Do You Have a Strong Personal Goal?

Try us FIRST before you spend your hard-earned money.   CPA Review for FREE Over 2,400 FREE CPA Review Questions and Answers Available to YOU (for FREE)   October 11, 2013 Lesson 141   From:   Joe   Vote Every Day Until October 13, 2013   WE NEED YOUR HELP.    Over the years, I have received thousands of emails from candidates saying “thanks for providing so many free questions and answers so that I was able to pass the CPA Exam.   Please let me know if I can ever return the favor.”   Okay, here is how you (yes, YOU) can help.   It is easy and simple.   We are participating in a contest to get a free Super Bowl commercial (wow, that sounds really impressive).   We have made it down to the final 250 contestants.   They are going to trim down the number again soon.    We need for you to go to the following website and vote for US once a day untilOctober 20.   When you're on the website working questions, click on the orange VOTE button in the right side of the page.   Please do it.   Please.   We would love to win.   And, it takes so little of your time.   Just once a day for a few seconds.   You can help us keep this website free to all.   Tell your friends and neighbors and enemies and strangers to vote also.   Let’s show the world that a free CPA Exam review program can garner genuine love and affection from its “customers.”   We cannot do it but YOU can do it!!!!   We offer you 2,400 free questions and answers.   We have done that now for years.   Return the favor and vote once a day untilOctober 20.   THANKS!!   Strive for a Personal Strong Goal   I was recently on a 16-day tour of Portugal and Spain.   We traveled constantly and walked 1-2 miles every day.   On the trip was a 91 year old woman.   Much to my surprise, she matched our hikes step for step, day after day.  She was amazing.        One evening at dinner, I asked her where she had been in the world.   Here was our conversation.   She:   Oh, I have been pretty much everywhere in the world. Me:   Okay, have you been to Tanzania? She:   Sure, I was there in about 1987. Me:    Have you been to India? She:   I’ve been to both the north and the south of India. Me:   Have you been to Japan? She:   Lived there for a while. Me:   Have you ever been to Antarctica? She:   Actually, I have been there fairly recently on a tour.   I was stunned by her ability to see the world.   So, I asked her the question that I really wanted to know:   More...     Words, Actions or Both?    I am reading a book (published in 1997) titled A Regular Guy by Mona Simpson who is the half-sister of Steve Jobs.   The “hero” of the book is a creative and unique individual who starts an innovative company and gets very rich and appears (obviously) to be patterned after Mr. Jobs.   I am not at all certain what the relationship was between Simpson and Jobs but, in this book, the “hero” does a lot of interesting things – many of which seem just plain eccentric but some seem truly like a genius.     About halfway through the book, the daughter of the “hero” looks at him and makes a really tough assessment:   “but what he said was better than he was.”   I stopped and read that line several times and wondered how often it applied to me.   We all talk about what we are going to do, how much we are going to accomplish in life.   We tell people all about our hopes and aspirations.   But is that just talk or is it something that seriously guides our lives and pushes us forward?     Suppose someone went along behind us each day and wrote day everything we had to say.   Which would be better:   the words on that page or the actions we take?   We talk about accomplishments but are they just mere words or are we capable of matching our words by our works?  More useful actions...     Let’s add some points.   Let’s do some practice.    The answers are at the end of all quesitons.   FAR   Assets and liabilities occasionally have to be reported at fair value.   Fair values can be determined in many different ways.   To help accountants know which is the best method to use to determine fair value, FASB created a three-level fair value hierarchy.   Which of the following is not true about that hierarchy? a.   An investment in Ford Motor Co. shares is valued at its stock price which is a Level 1 valuation. b.   A potential asset retirement obligation is valued at the present value of the estimated future cash flows which is a Level 1 valuation. c.   A building acquired in trade is valued based on the recent sales price of a nearby building that was similar which is a Level 2 valuation. d.   A donut franchise is valued based on the sales price of a similar pastry franchise a few miles away which is a Level 2 valuation.     Regulation   The Gemini Corporation has a production machine with a tax basis of $80,000 and a fair value of $91,000.   It is traded for a newer model machine with a fair value of $100,000.   Gemini also pays cash of $8,000.   Which of the following is true? a.   No taxable gain and the tax basis of the new asset is $100,000 b.   No taxable gain and the tax basis of the new asset is $88,000 c.   $1,000 taxable gain and the tax basis of the new asset is $100,000 d.   $1,000 taxable gain and the tax basis of the new asset is $88,000     Auditing   The Aragon Company has two bank accounts.   A check for $20,000 is drawn on bank one late on December 31 and deposited into bank two on the same day.    In preparing a year-end bank reconciliation for bank two, the check is listed as a deposit in transit.   In preparing a year-end bank reconciliation for bank one, the check is not listed as outstanding.   What is the client most likely doing here? a.   A wash transfer b.   Kiting c.   A reciprocal transaction d.   Realignment posting     BEC   A company holds $300,000 in cash in a bank account.    The company views this balance as a speculative balance.   Which of the following is most likely to be true? a.   The money is being held in case a litigation claim is lost b.   The money is being held in case a weather emergency arises c.    The money is being held in case unexpected repairs are required in an electric generator d.    The money is being held in case inventory prices from suppliers suddenly drops.     Answers:   FAR Answer is B   According to FASB, Level 1 valuations are preferred because they are based on active market prices (such as the stock price for Ford shares).   Level 2 comes next which is based on observable inputs such as the sales price of a nearby building or franchise.   Those sales prices are real not assumptions.   Level 3 valuations are the least desirable because they are based on unobservable inputs that are based on assumptions.   Using the present value of future cash flows is only an estimate and cannot be observed until time passes.    The asset retirement obligation is a Level 3 valuation rather than Level 1.   REG Answer is B   This is a trade of like-kind property.   No gain is recognized in such trades unless boot (cash) is received.   Here, the cash is paid so the trade creates no taxable gain.   Thus, the new asset is recorded at the tax basis of the property surrendered:   previous machine with a tax basis of $80,000 and cash with a tax basis of $8,000.   New asset has a total tax basis of $88,000.   Auditing Answer is B   By adding the money as a deposit in transit while not recording the reduction as an outstanding check, the company appears to have more money than it actually does have.   This inflation is known as kiting and is used to either make the company look better than it actually is or cover up for money that has been stolen.   BEC Answer is D   Answers a, b, and c are viewed as precautionary balances.   The money is being held to take care of unexpected difficulties that might arise.    A speculative balance provides the flexibility to take advantage of unexpected income opportunities.   The drop in the price of inventory would be one such opportunity.   The available money would allow the company to buy inventory at especially low prices.     Have a great week and vote for CPAreviewforFREE Go Go Go!!!!     Joe Hoyle President CPA Review for FREE

How to Answer SIMS and MCQs

Try us FIRST before you spend your hard-earned money   CPA Review for FREE  Over 2,400 FREE CPA Review Questions and Answers Available to YOU (for FREE) An unsolicited testimonial from K. Bailey!  September 23, 2013 Lesson 140   From:   Joe   Set a Goal To Pass One or Two Parts in 2013   We are edging closer to the October-November testing window for the CPA exam.   Are you going to be ready to knock out one or more parts during those two months?    Remember, our 2,400 free questions and answers are just waiting for you atCPAreviewforFREE.    We occasionally get people who are skeptical; who believe nothing should be free.   Well, work some yourself and see for yourself.   What do you have to lose?  Why in the world wouldn’t you try some free questions?   Avoidance makes no sense.     If you were starving and I offered you a free hot dog, would you turn up your nose and respond “I’m sorry – I don’t trust free.   I’ll just sit here starving until something a whole lot more expensive comes along.”   That cannot be a smart plan.     I must admit that I am always surprised that every college accounting program in the world doesn’t have our URL posted on all of the blackboards or their course website.   I am surprised that every CPA firm doesn’t have a big sign about our website above their doors.   We are free.   Who else in this world offers you 2,400 great questions and answers for FREE.   Thousands of people use our site every day and never pay us a penny.   Are you really in such a big hurry to throw away thousands of dollars?   Are you related to Bill Gates or Warren Buffett so that wasting money is no big deal?   ***** If you haven't taken our survey, please., please take a quick 2 minute break from studying to complete our 3rd Annual 2 Minute Survey.  Yes, only 2 minutes.  We're not kidding. No multi-layered questions.    Your comments and feedback help us help you pass the CPA exam.  If you've passed the exam and used us in any way, we'd like your feedback as well!   Click here to take the survey.   ******   Learn Through Practice   How are you going to get ready to make passing grades in October and November?   Let me tell you about a trick that I learned around 1973 and that I still use today.   Back then, I read a book titled Psycho-cybernetics by Maxwell Maltz.   I won’t try to repeat the entire book but Maltz began with the obvious idea that we learn through practice.   He used the example of learning to drive a car.   We get behind the wheel, we step on the gas, we steer the car.   We do it over and over and we learn to drive.   Unfortunately, in our busy lives, there is only a limited amount of time that we have for practice.   And, whether you are learning to drive a car or to play golf or tennis, a considerable amount of time also goes into the preparation.   Maltz argued that real benefit could be obtained by more..   ***** New Partnership for Advanced Tech Review Course withFast Forward Academy (FFA)   Two things you should know.  1. FFA has the best price in the market for the most technologically advanced CPA review program, but they also offer a simple 4 pay plan of $225 for 4 months. Full access with the first payment and then 3 easy monthly payments to follow.   2. FFA also offers the materials in parts. You can purchase any single exam section for only $265. Maybe you need a booster for FAR or bought other materials that didn't work for REG... FFA is a great option to affordably give you the edge to pass that problem area. Use the 10% coupon code CPAREVIEWFORFREE when you order all four parts.   ******   How to Answer TBSs and MCQs   On the FAR and Auditing portion of the CPA exam, you will face 90 multiple-choice questions.   Of that total, 75 are graded with the remainder checked for possible use on future exams.   On the Regulation and BEC portions of the exam, you will see 72 multiple-choice questions.   Here, 60 are graded with the other 12 being tested to see if they can be added to later exams.   On all parts of the exam other than BEC, 60 percent of the grade comes from the multiple-choice questions and 40 percent from task-based simulations (TBSs).   FAR and Auditing have seven TBSs; six of these are graded and one is checked for future use.   Regulation has six TBSs and, again, all but one are graded.       No one ever asks about the structure of multiple-choice questions.   From experiences in school, virtually every candidate has had plenty of knowledge of multiple-choice questions.   But, the task-based simulations seem to cause a bit of consternation.   On www.cpa-exam.org, the official AICPA website, the TBSs are described as follows:   “Task-based simulations are condensed case studies that test accounting knowledge and skills using real life, work-related situations. Each task-based simulation is expected to take approximately 8 – 15 minutes to complete.”   So, in FAR and auditing, you need to reserve 105 minutes if you can (15 times 7 TBSs) for the simulations and in Regulation, you should try to leave 90 minutes (15 times 6 TBSs).   That can be difficult to do so you need to monitor your time usage very carefully.   BEC is different because 85 percent of the grade comes from the multiple-choice questions.   The remaining 15 percent is from 3 written communication questions, two of which are graded with the other one being pre-tested.     Here is some advice on the answering the TBSs.  More...     Okay, Time for Some Practice   Read through each question and see how you can do.   If you get them right, then that is great.  If you miss one, you have a golden opportunity to add some additional information to your head.     FAR   Little Company has net assets with a net carrying value of $500,000.    An evaluation of the individual assets and liabilities is made and they have a net fair value of $600,000.    Big Company buys a 90 percent ownership in Little Company and pays exactly $630,000.    This price is considered to be a good representation of the total value of this business operation.    Immediately thereafter Big Company prepares consolidated financial statements.   What amount, if any, should be reported as the noncontrolling interest in Little? a.   Zero b.   $50,000 c.   $60,000 d.   $70,000     Auditing   In Year One, CPAs compute the inventory turnover for an audit client and find that it is 9.0.   In Year Two, they repeat the calculation but the inventory turnover has dropped to 6.0.   Which of the following has most likely occurred? a.   The company is taken a week longer to pay its invoices in Year Two than it did in Year One. b.   The company over counted its inventory at the end of Year One. c.   Sales fell off in Year Two but inventory levels have remained the same. d.   The company began to sell online during Year Two.     Regulation   Lolly and Pop are equal partners in a partnership.   Lolly receives a guaranteed payment of $80,000 per year because of work performed at the business.   For federal income taxes, which of the following is true about that payment? a.   Lolly’s tax basis in the partnership is reduced by $80,000 b.   The partnership’s ordinary income is reduced by $80,000 c.   Lolly has an increase in taxable income of $40,000  d.   Lolly has an increase in long-term capital gains of $80,000     BEC   What is meant by the term “capital rationing?” a.   Allocating investments between those that produce taxable and nontaxable income b.   Limiting new investments often by assuming a higher cost of capital c.   Setting up an investment structure where different amounts of money are invested for several different periods of time. d.   Dividing long-term financing in a prearranged ratio between debt and equity.     The October-November testing window is about to open.  Make great use of this time to knock out as many parts of the CPA exam as you possibly can.   ANSWERS   FAR  Answer is D   The $630,000 price paid for a 90 percent ownership is viewed as a representation of the total value of Little.   Mathematically, that total value is $700,000 or $630,000/90 percent.   Of that $700,000 value, 90 percent or $630,000 is owned by Big.   The remaining 10 percent or $70,000 is held by other owners.   This $70,000 must be reported as the noncontrolling interest in a portion of the company’s consolidated balance sheet.   Auditing Answer is C   Inventory turnover is determined as cost of goods sold divided by the average inventory for the period.   Here, the ratio went down.   One possibility for the drop that was seen is for cost of goods sold to be high in Year One or low in Year Two.   A second possibility is that average inventory could have been low in Year One or high in Year Two.   In both cases, the ratio goes down.   Answer (a) does not affect inventory or cost of goods sold and cannot be the answer.   Answer (d) could change many possible balances so a specific drop like this is just one of many possible outcomes of this decision.   For example, it could also have caused inventory turnover to go up if average inventory levels declined.   Answer (b) understates cost of goods sold in Year One and overstates average inventory.   In Year Two, cost of goods sold is overstated.   Those effects are all backwards to what has been seen.   Answer (c) is correct because cost of goods sold will drop with reduced sales but inventory balances were not changed.   Regulation  Answer is B   A guaranteed payment from a partnership to a partner for work done is handled much the same as a regular salary expense.    The ordinary income is reduced by $80,000 and Lolly reports earned income of $80,000.   Because Lolly only owns half of the business, the reduction in ordinary income only creates a $40,000 decrease in Lolly’s tax basis in the partnership.   BEC Answer is B   Companies sometimes have to limit new investments often to align with budget requirements.    To assist in making those decisions, some type of cap or restriction has to be placed on new investments.   One common way is to assume a higher cost of capital.   In that way, when the net present value is determined, fewer investments qualify as appropriately profitable.   Did you add some points?  If so, great!  If not, practice, practice, practice.   Joe Hoyle President CPA Review for FREE   www.CPAreviewforFREE.com

Vote for CPAreviewforFREE! Free MCQ questions

Try us FIRST before you spend your hard-earned money.

 

CPA Review for FREE

 

Over 2,400 FREE CPA Review Questions and Answers Available to YOU (for FREE)

August 30, 2013

Lesson 138

 

From:   Joe

 

Last Minute Push

 

I know that the end of the July-August testing window is fast approaching.   If you are scheduled to take a section of the CPA Exam in the next week or so, I have two pieces of advice.   First, put in all the time you can.   Every minute that you study is another possible point.   Every minute that you study gets you closer to your goal of 75 points.   Picture that goal out in front of you and feel yourself pushing toward that goal.   Second, do not get too tired out.   Yes, you want to study as much as you can but, at the same time, be very aware of your own energy levels.   No matter how much you know, you are not going to pass the CPA Exam if you are exhausted.   When you need a break, take it.   Get some exercise every day if it is merely walking around the block.   We here at CPAreviewforFREE want you (yes, YOU) to pass this exam and get on with your life.  

 

--Keep pushing, work for every possible point.

--Watch your energy levels and make sure they are high.

 

 

 

As always, we love hearing from you about your experiences with the CPA Exam and your use of CPAreviewforFREE.  Plus, if the testimonial in the box to the right doesn’t make you want to go try out our website, then you have more money in your pocket than you need.  Here's another one to show you can do it.

 

 

From SI:

Wow. This is just an amazing prep tool. And it has definitely helped me in better understanding of the concepts and more importantly helped me in focusing on the most important topics. It has helped me clear my exams.

 

Keeping All the Balls in the Air

 

When my students here at the University start to struggle, they will often come by my office for a discussion of how they can do better.   One of the most common problems is that they are involved in more activities than seems humanly possible:   they are full-time students, they belong to a sorority or fraternity, they are involved in clubs, they have a part-time job, they are involved in personal projects, they have families and friends to keep up with.   On top of all that, they are often severely stressed out by trying to keep all of those things balanced.   

 

Our world has become one of multi-tasking.   People try to cram more into their lives by doing 4 or 5 different things at once.   I can hardly blame them because I multi-task myself.   Technology simply offers us the possibility of doing a great many things at one time.  

 

When I talk with my students, I often tell them the following story.    A circus will often have one or more jugglers.   These folks will frequently juggle balls – baseballs or tennis balls or the like.   Until they practice and improve, each of these entertainers will have a limit as to the number of balls they can juggle.   One person might be a “4-ball juggler” and another might be a “5-ball juggler” to indicate their maximum ability at the moment.   A 4-ball juggler can successfully juggle four balls.

 

I then look at the student and ask a very simple question:   “Do you know what happens when you toss a 6th ball to a five-ball juggler?”

 

Over the years, I have never yet had an incorrect answer to this question.   The student will get quiet and say in a whisper “I guess the person drops all of the balls.”  

 

Exactly.   100 percent correct.  If you try to juggle too many balls, you don’t just drop the last one, you drop them all.  

 

I wait a few seconds for dramatic effect and then ask “So, what’s the point of that story?    Am I trying to get you to run off and join the circus?”  

 

And, again, I find the students know the answer “I am trying to juggle so many things in my life that I am not doing a very job with any of them.” 

 

That is exactly the problem with multi-tasking.   Technology can be such a wonderful help and make you so much more efficient.   But, if you grab one ball too many, they all come crashing down.   One extra ball and you lose them all.  

 

The CPA Exam is a very big ball.   When you start planning to add preparation for the CPA Exam into your life, you need to consider the consequences.   If you are lucky and if you study hard, you can probably get through the CPA Exam in 6-18 months.   That is a very reasonable goal.   But during that period of time, you are adding a very big ball into your life’s juggling act.   If you are not careful with that additional ball, you will drop all of the balls.

 

What is the answer?  More...

 Self-Discipline and Getting it Done

 

On Tuesday morning, Elmore Leonard, one of my very favorite authors died.   He wrote many wonderful books such as Get Shorty, Rum Punch, Out of Sight, LaBrava, Maximum Bob, andThree-Ten to Yuma.   More recently, Leonard was involved with the hit TV show "Justified".  It is based on Elmore Leonard's novels Pronto and Riding the Rap and his short story Fire in the Hole.  The shows's creator even gave the writing staff a WWED bracelet meaning What Would Elmore Do.  He was 87 and had recently suffered a stroke so his death was not unexpected.

 

Leonard had an interesting start to his career.   He was apparently successful in the world of advertising but, instead, he wanted to be a writer.   He wanted something different than what he had.   In one of the newspaper stories about his life, the following was related:

 

“Famously, Leonard started writing Western-themed novels from 5-7 a.m. at home before going to work at the Campbell-Ewald agency, where Chevrolet trucks was one of his accounts. He developed a ferocious work ethic, writing every day in a bleak, cinder block basement office in their Lathrup Village home that son Peter described as looking like a prison cell.  After he quit advertising, he kept up the discipline in his monk-like office, writing from 10 a.m. to 6 p.m. without a lunch break.”

 

What caught my eye about this story?   

 

--He wanted to reach his goal so badly that he was willing to get up and work from 5 until 7 each morning before going off to a full day of work in a difficult industry.  He sacrificed sleep just for the possibility of becoming a writer.      

--He wanted to reach his goal so badly that, even after he became successful, he locked himself away in isolation for 8 hours each day and kept working.

 

Yes, Elmore Leonard became a famous writer but he would have never achieved that goal without the capacity for what I call “sitting down and getting it done.”  

 

It seems to me that if you want to become successful on the CPA Exam (or anything else), there are two truly important keys.   More...

 

VOTE for CPAreviewforFREE

 

CPAreviewforFREE has a goal, but need your support.  Please votefor us for the chance to have a commercial spot on SuperBowl 2014!  You can vote everyday for us which should be easy for you because you will be on our website working the free mcqs.  Just click on the orange VOTE banner ad on the right side of the page which will bring you directly to the VOTE page.  Thanks!

 

Practice time

 

Speaking of work.   Let’s do some.   Here are four questions.   If you get them right, that is nice but it does not add much to your knowledge.   But, if you get them wrong, spend some time making sure you would be able to get those questions right the next time you see them.  The answers are at the end.

FAR

 

The City of Bardot is producing a comprehensive annual financial report (CAFR).   Within the CAFR, the city is preparing government-wide financial statements.   Which two statements now compose the government-wide financial statements?

a.    Balance sheet and statement of revenues and expenses

b.   Statement of net position and statement of activities

c.   Statement of financial condition and statement of revenues, expenditures and other changes

d.   Statement of financial resources and statement of changes in fund balance

 

 

 

Auditing and Attestation

 

The CPA firm of Wilson and Pickett has finished the audit of Eastern South Corporation (ESC).   ESC is not viewed as an issuer of securities.   Its stock is not publicly trade.   The company has no debts or the like that are publicly traded.   The CPA firm is now preparing an unmodified audit opinion.   Which of the following is described in the opening paragraph of that report?

a.   The auditor’s responsibility and the management’s responsibility are both described.

b.   The term “audit” is defined.

c.   The audited financial statements are identified.

d.   An indication is made of the auditing standards that were followed.

 

 

Regulation

 

James Joyce decides to create a business and is advised by his CPA to structure the business as an S corporation.   He will be the sole owner.    Joyce transfers equipment to the business to help get it started.   This equipment has been kept in excellent working condition and is worth $32,000 although it has a tax basis to Joyce of only $18,000.    The equipment is subject to a loan of $23,000, a debt which will be taken over by the S corporation.   What taxable gain must James Joyce recognize on this conveyance?

a.   Zero

b.   $5,000

c.   $9,000

d.   $23,000

 

 

BEC

 

William J. Bryan is looking at a demand curve for widgets.    In the study of economics, what does this demand curve represent?

a.    The change in the quantity of widgets produced as the price of widgets changes.

b.    The change in the quantity of widgets purchased as the price of widgets changes.

c.    The change in the quantity of widgets offered to the market as the price of widgets changes.

d.    The change in the manufacturing capacity for widgets as the price of widgets changes.

 

 

 

You are closing in on the end of the July-August testing window.  If you are getting ready to take the exam before September, put in all the time you can but don’t become exhausted.   You always want to be mentally and physically fresh when you walk in to take the CPA Exam.

 

 

Answers

 

FAR

 

Answer is B

 

GASB has recently created two new types of accounts. A deferred outflow of resources is usually a cost that does not qualify as an asset. A deferred inflow of resources is usually a monetary inflow that is neither a liability nor revenue. Previously, when only assets and liabilities were recognized, a statement of net assets (assets minus liabilities) had been reported in the government-wide financial statements. With more types of accounts, GASB decided “net assets” was no longer appropriate and changed it to “net position.” The statement of activities shows how the government’s net position changed during the reporting period.

 

Auditing and Attestation

 

Answer is C

 

Recently, the unmodified audit report for a non-public company has been changed. The opening, or introductory, paragraph simply identifies the financial statements that were examined. Other paragraphs outline the responsibilities of the parties, identify the standards that were followed, and describe the nature and scope of an audit.

 

Regulation

 

 Answer is B

 

James Joyce loses his interest in the equipment with its $18,000 tax basis. However, he also loses the $23,000 related debt. From a tax perspective, because of these conveyances, he is personally better off by $5,000. That improvement in personal financial position creates a taxable gain of $5,000.

 

BEC

 

Answer is B

 

A demand curve looks at consumer behavior by measuring how many items will be purchased as the available price goes up or down. On the other hand, production decisions are reflected in a supply curve.

 

Joe Hoyle

 

President and Co-Founder

CPA Review for FREE

www.CPAreviewforFREE.com

 

 

Don't Let Self-Imposed Barriers Stop You; Pottery and the CPA review?

Try us FIRST before you spend your hard-earned money.   CPA Review for FREE   Over 2,400 FREE CPA Review Questions and Answers Available to YOU (for FREE) August 6, 2013 Lesson 137   From:   Joe   Meet Joe at the AAA in Anaheim in August   I know that some of the readers of these email lessons are college accounting professors.   So, this first short item is for you.   If you are going to be at the annual convention of the American Accounting Association in Anaheim, I am scheduled to give a 90 minute teaching presentation from 2:00 until 3:30 p.m. on Wednesday, August 7, in the Laguna A room, on the 4th floor of the Hilton.   My teaching blog was named the AAA Accounting Education Innovation of the Year for 2013.   As a result, they will give me 90 minutes to talk about some of the teaching ideas I have written about recently.   If you are going to be at the convention, I hope you’ll stop by my presentation.    I would love to meet you and chat about teaching (and the CPA Exam as well as Accounting Homework Apps, smartphone apps containing mcqs to practice for accounting course tests).     Aw, shucks!   As always, we love getting your feedback.  These are just some of those that have been sent to us.  To read more, see ourtestimonials CPA Exam Tips.   From JY:   “I used cpareviewforfree as my main source of review questions. Thank you for creating this website it was an amazing source for helping me pass the CPA Exam.”   From CI:    “I passed FAR in May with a 94. I spent a lot of time reviewing your multiple choice questions and find your email messages very helpful. THANK YOU so much for helping me pass.... Three more to go...” Don't Let Self Imposed Barriers Stop You   In all the years that I used to teach a live CPA Exam review course, I was always amazed by how many capable candidates showed up and immediately started telling me why they couldn’t pass the CPA Exam.   Had it not been so sad, it would have been funny.   In fact, I labeled it as the “I can’t do this because” disease.   New candidates would practically leap out of their cars on the first day telling me why they couldn’t pass the CPA Exam.   --I can’t do this because I didn’t learn much in college. --I can’t do this because I am a bad test taker. --I can’t do this because my boss won’t give me any time to study.   --I can’t do this because my family is not supportive.   --I can’t do this because I work so slowly. --I can’t do this because I have failed in the past. --I can’t do this because I didn’t make good grades in Accounting at college.   With all these self-imposed barriers, I used to wonder how anyone ever passed the CPA Exam.   My response was always “well, don’t place too many stumbling blocks in your own path.   Let’s start adding some points on a daily basis and see where we wind up.”   The CPA Exam is tough enough without you telling yourself you are going to fail.   I could never figure out how all of those excuses were of any possible help.     I think the “I can’t do this because” disease must be pretty universal.   A lot of humans just seem to think that way.   Every time we start a new challenge in life, especially if it pushes us outside of our comfort zone, we seem to lose faith in ourselves.   We all do this – it is just a little more obvious in studying for the CPA Exam.  Setting low expectations makes it is easier if you do fail.  We seem to be trying to soften the possible blow by letting everyone know that we don’t really expect to do well.   However, setting low expectations makes it so much more difficult to succeed.   That attitude works against you.   It is hard to have the confidence to do the hard work necessary for success if you have already explained to everyone (including yourself) the many reasons you are going to fail.   Who wants to work hard if you don’t believe you can succeed?     People live up to their own high expectations but, just as importantly, they also live down to their own low expectations.     Attitude is vitally important in achieving success.   People rarely succeed without a “can do” attitude.   No one wants you to walk around and brag about how well you are going to do.   But, a certain degree of “I can do this” is necessary if you are going to take on tough challenges and win.   Let me give you an example.    My wife has long wanted to take a pottery class.   I have always resisted because I was convinced that I could never learn how to take a lump of clay and put it on a wheel and turn it into a pot or bowl or vase that could be glazed and fired.   I always assumed that I would produce a wreck.   I didn’t want to try because I was afraid that I would be embarrassed by my failure.   I was afraid of looking stupid.   So, I created all kinds of excuses.   I found myself constantly starting sentences with “I can’t do this because.”    Finally, this summer we decided to take a six-week pottery class after I ran out of excuses.   I figured that I would produce awful stuff but I’d get it over with.     And, of course, you can guess what happened.   The teacher was very patient and showed me exactly how to start, how to get the clay centered, how to mold it, how to shape and trim it.   When I did something wrong, she would show me how to learn from my mistake and do better the next time.   It was a wonderful learning experience.   I enjoyed every second. And, almost immediately, “I can’t do this because” was replaced by “with some help, I can make this happen.”    But the key was that I stopped putting roadblocks in my path.   I stopped defeating myself.   I let the teacher help me make gradual progress.   And, eventually, I could make some pottery.   After 6 weeks, my wife and I had produced over 30 pieces.   Here are a few photos that we took.   What is the point of the previous story about pottery?   More...

Practice always gives us an opportunity to add some points...

...and get better on that CPA Exam.   Read these questions, provide your answer and then read the answers that I give.  As always, the goal is to get better.  No peaking at the answers at the end before working the questions!

FAR

The Marston Corporation recently issued 1,000 shares of its common stock to its president for $30 per share so that she can vote at stockholders’ meetings and also receive dividends.   However, in five years, when she is expected to retire, she must sell these shares back to the company for $35 per share.   On its balance sheet, at the end of this first year, how is this stock reported?

a.   As a liability

b.   It is reported through note disclosure as a contingency

c.   In stockholders’ equity as “common stock.”

d.   In stockholders’ equity as the “equivalent of preferred stock.”

Auditing and Attestation

The Harthaus Corporation is a publicly-traded corporation that is audited by the CPA firm of Hansel and Gretel.    Bob Patterson has been the audit partner in charge of this audit for the firm.   At the end of his fifth year in that role, he turned this responsibility over to a different audit partner in the firm:   Alexandra Manjal.   What is the most likely reason for this switch?

a.   It is required by U.S. GAAP.

b.  It is required by the Sarbanes-Oxley Act.

c.   It is required by IFRS.

d.   It is not required so it must have been a personal decision or a firm decision.

Regulation

Janice Stathmore had a salary of $32,000 in the most recent year.   In filing her federal taxes, she took the standard deduction this year as well as the previous three years.   She also received unemployment compensation of $2,000.   Finally, she received a $1,300 refund on her state income tax return for the previous year.   In the current year, for federal income tax purposes, what should she report as her gross income?

a.   $32,000

b.   $33,300

c.   $34,000

d.   $35,300

BEC

A company wants to borrow $30 million for an expansion project.   Bonds with that face value are issued at 98 percent of face value.   How is the cost of this debt most likely measured for decision-making purposes?

a.    At the prime rate

b.   At the coupon (or cash) rate

c.   At the effective rate based on the issuance price of the bonds

d.   At the effective rate less tax savings

EXCLUSIVE:  REVISIONS TO REGULATION (REG)

Although not much has been happening in the U.S. Congress, CPAreviewforFREE updated the REG categories for the MCQs, Essential Content and SIMS to more accurately align with the AICPA Content Specification Outline as well a fix minor edits.  New MCQs are being added every day and will be included on our REG app for iPhone/iPad and Android smartphones shortly. For those of you who have purchased our premium subscription content, the changes are automatically updated in the Essential Content.   Here are the top level REG categories:

Business Structure

Business Law

Debtor-Creditor

Govt. Regulation of Business

Corporate Income Taxes

Individual Income Taxes

Partnerships, S Corps and Other Taxation Areas

IN CASE YOU MISSED IT...HERE IS INFO ON THE AUDITING CLARITY PROJECT

As many of you know, the AUD section of the exam starting with the July 1, 2013 testing window includes questions on the Auditing Clarity Project.  Many review courses charge you for the information we are giving you for free.  Please do us a favor.  Forward this newsletter to friends, co-workers, HR/Training Specialist at your firm and be sure to let them know that you received the free updates from CPAreviewforFREE.    Here are the new updates.

MCQ Answers

FAR

Answer is A

Any financial instrument that imposes an obligation on the issuer to transfer assets or issue equity shares is classified as a liability.

Auditing and Attestation

Answer is B

Section 204 of the Sarbanes-Oxley Act makes it unlawful for an audit partner having primary responsibilities for the audit to perform that service for more than five years.

Regulation

Answer is C

The salary is obviously taxable.   The unemployment compensation is also included in gross income.   The key point here is the handling of the state income tax refund.   If that amount was taken on the previous year’s tax return as an itemized deduction, then it is taxable income when the refund is collected.   If the taxpayer takes the standard deduction (as she does in this problem), then the original payment did not reduce her taxable income.  No effect last year means no effect this year.    Consequently, the subsequent refund is not included in taxable income.   Only the salary and the unemployment compensation make up her gross taxable income.

BEC

Answer is D

Because these bonds were sold at a discount, the investors wanted (and the company gave) a higher effective rate of interest.   Apparently, the bonds were not enticing enough at their cash interest rate to get enough investing interest.   However, the effective interest rate (based on the lower price) is not the cost of the debt because interest expense is tax deductible.   Those savings must also be taken into consideration.

Joe at CPAreviewforFREE