Words from Our New President
From: Joe
I want to wish my daughter Lara a very happy 16th birthday. She came to us from Russia 14.5 years ago and added a ton of joy to our lives. (Now, for the obvious questions: Yes, I do have two daughters and, yes, they were born exactly 53 weeks apart in the very middle of Russia.)
(a) – I mentioned last Saturday that the prior week had been our best ever. Our number of page views was 10 percent higher than in any previous week of our existence. Well, guess what? This past week our page views were up another 9 percent. At this rate, our goal of 10 million page views in 2009 is going to become a reality. Remember, that is a lot of points being added to your CPA Exam score (for FREE).
It is amazing how many emails we receive that start off "A friend just told me about your wonderful website." Thanks to every one of you folks who tell their friends, relatives, students, and coworkers about www.CPAreviewforFREE.com.
(b) – I had a free moment yesterday so I went to the website of a very well known CPA Review program. Just curious. What did I notice? Well, two things. The site spent an incredible amount of time talking about the ten people who attained the highest scores in the whole world on the CPA Exam in 2008. That is just great FOR THOSE TEN PEOPLE. I am not too sure who else that helps at all. I do not know about you but it would have never occurred to me when I took the CPA Exam to shoot for one of the top ten highest scores in the country. First, I couldn't see me scoring that high; it was not a realistic goal for anyone that I knew. And, second, I couldn't understand why I could ever want to study that hard. I just wanted to pass. I wanted to see a giant headline: "Joe scores exactly 75." (Actually, I did get two 75s and two 81s.)
Second, I looked forever on that website and I could not find how much they were charging. The Loch Ness Monster is not hidden as well as their prices. They have the cost so well hidden that you practically have to write them a check before you can find out the cost. Hmmm. I wonder why they hide the cost so carefully? My guess is that they are afraid you will pass out when you see what they are charging you. I am always concerned when someone wants to sell me something and will not tell me the price.
You know our motto: Try us FIRST before you spend your hard-earned money.
You do not have to follow the herd. Think for yourself. You can do this and we can help. Save your money—in these times, you might need it some day.
(1) – This past Tuesday, Barack Obama was sworn in as president of the United States. I am not going to get into politics but it was hard not to be pleased. He then gave a speech. He had a lot of great things to say but there was one line toward the end that really caught my attention. In fact, I stopped and wrote it down as soon as I heard it.
"There is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task."
I could not agree more. In fact, I have been preaching that attitude since I started working in CPA Review in 1980. Believe it or not, the important part is not passing. The important part is giving our all to a difficult task. It really does make you a better person. And, that is a worthwhile endeavor.
Of course, it is something we applaud when President Obama says it. How good are we at living up to that kind of assertion?
Nothing so satisfying
Giving our all
To a difficult task
Everyone can say it; not everyone can do it. Can you?
It is all about attitude. You are preparing to pass the CPA Exam, WHAT IS YOUR ATTITUDE? Let's make that a question with multiple choice answers. What is your attitude toward the CPA Exam?
A – I am going to hate every minute of this whole process.
B – I would never do this if I did not absolutely have to do it.
C – I will do what it takes but I am going to complain every single day.
D – It's a great challenge; I am looking forward to seeing how far I can push myself.
Well, we all know the "Obama" answer. However, he has managed to push and challenge himself all the way to the White House. We know what he would do. That is not the real question for us here today. The real question is: which one of these answers reflects your feeling? What is your attitude?
Here's maybe a better way to look at this question. If I were to ask your spouse or your best friend to describe how you are approaching the CPA Exam, what would that person say about you? What attitude radiates from you?
What I really want is for your spouse or best friend to say about you: "It is amazing. I never thought it would happen but the challenge is really bringing out the best in (fill in your name). I can just see more interest and energy and enthusiasm. There is more of a purpose in life. I figured this would be one long series of complaints but, actually, there is something here that is bringing out the best."
That is what a real challenge does for you. If you have the right attitude, it can make you a better person.
Go for that passing grade
and
Throw yourself into the challenge.
(2) – As always, please know that you can unsubscribe from these email lessons whenever you wish. Just scroll to the bottom of any lesson and click on the link that you will find there. However, don't get in a rush; we love having you on board.
If someone has forwarded this email to you and you would like to receive these lessons on a regular basis, just go to www.cpareviewforfree.com and register. Be sure that the box about getting additional material is checked. These lessons are the additional material.
(3) I mentioned getting emails from our "customers." Here is a wonderfully nice note that I received recently from KT. Notes like this really do pay for the website.
"I have found your website very helpful. This past year, I bought a CD review course through our firm at a discounted rate. I took the audit section in October, but did not pass. Shortly after, I received an email from a CPA about your website. I like the format of your website and the emails with practice questions sent each week or so. I really appreciated your message in your December email about the television and wasting time. My television will be off for more study time, for sure. I wish I had learned of your website before spending any money on study material, but your website will give me even more practice. Thanks so much for the free help. You are truly a caring individual and teacher. You actually like helping people to succeed. Thanks for sharing."
And, here is another email, this one from NM:
"I thank you for the wonderful support you and your team are extending to the CPA students through your free website. I have extensively used your website and I have cleared all my subjects within 6 weeks. It feels great because I had devoted 4 full months to the course and I cleared it in the first shot. And I owe a great part of my success to you."
(4) – I was talking with my intermediate accounting students last week about the importance of building a strong foundation of knowledge. It is hard to answer any questions if you don't have a solid core of understanding.
I introduced them to my concept of "3 second questions." These are questions that are so basic that if you get them, you should be able to count to three and then immediately answer the question. I suggested that they start making a list of all the 3 second questions. It helps them decide what is important and what they should know.
Three second questions are not a bad concept for CPA Exam Review also. As you go through a topic, write down everything you should be able to answer off the top of your head. Believe it or not, there is a fairly finite list of things you should know in three seconds. If you can just answer all of the three second questions, you are very close to passing the CPA Exam.
Let me give you an example (or the start of an example). Assume that you are going to take Regulation and you are currently studying individual income taxes. You are going through our questions and answers and writing down what you should know.
What are some of the three second questions that you should expect to be able to answer off the top of your head? As you study, you should ask the question, count to three, and give the answer.
Well, here is the start of such a list. I will not try to list everything but you can get the idea.
--Name three types of income that are taxable.
--Name three types of income that are nontaxable.
--How do taxpayers qualify to file a joint return and what are the advantages?
--How do taxpayers qualify as head of household and what are the advantages?
--How do taxpayers qualify as qualifying widow or widow (surviving spouse) and what are the advantages?
--In general, what are the five rules for qualifying as a dependent on a taxpayer's tax return?
--When does the amount of money that a person make not impact the decision as to whether they are a dependent on another person's tax return?
--When are dividends nontaxable?
--When is interest received from a US Series EE bond nontaxable?
--When is a scholarship taxable?
--What are examples of passive activities?
--When you have passive activity gains and losses, what is the tax effect?
--When is a prize taxable?
--How are gambling gains and losses taxed?
--An employer pays for life insurance on an employee. When is that benefit taxable to the employee?
--What is the statute of limitation in connection with the filing of an individual tax return? When does it go up to six years?
--What is a capital asset?
--What is meant by short-term versus long-term in connection with the sale of capital assets?
--What are the tax rules if you sell your house at a gain?
--What are the tax rules if you receive a gift and later sell it?
I assume you get my point. You can have a great little study guide by just listing out 3 second questions. There is nothing here on this list that you could not learn in a short period of time to get you ready for the CPA Exam.
Better still, by working our questions at www.CPAreviewforFREE.com, you can find the answers to all of these three second questions and many more.
(5) – Time for a little practice. Here are some brand new questions that we will be loading up on the CPA Review for FREE website next week. You can get a head start on these.
Regulation
Silas Wykowski receives 20 shares of stock from a friend as a gift. These shares had originally cost the friend $400 but were only worth $300 when the conveyance to Silas was made. The stock was held for some time and then sold for $280. What is the income tax effect recognized by SilasWykowski?
A - $300 gain at the time of gift and a $20 loss when sold.
B – No gain or loss at the time of gift and a $120 loss when sold.
C – No gain or loss at the time of gift and a $20 loss when sold.
D - $400 gain at the time of gift and a $120 loss when sold.
Answer is C
There is no income tax effect when a gift is made. A gift tax might have to be paid if the amount is large but this is a small gift. If the value then goes down, the owner can recognize a loss when sold. That loss is the difference in what was received and the lower of the tax basis to the previous owner (usually original cost) and the fair value at the date of the gift. Here, that fair value when conveyed ($300) is less. So, the tax loss is this $300 less the $280 sales price or $20.
Financial Accounting & Reporting
On December 31, Year One, United Open Housing, a nongovernmental not-for-profit organization, received a promise of a monetary gift of $10,000 to be received in five years. The gift is unconditional in that the charity does not have to do anything to qualify. However, the donor has specified that the gift cannot be utilized until received (for example, the promise cannot be sold for cash). There are no restrictions on the use of this money. The charity is confident that it will collect all $10,000. What is the initial recording by United Open Housing?
A – No recording is made.
B – A receivable of $10,000 is recorded along with an increase of that amount in unrestricted net assets.
C – A receivable of $10,000 is recorded along with an increase of that amount in temporarily restricted net assets.
D – A receivable for the present value of $10,000 is recorded along with an increase of that amount in temporarily restricted net assets.
Answer is D
Because the money is not expected to be collected within the next year, it must be recorded at its present value. The money cannot be used until received and, therefore, serves to increase the temporarily restricted net assets of the organization.
Auditing and Attestation
The Ligano Corporation is being sued for $3 million by the Stoneco Company. Abner and Doubleday are the independent auditors of Ligano and they are currently assessing the reporting of this litigation. Which of the following is the most likely test that they will carry out?
A – Discuss the case with Ligano's attorney and review the attorney's files to date.
B – Evaluate the procedures used by Ligano to assess the likelihood and amount of any potential loss from the suit.
C – Discuss the case with Stoneco's attorney with the understanding that all information is confidential and possibly biased.
D – Discuss the case with court officials who have jurisdiction over the proceedings.
Answer is B
Financial statements are produced by the management of the reporting company. Normally, the auditor begins by coming to an understanding of how client figures and disclosures were derived. For litigation, the auditor then sends a list of the claims and the likelihood and amount of loss as determined by the client to the company's outside attorney. This person is then asked to contact the auditor to indicate whether there is any disagreement with these assessments.
BEC
What is a call option?
A – The obligation to sell a security at a specified price in the future.
B – The right to purchase a security at a specified price for a defined period of time.
C – The right to sell a security if a specified event occurs.
D – The obligation to provide specified information to holders of a security if certain events take place.
Answer is B
A call option gives the holder the right to purchase a security at a specified price for a certain period of time (often three months or less). For example, if the price of company X stock is $30, an investor might buy a call option that would allow the purchase of company X stock for $32 per share over the next 3 months. If the price goes to $40 per share, the investor has made a large profit from a small investment.
To all of our friends around the world, HAVE A GREAT DAY!!!
Work hard and add some points to your CPA Exam score.
Have the right attitude. Enjoy the challenge that you are facing.
Joe Hoyle
Co-Founder
CPA Review for FREE
Sunday, January 25, 2009
Sunday, January 18, 2009
Believe in Yourself
I want to wish my daughter Anna a very happy 17th birthday. She came to us from Russia 14.5 years ago and added a ton of joy to our lives.
(a) Just a quick, special announcement: last week was our biggest in history at www.CPAreviewforFREE.com. Our number of visitors was 24 percent higher than in any previous week of our entire existence. What an amazing jump!!! Thanks to everyone who has helped us spread the word. We could not have this success without you!
Remember our goal for 2009 is 10 million page views. That is the equivalent of everyone who takes the CPA Exam looking at 100 pages on our site. Since we already have roughly 2,000 questions available for free, it is certainly a possible goal.
Just think how many points 10 million page views would add to CPA Exam scores around the country. So, please forward this email and say "these guys are for real; you should check them out. 2,000 great questions and every question is completely free."
(b) A lot of people focus on our free questions and miss all of the other stuff on our site especially the information located in our "resources" section.
If you are planning to take the CPA Exam in January or February, read "The Look and Feel of the CPA Exam."
If you are studying for auditing, read "Typical Audit Engagement" which goes through an audit step by step.
If you are considering applying to take the CPA Exam, read "Essential Information About Applying to Sit for the CPA Exam."
If you want to know how to use CPA Review for FREE to prepare for the CPA Exam, read "Using CPA Review for FREE to Prepare for Success." (Give us 40 days to prepare you for the first part of the exam and if you don't like the results, you can still pay for a course with someone else. Try us first and say your money.)
I think all of this information can be very helpful as you get ready to pass the CPA Exam in 2009.
(c) One other piece of interesting information. The pass rates for 2008 have now been announced:
Financial Accounting and Reporting - 49.21 percent
Auditing and Attestation - 49.10 percent
BEC - 47.49 percent
Regulation - 48.74 percent
This is considerably better than the roughly 30 percent pass rate under the old paper and pencil exam. "Old-timers" will tell you how hard the CPA Exam is to pass but times have changed. In recent years, this has become a much more passable exam; if you are willing to do the work, you have a great chance to get those 75 points that you need.
(1) - I read a quote yesterday that I thought applied to everyone taking the CPA Exam:
"You must believe in yourself, my child, or no one else will believe in you. Be self-confident, self-reliant, and even if you do not make it, you will know you have done your best. Now go for it."
So many good things about this quote:
"Believe in yourself"
"Be self-confident"
"Self-reliant"
"You will know you have done your best"
"Now go for it"
Success does not come from smarts or money. For the most part, success comes from doing more work than other people are willing to do. (Success = Ability to Do More Work than Others Are Willing to Do) When you start down the path to pass the CPA Exam, you must believe that you will do more work than other people are willing to do. That ability to drive yourself to success is going to get you those 75 points you need.
Unfortunately, doing work does not guarantee success; no one can guarantee success. However, not doing the work guarantees failure along with a feeling that you have not even tried. In life, there is a wonderful feeling that comes from putting in a great effort. One of the problems with much of life is that you can go through day after day with just mediocre effort. Life is not meant to be lived at a mediocre pace. There have to be times when you get so excited about the chance to accomplish something that you go at it as hard as you possibly can. You push yourself to success. That is what I have always loved about the CPA Exam. It is a goal worth all of that effort.
Make up your mind that you are going to go after that passing grade. Be confident that you can put in the work. Personally, I think if you have the self-discipline to work the questions on www.cpareviewforfree.com, you will have a great chance to pass. But just as importantly, I do not think you will ever forget the excitement of going for the gold. The ability to put out that effort makes you a better person.
Now go for it.
(2) Just a reminder that you can take your name off of our list by scrolling to the bottom of any of these email lessons and clicking on the appropriate button.
If someone has forwarded this email lesson to you and you would like to get them every 7-14 days automatically, just register at www.CPAreviewforFREE.com and make sure to check the box that indicates you want to receive extra materials about the exam.
(3) There is a lot of misunderstanding on the CPA Exam about the written communications questions. In each part of the exam except BEC, you will get two written communication questions (one in each simulation). You will be given a grade on your ability to use the English language and that grade will make up 10 percent of your overall grade.
To give you some guidance, here is what www.cpa-exam.org says specifically about this part of the exam: "In all simulations, candidates are presented with a situation and instructed to write a letter or memorandum on a specific topic. Written communication responses are scored on the basis of three criteria: (1) organization (structure, ordering of ideas, linking of ideas one to another); (2) development (presentation of supporting evidence); and (3) expression (use of standard business English)."
If you want more official information, you can check out the following site:
http://m1e.net/c?86471133-akFTZdhUgdLbs%403905862-d/0hY7WZ/BoXM
I believe that it is important for you to understand how your written communication answer will be graded. First, a grader looks over the answer to make sure that it is "on topic." In other words, if the question is about leases, then the answer has to be on leases. If the answer is not on the proper topic, you get a zero and no further grading is done. However, if the answer is just on topic, it is turned over to a different expert who then grades it on the three criteria mentioned above.
It is important to understand this grading process because the content itself is not graded. That is not the purpose of this question. So, if you get a question and you are not too sure about the exact answer, that may not make any difference at all. For these questions, you should worry about the writing and not the absolute precision of your answers.
Keep in mind also, that the computer on which you are taking the exam has "spell check" so you should not worry about misspelling words. You can check for that.
Let me give you some of my own hints on how to answer the written communication questions in order to maximize your points.
---Restate the question. That will help focus you in on what is wanted. Plus, in business writing, it is not unusual to make sure everyone knows the issue at hand.
---Keep your sentences as short as possible. Unless you are good at writing, once you go beyond about six or seven, the more likely it is that you will get into trouble. "The lease should be capitalized" is a great sentence. Avoid long and difficult sentences.
---Make sure each sentence logically follows the previous sentence. "The cat is in the kitchen. The cat is eating breakfast." makes sense. "The cat is in the kitchen. The Martian jumped out of his space ship." does not connect well. When the sentences stop connecting well, you need a new paragraph.
---Avoid using words unless you are very sure of their meaning. Do not try to get fancy. You are not trying to be William Shakespeare or William Faulkner.
---Remember that this is business writing. It should sound professional and formal. Slang is not appropriate. I also think that contractions and abbreviations should be avoided. You want your writing to look professional.
---Make sure that each sentence is complete. It should have a subject and a verb. "The cat over there in the kitchen." has no verb.
---Capitalize the first word in each sentence.
---Two to four sentences is a good length for most paragraphs.
---Unless you have strong skill as a writer, avoid semi-colons, colons, and dashes. Most people can say all they need to say with periods and a few commas.
---If you make any type of assertion, you should try to justify it. "Equipment must be depreciated" is an assertion. "Equipment must be depreciated because it has a finite life" is an assertion with an explanation.
I know a lot of people really dread the written communications questions. Personally, I think this is one place where if you simply take it easy and do not "overwrite" you can do well.
(4) We received several nice emails recently. Thanks to everyone who writes. We read them all. Here was just one that we got:
"When I first discovered the site, 'free online resources for the CPA exam,' I was skeptical. I asked myself: can there really be such a free site for the CPA exam? I then proceeded to try out some questions on BEC, and I was impressed. I have been trying several times over to pass BEC, and I hope that I can pass this time."
(5) Okay, as always, here are a few practice questions that I will eventually add to our database at CPA Review for FREE. I hope they help you to add a couple of points.
FAR (and this comes from the class that I did yesterday afternoon in my intermediate accounting II class)
The Simi Company has $10 million in long-term bonds coming due on August 9, 2009. The company is currently preparing a balance sheet as of December 31, 2008. The financial statements will be issued to the public on February 27, 2009. Which of the following statements is true?
A The bond must be reported as a current liability.
B The company can only report the bond as a noncurrent liability if it is refinanced prior to December 31, 2008.
C The company can only report the bond as a noncurrent liability if it is refinanced prior to February 27, 2009.
D If the company signs a non-cancellable agreement with a bank on January 17, 2009 indicating that the bond will be refinanced when it comes due, the bond is reported on the December 31, 2008, balance sheet as noncurrent.
Answer is D
The loan comes due within the current year and must be shown as current unless the company can show that it has both the intent and ability to refinance. That intent and ability is proven by either refinancing the debt prior to the issuance of the financial statements on February 27, 2009 or obtaining a non-cancellable agreement to refinance by that same date. Basically, the company must show that there is no chance that the bond will have to be paid out of the company's own current assets. If that is demonstrated, the bond is reported as long-term.
Regulation
The ABCD partnership has sales revenue of $300,000, cost of goods sold of $200,000, long-term capital gain of $12,000, repair expense of $20,000, and charitable contributions of $8,000. John Apple is one of the partners who holds a 25 percent share of the partnership. How should Mr. Apple report this partnership income on his own income federal tax return?
A Ordinary income from the partnership of $21,000
B Ordinary income from the partnership of $18,000 and a $3,000 long-term capital gain.
C Ordinary income from the partnership of $20,000, a $3,000 long-term capital gain, and $2,000 charitable contribution.
D Ordinary income from the partnership of $25,000, a $3,000 long-term capital gain, $2,000 charitable contribution, and $5,000 repair expense.
Answer is C
For the taxation of a partnership (or an S corporation), certain items such as long-term capital gains, charitable contributions, and interest expense are passed through directly to each partner based on the ownership percentage. Apple owns 25 percent of the partnership so that portion of the long-term capital gain and the charitable contribution are passed through directly and shown as such on his own return. All other income effects are then gathered into a single figure which is the income of the partnership which is assigned to the individual partners based on ownership percentage. Here, the $100,000 gross profit minus $20,000 repair expense gives income of $80,000 so that this 25 percent owner is assigned $20,000 as the income from the partnership.
Auditing & Attestation
What are the three components of audit risk?
A Preliminary risk, construction risk, and design risk
B Inherent risk, control risk, and detection risk
C Payment risk, receipt risk, and recording risk
D Variable risk, attribute risk, and assessment risk
Answer is B.
Audit risk is the chance that a material misstatement will occur and wind up being included in issued financial statements. The auditor needs to reduce overall audit risk to an acceptably low level before reasonable assurance can be given. Audit risk starts with inherent risk which is the chance that a material misstatement will actually occur in the accounting system that leads to the production of the financial statements. Then, control risk is the chance that this material misstatement (once it has occurred) will fail to be caught by the internal control policies and procedures established by the reporting company. Finally, detection risk is the chance that the material misstatement that has taken place and gotten past the internal control of the reporting company will not be caught by the work of the outside independent auditors.
BEC
The Madison Company takes 22 days to sell the average piece of inventory (that is the inventory conversion period). It takes another 27 days on the average to collect an account receivable (that is the receivables conversion period). It takes 31 days to pay accounts payable on the average (that is the payable conversion period). What is the cash conversion cycle for this company?
A - 18 days
B - 49 days
C - 53 days
D - 80 days
Answer is A.
The cash conversion cycle (which is sometimes referred to as CCC) is the time it takes a company to convert its resources into cash. It is actually the total time to convert inventory into accounts receivable and then collect those accounts less the period it takes the company to then pay for the inventory that it acquired. Hence, the computation for the Madison Company would be 22 plus 27 minus 31 or 18 days.
Believe in yourself and then go for it!!!!
Writing to you from Richmond, Virginia on a very cold Saturday night.
Joe Hoyle
Co-Founder
CPA Review for FREE
(a) Just a quick, special announcement: last week was our biggest in history at www.CPAreviewforFREE.com. Our number of visitors was 24 percent higher than in any previous week of our entire existence. What an amazing jump!!! Thanks to everyone who has helped us spread the word. We could not have this success without you!
Remember our goal for 2009 is 10 million page views. That is the equivalent of everyone who takes the CPA Exam looking at 100 pages on our site. Since we already have roughly 2,000 questions available for free, it is certainly a possible goal.
Just think how many points 10 million page views would add to CPA Exam scores around the country. So, please forward this email and say "these guys are for real; you should check them out. 2,000 great questions and every question is completely free."
(b) A lot of people focus on our free questions and miss all of the other stuff on our site especially the information located in our "resources" section.
If you are planning to take the CPA Exam in January or February, read "The Look and Feel of the CPA Exam."
If you are studying for auditing, read "Typical Audit Engagement" which goes through an audit step by step.
If you are considering applying to take the CPA Exam, read "Essential Information About Applying to Sit for the CPA Exam."
If you want to know how to use CPA Review for FREE to prepare for the CPA Exam, read "Using CPA Review for FREE to Prepare for Success." (Give us 40 days to prepare you for the first part of the exam and if you don't like the results, you can still pay for a course with someone else. Try us first and say your money.)
I think all of this information can be very helpful as you get ready to pass the CPA Exam in 2009.
(c) One other piece of interesting information. The pass rates for 2008 have now been announced:
Financial Accounting and Reporting - 49.21 percent
Auditing and Attestation - 49.10 percent
BEC - 47.49 percent
Regulation - 48.74 percent
This is considerably better than the roughly 30 percent pass rate under the old paper and pencil exam. "Old-timers" will tell you how hard the CPA Exam is to pass but times have changed. In recent years, this has become a much more passable exam; if you are willing to do the work, you have a great chance to get those 75 points that you need.
(1) - I read a quote yesterday that I thought applied to everyone taking the CPA Exam:
"You must believe in yourself, my child, or no one else will believe in you. Be self-confident, self-reliant, and even if you do not make it, you will know you have done your best. Now go for it."
So many good things about this quote:
"Believe in yourself"
"Be self-confident"
"Self-reliant"
"You will know you have done your best"
"Now go for it"
Success does not come from smarts or money. For the most part, success comes from doing more work than other people are willing to do. (Success = Ability to Do More Work than Others Are Willing to Do) When you start down the path to pass the CPA Exam, you must believe that you will do more work than other people are willing to do. That ability to drive yourself to success is going to get you those 75 points you need.
Unfortunately, doing work does not guarantee success; no one can guarantee success. However, not doing the work guarantees failure along with a feeling that you have not even tried. In life, there is a wonderful feeling that comes from putting in a great effort. One of the problems with much of life is that you can go through day after day with just mediocre effort. Life is not meant to be lived at a mediocre pace. There have to be times when you get so excited about the chance to accomplish something that you go at it as hard as you possibly can. You push yourself to success. That is what I have always loved about the CPA Exam. It is a goal worth all of that effort.
Make up your mind that you are going to go after that passing grade. Be confident that you can put in the work. Personally, I think if you have the self-discipline to work the questions on www.cpareviewforfree.com, you will have a great chance to pass. But just as importantly, I do not think you will ever forget the excitement of going for the gold. The ability to put out that effort makes you a better person.
Now go for it.
(2) Just a reminder that you can take your name off of our list by scrolling to the bottom of any of these email lessons and clicking on the appropriate button.
If someone has forwarded this email lesson to you and you would like to get them every 7-14 days automatically, just register at www.CPAreviewforFREE.com and make sure to check the box that indicates you want to receive extra materials about the exam.
(3) There is a lot of misunderstanding on the CPA Exam about the written communications questions. In each part of the exam except BEC, you will get two written communication questions (one in each simulation). You will be given a grade on your ability to use the English language and that grade will make up 10 percent of your overall grade.
To give you some guidance, here is what www.cpa-exam.org says specifically about this part of the exam: "In all simulations, candidates are presented with a situation and instructed to write a letter or memorandum on a specific topic. Written communication responses are scored on the basis of three criteria: (1) organization (structure, ordering of ideas, linking of ideas one to another); (2) development (presentation of supporting evidence); and (3) expression (use of standard business English)."
If you want more official information, you can check out the following site:
http://m1e.net/c?86471133-akFTZdhUgdLbs%403905862-d/0hY7WZ/BoXM
I believe that it is important for you to understand how your written communication answer will be graded. First, a grader looks over the answer to make sure that it is "on topic." In other words, if the question is about leases, then the answer has to be on leases. If the answer is not on the proper topic, you get a zero and no further grading is done. However, if the answer is just on topic, it is turned over to a different expert who then grades it on the three criteria mentioned above.
It is important to understand this grading process because the content itself is not graded. That is not the purpose of this question. So, if you get a question and you are not too sure about the exact answer, that may not make any difference at all. For these questions, you should worry about the writing and not the absolute precision of your answers.
Keep in mind also, that the computer on which you are taking the exam has "spell check" so you should not worry about misspelling words. You can check for that.
Let me give you some of my own hints on how to answer the written communication questions in order to maximize your points.
---Restate the question. That will help focus you in on what is wanted. Plus, in business writing, it is not unusual to make sure everyone knows the issue at hand.
---Keep your sentences as short as possible. Unless you are good at writing, once you go beyond about six or seven, the more likely it is that you will get into trouble. "The lease should be capitalized" is a great sentence. Avoid long and difficult sentences.
---Make sure each sentence logically follows the previous sentence. "The cat is in the kitchen. The cat is eating breakfast." makes sense. "The cat is in the kitchen. The Martian jumped out of his space ship." does not connect well. When the sentences stop connecting well, you need a new paragraph.
---Avoid using words unless you are very sure of their meaning. Do not try to get fancy. You are not trying to be William Shakespeare or William Faulkner.
---Remember that this is business writing. It should sound professional and formal. Slang is not appropriate. I also think that contractions and abbreviations should be avoided. You want your writing to look professional.
---Make sure that each sentence is complete. It should have a subject and a verb. "The cat over there in the kitchen." has no verb.
---Capitalize the first word in each sentence.
---Two to four sentences is a good length for most paragraphs.
---Unless you have strong skill as a writer, avoid semi-colons, colons, and dashes. Most people can say all they need to say with periods and a few commas.
---If you make any type of assertion, you should try to justify it. "Equipment must be depreciated" is an assertion. "Equipment must be depreciated because it has a finite life" is an assertion with an explanation.
I know a lot of people really dread the written communications questions. Personally, I think this is one place where if you simply take it easy and do not "overwrite" you can do well.
(4) We received several nice emails recently. Thanks to everyone who writes. We read them all. Here was just one that we got:
"When I first discovered the site, 'free online resources for the CPA exam,' I was skeptical. I asked myself: can there really be such a free site for the CPA exam? I then proceeded to try out some questions on BEC, and I was impressed. I have been trying several times over to pass BEC, and I hope that I can pass this time."
(5) Okay, as always, here are a few practice questions that I will eventually add to our database at CPA Review for FREE. I hope they help you to add a couple of points.
FAR (and this comes from the class that I did yesterday afternoon in my intermediate accounting II class)
The Simi Company has $10 million in long-term bonds coming due on August 9, 2009. The company is currently preparing a balance sheet as of December 31, 2008. The financial statements will be issued to the public on February 27, 2009. Which of the following statements is true?
A The bond must be reported as a current liability.
B The company can only report the bond as a noncurrent liability if it is refinanced prior to December 31, 2008.
C The company can only report the bond as a noncurrent liability if it is refinanced prior to February 27, 2009.
D If the company signs a non-cancellable agreement with a bank on January 17, 2009 indicating that the bond will be refinanced when it comes due, the bond is reported on the December 31, 2008, balance sheet as noncurrent.
Answer is D
The loan comes due within the current year and must be shown as current unless the company can show that it has both the intent and ability to refinance. That intent and ability is proven by either refinancing the debt prior to the issuance of the financial statements on February 27, 2009 or obtaining a non-cancellable agreement to refinance by that same date. Basically, the company must show that there is no chance that the bond will have to be paid out of the company's own current assets. If that is demonstrated, the bond is reported as long-term.
Regulation
The ABCD partnership has sales revenue of $300,000, cost of goods sold of $200,000, long-term capital gain of $12,000, repair expense of $20,000, and charitable contributions of $8,000. John Apple is one of the partners who holds a 25 percent share of the partnership. How should Mr. Apple report this partnership income on his own income federal tax return?
A Ordinary income from the partnership of $21,000
B Ordinary income from the partnership of $18,000 and a $3,000 long-term capital gain.
C Ordinary income from the partnership of $20,000, a $3,000 long-term capital gain, and $2,000 charitable contribution.
D Ordinary income from the partnership of $25,000, a $3,000 long-term capital gain, $2,000 charitable contribution, and $5,000 repair expense.
Answer is C
For the taxation of a partnership (or an S corporation), certain items such as long-term capital gains, charitable contributions, and interest expense are passed through directly to each partner based on the ownership percentage. Apple owns 25 percent of the partnership so that portion of the long-term capital gain and the charitable contribution are passed through directly and shown as such on his own return. All other income effects are then gathered into a single figure which is the income of the partnership which is assigned to the individual partners based on ownership percentage. Here, the $100,000 gross profit minus $20,000 repair expense gives income of $80,000 so that this 25 percent owner is assigned $20,000 as the income from the partnership.
Auditing & Attestation
What are the three components of audit risk?
A Preliminary risk, construction risk, and design risk
B Inherent risk, control risk, and detection risk
C Payment risk, receipt risk, and recording risk
D Variable risk, attribute risk, and assessment risk
Answer is B.
Audit risk is the chance that a material misstatement will occur and wind up being included in issued financial statements. The auditor needs to reduce overall audit risk to an acceptably low level before reasonable assurance can be given. Audit risk starts with inherent risk which is the chance that a material misstatement will actually occur in the accounting system that leads to the production of the financial statements. Then, control risk is the chance that this material misstatement (once it has occurred) will fail to be caught by the internal control policies and procedures established by the reporting company. Finally, detection risk is the chance that the material misstatement that has taken place and gotten past the internal control of the reporting company will not be caught by the work of the outside independent auditors.
BEC
The Madison Company takes 22 days to sell the average piece of inventory (that is the inventory conversion period). It takes another 27 days on the average to collect an account receivable (that is the receivables conversion period). It takes 31 days to pay accounts payable on the average (that is the payable conversion period). What is the cash conversion cycle for this company?
A - 18 days
B - 49 days
C - 53 days
D - 80 days
Answer is A.
The cash conversion cycle (which is sometimes referred to as CCC) is the time it takes a company to convert its resources into cash. It is actually the total time to convert inventory into accounts receivable and then collect those accounts less the period it takes the company to then pay for the inventory that it acquired. Hence, the computation for the Madison Company would be 22 plus 27 minus 31 or 18 days.
Believe in yourself and then go for it!!!!
Writing to you from Richmond, Virginia on a very cold Saturday night.
Joe Hoyle
Co-Founder
CPA Review for FREE
Thursday, January 15, 2009
CPA Exam Content Areas
Hi all,
Recently, the AICPA released the Uniform CPA Examination Content and Skill Specification Outlines (CSOs/SSOs) and copies of the new CSOs/SSOs. They will not go into effect until sometime in the future which has not yet been specified.
Not to worry though. CPAreviewforFREE has you covered.
Keep practicing and remember, the exam is a short term goal with long term benefits.
Recently, the AICPA released the Uniform CPA Examination Content and Skill Specification Outlines (CSOs/SSOs) and copies of the new CSOs/SSOs. They will not go into effect until sometime in the future which has not yet been specified.
Not to worry though. CPAreviewforFREE has you covered.
Keep practicing and remember, the exam is a short term goal with long term benefits.
Friday, December 26, 2008
Pass the CPA Exam in 2009--Make it a True Priority
Not sure how quickly I will write again but wanted to make sure and wish everyone a Happy and Safe Holiday!!! When you are passing out gifts, don't forget to give the people near to you big hugs and tell them how important they are in your life. Anyone can spend money to come up with a gift. Actually telling people that you love and care for them is more important and doesn't cost a penny.
(a) - Got a couple of nice notes this week here at CPA Review for FREE (www.CPAreviewforFREE.com). It is always nice to hear from our many customers. The first comes from a college student using our questions to prepare for class and the second comes from another successful CPA Exam candidate.
(Email One): "I appreciate the emails with updates and the questions that they bring with them. I just wanted to share my appreciation for the site and let you know that it has been very resourceful in helping me with my current courses at the university. I often use the sections as they correspond to the material that I am learning. Sometimes I find that it is deeper than what we are covering, other times I am right on target. But it gives me the ability to not only see what the right answer is but to learn why. That is something it is hard to come by when you are studying on your own. 3 semesters left -- I hope as I study alongside your site I will be prepared for the exam...75 come on my way..!!!!"
(Email Two): "Three down, 1 to go! I just got my BEC score this morning -- a 92! Not quite up there with FAR and AUD ;-) -- but I'll take it since I spent the week before the exam goofing off with my wife and daughters at Disney World. (Can you believe it? I was doing review while waiting for the "Beauty and the Beast" stage show to start at MGM Studios and while standing in line for Space Mountain. That'll be MY story to tell.) Once again, I can't thank you enough for your site and the questions (as well as explanations) that are up there. I'm working in a field outside of accounting until the end of the year, and it is so great in my down time there to be able to log onto your site and just work question after question after question ... no complicated external software necessary. I'm pounding away at it now on REG. That said, as much as I love it, I hope I'm done using it (well, at least the exam review part) shortly after New Year's when I take REG. The finish
line is in sight, and cpareviewforfree has helped get me there."
(1) - I got another email this week from a person who used my review program back in 1999 to pass the CPA Exam. This time he wrote to tell me that he had recently passed the Certified Treasury Professional exam and had used a couple of techniques that I had taught him back in 1999.
I found two things that he told me to be quite interesting.
First, he said that I had told him to tape paper over the screen of his television set. Well, if that was true in 1999, it is even more true in 2008. If you talk to people, most will tell you "oh, I don't watch much television" but that's a myth. Most people waste many hours each week sitting in front of that monster. Movies, reality television, basketball games, football games (college and pro)-what do you benefit from all of that television?? Unplug the set for a week and see how much better you feel. You will read more and you will listen to music more AND you will work harder on passing the CPA Exam. Television eats up time, energy, and ambition. People become addicted to television because they don't have to worry about finding ways to occupy their time. Try it-unplug the television for a week and see if you don't like the results. In fact, just unplug the set UNTIL you have passed the CPA Exam. That's a great first step on the road to success.
Which is more important to you: your own personal success or watching the New York Giants and Carolina Panthers play football? That's a stupid question. Truly ambitious people are not interested in watching other people compete, they want to compete themselves.
Second, he reminded me of my philosophy about missing questions. Over the past few decades, I have often told candidates that every answer is a series of logical steps. You move from Step One to Step Two and so on until you get the correct answer. So, when you miss a question NEVER say that you missed the answer because that is not actually true. Always say that you missed one of the steps in arriving at the answer. Go back and figure out which step you missed and then determine how to get that step right the next time. What you are trying to accomplish is to get all the steps right by yourself. You cannot do that if you don't know which step is tripping you up and how to get that step right the next time you see a question.
Too many candidates don't know how to properly use missed questions because they don't know how to learn from them.
--Isolate the step that you missed.
--Focus on that step and how you can make sure to get it right the next time.
Two good lessons from all the way back in 1999.
(2) - Always remember-if you need to unsubscribe, just scroll to the bottom of this email and you can get right off.
(3) - I got another email last week (I do get lots of emails as you can see) from one of my favorite former students here at the University of Richmond. She asked what I thought was a fundamentally great question: "All of my friends are spending thousands of dollars for a very well-known CPA Review program. They then spend hundreds of hours plowing through hundreds of pages of boring materials and then make in the high 90s. I don't need to make a high score. I'd rather keep my money and make 75."
Okay, I'm biased but I must admit that I don't know why everyone who takes the CPA Exam doesn't think more carefully about the following choice:
99 and money gone or 75 and thousands of dollars of money in my pocket???
I told her the truth: try www.CPAreviewforFREE.com for six weeks and see how you do.
If you pass, keep your money.
If you fail miserably, then spend the money.
Spending the money first makes absolutely no sense.
Repeat after me: spending the money first makes absolutely no sense.
Here's what I would do if it were me:
(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.
Will you pass? I think you've got a great chance. Best of all, it only took you 40 days and you did not spend a penny for review materials. If you failed miserably, the big expensive programs will still be there but spending the money first makes absolutely no sense.
(4) - What an offer!!! Instead of giving a couple of review questions at the end of this lesson as I usually do, I thought I would do something different in this lesson. I gave 30 questions last week as part of a final exam in my introductory financial accounting course here at the University of Richmond.
If you send me a note at Jhoyle@cpareviewforfree.com, I will send you a copy of these 30 questions in a Word file along with explanations of the answers. Yet again, more free stuff from www.CPAreviewforFREE.com. Don't hit reply, you have to drop me an email at Jhoyle@cpareviewforfree.com.
Yes, it is an introductory course so these questions are probably a little bit easier than you would expect to find on the CPA Exam but not a whole lot easier. The CPA Exam stresses the breadth of coverage much more than the depth. Their questions are always more basic than you might expect. So, practicing on basic questions, even at the introductory level can be helpful. Sit down and take 90 minutes to 2 1/2 hours and see how you do. It is excellent practice. The answers are explained in a separate file that I will also send. Even at the introductory level, I would not necessarily expect you to get 100 percent correct. That is not the point of the exercise. The point is to find any holes that you might have in your basic knowledge of financial accounting and then work to get them filled.
Again--from all of us at CPA Review for FREE to all of you around the world: Happy Holidays!!!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
(a) - Got a couple of nice notes this week here at CPA Review for FREE (www.CPAreviewforFREE.com). It is always nice to hear from our many customers. The first comes from a college student using our questions to prepare for class and the second comes from another successful CPA Exam candidate.
(Email One): "I appreciate the emails with updates and the questions that they bring with them. I just wanted to share my appreciation for the site and let you know that it has been very resourceful in helping me with my current courses at the university. I often use the sections as they correspond to the material that I am learning. Sometimes I find that it is deeper than what we are covering, other times I am right on target. But it gives me the ability to not only see what the right answer is but to learn why. That is something it is hard to come by when you are studying on your own. 3 semesters left -- I hope as I study alongside your site I will be prepared for the exam...75 come on my way..!!!!"
(Email Two): "Three down, 1 to go! I just got my BEC score this morning -- a 92! Not quite up there with FAR and AUD ;-) -- but I'll take it since I spent the week before the exam goofing off with my wife and daughters at Disney World. (Can you believe it? I was doing review while waiting for the "Beauty and the Beast" stage show to start at MGM Studios and while standing in line for Space Mountain. That'll be MY story to tell.) Once again, I can't thank you enough for your site and the questions (as well as explanations) that are up there. I'm working in a field outside of accounting until the end of the year, and it is so great in my down time there to be able to log onto your site and just work question after question after question ... no complicated external software necessary. I'm pounding away at it now on REG. That said, as much as I love it, I hope I'm done using it (well, at least the exam review part) shortly after New Year's when I take REG. The finish
line is in sight, and cpareviewforfree has helped get me there."
(1) - I got another email this week from a person who used my review program back in 1999 to pass the CPA Exam. This time he wrote to tell me that he had recently passed the Certified Treasury Professional exam and had used a couple of techniques that I had taught him back in 1999.
I found two things that he told me to be quite interesting.
First, he said that I had told him to tape paper over the screen of his television set. Well, if that was true in 1999, it is even more true in 2008. If you talk to people, most will tell you "oh, I don't watch much television" but that's a myth. Most people waste many hours each week sitting in front of that monster. Movies, reality television, basketball games, football games (college and pro)-what do you benefit from all of that television?? Unplug the set for a week and see how much better you feel. You will read more and you will listen to music more AND you will work harder on passing the CPA Exam. Television eats up time, energy, and ambition. People become addicted to television because they don't have to worry about finding ways to occupy their time. Try it-unplug the television for a week and see if you don't like the results. In fact, just unplug the set UNTIL you have passed the CPA Exam. That's a great first step on the road to success.
Which is more important to you: your own personal success or watching the New York Giants and Carolina Panthers play football? That's a stupid question. Truly ambitious people are not interested in watching other people compete, they want to compete themselves.
Second, he reminded me of my philosophy about missing questions. Over the past few decades, I have often told candidates that every answer is a series of logical steps. You move from Step One to Step Two and so on until you get the correct answer. So, when you miss a question NEVER say that you missed the answer because that is not actually true. Always say that you missed one of the steps in arriving at the answer. Go back and figure out which step you missed and then determine how to get that step right the next time. What you are trying to accomplish is to get all the steps right by yourself. You cannot do that if you don't know which step is tripping you up and how to get that step right the next time you see a question.
Too many candidates don't know how to properly use missed questions because they don't know how to learn from them.
--Isolate the step that you missed.
--Focus on that step and how you can make sure to get it right the next time.
Two good lessons from all the way back in 1999.
(2) - Always remember-if you need to unsubscribe, just scroll to the bottom of this email and you can get right off.
(3) - I got another email last week (I do get lots of emails as you can see) from one of my favorite former students here at the University of Richmond. She asked what I thought was a fundamentally great question: "All of my friends are spending thousands of dollars for a very well-known CPA Review program. They then spend hundreds of hours plowing through hundreds of pages of boring materials and then make in the high 90s. I don't need to make a high score. I'd rather keep my money and make 75."
Okay, I'm biased but I must admit that I don't know why everyone who takes the CPA Exam doesn't think more carefully about the following choice:
99 and money gone or 75 and thousands of dollars of money in my pocket???
I told her the truth: try www.CPAreviewforFREE.com for six weeks and see how you do.
If you pass, keep your money.
If you fail miserably, then spend the money.
Spending the money first makes absolutely no sense.
Repeat after me: spending the money first makes absolutely no sense.
Here's what I would do if it were me:
(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.
Will you pass? I think you've got a great chance. Best of all, it only took you 40 days and you did not spend a penny for review materials. If you failed miserably, the big expensive programs will still be there but spending the money first makes absolutely no sense.
(4) - What an offer!!! Instead of giving a couple of review questions at the end of this lesson as I usually do, I thought I would do something different in this lesson. I gave 30 questions last week as part of a final exam in my introductory financial accounting course here at the University of Richmond.
If you send me a note at Jhoyle@cpareviewforfree.com, I will send you a copy of these 30 questions in a Word file along with explanations of the answers. Yet again, more free stuff from www.CPAreviewforFREE.com. Don't hit reply, you have to drop me an email at Jhoyle@cpareviewforfree.com.
Yes, it is an introductory course so these questions are probably a little bit easier than you would expect to find on the CPA Exam but not a whole lot easier. The CPA Exam stresses the breadth of coverage much more than the depth. Their questions are always more basic than you might expect. So, practicing on basic questions, even at the introductory level can be helpful. Sit down and take 90 minutes to 2 1/2 hours and see how you do. It is excellent practice. The answers are explained in a separate file that I will also send. Even at the introductory level, I would not necessarily expect you to get 100 percent correct. That is not the point of the exercise. The point is to find any holes that you might have in your basic knowledge of financial accounting and then work to get them filled.
Again--from all of us at CPA Review for FREE to all of you around the world: Happy Holidays!!!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Tuesday, December 9, 2008
Times Are Tough But our Course is Still FREE
Lessons from the Rose Bowl
From: Joe
(a)-As always, we love getting notes from folks who are making good use of CPA Review for FREE (www.cpareviewforfree.com). Here is one that came in since my last email lesson:
"I wanted to send you an update on my CPA exam progress: I just received my AUD score this morning -- a 99! I have to once again thank you for your terrific site; I spent hours and hours and hours doing the multiple-choice questions there, which I'm sure helped me to do so well. Thanks again!"
Love such emails (as you can well imagine). However, I will tell you what I have said before: we are not out to get 99s. We are perfectly content for everyone to make 75 and pass. I know that a lot of the huge courses (those that charge thousands of dollars) brag all the time about having a few people make 99. However, that is only a very few people. I am not interested in a few people; I am interested in everyone who uses our site getting a 75. That is our one and only goal: for YOU to make 75 and pass. I am more interested in 100 percent of our customers making 75 than I am in 2 percent making 99.
I am always glad to hear about high scores but I am equally thrilled by every passing score. All you really need to do is pass. Once you pass, no one will ever care about how many points you got.
And, I firmly believe that, if you will work the questions that are available at CPA Review for FREE and take short notes (10 words or less) on each question that you miss, you will have a great chance for success. This is not rocket science or brain surgery. Yes, 99 takes incredible work but you don't need a 99. And, 75 certainly takes a whole lot less work. You can do it!!!!
(b) - If you wish to unsubscribe to our email lessons, just scroll to the bottom of this lesson and click on the appropriate link. It will pull you right off. Don't hurry to leave but please do realize that you can get off at any time that you wish.
(1)-If you are a college football fan, you know that Penn State only lost one (very close) game this year and will be playing in the Rose Bowl against Southern California on January 1. You probably also know that Penn State is coached by the truly legendary Joe Paterno.
I have a poster on the wall of my office (here at the University of Richmond). It has been there now for at least 20 years. It is a wonderful essay written by Joe Paterno that first appeared in the Wall Street Journal two decades ago. Even now, I read this essay about every three months. Paterno is one of the true winners in this world and I have always been fascinated by what true winners have to say. I think you can learn more helpful stuff from true winners than you can from anyone else. Losers tell you how to lose; winners tell you how to win.
There are a number of lines in Paterno's essay that I love but the main one (for me) is:
"The will to win is important, but the will to prepare is vital."
It is a line that-even after 20 years-I think about often. To me, success is all about "the will to prepare."
I have worked with thousands of students and CPA exam candidates over the years and the desire to win and succeed and get rich and famous is almost universal. Heck, who wouldn't want that? If you walk into any group and just ask "how many of you folks want to be successful, want to be winners?" they will practically knock you down as they wave their hands in the air.
Don't let anyone tell you there is a shortage of ambition in the world.
However, from my experience, true success comes from what I call "channeled ambition." That is the deep desire that gives you the strength to get up and do the dull and boring stuff that you have to do in order to be successful. In other words, channeled ambition provides you with the energy needed to prepare yourself for success-not just occasionally but every day. And, that is very tough because preparation can be truly boring so that it can be easy to fall back on shortcuts. We are hyperactive people; we love shortcuts. I'm convinced that most people fool themselves into believing that shortcuts work as well as real preparation (and that just isn't the case). It takes incredible self-discipline to skip the shortcuts and do the preparatory work every day. Do you have channeled ambition?
At this very moment, I am giving a final exam to my Intermediate Accounting II class. It is an extremely hard course covering deferred taxes, defined benefit pension plans, capital leases, earnings per share, statement of cash flows, contingencies, bonds, and the like. I was talking before the test with one of my students who really wants to improve her grade. I knew she had been working quite hard for this exam because I had gotten a number of questions by email from her over the week-end. I asked her how many hours she had studied for this one test. Her response was quick: about 30. Most students simply don't have the self-discipline to study 30 hours for one college test. I don't know how she will do but she has put herself into position where she can do well. That is what I want when the test starts-for her to be in position to do well. Without proper preparation, it is almost impossible to work those intermediate accounting questions. With preparation, she
has a great chance to earn a better grade. There are no guarantees but she has a good shot.
Whether it is Intermediate Accounting II or the CPA Exam or just life in general, there is little advice that can be better than what Joe Paterno wrote in the Wall Street Journal about 20 years ago:
"The will to win is important, but the will to prepare is vital."
If you would like to receive an electronic copy of the essay mentioned above by Joe Paterno, hit reply and we'll send it to you. As I said, if you want be a winner, it is good to get advice from true winners.
(2)-I started reading a new book Sunday on increasing personal energy. I am one of these people who is constantly trying to accomplish more every day so I'm always searching for new ways to have more energy. I work many days from 7:30 in the morning until 10:00 at night so I seem to be in need of an energy boost every single day. I am almost obsessed with being as productive as possible so I'm always looking for ways to increase my level of energy.
I don't know if this book will turn out to be any good but I was intrigued at the start when the author began talking about those people and jobs around us that zap our energy-those things that seem to suck our energy right out of our bodies. I think her point is going to be to identify those sources of negative energy and then work to avoid them as much as possible.
Preparing for the CPA Exam takes incredible energy because most people also have jobs, families, homes, and friends that require a lot of them. On top of that, add in hundreds of hours of study and it becomes a trying task. Life gets in the way. I get a lot of emails that begin "I've become totally worn down from preparing for the CPA Exam." I understand. It is not a task to be taken lightly. Adding this type of work load into an already busy existence can stretch us all to the breaking point. I actually think that passing the exam (with a program like CPA Review for FREE) is quite workable IF you can dig up the energy to answer the questions and take the notes. However, life often pulls at us from all sides.
So, if you are feeling a bit overwhelmed by your preparation for the CPA Exam at the moment, here is a quick suggestion. Look around at the people you meet and the things you do each day and try to figure out whether there are any sources of negative energy that you can eliminate-at least temporarily until you are through with the exam. If you have people around you who whine a lot or who want you to go partying every night, maybe you can set them aside for a few months. If you have tasks that don't seem to accomplish anything other than tiring you out, maybe you can defer them for awhile.
People often talk about simplifying their lives. When you are preparing for the CPA Exam, it is a great idea to simplify your life. Look around for anything that seems to suck the energy from you and GET RID OF IT!!! If there was ever a time when you only want positive energy, it is in this time when you are getting yourself ready to pass the CPA Exam.
Simplify your life - throw out all sources of negative energy.
(3) -- Because we are in the midst of final exams, I have been busily writing questions for my students. Here are a few questions (and answers) that might help you gain a point or two on the CPA Exam. Remember my rules for preparation:
--When practicing on questions, never guess. If you don't know the answer, you don't know the answer.
--If you get a question right, move on. You know it. Don't waste time celebrating.
--If you cannot get a question right, read the answer very carefully. Then, take 10 words or less of notes to help you get the question right the next time.
Financial Accounting & Reporting
Elijah Corporation begins the current year with inventory costing $400,000. During the year, the company buys another $1.8 million in merchandise and makes sales of $2.4 million. A physical inventory at the end of the year uncovers goods with a cost of $600,000. What is this company's inventory turnover for the year?
A - 3.2
B - 3.6
C - 4.2
D - 4.8
Answer is A
Inventory turnover is the cost of goods sold for the period divided by the average inventory balance. It reflects the number of times during the year that an amount equal to the inventory on hand is sold. It is a measure of the speed at which companies sell their merchandise. Here, average inventory is $500,000. That is the beginning inventory of $400,000 plus the ending inventory of $600,000 divided by two. Cost of goods sold is $1.6 million. That is the beginning inventory ($400,000) plus purchases ($1.8 million) less ending inventory ($600,000). Therefore, inventory turnover is $1.6 million divided by $500,000 or 3.2.
Regulation
Winston Albertson is an attorney who performs legal services for H & A Partnership during the current year. Near the end of the year, Albertson presents an invoice to H & A for $60,000 but offers to accept an immediate cash payment of $52,000. He is offered an 8 percent interest in the partnership which has a value of $44,000 as payment in full. He accepts the offer. What is the impact on his taxable income for that year?
A - Zero
B - $44,000
C - $52,000
D - $60,000
Answer is B
When work is done and an asset is received as payment other than cash, the assumption is that the fair value of this asset has been earned. Here, the fair value of the interest in the partnership is $44,000 and that should be recognized as taxable income by the taxpayer.
Auditing and Attestation
The CPA firm of Ambrose and Albert has been associated with the unaudited financial statements of Lakeside Corporation. The firm plans to issue a disclaimer because no audit procedures of any type were performed. However, the partner on the engagement realizes that Lakeside has omitted all income tax balances although a material amount is owed at the end of the current year. How does this knowledge impact the report to be issued?
A - An adverse opinion must be rendered because of the omission.
B - A qualified opinion must be render because of the omission.
C - The nature and extent of the problem must be described in the report and then a disclaimer is rendered.
D - As long as the statements are clearly marked as unaudited, no change need be made in the disclaimer of opinion.
Answer is C
Whenever a CPA is aware of a material problem in a set of financial statements, that problem must be clearly identified even if there is no audit and a disclaimer is to be rendered. Because an audit has not been performed, no opinion can be given. However, before disclaiming an opinion, the CPA is obligated to spell out all of the known information about the problem in connection with the reporting of income taxes.
Business Environment and Concepts
The Hadley Company produces widgets which are seasonal products. Therefore, the company produces 10,000 units per month for the first six months of the year (January through June) and then 30,000 units per month for the last six months of the year (July through December). It takes three pounds of product XYZ to produce one widget. The company plans to start each month with enough of product XYZ for the next two months so that shortages are avoided. How much product XYZ should the company plan to acquire during the month of May?
A - 20,000 pounds
B - 30,000 pounds
C - 60,000 pounds
D - 90,000 pounds
Answer is D
The company starts May expecting to make 20,000 units over the next two months (10,000 in May and 10,000 in June). Thus, 60,000 pounds of material (at three pounds per unit) should be on hand to make those units. During May, 10,000 units will be produced and use up 30,000 pounds of the material, leaving 30,000 pounds on hand. At the beginning of June, the company anticipates making 40,000 units over the subsequent two months (10,000 in June and 30,000 in July). On that date, the company wants to hold 120,000 pounds of material (at three pounds per widget). To raise the quantity of material from 30,000 pounds to the desired 120,000 pounds as of the beginning of June, an additional 90,000 must be bought during May.
Have a great week. Have controlled ambition so that you can do the preparation necessary to get the CPA Exam passed and out of your way.
Remember to let us know if you want to see a copy of the Joe Paterno essay.
From: Joe
(a)-As always, we love getting notes from folks who are making good use of CPA Review for FREE (www.cpareviewforfree.com). Here is one that came in since my last email lesson:
"I wanted to send you an update on my CPA exam progress: I just received my AUD score this morning -- a 99! I have to once again thank you for your terrific site; I spent hours and hours and hours doing the multiple-choice questions there, which I'm sure helped me to do so well. Thanks again!"
Love such emails (as you can well imagine). However, I will tell you what I have said before: we are not out to get 99s. We are perfectly content for everyone to make 75 and pass. I know that a lot of the huge courses (those that charge thousands of dollars) brag all the time about having a few people make 99. However, that is only a very few people. I am not interested in a few people; I am interested in everyone who uses our site getting a 75. That is our one and only goal: for YOU to make 75 and pass. I am more interested in 100 percent of our customers making 75 than I am in 2 percent making 99.
I am always glad to hear about high scores but I am equally thrilled by every passing score. All you really need to do is pass. Once you pass, no one will ever care about how many points you got.
And, I firmly believe that, if you will work the questions that are available at CPA Review for FREE and take short notes (10 words or less) on each question that you miss, you will have a great chance for success. This is not rocket science or brain surgery. Yes, 99 takes incredible work but you don't need a 99. And, 75 certainly takes a whole lot less work. You can do it!!!!
(b) - If you wish to unsubscribe to our email lessons, just scroll to the bottom of this lesson and click on the appropriate link. It will pull you right off. Don't hurry to leave but please do realize that you can get off at any time that you wish.
(1)-If you are a college football fan, you know that Penn State only lost one (very close) game this year and will be playing in the Rose Bowl against Southern California on January 1. You probably also know that Penn State is coached by the truly legendary Joe Paterno.
I have a poster on the wall of my office (here at the University of Richmond). It has been there now for at least 20 years. It is a wonderful essay written by Joe Paterno that first appeared in the Wall Street Journal two decades ago. Even now, I read this essay about every three months. Paterno is one of the true winners in this world and I have always been fascinated by what true winners have to say. I think you can learn more helpful stuff from true winners than you can from anyone else. Losers tell you how to lose; winners tell you how to win.
There are a number of lines in Paterno's essay that I love but the main one (for me) is:
"The will to win is important, but the will to prepare is vital."
It is a line that-even after 20 years-I think about often. To me, success is all about "the will to prepare."
I have worked with thousands of students and CPA exam candidates over the years and the desire to win and succeed and get rich and famous is almost universal. Heck, who wouldn't want that? If you walk into any group and just ask "how many of you folks want to be successful, want to be winners?" they will practically knock you down as they wave their hands in the air.
Don't let anyone tell you there is a shortage of ambition in the world.
However, from my experience, true success comes from what I call "channeled ambition." That is the deep desire that gives you the strength to get up and do the dull and boring stuff that you have to do in order to be successful. In other words, channeled ambition provides you with the energy needed to prepare yourself for success-not just occasionally but every day. And, that is very tough because preparation can be truly boring so that it can be easy to fall back on shortcuts. We are hyperactive people; we love shortcuts. I'm convinced that most people fool themselves into believing that shortcuts work as well as real preparation (and that just isn't the case). It takes incredible self-discipline to skip the shortcuts and do the preparatory work every day. Do you have channeled ambition?
At this very moment, I am giving a final exam to my Intermediate Accounting II class. It is an extremely hard course covering deferred taxes, defined benefit pension plans, capital leases, earnings per share, statement of cash flows, contingencies, bonds, and the like. I was talking before the test with one of my students who really wants to improve her grade. I knew she had been working quite hard for this exam because I had gotten a number of questions by email from her over the week-end. I asked her how many hours she had studied for this one test. Her response was quick: about 30. Most students simply don't have the self-discipline to study 30 hours for one college test. I don't know how she will do but she has put herself into position where she can do well. That is what I want when the test starts-for her to be in position to do well. Without proper preparation, it is almost impossible to work those intermediate accounting questions. With preparation, she
has a great chance to earn a better grade. There are no guarantees but she has a good shot.
Whether it is Intermediate Accounting II or the CPA Exam or just life in general, there is little advice that can be better than what Joe Paterno wrote in the Wall Street Journal about 20 years ago:
"The will to win is important, but the will to prepare is vital."
If you would like to receive an electronic copy of the essay mentioned above by Joe Paterno, hit reply and we'll send it to you. As I said, if you want be a winner, it is good to get advice from true winners.
(2)-I started reading a new book Sunday on increasing personal energy. I am one of these people who is constantly trying to accomplish more every day so I'm always searching for new ways to have more energy. I work many days from 7:30 in the morning until 10:00 at night so I seem to be in need of an energy boost every single day. I am almost obsessed with being as productive as possible so I'm always looking for ways to increase my level of energy.
I don't know if this book will turn out to be any good but I was intrigued at the start when the author began talking about those people and jobs around us that zap our energy-those things that seem to suck our energy right out of our bodies. I think her point is going to be to identify those sources of negative energy and then work to avoid them as much as possible.
Preparing for the CPA Exam takes incredible energy because most people also have jobs, families, homes, and friends that require a lot of them. On top of that, add in hundreds of hours of study and it becomes a trying task. Life gets in the way. I get a lot of emails that begin "I've become totally worn down from preparing for the CPA Exam." I understand. It is not a task to be taken lightly. Adding this type of work load into an already busy existence can stretch us all to the breaking point. I actually think that passing the exam (with a program like CPA Review for FREE) is quite workable IF you can dig up the energy to answer the questions and take the notes. However, life often pulls at us from all sides.
So, if you are feeling a bit overwhelmed by your preparation for the CPA Exam at the moment, here is a quick suggestion. Look around at the people you meet and the things you do each day and try to figure out whether there are any sources of negative energy that you can eliminate-at least temporarily until you are through with the exam. If you have people around you who whine a lot or who want you to go partying every night, maybe you can set them aside for a few months. If you have tasks that don't seem to accomplish anything other than tiring you out, maybe you can defer them for awhile.
People often talk about simplifying their lives. When you are preparing for the CPA Exam, it is a great idea to simplify your life. Look around for anything that seems to suck the energy from you and GET RID OF IT!!! If there was ever a time when you only want positive energy, it is in this time when you are getting yourself ready to pass the CPA Exam.
Simplify your life - throw out all sources of negative energy.
(3) -- Because we are in the midst of final exams, I have been busily writing questions for my students. Here are a few questions (and answers) that might help you gain a point or two on the CPA Exam. Remember my rules for preparation:
--When practicing on questions, never guess. If you don't know the answer, you don't know the answer.
--If you get a question right, move on. You know it. Don't waste time celebrating.
--If you cannot get a question right, read the answer very carefully. Then, take 10 words or less of notes to help you get the question right the next time.
Financial Accounting & Reporting
Elijah Corporation begins the current year with inventory costing $400,000. During the year, the company buys another $1.8 million in merchandise and makes sales of $2.4 million. A physical inventory at the end of the year uncovers goods with a cost of $600,000. What is this company's inventory turnover for the year?
A - 3.2
B - 3.6
C - 4.2
D - 4.8
Answer is A
Inventory turnover is the cost of goods sold for the period divided by the average inventory balance. It reflects the number of times during the year that an amount equal to the inventory on hand is sold. It is a measure of the speed at which companies sell their merchandise. Here, average inventory is $500,000. That is the beginning inventory of $400,000 plus the ending inventory of $600,000 divided by two. Cost of goods sold is $1.6 million. That is the beginning inventory ($400,000) plus purchases ($1.8 million) less ending inventory ($600,000). Therefore, inventory turnover is $1.6 million divided by $500,000 or 3.2.
Regulation
Winston Albertson is an attorney who performs legal services for H & A Partnership during the current year. Near the end of the year, Albertson presents an invoice to H & A for $60,000 but offers to accept an immediate cash payment of $52,000. He is offered an 8 percent interest in the partnership which has a value of $44,000 as payment in full. He accepts the offer. What is the impact on his taxable income for that year?
A - Zero
B - $44,000
C - $52,000
D - $60,000
Answer is B
When work is done and an asset is received as payment other than cash, the assumption is that the fair value of this asset has been earned. Here, the fair value of the interest in the partnership is $44,000 and that should be recognized as taxable income by the taxpayer.
Auditing and Attestation
The CPA firm of Ambrose and Albert has been associated with the unaudited financial statements of Lakeside Corporation. The firm plans to issue a disclaimer because no audit procedures of any type were performed. However, the partner on the engagement realizes that Lakeside has omitted all income tax balances although a material amount is owed at the end of the current year. How does this knowledge impact the report to be issued?
A - An adverse opinion must be rendered because of the omission.
B - A qualified opinion must be render because of the omission.
C - The nature and extent of the problem must be described in the report and then a disclaimer is rendered.
D - As long as the statements are clearly marked as unaudited, no change need be made in the disclaimer of opinion.
Answer is C
Whenever a CPA is aware of a material problem in a set of financial statements, that problem must be clearly identified even if there is no audit and a disclaimer is to be rendered. Because an audit has not been performed, no opinion can be given. However, before disclaiming an opinion, the CPA is obligated to spell out all of the known information about the problem in connection with the reporting of income taxes.
Business Environment and Concepts
The Hadley Company produces widgets which are seasonal products. Therefore, the company produces 10,000 units per month for the first six months of the year (January through June) and then 30,000 units per month for the last six months of the year (July through December). It takes three pounds of product XYZ to produce one widget. The company plans to start each month with enough of product XYZ for the next two months so that shortages are avoided. How much product XYZ should the company plan to acquire during the month of May?
A - 20,000 pounds
B - 30,000 pounds
C - 60,000 pounds
D - 90,000 pounds
Answer is D
The company starts May expecting to make 20,000 units over the next two months (10,000 in May and 10,000 in June). Thus, 60,000 pounds of material (at three pounds per unit) should be on hand to make those units. During May, 10,000 units will be produced and use up 30,000 pounds of the material, leaving 30,000 pounds on hand. At the beginning of June, the company anticipates making 40,000 units over the subsequent two months (10,000 in June and 30,000 in July). On that date, the company wants to hold 120,000 pounds of material (at three pounds per widget). To raise the quantity of material from 30,000 pounds to the desired 120,000 pounds as of the beginning of June, an additional 90,000 must be bought during May.
Have a great week. Have controlled ambition so that you can do the preparation necessary to get the CPA Exam passed and out of your way.
Remember to let us know if you want to see a copy of the Joe Paterno essay.
Wednesday, November 19, 2008
You Cannot Beat FREE FREE FREE
Home Runs Just Take Preparation
From: Joe
(a)-Greetings from Richmond, Virginia, where we actually had a little snow Tuesday morning. It looked beautiful and did not freeze on the road-the best of all situations.
(b) -All of us here at www.CPAreviewforFREE.com are celebrating. After a few short weeks in business, we will be going over one million (1,000,000!!!) page views in the next day or two. With no marketing, we have hit a million page views. The Internet is wonderful. Thanks to everyone who has passed our URL along to CPA candidates and college accounting students. On to a billion!!!!
(1)-Let me make a personal suggestion. A lot of times when people are preparing for the CPA Exam, they become somewhat self-centered. You have to devote so much time and energy to preparing that it is easy to only think about what you are going through.
It is not a bad idea to break out of that cocoon.
If you know someone else who is preparing for the exam or someone else who is facing a real challenge in the near future or someone else who is simply struggling in some way, take a moment and call them or send them an email or a card and tell them "I know you can do it. I understand that the challenges are tough, but I'm cheering for you. I know you are a winner and you are going to come out ahead."
We get so wrapped up in our own struggles some time that we forget about the needs of those other people who are around us. Yeah, it is great to have everyone cheering you on; it is almost addictive to have people pushing you to succeed. But, even if you are busy studying for the CPA Exam, there has to be a free moment where you can encourage someone else.
For today, you be the one who provides the encouragement. I think you will feel a whole lot better about your own challenges if you reach out to boost the spirits of someone else. If you want more energy and hope in your own life, give a push and a word of hope to someone else.
(2)-A good friend of mine sent me an email on Sunday wanting to meet for lunch this past Monday. We met and he told me that he had reached the point where he really needed to pass the CPA Exam because of his job. He immediately started the litany that I hear so often "I know it is going to cost me a lot of money but I need lots of material and lots of structure and lots of help." I sometimes think that candidates are hoping to pass based on the number of pounds of material they buy or the number of hours of class they sleep through. It was almost as if he were telling me: "surely, if I buy enough and waste enough money, I will pass that exam."
Before the exam became computerized, it was only offered two times per year and every candidate had to make the very best of that opportunity. There was no Spring Training to help you get a sense of where you were in your ability to pass.
Now, however, you can take each part four times per year.
--Why spend any money until you know you have to????
I'll repeat that:
--Why spend any money until you know you have to????
Here's what I told my friend (this is a true story-we were having turkey sandwiches at Stuffy's Deli on Libbie Avenue about 2 miles from the University of Richmond campus).
--Pick your favorite part of the exam.
--Schedule to take that part in the first week of January.
--Go to the "resources" section of CPAreviewforFREE and read all of that information.
--Start answering questions on CPAreviewforFREE. Answer 15-20 questions per day, five or six days per week. You'll probably have to spend 60-90 minutes each time.
--Never guess at an answer (guess on the exam but not when you are learning the material).
--Keep a pad of paper beside of the computer. Whenever you miss a question, write down 10 words (no more) that will help you get the question right the next time.
--Try to have every question on the site done 10 days before you are to take the exam.
--Use the last 10 days to review your notes and the topical areas where you missed the most questions.
--As soon as you finish the first exam, schedule the second one for the third week in February and do the process over again.
When the scores come out,
--if you made below 60, you may well need a more formal review program. You may have to spend the money.
--if you made between 60-65, you might need a program but I think I'd give CPAreviewforFREE one more push in April to save the money. You are close.
--if you made between 65-74, you should be able to pass with more strong push using CPAreviewforFREE. Save your money. You are very close; do the process again but focus more carefully on the ones you miss.
--if you made 75 or above, take all the money you just saved and book a nice vacation.
Why not try CPAreviewforFREE first before you spend all that money? I think my mother would have said "what kind of person wouldn't try free first before spending a whole bunch of money?"
(3)-If you need to unsubscribe, always remember that you merely need to scroll to the bottom of this email and click on the appropriate link. We love having you with us. We love talking with you about the CPA Exam and success. However, if you need to leave us, just click and your name will be removed.
If this lesson has been forwarded to you by a friend, relative, or complete stranger and you would like to get them automatically every week or two, go to www.CPAreviewforFREE.com and register and make sure to check the box that asks if you want to receive CPA Exam Review materials.
(4)-Back when I was a kid, one of my favorite baseball players was Roger Maris. He was the guy who broke Babe Ruth's home run record by hitting 61 home runs in 1961. What I liked about him was that he was not the biggest guy or the strongest guy or the fastest guy or the most talented guy. But he broke the record. He was the one who did it. Athletes always seemed to be giants compared to "normal" people but Maris just seemed like a normal guy. Everyone wanted to break Ruth's record but it was the "normal" guy who first did it.
Maris is dead now but I read a magazine article about him a few years back and they had this great quote from him: "You hit home runs not by chance but by preparation." As an educator, I wish I could write that line across the forehead of my students. I am not sure what happens in the education system but students do not equate preparation with academic success. I am giving an intermediate accounting test on Friday on pensions, deferred taxes, and compensatory stock options. I guarantee that the people who make the highest grades will be the people who have prepared the most since the previous test. It's almost automatic.
Knowing that, you would think the students would have competitions to see who could prepare the most. Instead, they have a tendency to look for shortcuts; they have a tendency to procrastinate; they have a tendency to wait for miracles. Miracles don't often happen (especially not in intermediate accounting or the CPA Exam). Preparation is the key to academic success.
As I have said many times before, I've been in CPA Review since 1980 and I've never met anyone who couldn't pass the CPA Exam. It is easier than most people think. However, I have encountered people who seemed incapable of preparing. They were the ones who struggled. They always had to mow the grass first or pay their bills. They had to get their desk clear and their problems solved and then (and only then) they were going to prepare.
Trust me, the small chores in life can eat up 100 percent of your time. It is not the difficulty of the CPA Exam that keeps you from passing but the small chores that keep you from proper preparation.
Make preparing for the CPA Exam and absolute top-of-the-list priority in your life and you are half way to success. If it is anything but one of your truly highest priorities, passing quickly becomes impossible.
(5) - Here are a few practice questions just for you.
Regulation
John Doe gambles during the year and has gambling winnings of $13,000. In addition, he also has gambling losses of $15,000. How is this reported for federal income tax purposes?
A - The $13,000 is taxable income and $13,000 is a miscellaneous itemized deduction.
B - The $13,000 and $15,000 are netted and a $2,000 loss is reported under miscellaneous income.
C - The $13,000 is taxable income and the $15,000 is an itemized deduction.
D - The $13,000 is taxable income and the amount of the $15,000 in excess of 2 percent of John Doe's adjusted gross income is a miscellaneous itemized deduction.
Answer is A
Tax winnings are included as taxable income on a federal income tax return. The losses can be deducted as a miscellaneous itemized deduction but only up to the amount of the winnings. Therefore, although $15,000 was lost, only the first $13,000 can be taken because that is the amount of the taxpayer's winnings.
Financial Accounting & Reporting
On January 1, Year One, the Waxman Company issues 10,000 stock options to its president. Stock can be bought for $25 per share but only if the president works with the company for four years. She then has two additional years in which to exercise the options. The price of the stock is $29 on January 1 but climbs to $37 on December 31, Year One. A computer pricing model values the option at $8 on January 1, Year One, and at $16 on December 31, Year One. If this is a compensatory stock option, what expense should the company recognize for Year One?
A - Zero
B - $10,000
C - $20,000
D - $40,000
Answer is C
The value of compensatory stock options is determined on the grant date by a computer pricing model such as Black-Scholes. That total expense is then allocated over the years which the person must work to earn the options. The value of the options on the grant date is $8 times 10,000 or $80,000. The person must work for four years so the expense is $20,000 each year.
Auditing & Attestation
An independent CPA is assessing the level of control risk present at a company that is currently being audited. This company has an internal audit department and the independent CPA is evaluating the objectivity of that department. Which of the following is a sign that the department has proper objectivity?
A - The size of the department has grown from 7 people to 19 over the last three years.
B - In order to be promoted within this department, the employee must have become a CPA.
C - The head of the department meets privately with the chair of the board of directors each quarter.
D - The head of the department had seven years of experience with an international accounting firm before taking this position with the company.
Answer is C
The independent CPA is interested in both the competence and objectivity of the internal audit department because of the key function that it plays in the company. Answers A, B, and D all relate to competence. These relate to the question: Is there evidence that the people doing the work are capable of doing it properly? Objectivity concerns the internal auditor's independence so that the department can do the work that is necessary. That is usually shown by having a direct line of communication to an authority figure outside of management (usually the board of directors or the audit committee of the board of directors).
BEC
A company uses computer processing to calculate and print out employee paychecks each period. The company is worried that data will be entered into the system incorrectly so that one or more paychecks will be overstated as a means of stealing money from the company. Which of the following is most likely to detect such fraud?
A - Control totals are calculated for significant figures.
B - All paychecks must be hand delivered to the employee by a paymaster.
C - A system is devised so that employees who are overpaid can file a form to reimburse the company.
D - Checks that are not picked up by an employee are given to a person in authority to uncover the reason
Answer is A
Companies worry that numbers such as hours worked or pay rates will be increased in a scheme so that employees can steal money. For example, if 50 hours is entered rather than 40 hours for an employee, that person will get 25 percent more than has been earned. Thus, company officials determine control figures before computations are made and then verify those totals after the computations are made to ensure that no unauthorized changes have been made. Answers B and D are important controls but they are verifying that paychecks are written to actual employees rather than that the amounts have not been manipulated.
Have a great week - as we all move toward Thanksgiving, take a moment to count your blessings. The list will be longer than you might expect.
From: Joe
(a)-Greetings from Richmond, Virginia, where we actually had a little snow Tuesday morning. It looked beautiful and did not freeze on the road-the best of all situations.
(b) -All of us here at www.CPAreviewforFREE.com are celebrating. After a few short weeks in business, we will be going over one million (1,000,000!!!) page views in the next day or two. With no marketing, we have hit a million page views. The Internet is wonderful. Thanks to everyone who has passed our URL along to CPA candidates and college accounting students. On to a billion!!!!
(1)-Let me make a personal suggestion. A lot of times when people are preparing for the CPA Exam, they become somewhat self-centered. You have to devote so much time and energy to preparing that it is easy to only think about what you are going through.
It is not a bad idea to break out of that cocoon.
If you know someone else who is preparing for the exam or someone else who is facing a real challenge in the near future or someone else who is simply struggling in some way, take a moment and call them or send them an email or a card and tell them "I know you can do it. I understand that the challenges are tough, but I'm cheering for you. I know you are a winner and you are going to come out ahead."
We get so wrapped up in our own struggles some time that we forget about the needs of those other people who are around us. Yeah, it is great to have everyone cheering you on; it is almost addictive to have people pushing you to succeed. But, even if you are busy studying for the CPA Exam, there has to be a free moment where you can encourage someone else.
For today, you be the one who provides the encouragement. I think you will feel a whole lot better about your own challenges if you reach out to boost the spirits of someone else. If you want more energy and hope in your own life, give a push and a word of hope to someone else.
(2)-A good friend of mine sent me an email on Sunday wanting to meet for lunch this past Monday. We met and he told me that he had reached the point where he really needed to pass the CPA Exam because of his job. He immediately started the litany that I hear so often "I know it is going to cost me a lot of money but I need lots of material and lots of structure and lots of help." I sometimes think that candidates are hoping to pass based on the number of pounds of material they buy or the number of hours of class they sleep through. It was almost as if he were telling me: "surely, if I buy enough and waste enough money, I will pass that exam."
Before the exam became computerized, it was only offered two times per year and every candidate had to make the very best of that opportunity. There was no Spring Training to help you get a sense of where you were in your ability to pass.
Now, however, you can take each part four times per year.
--Why spend any money until you know you have to????
I'll repeat that:
--Why spend any money until you know you have to????
Here's what I told my friend (this is a true story-we were having turkey sandwiches at Stuffy's Deli on Libbie Avenue about 2 miles from the University of Richmond campus).
--Pick your favorite part of the exam.
--Schedule to take that part in the first week of January.
--Go to the "resources" section of CPAreviewforFREE and read all of that information.
--Start answering questions on CPAreviewforFREE. Answer 15-20 questions per day, five or six days per week. You'll probably have to spend 60-90 minutes each time.
--Never guess at an answer (guess on the exam but not when you are learning the material).
--Keep a pad of paper beside of the computer. Whenever you miss a question, write down 10 words (no more) that will help you get the question right the next time.
--Try to have every question on the site done 10 days before you are to take the exam.
--Use the last 10 days to review your notes and the topical areas where you missed the most questions.
--As soon as you finish the first exam, schedule the second one for the third week in February and do the process over again.
When the scores come out,
--if you made below 60, you may well need a more formal review program. You may have to spend the money.
--if you made between 60-65, you might need a program but I think I'd give CPAreviewforFREE one more push in April to save the money. You are close.
--if you made between 65-74, you should be able to pass with more strong push using CPAreviewforFREE. Save your money. You are very close; do the process again but focus more carefully on the ones you miss.
--if you made 75 or above, take all the money you just saved and book a nice vacation.
Why not try CPAreviewforFREE first before you spend all that money? I think my mother would have said "what kind of person wouldn't try free first before spending a whole bunch of money?"
(3)-If you need to unsubscribe, always remember that you merely need to scroll to the bottom of this email and click on the appropriate link. We love having you with us. We love talking with you about the CPA Exam and success. However, if you need to leave us, just click and your name will be removed.
If this lesson has been forwarded to you by a friend, relative, or complete stranger and you would like to get them automatically every week or two, go to www.CPAreviewforFREE.com and register and make sure to check the box that asks if you want to receive CPA Exam Review materials.
(4)-Back when I was a kid, one of my favorite baseball players was Roger Maris. He was the guy who broke Babe Ruth's home run record by hitting 61 home runs in 1961. What I liked about him was that he was not the biggest guy or the strongest guy or the fastest guy or the most talented guy. But he broke the record. He was the one who did it. Athletes always seemed to be giants compared to "normal" people but Maris just seemed like a normal guy. Everyone wanted to break Ruth's record but it was the "normal" guy who first did it.
Maris is dead now but I read a magazine article about him a few years back and they had this great quote from him: "You hit home runs not by chance but by preparation." As an educator, I wish I could write that line across the forehead of my students. I am not sure what happens in the education system but students do not equate preparation with academic success. I am giving an intermediate accounting test on Friday on pensions, deferred taxes, and compensatory stock options. I guarantee that the people who make the highest grades will be the people who have prepared the most since the previous test. It's almost automatic.
Knowing that, you would think the students would have competitions to see who could prepare the most. Instead, they have a tendency to look for shortcuts; they have a tendency to procrastinate; they have a tendency to wait for miracles. Miracles don't often happen (especially not in intermediate accounting or the CPA Exam). Preparation is the key to academic success.
As I have said many times before, I've been in CPA Review since 1980 and I've never met anyone who couldn't pass the CPA Exam. It is easier than most people think. However, I have encountered people who seemed incapable of preparing. They were the ones who struggled. They always had to mow the grass first or pay their bills. They had to get their desk clear and their problems solved and then (and only then) they were going to prepare.
Trust me, the small chores in life can eat up 100 percent of your time. It is not the difficulty of the CPA Exam that keeps you from passing but the small chores that keep you from proper preparation.
Make preparing for the CPA Exam and absolute top-of-the-list priority in your life and you are half way to success. If it is anything but one of your truly highest priorities, passing quickly becomes impossible.
(5) - Here are a few practice questions just for you.
Regulation
John Doe gambles during the year and has gambling winnings of $13,000. In addition, he also has gambling losses of $15,000. How is this reported for federal income tax purposes?
A - The $13,000 is taxable income and $13,000 is a miscellaneous itemized deduction.
B - The $13,000 and $15,000 are netted and a $2,000 loss is reported under miscellaneous income.
C - The $13,000 is taxable income and the $15,000 is an itemized deduction.
D - The $13,000 is taxable income and the amount of the $15,000 in excess of 2 percent of John Doe's adjusted gross income is a miscellaneous itemized deduction.
Answer is A
Tax winnings are included as taxable income on a federal income tax return. The losses can be deducted as a miscellaneous itemized deduction but only up to the amount of the winnings. Therefore, although $15,000 was lost, only the first $13,000 can be taken because that is the amount of the taxpayer's winnings.
Financial Accounting & Reporting
On January 1, Year One, the Waxman Company issues 10,000 stock options to its president. Stock can be bought for $25 per share but only if the president works with the company for four years. She then has two additional years in which to exercise the options. The price of the stock is $29 on January 1 but climbs to $37 on December 31, Year One. A computer pricing model values the option at $8 on January 1, Year One, and at $16 on December 31, Year One. If this is a compensatory stock option, what expense should the company recognize for Year One?
A - Zero
B - $10,000
C - $20,000
D - $40,000
Answer is C
The value of compensatory stock options is determined on the grant date by a computer pricing model such as Black-Scholes. That total expense is then allocated over the years which the person must work to earn the options. The value of the options on the grant date is $8 times 10,000 or $80,000. The person must work for four years so the expense is $20,000 each year.
Auditing & Attestation
An independent CPA is assessing the level of control risk present at a company that is currently being audited. This company has an internal audit department and the independent CPA is evaluating the objectivity of that department. Which of the following is a sign that the department has proper objectivity?
A - The size of the department has grown from 7 people to 19 over the last three years.
B - In order to be promoted within this department, the employee must have become a CPA.
C - The head of the department meets privately with the chair of the board of directors each quarter.
D - The head of the department had seven years of experience with an international accounting firm before taking this position with the company.
Answer is C
The independent CPA is interested in both the competence and objectivity of the internal audit department because of the key function that it plays in the company. Answers A, B, and D all relate to competence. These relate to the question: Is there evidence that the people doing the work are capable of doing it properly? Objectivity concerns the internal auditor's independence so that the department can do the work that is necessary. That is usually shown by having a direct line of communication to an authority figure outside of management (usually the board of directors or the audit committee of the board of directors).
BEC
A company uses computer processing to calculate and print out employee paychecks each period. The company is worried that data will be entered into the system incorrectly so that one or more paychecks will be overstated as a means of stealing money from the company. Which of the following is most likely to detect such fraud?
A - Control totals are calculated for significant figures.
B - All paychecks must be hand delivered to the employee by a paymaster.
C - A system is devised so that employees who are overpaid can file a form to reimburse the company.
D - Checks that are not picked up by an employee are given to a person in authority to uncover the reason
Answer is A
Companies worry that numbers such as hours worked or pay rates will be increased in a scheme so that employees can steal money. For example, if 50 hours is entered rather than 40 hours for an employee, that person will get 25 percent more than has been earned. Thus, company officials determine control figures before computations are made and then verify those totals after the computations are made to ensure that no unauthorized changes have been made. Answers B and D are important controls but they are verifying that paychecks are written to actual employees rather than that the amounts have not been manipulated.
Have a great week - as we all move toward Thanksgiving, take a moment to count your blessings. The list will be longer than you might expect.
Sunday, November 16, 2008
Don't Just Try--Do It
Lesson 15
Getting Better
From: Joe
(a) - We have hundreds and thousands of new visitors to our site
(www.CPAreviewforFREE.com) each week. So, if you are new, let me make
a couple of suggestions.
--On the homepage, click on "Resources" in the upper-right hand corner.
That will lead you to FAQs and Articles. I really would read all of
that, especially if you are just trying to get started toward passing
the CPA Exam.
--When you register on our site, make sure that the box is checked to
get additional CPA Exam information-that will put you on our list to get
these emails that we send out every week or two.
--Get started. A lot of people spend forever planning and never get
around to starting. The best thing you can do is go to a topic and
immediately start answering questions.
--For every question that you miss, take good notes to help you get the
question correct the next time you see it. You will need some easy and
simple way to review. Efficiency is very important. Keep the notes
short and have them focus on the questions you miss.
(b) - Whenever we start getting close to the end of a testing window, I
am always aware that a lot of people are getting ready to go into the
testing site. GOOD LUCK and always remember the C's:
--Stay calm
--Stay confident
--Maintain concentration
And, although it doesn't start with a C, watch your time very closely.
Finally, remember that you don't have to be perfect. You only have to
score 75 and that doesn't necessarily mean that you even need to get 75
percent of the questions correct because of the way they weight the
questions.
(c) - As always, if you need to unsubscribe, go to the bottom of this
email and click on the appropriate link and it will remove your name.
We love having each of you folks; we like helping people to pass the CPA
Exam but, if you need to leave, you certainly have that right.
(1) - I want you to stop for a moment in your preparation and do
something for me. I want you to think about how well you are preparing
for the CPA Exam. Think about the time you are spending and how well
you are spending those hours. Think about the whole process that you
are going through at the moment.
Now, I want you to rate yourself on a scale of 1 to 10. One being that
you are really not making any progress and ten being that you are
absolutely as efficient as possible. So, let's say you are a 4 or a 7
or a 5. My guess is that you roughly know how well you are doing. Most
people certainly do.
Now, finally, I want you to make a list of the things that you could do
this week to become one point better. Just one point better. In other
words, if you are a 5 as a CPA review student, what would it take to
become a six? What would you have to change to get one point better?
Notice, I'm not asking you to become a ten. I think people mess up by
seeking perfection and then being disappointed when they don't get
there. So, make a list of 3-5 things that you might be able to do that
would move your ranking up one point. I think that is a very makeable
and helpful objective. Getting better.
For example,
--could you add 15 more minutes of study by getting up 15 minutes
earlier in the morning or go to bed 15 minutes later? That alone is
nearly two hours per week.
--could you carry your note cards with you wherever you go so you can
study at free moments during your day?
--could you cut down on the amount of television you watch (or even turn
the television off completely)?
I truly believe that the secret to success is to work to get better but
first you must (a) decide where you are and (b) determine what might
help you get better.
Once you have your list, do them for one week to see what helps and what
doesn't help. Notice that I did not say that you should "try" to do
them. I don't want you to try to do them; I want you to do them. "I'll
try to do them" is code for "I probably won't do them."
I was in an office building last week waiting for a meeting to begin.
On one of the desks was a book of sayings which I picked up and began to
leaf through. It was a book of quotes and the first one that I noticed
was from Yoda, the little character from Star Wars. My first comment to
myself was a cynical one: "Oh great, now I'm getting advice from a
muppet." But here is what Yoda had to say: "Do, or do not. There is
no 'try.'"
That hit home.
I've taught in college now for 38 years. I have had conversations with
thousands of students who were not living up to their potential.
Thinking back, I realize that their normal response is always: "I'll
try to do better."
Trying to do better implies that it is out of your hands.
I'm not asking you to pass the exam; I'm asking you to prepare
better-spend more time, be a little more efficient. Do it - don't try
to do it.
Don't respond with: "I'll try." In fact, don't respond at all. Just
do it!!!!
Your goal for this week is to become one point better in your
preparation for the CPA Exam. Decide what you need to do to make that
happen and then DO IT!!!!
(2) - Here are a couple of quick practice questions that I'm getting
ready to load up on CPA Review for FREE. Remember that we have about
2,000 free (free) questions available for you at
www.cpareviewforfree.com.
Auditing & Attestation
An auditor assesses inherent risk in an engagement. An auditor assesses
control risk in an engagement. Then, based on those two assessments,
the auditor does enough substantive testing to reduce detection risk so
that overall audit risk drops to an acceptably low level. That is the
structure of an audit. In assessing control risk, the auditor starts by
learning the design of the control system and then considers whether to
perform tests of individual controls. If the design of the control
system is viewed as weak, which of the following is most likely to be
true?
A - The auditor will be likely to test the controls because of the
weakness.
B - The auditor is likely to do additional substantive testing.
C - The auditor will likely reduce the assessment of inherent risk.
D - An unqualified opinion cannot be issued.
Answer is B
When the design of internal control is weak, there is no reason to do
any testing of those controls. Properly operating within a weak system
does not make it any less weak. Instead, the auditor will probably
assess control risk as high which is likely to force the auditor to do
additional (or better) substantive testing in order to compensate for
this problem. Detection risk has to be quite low to make up for the
weakness in internal control. The assessment of inherent risk is
independent from the assessment of control risk and is not affected.
Finally, as long as the auditor eventually reduces overall audit risk to
an appropriately low level, an unqualified opinion can be given even
though the control system is weak.
Financial Accounting and Reporting (we are discussing pensions currently
in intermediate accounting).
A company has a defined benefit pension plan. On January 1, Year Ten,
the company amends a contractual provision within the plan. This change
causes the projected benefit obligation to go up by $700,000. At that
time, the vested employees are expected to work another five years on
the average. On the Year Ten financial statements, what is the
reporting of this $700,000 prior service cost?
A - $700,000 is reported within pension expense B - $580,000 is reported
as a pension asset and $120,000 is reported within other accumulated
comprehensive income within stockholders' equity.
C- $700,000 is reported within other accumulated comprehensive income
within stockholders' equity.
D - $580,000 is reported within other accumulated comprehensive income
within stockholders' equity and $120,000 is reported as pension expense.
Answer is D
Prior service cost from amending the contractual provisions of a defined
benefit plan are initially reported within accumulated other
comprehensive income. This amount is gradually moved into pension
expense over the remaining working life of the employees at the date of
amendment. At the end of the first year, $140,000 ($700,000/5 years) is
moved from stockholders' equity to pension expense.
Regulation
Which of the following moving expenses can an individual taxpayer not
take as a deduction to arrive at adjusted gross income?
A - The taxpayer took a job in a city 80 miles away but did not move for
the first 15 months so that her eldest son could graduate from his local
high school.
B - The taxpayer commuted 12 miles to get to his job but took another
job that required a commute of 55 miles so he moved to be closer.
C - The taxpayer moved to take a job in a city 100 miles away but
retired after only working for 42 weeks.
D - The taxpayer took a job in a city 120 miles away and sold his house
to move into an apartment at the new location.
Answer is B
There are several tests that must be met before moving expenses can be
deducted. For example, the taxpayer must normally move within a year of
taking the new job unless circumstances arose that prevent the move in
that time period. The son finishing high school is one of those
circumstances. The taxpayer must also work at least 39 weeks in the
general area of the new location. Moving must be a change in the
taxpayer's main home, which can be a house, apartment, condominium,
houseboat, or the like. Finally, the new job must be a commute of 50 or
more miles farther than the previous commute. In B, the commute is only
43 miles farther (55 miles minus 12 miles) and does not qualify.
BEC
A company started production on 110 widgets. Due to an abnormal loss, 8
of the widgets had to be thrown away after they were finished. Another
12 of the widgets were not complete at the end of the year. These units
were 100 percent complete as to direct materials but only 50 percent
complete as to conversion costs. The company spent $2,200 on direct
materials, $832 on direct labor, and $520 on factory overhead. What
amount of cost was moved into finished goods for the year?
A - $2,970
B - $3,025
C - $3,118
D - $3,234
Answer is A
The company had 110 units: 8 were lost, 12 were not completed, so the
remaining 90 must have been completed. Because the loss of 8 units was
viewed as abnormal, their cost is computed and then moved into a loss
account on the income statement. The number of units of direct material
is 110 (90 completed, 8 lost that were completed, and 12 in-process that
were completed as to direct material). The direct material cost per
unit was $2,200/110 units or $20 each. The number of units of
conversion cost (direct labor and factory overhead) is 104 (90
completed, 8 lost that were completed, and 12 that were 50 percent
complete as to conversion costs). The conversion cost per unit is
$1,352/104 units or $13 each. Because 90 units were completed (and not
lost through an abnormal loss), cost transferred from work-in-process to
finished goods is 90 times $33 ($20 plus $13) or $2,970. (Notice that
you don't have to use either a weighted-average approach or a FIFO
approach because
there is no beginning work-in-process.)
Delighted to have you with us. Work this week on getting better as a
student.
Don't try - do it
Getting Better
From: Joe
(a) - We have hundreds and thousands of new visitors to our site
(www.CPAreviewforFREE.com) each week. So, if you are new, let me make
a couple of suggestions.
--On the homepage, click on "Resources" in the upper-right hand corner.
That will lead you to FAQs and Articles. I really would read all of
that, especially if you are just trying to get started toward passing
the CPA Exam.
--When you register on our site, make sure that the box is checked to
get additional CPA Exam information-that will put you on our list to get
these emails that we send out every week or two.
--Get started. A lot of people spend forever planning and never get
around to starting. The best thing you can do is go to a topic and
immediately start answering questions.
--For every question that you miss, take good notes to help you get the
question correct the next time you see it. You will need some easy and
simple way to review. Efficiency is very important. Keep the notes
short and have them focus on the questions you miss.
(b) - Whenever we start getting close to the end of a testing window, I
am always aware that a lot of people are getting ready to go into the
testing site. GOOD LUCK and always remember the C's:
--Stay calm
--Stay confident
--Maintain concentration
And, although it doesn't start with a C, watch your time very closely.
Finally, remember that you don't have to be perfect. You only have to
score 75 and that doesn't necessarily mean that you even need to get 75
percent of the questions correct because of the way they weight the
questions.
(c) - As always, if you need to unsubscribe, go to the bottom of this
email and click on the appropriate link and it will remove your name.
We love having each of you folks; we like helping people to pass the CPA
Exam but, if you need to leave, you certainly have that right.
(1) - I want you to stop for a moment in your preparation and do
something for me. I want you to think about how well you are preparing
for the CPA Exam. Think about the time you are spending and how well
you are spending those hours. Think about the whole process that you
are going through at the moment.
Now, I want you to rate yourself on a scale of 1 to 10. One being that
you are really not making any progress and ten being that you are
absolutely as efficient as possible. So, let's say you are a 4 or a 7
or a 5. My guess is that you roughly know how well you are doing. Most
people certainly do.
Now, finally, I want you to make a list of the things that you could do
this week to become one point better. Just one point better. In other
words, if you are a 5 as a CPA review student, what would it take to
become a six? What would you have to change to get one point better?
Notice, I'm not asking you to become a ten. I think people mess up by
seeking perfection and then being disappointed when they don't get
there. So, make a list of 3-5 things that you might be able to do that
would move your ranking up one point. I think that is a very makeable
and helpful objective. Getting better.
For example,
--could you add 15 more minutes of study by getting up 15 minutes
earlier in the morning or go to bed 15 minutes later? That alone is
nearly two hours per week.
--could you carry your note cards with you wherever you go so you can
study at free moments during your day?
--could you cut down on the amount of television you watch (or even turn
the television off completely)?
I truly believe that the secret to success is to work to get better but
first you must (a) decide where you are and (b) determine what might
help you get better.
Once you have your list, do them for one week to see what helps and what
doesn't help. Notice that I did not say that you should "try" to do
them. I don't want you to try to do them; I want you to do them. "I'll
try to do them" is code for "I probably won't do them."
I was in an office building last week waiting for a meeting to begin.
On one of the desks was a book of sayings which I picked up and began to
leaf through. It was a book of quotes and the first one that I noticed
was from Yoda, the little character from Star Wars. My first comment to
myself was a cynical one: "Oh great, now I'm getting advice from a
muppet." But here is what Yoda had to say: "Do, or do not. There is
no 'try.'"
That hit home.
I've taught in college now for 38 years. I have had conversations with
thousands of students who were not living up to their potential.
Thinking back, I realize that their normal response is always: "I'll
try to do better."
Trying to do better implies that it is out of your hands.
I'm not asking you to pass the exam; I'm asking you to prepare
better-spend more time, be a little more efficient. Do it - don't try
to do it.
Don't respond with: "I'll try." In fact, don't respond at all. Just
do it!!!!
Your goal for this week is to become one point better in your
preparation for the CPA Exam. Decide what you need to do to make that
happen and then DO IT!!!!
(2) - Here are a couple of quick practice questions that I'm getting
ready to load up on CPA Review for FREE. Remember that we have about
2,000 free (free) questions available for you at
www.cpareviewforfree.com.
Auditing & Attestation
An auditor assesses inherent risk in an engagement. An auditor assesses
control risk in an engagement. Then, based on those two assessments,
the auditor does enough substantive testing to reduce detection risk so
that overall audit risk drops to an acceptably low level. That is the
structure of an audit. In assessing control risk, the auditor starts by
learning the design of the control system and then considers whether to
perform tests of individual controls. If the design of the control
system is viewed as weak, which of the following is most likely to be
true?
A - The auditor will be likely to test the controls because of the
weakness.
B - The auditor is likely to do additional substantive testing.
C - The auditor will likely reduce the assessment of inherent risk.
D - An unqualified opinion cannot be issued.
Answer is B
When the design of internal control is weak, there is no reason to do
any testing of those controls. Properly operating within a weak system
does not make it any less weak. Instead, the auditor will probably
assess control risk as high which is likely to force the auditor to do
additional (or better) substantive testing in order to compensate for
this problem. Detection risk has to be quite low to make up for the
weakness in internal control. The assessment of inherent risk is
independent from the assessment of control risk and is not affected.
Finally, as long as the auditor eventually reduces overall audit risk to
an appropriately low level, an unqualified opinion can be given even
though the control system is weak.
Financial Accounting and Reporting (we are discussing pensions currently
in intermediate accounting).
A company has a defined benefit pension plan. On January 1, Year Ten,
the company amends a contractual provision within the plan. This change
causes the projected benefit obligation to go up by $700,000. At that
time, the vested employees are expected to work another five years on
the average. On the Year Ten financial statements, what is the
reporting of this $700,000 prior service cost?
A - $700,000 is reported within pension expense B - $580,000 is reported
as a pension asset and $120,000 is reported within other accumulated
comprehensive income within stockholders' equity.
C- $700,000 is reported within other accumulated comprehensive income
within stockholders' equity.
D - $580,000 is reported within other accumulated comprehensive income
within stockholders' equity and $120,000 is reported as pension expense.
Answer is D
Prior service cost from amending the contractual provisions of a defined
benefit plan are initially reported within accumulated other
comprehensive income. This amount is gradually moved into pension
expense over the remaining working life of the employees at the date of
amendment. At the end of the first year, $140,000 ($700,000/5 years) is
moved from stockholders' equity to pension expense.
Regulation
Which of the following moving expenses can an individual taxpayer not
take as a deduction to arrive at adjusted gross income?
A - The taxpayer took a job in a city 80 miles away but did not move for
the first 15 months so that her eldest son could graduate from his local
high school.
B - The taxpayer commuted 12 miles to get to his job but took another
job that required a commute of 55 miles so he moved to be closer.
C - The taxpayer moved to take a job in a city 100 miles away but
retired after only working for 42 weeks.
D - The taxpayer took a job in a city 120 miles away and sold his house
to move into an apartment at the new location.
Answer is B
There are several tests that must be met before moving expenses can be
deducted. For example, the taxpayer must normally move within a year of
taking the new job unless circumstances arose that prevent the move in
that time period. The son finishing high school is one of those
circumstances. The taxpayer must also work at least 39 weeks in the
general area of the new location. Moving must be a change in the
taxpayer's main home, which can be a house, apartment, condominium,
houseboat, or the like. Finally, the new job must be a commute of 50 or
more miles farther than the previous commute. In B, the commute is only
43 miles farther (55 miles minus 12 miles) and does not qualify.
BEC
A company started production on 110 widgets. Due to an abnormal loss, 8
of the widgets had to be thrown away after they were finished. Another
12 of the widgets were not complete at the end of the year. These units
were 100 percent complete as to direct materials but only 50 percent
complete as to conversion costs. The company spent $2,200 on direct
materials, $832 on direct labor, and $520 on factory overhead. What
amount of cost was moved into finished goods for the year?
A - $2,970
B - $3,025
C - $3,118
D - $3,234
Answer is A
The company had 110 units: 8 were lost, 12 were not completed, so the
remaining 90 must have been completed. Because the loss of 8 units was
viewed as abnormal, their cost is computed and then moved into a loss
account on the income statement. The number of units of direct material
is 110 (90 completed, 8 lost that were completed, and 12 in-process that
were completed as to direct material). The direct material cost per
unit was $2,200/110 units or $20 each. The number of units of
conversion cost (direct labor and factory overhead) is 104 (90
completed, 8 lost that were completed, and 12 that were 50 percent
complete as to conversion costs). The conversion cost per unit is
$1,352/104 units or $13 each. Because 90 units were completed (and not
lost through an abnormal loss), cost transferred from work-in-process to
finished goods is 90 times $33 ($20 plus $13) or $2,970. (Notice that
you don't have to use either a weighted-average approach or a FIFO
approach because
there is no beginning work-in-process.)
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