit over a year. That is not easy but it certainly is not impossible. If you get up a bit early, you can have that done every day before breakfast.
How do you spend 60-100 hours of studying per part?
It doesn’t take smarts.
What characteristics does it take? What helps people become winners on the exam?
--Desire
--Ambition
--Determination
--Self-control
--Patience
--Planning
--Being Methodical
--Persistency
--Being Driven
Yeah, when it comes to the CPA Exam, I would take any one of those characteristics over smarts. Anyone can have smarts and waste them away. But if you give me a person with the above characteristics, I’ll show you a real winner.
You can do it.
(4) – Need to unsubscribe? Well, we hate for you to leave us but you have the right to unsubscribe. Just scroll to the bottom of this email and you’ll find an unsubscribe button. Use it and we shall part. However, before you do so, why not forward this lesson to a friend who might be thinking of taking the CPA Exam and tell them they should go to www.CPAreviewforFREE.com and register and check the box for additional materials and those additional materials ONLY include these email lessons. And, before you leave, let me say one final time “Thanks so much for being with us.”
(5) – Time to practice. Notice that this first question is very similar to the first question in our previous lesson but with some small changes. Often in accounting, understanding the importance of small changes can make all the difference in the world.
FAR
On January 1, Year One, Ace Company completes construction work on a warehouse at a cost of $2 million and sells it to a bank for $2.3 million. It has a useful life of 30 years. Ace immediately leases it back for two years. What amount of gain is recognized by Ace during Year One?
A. Zero
B. $10,000
C. $150,000
D. $300,000
Answer is D
In a sale-leaseback arrangement, any gain on the sale is normally deferred and then written off as a reduction to the depreciation expense recognized in connection with the leased asset. However, if the leaseback is for a period of 10 percent or less of the life of the asset, the entire gain is recognized immediately. Here, the leaseback is for only two out of 30 years so that the gain is not deferred but recognized entirely at the time of sale.
Regulation (I went to our subscription service and picked this information at random).
A calendar-year corporation was organized and incurred organizational expenditures of $6,000. Assume the corporation begins business on April 1, Year One, and wants to maximize its deduction for organizational expenditures in that year. What amount can be deducted in Year One?
A. Zero
B. $300
C. $5,000
D. $5,050
Answer is D
Because the company has elected to maximize its deductions in Year One, they can deduct the first $5,000 immediately. The remaining $1,000 is amortized to expense over 180 months or $1,000 x 9/180 = $50. Although it does not apply here, if the organization expenditures are over $50,000, the company begins to lose the right to the initial $5,000 deduction so that more is subject to amortization.
Auditing and Attestation.
A publicly-held corporation is in the process of changing its president. Which of the following forms should be filed with the SEC to disclose this event?
A. Form 10-K
B. Form S-1
C. Form S-3
D. Form 8-K
Answer is D
According to the SEC’s website, “Form 8-K is the ‘current report’ companies must file with the SEC to announce major events that shareholders should know about.”
BEC
Numerous companies produce widgets. However, the only company that buys widgets on the market is the Ace Corporation which uses the widgets in its uniquely designed aircraft. In economics, how is this market described?
A. As a floating market
B. As a monopsony
C. As a category 2 market
D. As a market dominated by the Wilson effect
Answer is B
Candidates are likely to know of a monopoly—a situation where there is only one seller so that unfair pricing advantage can be taken over customers. A monopsony is the opposite situation where there are many sellers but only a single buyer. This buyer can often demand unreasonably low prices because the sellers have no other alternative sales for their goods.
Hope the sun is shining where you are today. Start using www.CPAreviewforFREE.com to add those points that you need in order to pass the CPA Exam. Let’s get it done in 2011.
Joe Hoyle
President and Co-Founder
CPAreviewforFREE
www.CPAreviewforFREE.com
Wednesday, March 2, 2011
CPA Exam Goes International in August
Try us FIRST before you spend your hard-earned money.
March 1, 2011
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
139 Weeks of Operation and 21,875,544 Page Views (without a penny spent on marketing)
From: Joe
(1) - I normally only use our emails to provide you with email lessons.
However, the AICPA sent out the following press release today. I know that an awful lot of our readers will be extremely interested in this information. Therefore, I wanted to get it to you sooner rather than later. So, I’m sending it out rather than waiting until I could write an entire email lesson.
The actual press release can be found at:
http://m1e.net/c?90368637-bSPoKLag.815A%406226349-qgsX7oOYmqgYc
The American Institute of Certified Public Accountants, National Association of State Boards of Accountancy, and Prometric announced the international administration of the Uniform CPA Examination will be offered during the month of August in Japan, Bahrain, Kuwait, Lebanon and the United Arab Emirates. Registration begins in May.
The U.S. CPA exam is being offered internationally for the first time as a service to foreign nationals in response to rapidly escalating international demand for U.S. CPA licensure. In 2010, more than 10,000 international candidates traveled to the U.S. to take the U.S. CPA exam, a 22 percent increase from 2009. Nearly one-third of international candidates came from Japan.
“We are very pleased to be able to offer this program in Japan and several countries in the Middle East,” said Craig Mills, AICPA vice president for examinations and continuing professional education. “We believe the international administrations will provide additional opportunities for individuals who want to become U.S. CPAs. As we gain experience in international administrations, we are looking forward to expanding the program to other countries where there is interest.”
The international exam, which will be offered in English, is the same as the U.S. exam administered by the AICPA, NASBA, and Prometric in the United States. Future testing months during which the exam will be administered in Japan and the Middle East will be November 2011 and February, May 2012. Licensure requirements for international candidates are the same as for U.S. CPA candidates. Along with passing the Uniform CPA Examination, international candidates must meet educational and experience requirements as mandated by U.S. state boards of accountancy.
NASBA Executive Vice President & COO Ken L. Bishop said: "It makes excellent sense to extend the benefits of the U.S. state-based CPA examination and licensure processes to an international audience. We’re looking forward to implementing international CPA Examination administrations so that we may bring the examination to candidates who would like an opportunity to qualify as U.S. CPAs."
In the United States, state boards have the governmental legal authority to award the U.S. CPA license. Registration for the international exam will begin on May 1, and applications may be made through certain U.S. state boards of accountancy offering eligibility for international candidates. A list of participating state boards and information about fees will be posted on the NASBA website in April at www.nasba.org.
“Ensuring safe, secure delivery of the CPA exam has always been a priority for us,” said Bill Murtagh, senior vice president of client services and sales at Prometric. “Carrying our commitment to security to other key locations around the world will simply be an extension of the diligence we provide in the U.S. to support the integrity of this high-stakes exam.”
Testing in the new international locations will be open to citizens and long-term residents of the countries in which the exam is being administered. In the Middle East, citizens of Egypt, Jordan, Oman, Qatar and Saudi Arabia may take the exam in one of the Middle East locations. U.S. citizens living abroad are eligible to test at any location.
“The exam, regardless of where it’s administered, provides opportunities for personal growth and contributes to economic prosperity,” Mills said. “We continue to plan for an August administration in the Middle East and are hopeful that the local conditions will allow us to provide this service to the citizens of the region.”
Initially the exam will be offered internationally during a one month testing window per calendar-year quarter. An international testing FAQ sheet is available at the AICPA Uniform CPA Examination website – www.aicpa.org/cpa-exam.
(2) – I cannot send out one of these emails without a message. That’s just not my style.
People who pass the exam don’t need encouragement. For them, it is over and part of the past. It is the people who fail and then have to push themselves to try again that need encouragement. So, I’ll leave you with the words of one of my heroes (Vince Lombardi): "The greatest accomplishment," he said, "is not in never falling, but in rising again after you fall."
Or, as I might say: “if you get knocked down, use that as motivation to push yourself even harder the next time. Anyone can take a beating and then quit. Quitting is the easiest thing in the world. It is truly a unique individual who gets stronger from the experience. And, then, the eventual victory is even sweeter.”
(3) – And, as always, remember that you can unsubscribe from these lessons by clicking the button at the bottom of this email.
Joe Hoyle
Co-Founder
CPA Review for FREE
March 1, 2011
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
139 Weeks of Operation and 21,875,544 Page Views (without a penny spent on marketing)
From: Joe
(1) - I normally only use our emails to provide you with email lessons.
However, the AICPA sent out the following press release today. I know that an awful lot of our readers will be extremely interested in this information. Therefore, I wanted to get it to you sooner rather than later. So, I’m sending it out rather than waiting until I could write an entire email lesson.
The actual press release can be found at:
http://m1e.net/c?90368637-bSPoKLag.815A%406226349-qgsX7oOYmqgYc
The American Institute of Certified Public Accountants, National Association of State Boards of Accountancy, and Prometric announced the international administration of the Uniform CPA Examination will be offered during the month of August in Japan, Bahrain, Kuwait, Lebanon and the United Arab Emirates. Registration begins in May.
The U.S. CPA exam is being offered internationally for the first time as a service to foreign nationals in response to rapidly escalating international demand for U.S. CPA licensure. In 2010, more than 10,000 international candidates traveled to the U.S. to take the U.S. CPA exam, a 22 percent increase from 2009. Nearly one-third of international candidates came from Japan.
“We are very pleased to be able to offer this program in Japan and several countries in the Middle East,” said Craig Mills, AICPA vice president for examinations and continuing professional education. “We believe the international administrations will provide additional opportunities for individuals who want to become U.S. CPAs. As we gain experience in international administrations, we are looking forward to expanding the program to other countries where there is interest.”
The international exam, which will be offered in English, is the same as the U.S. exam administered by the AICPA, NASBA, and Prometric in the United States. Future testing months during which the exam will be administered in Japan and the Middle East will be November 2011 and February, May 2012. Licensure requirements for international candidates are the same as for U.S. CPA candidates. Along with passing the Uniform CPA Examination, international candidates must meet educational and experience requirements as mandated by U.S. state boards of accountancy.
NASBA Executive Vice President & COO Ken L. Bishop said: "It makes excellent sense to extend the benefits of the U.S. state-based CPA examination and licensure processes to an international audience. We’re looking forward to implementing international CPA Examination administrations so that we may bring the examination to candidates who would like an opportunity to qualify as U.S. CPAs."
In the United States, state boards have the governmental legal authority to award the U.S. CPA license. Registration for the international exam will begin on May 1, and applications may be made through certain U.S. state boards of accountancy offering eligibility for international candidates. A list of participating state boards and information about fees will be posted on the NASBA website in April at www.nasba.org.
“Ensuring safe, secure delivery of the CPA exam has always been a priority for us,” said Bill Murtagh, senior vice president of client services and sales at Prometric. “Carrying our commitment to security to other key locations around the world will simply be an extension of the diligence we provide in the U.S. to support the integrity of this high-stakes exam.”
Testing in the new international locations will be open to citizens and long-term residents of the countries in which the exam is being administered. In the Middle East, citizens of Egypt, Jordan, Oman, Qatar and Saudi Arabia may take the exam in one of the Middle East locations. U.S. citizens living abroad are eligible to test at any location.
“The exam, regardless of where it’s administered, provides opportunities for personal growth and contributes to economic prosperity,” Mills said. “We continue to plan for an August administration in the Middle East and are hopeful that the local conditions will allow us to provide this service to the citizens of the region.”
Initially the exam will be offered internationally during a one month testing window per calendar-year quarter. An international testing FAQ sheet is available at the AICPA Uniform CPA Examination website – www.aicpa.org/cpa-exam.
(2) – I cannot send out one of these emails without a message. That’s just not my style.
People who pass the exam don’t need encouragement. For them, it is over and part of the past. It is the people who fail and then have to push themselves to try again that need encouragement. So, I’ll leave you with the words of one of my heroes (Vince Lombardi): "The greatest accomplishment," he said, "is not in never falling, but in rising again after you fall."
Or, as I might say: “if you get knocked down, use that as motivation to push yourself even harder the next time. Anyone can take a beating and then quit. Quitting is the easiest thing in the world. It is truly a unique individual who gets stronger from the experience. And, then, the eventual victory is even sweeter.”
(3) – And, as always, remember that you can unsubscribe from these lessons by clicking the button at the bottom of this email.
Joe Hoyle
Co-Founder
CPA Review for FREE
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