Lesson 31
From: Joe
(1) - I know a lot of you have watched my recent "Last Lecture" on YouTube (www.youtube.com/user/UniversityofRichmond). In that lecture, I talk about having a dream. I urge the audience to have a big dream and then to go for it. Don't shoot for mediocre: DREAM BIG. I use, as an example, a former student of mine who set out to be the youngest person in history to climb the tallest mountain in each of the seven continents (known as "the Seven Summits").
What a dream!! Can you imagine? He was about 20 and set out to climb Everest, Kilimanjaro, Elbrus, and all the rest. Win, lose, or draw he tried something that he could talk about for the rest of his life.
I personally believe that you need to have dreams. And, those dreams need to be BIG, dreams that are going to stretch you and make you a better person. I honestly think that it is very difficult to accomplish much in this life without some dreams.
I once dreamed of writing a textbook and I have now had the number one selling Advanced Accounting in the country for quite a number of years.
I once dreamed of starting a CPA Exam review course and I have now started three different programs that have all been successful.
I once dreamed of being a great college teacher and I was named the Virginia Professor of the Year in 2007.
I once dreamed of passing the CPA Exam and I managed to pass the whole thing at one time.
It all starts with a dream. Okay, I have had a number of dreams that I didn't manage to achieve. Life just works like that. You don't win them all. No one ever expects to win them all. But, I am convinced that you are never going to get anywhere in this life without serious dreams.
Passing the CPA Exam starts with a dream. For some, it is just a casual dream "if they will give me 75 points, I'd kind of like to pass." For many others, it is an absolutely serious dream "I'm willing to work as hard as I can to pass that CPA Exam. I want it to help my career and I want it to show myself that I'm as good as anyone. I WANT TO PASS THE CPA EXAM."
How BIG is your dream of passing the CPA Exam?
--If the dream is not very big, it is hard to do the work necessary to pass.
--If the dream is not very big, it is easy to get distracted from studying-night after night.
--If the dream is not very big, it is hard to stay on track when things get tough.
--If the dream is not very big, it is easy to give up when you have a bad day.
Probably ten times a day, you face a choice: do I study for the CPA Exam or do I do something else? How you answer that question probably tells whether you will be successful. How you answer that question probably depends on whether passing the CPA Exam is a true dream and not just a casual desire.
I sometimes think that once people get involved with all of the studying, they lose track of their dreams. Don't ever lose sight of your dream.
If you are tired and beginning to struggle, take some time off and have a serious talk with yourself. What was your dream when you first began? Were you serious about that dream or were you just pretending? Did you seriously want to pass or was it just a whim?
Keeping that dream first and foremost, right in front of you, is always a good strategy from the first day until the last. It is easy to get tired; it is easy to get discouraged. It is easy to choose to do something else. But like climbing a tall mountain, having YOUR dream squarely out in front of you can keep pushing you forward.
Okay, stop for a second. I don't want these email lessons to go in one ear and out the other. I'm not writing these to amuse me.
Take a sheet of paper and start writing down exactly why you want to pass the CPA Exam. Everyone has different reason. What is yours? List out as many as you can. Why is passing the CPA Exam a dream of yours? Don't give me vague reasons-be as specific and as honest as you can. List out all the reasons that apply to you. Then put that list in order of importance. Make sure to identify the number one reason why you dream of passing the CPA Exam. That needs to be constantly out in front. Type up the list and place a copy or two in the areas where you typically study. Make sure to put the list in a place where you can see it every day. Don't take for granted that you'll remember your dreams. Put them right in front of you.
Keeping that list visible will help you to push forward toward that goal.
You can do it.
(2) - If you have not seen my "Last Lecture," go to www.YouTube.com and type in Joe Hoyle at University of Richmond and it should pop up. You'll learn about Dreams and a number of other things that were on my mind that evening.
(3) - Five quick things:
--If you want to unsubscribe from getting these email lessons, just scroll down to the bottom of this lesson (or any lesson) and click on the unsubscribe button.
--If you know someone who wants to get these weekly email lessons, just send their email address to Jhoyle@cpareviewforfree.com. I'll enter their address into the files but they will still have to opt-in when they get our confirmation email.
--Last week was a major holiday and we still had our second biggest week in history. Thanks to all of you who use our site or recommend our site. To me, our growth is just phenomenal. The other programs have advertising, mailers, posters, paid representations. We have YOU. That's it. Without any paid advertising, we are helping more and more people each window to achieve their dream of passing the CPA Exam. Please pass along this message, especially to anyone who may be out of work or looking for a job.
--Don't forget that if you know someone who is looking into the CFA Exam, they can get 10 percent off on purchases of review materials at
www.professionalexamreview.com/CPAReviewForFree
--And, finally, we get a lot of emails from people who want to know the best way to use www.CPAreviewforFREE.com. We always direct them to our website and tell them to look under "CPA Exam Resources" and then to read "Using CPAreviewforFREE" - there is no reason to guess. We tell you exactly how our program can get you to pass while you save $2,000-$3,000.
(4) - My students here at the University are in their last week of the semester. They have worked incredibly hard this semester. However, I noticed today in class that they had begun to slack off. Suddenly, you could just tell that they were NOT putting out the same energy level as previously. They were slowing down like they were stuck in molasses.
That always concerns me. I don't mind people getting some rest (in fact, in any CPA Review, I think you should schedule in one or two break days every week). I do mind people slowing down. Taking a break and slowing down are radically different.
Assume you are running a mile race or a 10K. You run the race and you are 100 yards from the finish line and you have a chance to win. Would you slow down? Of course NOT, that is ridiculous. The fact that you were getting close to a victory would spur you on and raise your energy levels. Almost without exception you would run the last 100 yards faster than you ran the first 100 yards. The excitement at the end will kick in and raise your adrenaline levels so you can accomplish more than you expected.
However, on the CPA Exam, the attitude seems to be exactly the opposite. If a person works hard and gets close to the finish line, there is a tendency to moan, complain, whine, feel self-pity, fuss, and just generally feel an obsessive need to slow way down.
It may be human nature but THAT MAKES NO SENSE.
When you are getting close to the finish, then is when you should be getting excited. That is when the thrill of possible victory should push you to work even harder.
IT IS ALL IN YOUR MIND.
You can tell yourself, I'm close to the finish, I'm tired, I'm going to slow down or quit.
Or
You can tell yourself, I'm close to the finish, I'm tired, but I really want to win so I'm going to keep on pushing myself until the very end.
That is clearly up to you. I do know you are tired. I have no argument with that. If you need to, take a break-get away from it all for a day or two.
It is your response that is important. You cannot blame that response on anyone else. Your response to being tired will either
(a) slow you down
Or
(b) speed you up.
That is up to YOU.
(5) - Practice Problems - See if you can work each of these in order to add one extra point to your scores.
FAR - as usual, this came from yesterday's intermediate accounting class.
The Sain Company has 100,000 shares of common stock on January 1, Year One but issued a 20 percent stock dividend on July 1 of that year. Cash dividends of $80,000 were paid on the common stock shares during the year. The company also had 30,000 shares of $100 preferred stock paying a 4 percent per year cumulative dividend. This year the company reported net income of $500,000. What should be reported as earnings per share? (round to the nearest penny)
A - $2.50
B - $2.73
C - $3.17
D - $3.45
Answer is C
Earnings per share is a common stock computation. The earnings figure is the net income of the company after preferred stock dividends have been removed to arrive at the residual number left over for the common stockholders. The preferred stock cash dividend is $100 times 4 percent or $4 per share times 30,000 shares or $120,000. The income for common stock is the $500,000 reported total less $120,000 distributed to preferred stock or $380,000. This amount is then divided by the weighted-average number of shares. A stock dividend or stock split is not the same as the issuance of new shares but rather is a division of old shares. Thus, for this computation, the previous shares (100,000 shares on 1/1) are assumed to now include the results of the division. Because of the 20 percent stock dividend, the 100,000 shares have literally become 120,000 shares. Those 120,000 are said to exist from the original January 1 date so the common shares for that year are 120,000 and
earnings per share is $380,000 divided by 120,000 shares or $3.17.
Regulation
For the current year, a partnership has sales revenue of $500,000, cost of goods sold of $300,000, capital gains of $60,000, salary expenses of $120,000, and charitable contributions of $30,000. If there are two equal partners, what does each report of their separate income tax returns?
A - Partnership income of $40,000, capital gains of $30,000, and charitable contributions of $15,000.
B - Partnership income of $25,000 and capital gain of $30,000.
C - Partnership income of $55,000
D - Partnership income of $70,000 and charitable contributions of $15,000
Answer is A
In a partnership, certain income and expense items (including capital gains and charitable contributions) are passed through directly to the partner's own individual tax return. All other items (such as revenues, cost of goods sold, and other expenses such as salary expense) are netted together to form the basic partnership income that is also allocated to the separate partners based on the appropriate ratio which, in this case, was 50-50.
Auditing and Attestation
One of the components of internal control that an independent auditor must come to understand about each audit client is "information and communication." What is meant by this term?
A - The ability of the management of the company to communicate its priorities to the appropriate staff levels within the organization.
B - The ability of the accounting system to generate reliable information and convey it in a timely manner to those parties within the organization that need it.
C - The ability of employees in a company to warn the independent auditor of fraudulent actions within the organization.
D - The ability of the internal auditor to communicate information about the various systems to people within the organization at an appropriate level of authority.
Answer is B
Internal control includes any policies and procedures within the company designed to ensure that the accounting systems are functioning effectively as designed by the management of the company. One general goal is to make sure that the information produced by the accounting system is reliable and reaches the correct party in time to be used in making appropriate decisions. In looking at a particular system and its internal control, the auditor evaluates the ability to generate information and then communicate it to the parties who can make use of it.
BEC
A company sells widgets for $100 each and demand is10,000 units per year. The company is thinking of raising the price to $102. Which of the following statements is true?
A - If 10,000 units are now demanded by customers, demand is said to be elastic.
B - If 9,900 units are now demanded by customers, demand is said to be inelastic.
C - If 9,800 units are now demanded by customers, demand is said to be inelastic.
D - If 9,700 units are now demanded by customers, demand is said to be inelastic.
Answer is B.
The price of the goods has gone up 2 percent ($2/$100). The fall in demand is 0 (10,000 units), 1 percent (9,900 units), 2 percent (9,800 units), or 3 percent (9,700 units). Demand elasticity is found by taking the change in quantity demand and dividing it by the change in price. If the ratio is greater than 1, demand is said to be elastic (people move to other products to avoid the increase). If the ratio is less than 1, demand is inelastic (people stick with the product despite the rise in prices). If the ratio is 1, demand is unitary. Since the price went up 2 percent, any drop of more than 2 percent gives a ratio of more than one and demand is elastic. Since the price went up 2 percent, any drop of less than 2 percent gives a ratio of less than one and demand is inelastic. (A) is less than 2 percent so the ratio is less than one and that is inelastic. (C) is exactly 2 percent so that is unitary. (D) is more than 2 percent which gives a ratio of more than one
and demand is elastic. (B) is the answer because demand fell only 1 percent which makes the ratio 1/2 or less than 1. Demand is inelastic; few people switched to other products despite the increase in price.
"You learn you can do your best even when it's hard, even when you're tired and maybe hurting a little bit. It feels good to show some courage."
Joe Namath
Have a great week - DREAM BIG!!!
Joe Hoyle
Co-Founder
CPA Review For FREE
Wednesday, April 22, 2009
Monday, April 13, 2009
Make Today Count
MAKE TODAY COUNT
Lesson 30
From: Joe
(1) - As I have mentioned in previous email lessons, I gave a speech this past Tuesday here on campus. In it, I talked about a person making the transition to greatness (and you can define the word "greatness" as you see fit). The speech went well (I thought). We had 300 chairs and well over 500 people. So, a lot of folks wound up sitting on the floor. Students are young, sitting on the floor is not a big deal to them.
If you are interested in seeing and hearing the speech, it is available at:
www.youtube.com/user/UniversityofRichmond
or, you can just go to www.YouTube.com and search for: Joe Hoyle University of Richmond and the speech should come up.
(2) - Last week, we had over 107,000 page views in that one week alone at www.CPAreviewforFREE.com. That is an amazing amount of points being earned FOR FREE. In addition, the number of people who visited our site was up 10.7 percent over our previous weekly high. That is just amazing to me. I was thrilled. It is neat when you can help so many people to work toward their goal.
Thanks to everyone who forwards our emails along to others. Our goal is to help EVERYONE. Not just the rich and famous; we want to help EVERYONE.
(3) - Several emails came to us in the last few days. Here are a couple. The first is from Sandra: "Thank you for posting the quote from the person whose goal is to pass the CPA exam when he or she turns 55. I am 55 and hope to pass the remaining 3 sections this year. Knowing that I am not the only 50+ out there is a real encouragement. Thank you for your website, to which I attribute my passing grade on the first attempt on the Audit and Attest section, and for your encouraging emails."
And from Beth: "Thank you for your inspiring emails and CPA review questions. I've been studying for the Exam for the past two years, and my hard work has finally paid off. I recently found out that I passed my last exam in the nick of time, and I am so excited!! I used your review questions along with another program, and it really helped. The toughest part for me was not letting myself get discouraged when I would repeatedly fail a part, but I refused to quit and believed in myself. Your inspirational emails helped encourage me along the way. My best advice to other candidates would be to not be afraid of failure. Through this process, I've learned that you have to be willing to deal with failure sometimes in order to reap the rewards of success. Overcoming my failed attempts has only made this victory sweeter! I like the reference that one motivational speaker, Willie Jolley, uses in regards to the role of failure: 'a setback is a setup for a comeback,' as it has
certainly been for me. Thanks again for your encouragement and support along my journey!"
(4) - As always, if you want to unsubscribe to these weekly (or so) email lessons, just scroll to the end of this email and click on the link that is provided.
Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree
(5) - I was in Manhattan this past Wednesday for an all-day meeting with the people at the AICPA who create and prepare the CPA Exam. Twice a year, they hold meetings with all the people who produce review materials for the CPA Exam so that they can keep us informed of upcoming changes. Nothing radical is going to happen to the exam for another 12-18 months and that is about as far out as they ever project.
However, in this meeting, they asked all of the review providers to pass along some tips to our candidates to ensure that everything runs smoothly. So, here are the tips that they wanted you to know as you prepare to take (and pass) the CPA Exam.
A - Schedule to take your exam well in advance and think about problems that might come up such as weather issues. They suggest scheduling at least 45 days in advance especially if you want one of the busy times (usually near the end of a window). They said to warn you that the July-August and October-November windows are the busiest and therefore require the most advance planning.
Their final advice was to look for testing sites that are close to you even if they are in another state. If you live in northern Virginia, for example, a Maryland site might well be much closer than many of the sites in Virginia. Once you have your notice to schedule (NTS), you can take the exam at any approved location. You don't have to stay inside your state of application.
B - Be ready when you come to the test center. You don't want to get to the site and have a problem. They strongly suggest that you read the candidate bulletin carefully in advance. It is available at the following URL: www.cpa-exam.org/cpa/bulletin.html.
Be sure to bring two forms of government issued identification. Apparently, one must have a picture and signature and the other a signature. Also make sure to bring your valid NTS (notice to schedule) because it identifies your launch code to start the computer program. They said that a lot of people who were retaking parts would accidently bring an old NTS and then have to return home to get the right one. Trust me: on that day, you want everything to work out with no stress or surprises.
They also said not to bring large bags, suitcases, or other large items to the test site. Lockers are provided at the facility for cell phones, purses, and jackets. A list of prohibited items is included in the candidate bulletin.
They indicated that the check-in process is as follows:
--Present NTS
--Present your two forms of identification
--Complete electronic finger printing process
--Have your digital image taken by a camera
--Sign the sign-in log
The AICPA also said to tell you that you could "test drive" the process in advance if you are concerned. Apparently, you can make an appointment with the Prometric test center for a 30 minute trial run just to make sure you are familiar with the process. If you are worried in the least, I would take advantage of that service. On the real test day, you want to arrive with nothing on your mind except getting questions correct.
C - When you get ready to start your exam, do not delay after entering your launch code into the computer. Apparently, you have to go through four opening screens before you officially start the test: welcome screen, confidentiality, copyright, and directions. When you go through the fourth screen, the exam then starts and your test time begins. However, you have a maximum of 10 minutes to go through those first four screens (they probably take a total of one minute or less). After 10 minutes, if you have not started, the exam shuts down and it is over. They said that occasionally people get to the first screen and pray or meditate and literally don't get through the first four screens in 10 minutes so that their exam is finished without ever getting started. (To my knowledge, I've never known anyone who had that problem so I personally don't think it is a huge risk but don't take 10 minutes.)
D - Learn all you can in advance about the exam so you know what you are going to see. Go to: www.cpa-exam.org/lrc/exam_tutorial_parallel.html for tutorial and sample questions.
Read all the information that you receive about the exam and make sure that you make some time to wander around at www.cpa-exam.org just to learn about the exam. Again, the candidate bulletin has a lot of helpful information that you should be aware of before you arrive at the site.
E - During the exam, read everything carefully. If a message pops up, they did that because they wanted you to read the message NOT IGNORE IT. They told a few stories about people who ignored messages and then encountered problems with the exam. (Again, this is a possible problem but I wouldn't worry much about it - just read the messages.)
There are virtually no computer glitches in the exam at the present time. They said that 99.9 percent of the candidates have no problems with the computers at all. Problems tend to occur only because candidates fail to read a message.
They did ask that candidates make sure to get their confirmation of attendance which apparently is printed out from the computer when you log off at the end of the exam. They urged everyone to read this confirmation because it has some helpful information on it.
When the CPA Exam first became computerized back in 2004, there was a fair amount of confusion and some problems. The AICPA has really worked hard to make the CPA Exam a nonstressful situation for candidates. They want you to pass or fail based of what you know and do not know rather than on how well you navigate the mechanics of the exam. I wouldn't have said this five years ago but, if you will read what they send you and follow what they tell you, your experience should work out fine. There is no guarantee and problems do arise but, if I were you, I would worry about learning the material and not about whether the test is going to work or not.
(6) - I was talking with someone recently who asked what advice I would give to a candidate if I could boil it all day to one single word? It is really an interesting question. What is the one word that you should think about when getting ready to pass the CPA Exam?
When pondering this question, I was reminded of John Ruskin who was an English social critic and author who was said to have a stone that lay on his desk with one word carved on it: Today.
I think that would be my one word of advice for most questions. You have one day and one day only when you can accomplish something. That one day is Today. That's true for the CPA Exam and everything else you want to accomplish.
When you wake up in the morning, you are being given a golden opportunity. About 16 hours later you go to bed and you have made something great or something small of Today. Success in life often hinges on how well you utilize Today.
I know a lot of people who dwell in the past. They talk about past victories, excitement in the past. They seem to be stuck in some previous era. Their triumphs and successes are gone, never to be revisited.
I know a lot other people who constantly plot and plan the future. All of their actions focus on getting ready to accomplish something in some future time. Plotting is more fun than doing. They would rather get everything lined up for future success than actually accomplish anything Today.
However, I do know people who are able to wake up with their concentration entirely on how to best utilize the time they have been given right now.
The only time you can add points is TODAY.
The only time you can learn something about a topic is TODAY.
The only time you can make progress is TODAY.
It is not easy to focus on today. I know that as well as anyone. It is easier and more fun to set up how you are going to do something and just not worry about doing it. Or, it is safer to think about past victories and not have to face the difficulty of today.
The brain is a funny thing. Thinking, working out problems, learning rules, figuring out processes is real work for the brain. Consequently, the brain (which is often lazy) wants you to think about something else, almost anything else, rather than the material at hand.
So, the brain tells you: "don't worry about computing that capitalized lease, let's think about how we did so well in high school. That will make us feel good without having to do any difficult work right now."
The brain tells you: "don't worry about determining earnings per share, we can do that tomorrow. It is always more fun to plan to do work than it is to do it. Deferral is the best way to prepare."
If you want to pass the CPA Exam and you want one word of advice that would be truly helpful, remember Today. I honestly cannot think of anything more important to dwell on. You absolutely have to make good use of Today if you are going to gain the points you need. And, that is not easy. Spending time locked away in the past or the future will make you smile and feel good but it won't get you those 75 points that you need for success.
The only time you can do that is TODAY.
(7) - Let's do a few quick practice problems.
Financial Accounting and Reporting. This first problem comes from my Intermediate Accounting class today.
A company has a defined benefit pension plan. On January 1, Year One, a contractual provision was changed and the projected benefit obligation increased at that moment by $400,000. Which of the following statements is true?
A - Pension expense is not affected on January 1, Year One, but is gradually increased over the next several years.
B - Pension expense is increased immediately by $400,000.
C - Pension expense is increased on January 1, Year One, by a portion of the $400,000 with the remaining amount added to pension expense over the next few years.
D - Pension expense is never affected because the $400,000 is retained within accumulated other comprehensive income on the balance sheet.
Answer is A.
This change in the projected benefit obligation (PBO) is known as a prior service cost and comes from a change in a contractual provision. In this case, the change makes the liability larger and should decrease net income by increasing pension expense. Because the PBO is a large estimation of questionable reliability, FASB chose not to drop the entire amount into pension expense immediately because that would cause a significant swing in reported net income. Instead, the entire prior service cost is amortized to expense over several years based on the length of employee service. This is accomplished by first recording the $400,000 in accumulated other comprehensive income on the balance sheet and then gradually moving it from that account into pension expense.
Auditing and Attestation
Blue Company hopes to sell 500,000 shares of its common stock to the public. The company has prepared the appropriate documentation for the Securities and Exchange Commission. When properly approved, the shares will be conveyed to Lance & Woodruff, an underwriting firm that will actually sell the shares to the public. Hammer and Dove CPAs is the firm that audits Blue Company. Hammer and Dove have been hired to provide a comfort letter. Which of the following is not true?
A - The comfort letter will be addressed to Lance & Woodruff, the underwriting firm.
B - The comfort letter is a restatement of the final audit report prepared for Blue Company.
C - The comfort letter is not included in the documentation provided to the public in connection with the sale of these securities.
D - The comfort letter is likely to include negative assurance on unaudited information in the materials given to the SEC.
Answer is B
The underwriter is legally required to get expert advice on the financial information presented by the issuing company. The comfort letter, addressed and provided to the underwriter, meets this requirement. It provides reasonable assurance on much of the financial information that is included by the client because an audit has been carried out. However, it also provides negative assurance ("nothing came to our attention that would indicate a material difference from US generally accepted accounting principles") on some information where an audit is not possible.
Regulation
Walters owns land with a tax basis of $125,000 but a value of $160,000. This land is traded for like-kind land with a value of $150,000. To even up the trade, cash of $10,000 is also conveyed to Walters. What taxable gain should Walters report on the exchange in filing his federal income taxes?
A - Zero
B - $10,000
C - $25,000
D - $35,000
Answer is B
Normally, the exchange of like-kind property is tax free. However, Walters also received boot (the $10,000 in cash) that was not like-kind. The receipt of boot changes the rule. Then, the taxable gain is the lower of the boot ($10,000) or the exchange gain. The exchange gain is the difference in the fair value received ($150,000 plus $10,000 or $160,000) and its tax basis ($125,000). The exchange gain is $35,000 ($160,000 less $125,000). That is more than the cash collected so the lower number (the $10,000 in cash) is the taxable gain.
BEC
On January 1, Year One, the Aragoni Company is given the opportunity to pay $50,000 today to get a four-year annuity paying $20,000 per year for four years with each payment made on December 31. The company has a desired rate of return of 8 percent per year. The present value of a four-year ordinary annuity of $1 at an 8 percent annual rate is 3.3121. The present value of a four-year annuity due of $1 at an 8 percent annual rate is 3.5771. The present value of $1in four years at an 8 percent annual rate is .7350. Aragoni believes this to be a good investment. Which of the following statements is true?
A - The net present value is a positive $8,800.
B - The net present value is a positive $16,242.
C - The net present value is a positive $21,542.
D - The net present value is a positive $30,000.
Answer is B.
Since the payments are made at the end of each year, this is an ordinary annuity and the present value of the future cash flows is $66,242 ($20,000 times 3.3121). Net present value is the difference in the cost of an investment ($50,000) and the present value of the future cash flows ($66,242) or $16,242. If the present value is larger, this net present value is said to be positive and the investment meets the investment criterion of the company.
Have a great week and make each Today count.
Joe Hoyle
Co-Founder
CPA Review for FREE
Lesson 30
From: Joe
(1) - As I have mentioned in previous email lessons, I gave a speech this past Tuesday here on campus. In it, I talked about a person making the transition to greatness (and you can define the word "greatness" as you see fit). The speech went well (I thought). We had 300 chairs and well over 500 people. So, a lot of folks wound up sitting on the floor. Students are young, sitting on the floor is not a big deal to them.
If you are interested in seeing and hearing the speech, it is available at:
www.youtube.com/user/UniversityofRichmond
or, you can just go to www.YouTube.com and search for: Joe Hoyle University of Richmond and the speech should come up.
(2) - Last week, we had over 107,000 page views in that one week alone at www.CPAreviewforFREE.com. That is an amazing amount of points being earned FOR FREE. In addition, the number of people who visited our site was up 10.7 percent over our previous weekly high. That is just amazing to me. I was thrilled. It is neat when you can help so many people to work toward their goal.
Thanks to everyone who forwards our emails along to others. Our goal is to help EVERYONE. Not just the rich and famous; we want to help EVERYONE.
(3) - Several emails came to us in the last few days. Here are a couple. The first is from Sandra: "Thank you for posting the quote from the person whose goal is to pass the CPA exam when he or she turns 55. I am 55 and hope to pass the remaining 3 sections this year. Knowing that I am not the only 50+ out there is a real encouragement. Thank you for your website, to which I attribute my passing grade on the first attempt on the Audit and Attest section, and for your encouraging emails."
And from Beth: "Thank you for your inspiring emails and CPA review questions. I've been studying for the Exam for the past two years, and my hard work has finally paid off. I recently found out that I passed my last exam in the nick of time, and I am so excited!! I used your review questions along with another program, and it really helped. The toughest part for me was not letting myself get discouraged when I would repeatedly fail a part, but I refused to quit and believed in myself. Your inspirational emails helped encourage me along the way. My best advice to other candidates would be to not be afraid of failure. Through this process, I've learned that you have to be willing to deal with failure sometimes in order to reap the rewards of success. Overcoming my failed attempts has only made this victory sweeter! I like the reference that one motivational speaker, Willie Jolley, uses in regards to the role of failure: 'a setback is a setup for a comeback,' as it has
certainly been for me. Thanks again for your encouragement and support along my journey!"
(4) - As always, if you want to unsubscribe to these weekly (or so) email lessons, just scroll to the end of this email and click on the link that is provided.
Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree
(5) - I was in Manhattan this past Wednesday for an all-day meeting with the people at the AICPA who create and prepare the CPA Exam. Twice a year, they hold meetings with all the people who produce review materials for the CPA Exam so that they can keep us informed of upcoming changes. Nothing radical is going to happen to the exam for another 12-18 months and that is about as far out as they ever project.
However, in this meeting, they asked all of the review providers to pass along some tips to our candidates to ensure that everything runs smoothly. So, here are the tips that they wanted you to know as you prepare to take (and pass) the CPA Exam.
A - Schedule to take your exam well in advance and think about problems that might come up such as weather issues. They suggest scheduling at least 45 days in advance especially if you want one of the busy times (usually near the end of a window). They said to warn you that the July-August and October-November windows are the busiest and therefore require the most advance planning.
Their final advice was to look for testing sites that are close to you even if they are in another state. If you live in northern Virginia, for example, a Maryland site might well be much closer than many of the sites in Virginia. Once you have your notice to schedule (NTS), you can take the exam at any approved location. You don't have to stay inside your state of application.
B - Be ready when you come to the test center. You don't want to get to the site and have a problem. They strongly suggest that you read the candidate bulletin carefully in advance. It is available at the following URL: www.cpa-exam.org/cpa/bulletin.html.
Be sure to bring two forms of government issued identification. Apparently, one must have a picture and signature and the other a signature. Also make sure to bring your valid NTS (notice to schedule) because it identifies your launch code to start the computer program. They said that a lot of people who were retaking parts would accidently bring an old NTS and then have to return home to get the right one. Trust me: on that day, you want everything to work out with no stress or surprises.
They also said not to bring large bags, suitcases, or other large items to the test site. Lockers are provided at the facility for cell phones, purses, and jackets. A list of prohibited items is included in the candidate bulletin.
They indicated that the check-in process is as follows:
--Present NTS
--Present your two forms of identification
--Complete electronic finger printing process
--Have your digital image taken by a camera
--Sign the sign-in log
The AICPA also said to tell you that you could "test drive" the process in advance if you are concerned. Apparently, you can make an appointment with the Prometric test center for a 30 minute trial run just to make sure you are familiar with the process. If you are worried in the least, I would take advantage of that service. On the real test day, you want to arrive with nothing on your mind except getting questions correct.
C - When you get ready to start your exam, do not delay after entering your launch code into the computer. Apparently, you have to go through four opening screens before you officially start the test: welcome screen, confidentiality, copyright, and directions. When you go through the fourth screen, the exam then starts and your test time begins. However, you have a maximum of 10 minutes to go through those first four screens (they probably take a total of one minute or less). After 10 minutes, if you have not started, the exam shuts down and it is over. They said that occasionally people get to the first screen and pray or meditate and literally don't get through the first four screens in 10 minutes so that their exam is finished without ever getting started. (To my knowledge, I've never known anyone who had that problem so I personally don't think it is a huge risk but don't take 10 minutes.)
D - Learn all you can in advance about the exam so you know what you are going to see. Go to: www.cpa-exam.org/lrc/exam_tutorial_parallel.html for tutorial and sample questions.
Read all the information that you receive about the exam and make sure that you make some time to wander around at www.cpa-exam.org just to learn about the exam. Again, the candidate bulletin has a lot of helpful information that you should be aware of before you arrive at the site.
E - During the exam, read everything carefully. If a message pops up, they did that because they wanted you to read the message NOT IGNORE IT. They told a few stories about people who ignored messages and then encountered problems with the exam. (Again, this is a possible problem but I wouldn't worry much about it - just read the messages.)
There are virtually no computer glitches in the exam at the present time. They said that 99.9 percent of the candidates have no problems with the computers at all. Problems tend to occur only because candidates fail to read a message.
They did ask that candidates make sure to get their confirmation of attendance which apparently is printed out from the computer when you log off at the end of the exam. They urged everyone to read this confirmation because it has some helpful information on it.
When the CPA Exam first became computerized back in 2004, there was a fair amount of confusion and some problems. The AICPA has really worked hard to make the CPA Exam a nonstressful situation for candidates. They want you to pass or fail based of what you know and do not know rather than on how well you navigate the mechanics of the exam. I wouldn't have said this five years ago but, if you will read what they send you and follow what they tell you, your experience should work out fine. There is no guarantee and problems do arise but, if I were you, I would worry about learning the material and not about whether the test is going to work or not.
(6) - I was talking with someone recently who asked what advice I would give to a candidate if I could boil it all day to one single word? It is really an interesting question. What is the one word that you should think about when getting ready to pass the CPA Exam?
When pondering this question, I was reminded of John Ruskin who was an English social critic and author who was said to have a stone that lay on his desk with one word carved on it: Today.
I think that would be my one word of advice for most questions. You have one day and one day only when you can accomplish something. That one day is Today. That's true for the CPA Exam and everything else you want to accomplish.
When you wake up in the morning, you are being given a golden opportunity. About 16 hours later you go to bed and you have made something great or something small of Today. Success in life often hinges on how well you utilize Today.
I know a lot of people who dwell in the past. They talk about past victories, excitement in the past. They seem to be stuck in some previous era. Their triumphs and successes are gone, never to be revisited.
I know a lot other people who constantly plot and plan the future. All of their actions focus on getting ready to accomplish something in some future time. Plotting is more fun than doing. They would rather get everything lined up for future success than actually accomplish anything Today.
However, I do know people who are able to wake up with their concentration entirely on how to best utilize the time they have been given right now.
The only time you can add points is TODAY.
The only time you can learn something about a topic is TODAY.
The only time you can make progress is TODAY.
It is not easy to focus on today. I know that as well as anyone. It is easier and more fun to set up how you are going to do something and just not worry about doing it. Or, it is safer to think about past victories and not have to face the difficulty of today.
The brain is a funny thing. Thinking, working out problems, learning rules, figuring out processes is real work for the brain. Consequently, the brain (which is often lazy) wants you to think about something else, almost anything else, rather than the material at hand.
So, the brain tells you: "don't worry about computing that capitalized lease, let's think about how we did so well in high school. That will make us feel good without having to do any difficult work right now."
The brain tells you: "don't worry about determining earnings per share, we can do that tomorrow. It is always more fun to plan to do work than it is to do it. Deferral is the best way to prepare."
If you want to pass the CPA Exam and you want one word of advice that would be truly helpful, remember Today. I honestly cannot think of anything more important to dwell on. You absolutely have to make good use of Today if you are going to gain the points you need. And, that is not easy. Spending time locked away in the past or the future will make you smile and feel good but it won't get you those 75 points that you need for success.
The only time you can do that is TODAY.
(7) - Let's do a few quick practice problems.
Financial Accounting and Reporting. This first problem comes from my Intermediate Accounting class today.
A company has a defined benefit pension plan. On January 1, Year One, a contractual provision was changed and the projected benefit obligation increased at that moment by $400,000. Which of the following statements is true?
A - Pension expense is not affected on January 1, Year One, but is gradually increased over the next several years.
B - Pension expense is increased immediately by $400,000.
C - Pension expense is increased on January 1, Year One, by a portion of the $400,000 with the remaining amount added to pension expense over the next few years.
D - Pension expense is never affected because the $400,000 is retained within accumulated other comprehensive income on the balance sheet.
Answer is A.
This change in the projected benefit obligation (PBO) is known as a prior service cost and comes from a change in a contractual provision. In this case, the change makes the liability larger and should decrease net income by increasing pension expense. Because the PBO is a large estimation of questionable reliability, FASB chose not to drop the entire amount into pension expense immediately because that would cause a significant swing in reported net income. Instead, the entire prior service cost is amortized to expense over several years based on the length of employee service. This is accomplished by first recording the $400,000 in accumulated other comprehensive income on the balance sheet and then gradually moving it from that account into pension expense.
Auditing and Attestation
Blue Company hopes to sell 500,000 shares of its common stock to the public. The company has prepared the appropriate documentation for the Securities and Exchange Commission. When properly approved, the shares will be conveyed to Lance & Woodruff, an underwriting firm that will actually sell the shares to the public. Hammer and Dove CPAs is the firm that audits Blue Company. Hammer and Dove have been hired to provide a comfort letter. Which of the following is not true?
A - The comfort letter will be addressed to Lance & Woodruff, the underwriting firm.
B - The comfort letter is a restatement of the final audit report prepared for Blue Company.
C - The comfort letter is not included in the documentation provided to the public in connection with the sale of these securities.
D - The comfort letter is likely to include negative assurance on unaudited information in the materials given to the SEC.
Answer is B
The underwriter is legally required to get expert advice on the financial information presented by the issuing company. The comfort letter, addressed and provided to the underwriter, meets this requirement. It provides reasonable assurance on much of the financial information that is included by the client because an audit has been carried out. However, it also provides negative assurance ("nothing came to our attention that would indicate a material difference from US generally accepted accounting principles") on some information where an audit is not possible.
Regulation
Walters owns land with a tax basis of $125,000 but a value of $160,000. This land is traded for like-kind land with a value of $150,000. To even up the trade, cash of $10,000 is also conveyed to Walters. What taxable gain should Walters report on the exchange in filing his federal income taxes?
A - Zero
B - $10,000
C - $25,000
D - $35,000
Answer is B
Normally, the exchange of like-kind property is tax free. However, Walters also received boot (the $10,000 in cash) that was not like-kind. The receipt of boot changes the rule. Then, the taxable gain is the lower of the boot ($10,000) or the exchange gain. The exchange gain is the difference in the fair value received ($150,000 plus $10,000 or $160,000) and its tax basis ($125,000). The exchange gain is $35,000 ($160,000 less $125,000). That is more than the cash collected so the lower number (the $10,000 in cash) is the taxable gain.
BEC
On January 1, Year One, the Aragoni Company is given the opportunity to pay $50,000 today to get a four-year annuity paying $20,000 per year for four years with each payment made on December 31. The company has a desired rate of return of 8 percent per year. The present value of a four-year ordinary annuity of $1 at an 8 percent annual rate is 3.3121. The present value of a four-year annuity due of $1 at an 8 percent annual rate is 3.5771. The present value of $1in four years at an 8 percent annual rate is .7350. Aragoni believes this to be a good investment. Which of the following statements is true?
A - The net present value is a positive $8,800.
B - The net present value is a positive $16,242.
C - The net present value is a positive $21,542.
D - The net present value is a positive $30,000.
Answer is B.
Since the payments are made at the end of each year, this is an ordinary annuity and the present value of the future cash flows is $66,242 ($20,000 times 3.3121). Net present value is the difference in the cost of an investment ($50,000) and the present value of the future cash flows ($66,242) or $16,242. If the present value is larger, this net present value is said to be positive and the investment meets the investment criterion of the company.
Have a great week and make each Today count.
Joe Hoyle
Co-Founder
CPA Review for FREE
Saturday, April 4, 2009
How Hard Are You Working
Thousands of Free Questions Available to Everyone
www.CPAreviewforFREE.com
How Hard Are You Working
Lesson 29
From: Joe
(1) - Last week we had more visitors to our website than in any previous week in our history. Thanks so much to everyone who has recommended us. Without your help, we simply would not exist.
(2) - If you know anyone who wants to receive these free weekly email lessons, send their email address to Jhoyle@cpareviewforfree.com. We cannot add them automatically but we will send them a confirmation note that will allow them to subscribe if they wish.
(3) - Last week was a wonderful one for getting emails here at www.CPAreviewforFREE.com. Here are just a couple of the ones that I have received in the last four or five days.
From SL: "I just wanted to send you a quick 'thank you' note for your exceptional website. Prior to finding CPA Review For Free, I had failed Regulation twice, first with a 74 and then with a 72. I was using the (big name) courses in my preparation, . . . There was just something missing on REG. I felt prepared going in, and spent many hours viewing lectures, taking notes, rewriting notes, etc. The Multiple Choice practice left something to be desired, because each time I went in, I was caught off-guard by the types of questions they would ask.
"After finding out that I had failed REG the second time, I searched the Internet for alternative courses for preparation. I knew that tax was my weakest area, probably in the entire CPA Exam. I had avoided tax classes in undergrad as much as possible, and have exclusively worked on the audit side since joining a public firm. Once I found your website and signed up, I was struck by the variety of questions you provided for tax, and their similarity to those I had seen on the actual exam, not only in topical nature, but the form, the length, the types of possible answers, etc. I felt like I was actually practicing questions I would expect to find the next time I sat.
"I used CPA Review For Free along with re-reviewing my other materials this last time (January 2009). I answered all of the REG questions, and re-worked the sections that were difficult for me. Low and behold, your website must have over-prepared me - I received a 77 on REG and I have completed the CPA Exam! My only regret is that I did not know about your site until after I had started with the other program. Not only do I believe I would have been well-prepared for the tests, I would also be about $2,000 richer. Again, thank you for the services that your website provides. I have been passing along the website to any of my friends and staff people who are working on their CPA."
From GS: "Your insight and encouragement has helped to put the exam process into perspective. Understanding the nature of the exam's process is critical to passing. You brought to light the process by comparing the exam to a river that reaches a mile wide and an inch deep, that really makes perfect sense to me. Previously, I had a strong desire to drill down on every topic, curse at myself when a practice MC question was answered incorrectly, and fret over small details, all of which had contributed to failing exam sections.
"I understand that this testing process requires general knowledge of subject matter and only a grade of 75% to pass.
As a result of your insight and encouragement, this candidate has passed two sections, taken another section and can calmly approach the final section knowing that it too will be passed. I owe you a great deal and thank you for your FREE insight, and I hope to repay you somehow."
From EB: "First of all, let me say how much I appreciate the service that you are offering. I not only appreciate the review questions available on your website, I also want to thank you for the comments and the encouragement in your blog postings. I started pursuing a second degree in accountancy in 1999 and next month, after 10 years of classes, one class each semester, I will complete the coursework required to receive my bachelor's degree in accountancy. I will be 54 years old when I complete the class work and my goal is to pass the CPA exam during the year that I turn 55.
"I think that your comments are so worthwhile that I pass them along to my children. I hope I didn't violate any copyright laws when I cut and pasted your article about the Steve Martin book that you were reading into an e-mail to my children. "Perseverance is a great substitute for talent." What a great quote.
"And now for my request. You stated in your December 26th blog that you would pass on to anyone who requested it your 30 question final exam for your introductory financial accounting course. If that offer still stands, I would appreciate receiving the exam (and of course, the answers for it.) Once again, thanks so much for the service that you offer."
(4) - Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree
These are good folks and we are delighted to offer their products at this discount.
(5) - I have a few quotes that are really my all-time favorites. No matter how often that I hear them, they make me stop and do a few moments of real reflection. About 2 years ago, I was reading an article in Fortune magazine on what it takes to be great. This always intrigues me. Why is Tiger Woods such a great golfer? Why do certain basketball coaches always seem to win?
There was a quote in this article that I probably think about 3-4 times per week.
From: "What It Takes To Be Great," Fortune, October 30, 2006: "People learn quickly at first, then more slowly, and then stop developing completely. Yet a few do improve for years and even decades, and go on to greatness."
In many things in life, this is exactly what happens. People get excited and enthusiastic and start off any new task very well. They learn how things are done and they get better at them. They improve. But, all too often, they begin to slow down. The interest is not quite so intense. The ability to make sacrifices becomes more difficult. Finding time to do the necessary details becomes harder. Pretty soon, the things that were going so well become a bit more sloppy. The task at hand is no longer the number one priority.
And, eventually, most people simply stop improving. They kind of adopt the attitude: "this is the best I'm ever going to be; I might as well get used to it." Mediocrity sets in and that feeling just blankets everything that is done.
However, that doesn't always happen. Some people get a feeling of true excitement when they see themselves improving. That excitement provides fuel for the fire and they are actually able to work harder. I sometimes say "they smell the blood in the water and it spurs them forward."
CPA Review is a long process. Under the best of conditions, it takes months.
Most people, when they first begin the process, are intrigued by the possibility of getting those three letters after their name. They will set aside time every day or two for serious study. And, then they will make sure that time is spent wisely.
That initial euphoria lasts for a week or two or maybe even a bit longer. But it usually does fade. At some point, every candidate takes a step back with the realization "this is not fun; this is really work."
It is at that point that many people pass or fail the CPA Exam. It is not even about going to a Prometric Center. It is about what you do when preparing for the exam becomes more like work and less like fun.
Most people do not just quit. That is actually kind of rare. First, they begin to slow down. Instead of studying for 2 hours, they study for 45 minutes. Instead of studying 4-5 days per week, they study for 1-2 hours per week. Instead of studying in a quiet room, they have on television and their iPod. It is almost like they have given up shooting for 75 but now they are trying for 63.
However, obviously, other folks are not intimidated by the CPA Exam and the preparation that is needed. Yes, they still take breaks and, yes, they do not study every day. But that has never been necessary.
Instead, even when it becomes real work,
--the CPA Exam continues to be a serious priority in their lives.
--they make time for the CPA Exam on a regular schedule.
--when they start studying, that becomes their central focus. They don't let themselves get distracted.
You can be great and you can pass the CPA Exam. I am convinced of that. But you have to have the self-discipline that is needed when the task of preparation goes from being fun to that of being a real job. Every one of you can be great as long as you do not get stuck in being mediocre.
(6)-You are always able to unsubscribe from this service without problem. Just scroll to the bottom of this (or any other) email lessons and click on the Unsubscribe button. We are always glad to have you with us. However, it is your life and your time and if you are ready for the lessons to stop just follow those directions.
(7)-Ah, they are playing basketball this week-end in the Final Four. I must say something about that. Two of the best college players in the United States are Tyler Hansbrough (North Carolina) and Blake Griffin (Oklahoma). They are both so talented that it is just fun to watch them play. In fact, I almost never watch a basketball game that I do not wonder what it must feel like to have so much talent.
I was listening to the radio last Sunday and they were interviewing one of the coaches (I believe it was Oklahoma's coach) and he was talking about these two players and he had a very revealing quote that went something like: "what makes these guys so great is that they simply outwork everyone else."
No mention of talent. No mention of height.
They simply outwork everyone else.
Let's assume we took you and 99 other CPA candidates and, somehow, we ranked each of these people on how hard they are working to pass the CPA Exam. That is a quality where anyone can be ranked number one if they have the necessary desire and self-discipline. It is not based on IQ, it is not based on the college you went to, it is not based on how much money you have, it is not based on who your parents are.
If we were to rank 100 CPA candidates based on how hard they are working
WHERE WOULD YOU RANK??
I think that is a very valid question. Would you be number 25? Or, would you be 67? Or, maybe you would be number 4? Or, maybe you would be 94?
Okay, I will be honest with you. You don't have to be in the top 10 or even the top 20 to pass the CPA Exam. That is certainly not required. But, if I were taking the CPA Exam, I really would want to be in the top 30 or top 35. And, there is absolutely, positively no reason why you could not be in the top 35 percent of the people taking the CPA Exam when it comes to hard work. That just requires self-discipline, organization, desire, and focus. Something everyone is capable of having.
That is not a bad experiment. Look back on the past week and think of all of the people studying for the CPA Exam throughout the US and around the world. If it came down just to hard work, where would you rank? Be honest. There is no reason to fool yourself. Where would you rank? Would you be in the top 30-35 percent? If not, what would it take to get there? Are you willing to do that?
(8) - Here are a few practice questions - try to add a point. That should always be your goal: "I want to get one point better."
Regulation
A company issues 100,000 shares of common stock and 10,000 shares of preferred stock with a $2 cumulative dividend. In the first year, no dividends are paid or declared. Which of the following statements are true?
A - The company should report a $20,000 liability on its year-end balance sheet.
B - All dividends in arrears on the preferred stock must be paid before any dividends can be paid on common stock.
C - The preferred stockholders are guaranteed to receive this $20,000 at some point in the future.
D - By not paying the cumulative dividend, the company will be forced into bankruptcy within 90 days of the beginning of the new year.
Answer is B.
A cumulative preferred stock simply means that all dividends on the preferred stock must be paid as required before any dividends can be distributed to the owners of the common stock. The company is not obligated in any other way. There is no guarantee nor liability and failure to pay will not automatically lead to bankruptcy. However, if the board of directors ever formally declares these dividends, the liability must be reported.
Financial Accounting
A company has a red asset that it bought for $80,000 and has now depreciated down to a book value of $33,000. However, the asset has a fair value of $40,000. This asset is traded for a green asset that also is worth $40,000. The two assets are expected to generate the same future cash flows in terms of amounts, timing, and risk. Therefore, the trade is viewed as having no economic or commercial substance. In recording the trade, which of the following statements is true?
A - New asset is recorded at $33,000 and a $7,000 gain is reported.
B - New asset is recorded at $33,000 and no gain is reported.
C - New asset is recorded at $40,000 and a $7,000 gain is reported.
D - New asset is recorded at $40,000 and no gain is reported.
Answer is B.
The answer to any normal trade would be C. The new asset is recorded at the fair value of the asset given up and any difference between its book value and fair value is recorded as a gain or loss. However, there is one exception and this question looks at that exception. If there is no economic or commercial substance to a trade, then the assumption is that the trade was made solely in order to record a gain. If there is no commercial substance, there is no possible reason for having made the trade. That condition arises where the cash flows (in amount, timing, and risk) are not affected in any way by the trade. In that one situation, book value is retained and no income effect is recorded.
Business Environment and Concepts
A company produces a product in a long-series of automated steps that requires little direct material and direct labor but a lot of overhead. What costing system is the company most likely to use?
A - Job-order costing
B - Process costing
C - Activity-based costing
D - Just-in-time costing
Answer is C
In this situation, a company might use job-order costing or process costing. There is not enough information to tell if products are unique (where job-order costing is appropriate) or mass produced (where process costing is appropriate). However, in connection with either of these approaches, the company is likely to apply activity-based costing because there are many steps in the process and overhead is a significant cost. Activity-based costing breaks the process down into individual activities and determines a specific overhead cost driver for each of these activities. In that way, the costing is designed specifically for the process in use. Overhead for one activity might be applied based on machine hours if that is appropriate to the activity whereas overhead for another activity might be applied based on direct labor cost if that is appropriate.
Auditing and Attestation
A CPA is doing a compilation of financial statements for a client. Which of the following is most likely to be done by the CPA?
A - The physical inventory taken by the client must be observed by the CPA.
B - At least a few of company's accounts receivable must be confirmed by the CPA.
C - Analytical procedures must be carried out after all other work is performed.
D - The statements should be read for any obvious mistakes.
Answer is D.
A compilation means that client information is taken and put into the form of financial statements. There are no audit procedures performed and no assurance of any type is given. However, the CPA is required, at a minimum, to read the statements and make sure that no obvious errors are present. For example, if land is listed as a current asset, or if retained earnings is listed as a liability, the CPA does have to check that out because they both seem obviously incorrect.
And, finally, just a reminder for those of you who live near Richmond:
The University of Richmond is pleased to announce Joe Hoyle as the University's first "Last Lecturer." Professor Hoyle is an associate professor of accounting in the Robins School of Business. He has taught at the University of Richmond since 1979 and is a distinguished educator, receiving numerous awards and honors. Students nominated over seventy professors during the week of February 9th. Please join us on Tuesday, April 7th, 2009 at 7 p.m. in the Jepson Alumni Center to listen to Professor Hoyle's "Last Lecture." This event is part of the newly created Last Lecture Series at the University of Richmond in which students nominate professors they would like to hear deliver a speech based on the question "If you were to address students at the University of Richmond for the last time, what would you say?" Professor Hoyle's "Last Lecture" is free and open to the public.
www.CPAreviewforFREE.com
How Hard Are You Working
Lesson 29
From: Joe
(1) - Last week we had more visitors to our website than in any previous week in our history. Thanks so much to everyone who has recommended us. Without your help, we simply would not exist.
(2) - If you know anyone who wants to receive these free weekly email lessons, send their email address to Jhoyle@cpareviewforfree.com. We cannot add them automatically but we will send them a confirmation note that will allow them to subscribe if they wish.
(3) - Last week was a wonderful one for getting emails here at www.CPAreviewforFREE.com. Here are just a couple of the ones that I have received in the last four or five days.
From SL: "I just wanted to send you a quick 'thank you' note for your exceptional website. Prior to finding CPA Review For Free, I had failed Regulation twice, first with a 74 and then with a 72. I was using the (big name) courses in my preparation, . . . There was just something missing on REG. I felt prepared going in, and spent many hours viewing lectures, taking notes, rewriting notes, etc. The Multiple Choice practice left something to be desired, because each time I went in, I was caught off-guard by the types of questions they would ask.
"After finding out that I had failed REG the second time, I searched the Internet for alternative courses for preparation. I knew that tax was my weakest area, probably in the entire CPA Exam. I had avoided tax classes in undergrad as much as possible, and have exclusively worked on the audit side since joining a public firm. Once I found your website and signed up, I was struck by the variety of questions you provided for tax, and their similarity to those I had seen on the actual exam, not only in topical nature, but the form, the length, the types of possible answers, etc. I felt like I was actually practicing questions I would expect to find the next time I sat.
"I used CPA Review For Free along with re-reviewing my other materials this last time (January 2009). I answered all of the REG questions, and re-worked the sections that were difficult for me. Low and behold, your website must have over-prepared me - I received a 77 on REG and I have completed the CPA Exam! My only regret is that I did not know about your site until after I had started with the other program. Not only do I believe I would have been well-prepared for the tests, I would also be about $2,000 richer. Again, thank you for the services that your website provides. I have been passing along the website to any of my friends and staff people who are working on their CPA."
From GS: "Your insight and encouragement has helped to put the exam process into perspective. Understanding the nature of the exam's process is critical to passing. You brought to light the process by comparing the exam to a river that reaches a mile wide and an inch deep, that really makes perfect sense to me. Previously, I had a strong desire to drill down on every topic, curse at myself when a practice MC question was answered incorrectly, and fret over small details, all of which had contributed to failing exam sections.
"I understand that this testing process requires general knowledge of subject matter and only a grade of 75% to pass.
As a result of your insight and encouragement, this candidate has passed two sections, taken another section and can calmly approach the final section knowing that it too will be passed. I owe you a great deal and thank you for your FREE insight, and I hope to repay you somehow."
From EB: "First of all, let me say how much I appreciate the service that you are offering. I not only appreciate the review questions available on your website, I also want to thank you for the comments and the encouragement in your blog postings. I started pursuing a second degree in accountancy in 1999 and next month, after 10 years of classes, one class each semester, I will complete the coursework required to receive my bachelor's degree in accountancy. I will be 54 years old when I complete the class work and my goal is to pass the CPA exam during the year that I turn 55.
"I think that your comments are so worthwhile that I pass them along to my children. I hope I didn't violate any copyright laws when I cut and pasted your article about the Steve Martin book that you were reading into an e-mail to my children. "Perseverance is a great substitute for talent." What a great quote.
"And now for my request. You stated in your December 26th blog that you would pass on to anyone who requested it your 30 question final exam for your introductory financial accounting course. If that offer still stands, I would appreciate receiving the exam (and of course, the answers for it.) Once again, thanks so much for the service that you offer."
(4) - Just a reminder that our candidates can get a discount on CFA review materials (but pass the CPA Exam first) by going to: www.professionalexamreview.com/CPAReviewForFree
These are good folks and we are delighted to offer their products at this discount.
(5) - I have a few quotes that are really my all-time favorites. No matter how often that I hear them, they make me stop and do a few moments of real reflection. About 2 years ago, I was reading an article in Fortune magazine on what it takes to be great. This always intrigues me. Why is Tiger Woods such a great golfer? Why do certain basketball coaches always seem to win?
There was a quote in this article that I probably think about 3-4 times per week.
From: "What It Takes To Be Great," Fortune, October 30, 2006: "People learn quickly at first, then more slowly, and then stop developing completely. Yet a few do improve for years and even decades, and go on to greatness."
In many things in life, this is exactly what happens. People get excited and enthusiastic and start off any new task very well. They learn how things are done and they get better at them. They improve. But, all too often, they begin to slow down. The interest is not quite so intense. The ability to make sacrifices becomes more difficult. Finding time to do the necessary details becomes harder. Pretty soon, the things that were going so well become a bit more sloppy. The task at hand is no longer the number one priority.
And, eventually, most people simply stop improving. They kind of adopt the attitude: "this is the best I'm ever going to be; I might as well get used to it." Mediocrity sets in and that feeling just blankets everything that is done.
However, that doesn't always happen. Some people get a feeling of true excitement when they see themselves improving. That excitement provides fuel for the fire and they are actually able to work harder. I sometimes say "they smell the blood in the water and it spurs them forward."
CPA Review is a long process. Under the best of conditions, it takes months.
Most people, when they first begin the process, are intrigued by the possibility of getting those three letters after their name. They will set aside time every day or two for serious study. And, then they will make sure that time is spent wisely.
That initial euphoria lasts for a week or two or maybe even a bit longer. But it usually does fade. At some point, every candidate takes a step back with the realization "this is not fun; this is really work."
It is at that point that many people pass or fail the CPA Exam. It is not even about going to a Prometric Center. It is about what you do when preparing for the exam becomes more like work and less like fun.
Most people do not just quit. That is actually kind of rare. First, they begin to slow down. Instead of studying for 2 hours, they study for 45 minutes. Instead of studying 4-5 days per week, they study for 1-2 hours per week. Instead of studying in a quiet room, they have on television and their iPod. It is almost like they have given up shooting for 75 but now they are trying for 63.
However, obviously, other folks are not intimidated by the CPA Exam and the preparation that is needed. Yes, they still take breaks and, yes, they do not study every day. But that has never been necessary.
Instead, even when it becomes real work,
--the CPA Exam continues to be a serious priority in their lives.
--they make time for the CPA Exam on a regular schedule.
--when they start studying, that becomes their central focus. They don't let themselves get distracted.
You can be great and you can pass the CPA Exam. I am convinced of that. But you have to have the self-discipline that is needed when the task of preparation goes from being fun to that of being a real job. Every one of you can be great as long as you do not get stuck in being mediocre.
(6)-You are always able to unsubscribe from this service without problem. Just scroll to the bottom of this (or any other) email lessons and click on the Unsubscribe button. We are always glad to have you with us. However, it is your life and your time and if you are ready for the lessons to stop just follow those directions.
(7)-Ah, they are playing basketball this week-end in the Final Four. I must say something about that. Two of the best college players in the United States are Tyler Hansbrough (North Carolina) and Blake Griffin (Oklahoma). They are both so talented that it is just fun to watch them play. In fact, I almost never watch a basketball game that I do not wonder what it must feel like to have so much talent.
I was listening to the radio last Sunday and they were interviewing one of the coaches (I believe it was Oklahoma's coach) and he was talking about these two players and he had a very revealing quote that went something like: "what makes these guys so great is that they simply outwork everyone else."
No mention of talent. No mention of height.
They simply outwork everyone else.
Let's assume we took you and 99 other CPA candidates and, somehow, we ranked each of these people on how hard they are working to pass the CPA Exam. That is a quality where anyone can be ranked number one if they have the necessary desire and self-discipline. It is not based on IQ, it is not based on the college you went to, it is not based on how much money you have, it is not based on who your parents are.
If we were to rank 100 CPA candidates based on how hard they are working
WHERE WOULD YOU RANK??
I think that is a very valid question. Would you be number 25? Or, would you be 67? Or, maybe you would be number 4? Or, maybe you would be 94?
Okay, I will be honest with you. You don't have to be in the top 10 or even the top 20 to pass the CPA Exam. That is certainly not required. But, if I were taking the CPA Exam, I really would want to be in the top 30 or top 35. And, there is absolutely, positively no reason why you could not be in the top 35 percent of the people taking the CPA Exam when it comes to hard work. That just requires self-discipline, organization, desire, and focus. Something everyone is capable of having.
That is not a bad experiment. Look back on the past week and think of all of the people studying for the CPA Exam throughout the US and around the world. If it came down just to hard work, where would you rank? Be honest. There is no reason to fool yourself. Where would you rank? Would you be in the top 30-35 percent? If not, what would it take to get there? Are you willing to do that?
(8) - Here are a few practice questions - try to add a point. That should always be your goal: "I want to get one point better."
Regulation
A company issues 100,000 shares of common stock and 10,000 shares of preferred stock with a $2 cumulative dividend. In the first year, no dividends are paid or declared. Which of the following statements are true?
A - The company should report a $20,000 liability on its year-end balance sheet.
B - All dividends in arrears on the preferred stock must be paid before any dividends can be paid on common stock.
C - The preferred stockholders are guaranteed to receive this $20,000 at some point in the future.
D - By not paying the cumulative dividend, the company will be forced into bankruptcy within 90 days of the beginning of the new year.
Answer is B.
A cumulative preferred stock simply means that all dividends on the preferred stock must be paid as required before any dividends can be distributed to the owners of the common stock. The company is not obligated in any other way. There is no guarantee nor liability and failure to pay will not automatically lead to bankruptcy. However, if the board of directors ever formally declares these dividends, the liability must be reported.
Financial Accounting
A company has a red asset that it bought for $80,000 and has now depreciated down to a book value of $33,000. However, the asset has a fair value of $40,000. This asset is traded for a green asset that also is worth $40,000. The two assets are expected to generate the same future cash flows in terms of amounts, timing, and risk. Therefore, the trade is viewed as having no economic or commercial substance. In recording the trade, which of the following statements is true?
A - New asset is recorded at $33,000 and a $7,000 gain is reported.
B - New asset is recorded at $33,000 and no gain is reported.
C - New asset is recorded at $40,000 and a $7,000 gain is reported.
D - New asset is recorded at $40,000 and no gain is reported.
Answer is B.
The answer to any normal trade would be C. The new asset is recorded at the fair value of the asset given up and any difference between its book value and fair value is recorded as a gain or loss. However, there is one exception and this question looks at that exception. If there is no economic or commercial substance to a trade, then the assumption is that the trade was made solely in order to record a gain. If there is no commercial substance, there is no possible reason for having made the trade. That condition arises where the cash flows (in amount, timing, and risk) are not affected in any way by the trade. In that one situation, book value is retained and no income effect is recorded.
Business Environment and Concepts
A company produces a product in a long-series of automated steps that requires little direct material and direct labor but a lot of overhead. What costing system is the company most likely to use?
A - Job-order costing
B - Process costing
C - Activity-based costing
D - Just-in-time costing
Answer is C
In this situation, a company might use job-order costing or process costing. There is not enough information to tell if products are unique (where job-order costing is appropriate) or mass produced (where process costing is appropriate). However, in connection with either of these approaches, the company is likely to apply activity-based costing because there are many steps in the process and overhead is a significant cost. Activity-based costing breaks the process down into individual activities and determines a specific overhead cost driver for each of these activities. In that way, the costing is designed specifically for the process in use. Overhead for one activity might be applied based on machine hours if that is appropriate to the activity whereas overhead for another activity might be applied based on direct labor cost if that is appropriate.
Auditing and Attestation
A CPA is doing a compilation of financial statements for a client. Which of the following is most likely to be done by the CPA?
A - The physical inventory taken by the client must be observed by the CPA.
B - At least a few of company's accounts receivable must be confirmed by the CPA.
C - Analytical procedures must be carried out after all other work is performed.
D - The statements should be read for any obvious mistakes.
Answer is D.
A compilation means that client information is taken and put into the form of financial statements. There are no audit procedures performed and no assurance of any type is given. However, the CPA is required, at a minimum, to read the statements and make sure that no obvious errors are present. For example, if land is listed as a current asset, or if retained earnings is listed as a liability, the CPA does have to check that out because they both seem obviously incorrect.
And, finally, just a reminder for those of you who live near Richmond:
The University of Richmond is pleased to announce Joe Hoyle as the University's first "Last Lecturer." Professor Hoyle is an associate professor of accounting in the Robins School of Business. He has taught at the University of Richmond since 1979 and is a distinguished educator, receiving numerous awards and honors. Students nominated over seventy professors during the week of February 9th. Please join us on Tuesday, April 7th, 2009 at 7 p.m. in the Jepson Alumni Center to listen to Professor Hoyle's "Last Lecture." This event is part of the newly created Last Lecture Series at the University of Richmond in which students nominate professors they would like to hear deliver a speech based on the question "If you were to address students at the University of Richmond for the last time, what would you say?" Professor Hoyle's "Last Lecture" is free and open to the public.
Wednesday, March 25, 2009
Pass The CPA Exam One Topic At A Time
Pass The CPA Exam One Topic At A Time
From: Joe
ANNOUNCEMENT: We here at CPA Review for FREE are always trying to find new ways to be helpful to our readers. We realize that people who pass the CPA Exam might also be interested in the CFA (Chartered Financial Analyst) Exam. Or, you may have friends who are thinking of taking the CFA Exam.
Consequently, we have teamed up with the good folks at ProfessionalExamReview.com to offer you a 10 percent discount on their CFA Exam Review products. In these days, save every penny you can. Take a moment and go out and look at the wide variety of products that they provide: http://m1e.net/c?86471133-T3oJUZE5tOzlk%404096319-vgjWOWZYWn9nA
Of course, pass the CPA Exam first, but, after that, you might look into the possibility of adding three more letters (CFA) after your name. When you are in a study and testing mindset, it is good to get as many of those letters as you can.
(1) - One other quick announcement: we should hit a total of 2.2 million page views in the next day or two. If anyone at one of these big fancy CPA Review programs tells you that we are not real, just ask them why we've gotten 2.2 million page views in such a short period of time.
These big courses WANT YOUR MONEY. That is their number one goal.
They will tell you almost anything to GET YOUR MONEY.
Don't be gullible.
My recommendation:
--go to www.CPAreviewforFREE.com
--under CPA Exam Resources, read "Using CPAreviewforFREE"
--try us for 4-6 weeks
--after that, if you still want to send a couple of thousand to the big courses, then that is a considered decision on your part.
Don't let the big courses SCARE YOU OUT OF YOUR MONEY.
(2) - One of the biggest problems of the CPA Exam is that it looks so hard. Everyone hears how difficult it is; how many hours you have to spend. When you first start, it seems like you are beginning to climb Mt. Everest. It is very easy to get overwhelmed and discouraged. A lot of people just have trouble getting started. It can seem so hopeless that they never really get out of the starting gate.
One recommendation is to focus on passing one topic at a time.
For example, if you are studying to pass FAR, focus on a topic such as Accounts Receivable first. Stop thinking about the CPA Exam. Only worry about gaining enough knowledge to pass that ONE topic. My guess is that you can pass Accounts Receivable with 30-90 minutes of preparation. Other than estimating and recording bad debt expense, there is not much to it. So, that is a reasonable goal.
Then, once you have enough knowledge to pass Accounts Receivable, you move on to the next topic-something like Inventory. Okay, that is a bit broader topic but you can probably pass it in 1 hour to 2.5 hours. Then move on to Buildings and Equipment.
In that way, when you wake up each morning, you have a goal that you can actually accomplish. TODAY: pass a topic or two. Don't focus on the CPA Exam, focus on today's topic.
Otherwise, it is easy to wake up with the entire CPA Exam in front of you. You face the burden of studying for a couple of hours without a sense of accomplishment. It feels like you are struggling up Mount Everest and it is winning. Instead of looking at the CPA Exam as a huge mountain that is almost impossible to climb, think of it as a series of small hills. You climb one hill and then begin up the second hill. Now, that is a reasonable goal.
Start right now: what is the very first topic that you want to pass? Start climbing that hill. You can climb a hill-get the first one done today.
(3) - Remember that you can unsubscribe from these email lessons (that I send out every week or two) by scrolling to the bottom of this lesson and clicking on the unsubscribe button.
And, since we do no marketing, we very much appreciate your willingness to tell other folks about www.CPAreviewforFREE.com. YOU are the most important part of our success.
(4) - It is so easy to run out of energy when you are studying for the CPA Exam. Every night you come home from work and you plan to open up www.CPAreviewforFREE.com but you are just soooo very tired. You keep thinking that you will defer study until you have more energy but every time you even think about studying, your energy flies out of your body.
Every night you get to bed time and you have not accomplished what you had wanted to do and that makes you discouraged. It is tough-trust me, I have been there. I well know.
I am currently reading a book about the making of the famous 1967 movie The Graduate. They were getting ready to film a very important scene and Dustin Hoffman was having trouble doing it just right. The director (Mike Nichols) asked Hoffman what was wrong and the actor responded that he was tired.
Nichols took Hoffman aside and said something like: You are going to look back on this movie for the rest of your life. Do you really want to look back at the most important scene in the entire movie and realize that you didn't do it as well as you could have because you were tired? It was the most important scene and you were tired???????
The CPA Exam is very important to your career and to your own feeling of self-confidence. Do you really want to look back and realize that you could have passed except that you were tired?
---If this exam is really so important to you, shouldn't your heart be pumping every time you think about passing?
---If this exam is really so important to your career, shouldn't the adrenaline be racing through your body like a NASCAR racer?
---If this exam is really going to show people what you really can do, shouldn't you wake up each morning excited to have the chance to pass a new topic?
Tired??? Bah! Humbug! The excitement of such a major accomplishment should push tired right out of your head.
I think most mental tiredness is just psychological. We tell ourselves "I have been busy today; my mind is not going to function well." Why not tell ourselves "I have been busy today; my mind is already pumped up and ready to go after the CPA Exam."
We tell ourselves "I just had my dinner; I need to put my feet up and rest and turn on television." Why not tell ourselves "Okay, I'm finished with dinner, now is a good time to put in an hour or two and get closer to passing the CPA Exam." Heck, I'm well over 60 and I don't go lay down after dinner and rest. I get excited about the prospect of getting something accomplished.
We tell ourselves "I don't study well in the morning; my brain does not work well that early." Why not tell ourselves "This is a great time to study; I can add some points when the world is peaceful and quiet and won't disturb me."
Are you telling your mind negative things or positive things? If you fill up your mind with negatives, don't be surprised that it feels tired.
Your mind is as tired or as active as you tell it to be. I know plenty of people who go through life with "mental weariness" because they tell themselves day in and day out that they are just so very tired. I know just as many people who convince themselves that their brain is alive and pumping and ready to go to work.
Guess who passes the CPA Exam?
Which one are you?
(5) - Here's an email I got a day or two ago:
"My exam experience with FAR was not that good. I was a wreck when I came out as I had run out of time and was only able to do the communications part of both simulations. That was the third time I'd taken it and had only done a little bit more than the other times. The only difference this time was that I had used questions from CPA Review for Free and tried to incorporate your 'inch deep, mile wide' attitude. Anyway, I was hopeful, but not as confident as when I did BEC. Bottom line. I passed with 75%!"
CONGRATULATIONS!!! That is just wonderful. That is a perfect example of my advice: remember, you do not have to be perfect; you just have to get enough questions right to pass!!! And you did it!! I know you must be proud of yourself. You did the work and you made it happen. Go out and celebrate-tell your friends and neighbors. YOU did it.
(6) - Some practice problems. The first one here I am taking from my Intermediate Accounting class this past Friday.
Financial Accounting and Reporting
The Palermo Company reported net income in its financial statements of $600,000 (before tax) in Year One. The tax rate is currently 30 percent but is expected to go up to 32 percent at the start of Year Two. The company has revenue of $90,000 that will not be taxed until Year Two. In addition, the company has another $50,000 in revenue that will never be taxed. What does the company show as its income tax expense for Year One?
A - Income tax expense-current is $138,000 and income tax expense-deferred is $27,000
B - Income tax expense-current is $180,000 and income tax expense-deferred is $28,800
C - Income tax expense-current is $153,000 and income tax expense-deferred is $27,000
D - Income tax expense-current is $153,000 and income tax expense-deferred is $28,800
Answer is A
Future tax rates are only used if the rate has been legally enacted, not just anticipated. Thus, all income here is recorded at the current rate of 30 percent since the new rate is only expected. Only $460,000 is to be taxed in the current year ($600,000 less $90,000 and $50,000). At 30 percent, the income tax expense-current is $138,000. The $50,000 will never be taxed and can be ignored. The $90,000 will be taxed next year but the expense is recognized this year at the 30 percent rate so that the income tax expense-deferred is $27,000.
Regulation (Unfortunately, I thought of this one yesterday when I was doing my income tax return for 2008)
Mr. and Mrs. Archibald Taylor are filing their income tax return for the current year. They have short-term capital losses of $10,000 and long-term capital losses of $20,000. Which of the following is correct?
A - They can deduct $3,000 of the short-term losses this year and carry all of the remaining losses forward indefinitely.
B - They can deduct nothing this year but can carry all of the losses back for three years and then forward for up to seven years.
C - They can deduct $3,000 of the long-term losses this year and carry all of the remaining losses forward for up to 20 years.
D - The losses are combined and $3,000 can be deducted this year with the remaining $17,000 carried over for up to seven years.
Answer is A
For individual taxpayers filing a joint return, $3,000 in capital losses can be deducted each year. Short-term losses are deducted first. The remaining amounts can be carried forward indefinitely. In the carryover process, short-term losses remain short-term and long-term losses remain long-term. Corporate rules are quite different for capital gains and losses.
Auditing & Attestation
The Acme Coal Company spends $3 million to buy a new coal mine. Depletion expense is to be computed based on the company's estimation that the mine contains 600,000 tons of coal. Ross and Company CPAs is auditing the financial statements produced by Acme. Ross hires the engineering firm of Less and Low to substantiate the estimation of coal made by company management. The CPA firm has made sure that the engineering firm is independent of Ross and has appropriate credentials. Which of the following is true?
A - The hiring of Less and Low was inappropriate because they are not under the control of the CPA firm.
B - The CPA firm must review all computations made by the engineering firm.
C - The CPA firm must ask the engineering firm to disclose and explain all assumptions and methods that were used in making this estimation.
D - The engineering firm must be independent of the audit client.
Answer is C
Using the work of a specialist in an audit is quite normal. CPAs cannot be expected to have unlimited knowledge on all possible topics (such as estimating the amount of coal in a coal mine). The specialist does not have to be independent but the CPA's reliance on the findings of the specialist should be guarded if independence is lacking. The auditor is probably not capable of reviewing all the work of the specialist. If the auditor had that much knowledge, a specialist would not be needed. However, the CPA needs to be well aware of all assumptions and methods used by the specialist in doing the assigned work.
BEC
A company buys and sells widgets on credit. The inventory conversion period is 31 days. The receivables conversion period is 23 days. The accounts payable conversion period is 28 days. What is the cash conversion period?
A - 23 days
B - 26 days
C - 54 days
D - 82 days
Answer is B
The cash conversion period is the inventory conversion period (31) plus the receivables conversion period (23) less the payable conversion period (28).
And one final thought for the upcoming week:
"Look at a day when you are supremely satisfied at the end. It's not a day when you lounge around doing nothing; it's when you've had everything to do, and you've done it."
Margaret Thatcher
Joe Hoyle
Co-Founder
CPA Review for FREE
From: Joe
ANNOUNCEMENT: We here at CPA Review for FREE are always trying to find new ways to be helpful to our readers. We realize that people who pass the CPA Exam might also be interested in the CFA (Chartered Financial Analyst) Exam. Or, you may have friends who are thinking of taking the CFA Exam.
Consequently, we have teamed up with the good folks at ProfessionalExamReview.com to offer you a 10 percent discount on their CFA Exam Review products. In these days, save every penny you can. Take a moment and go out and look at the wide variety of products that they provide: http://m1e.net/c?86471133-T3oJUZE5tOzlk%404096319-vgjWOWZYWn9nA
Of course, pass the CPA Exam first, but, after that, you might look into the possibility of adding three more letters (CFA) after your name. When you are in a study and testing mindset, it is good to get as many of those letters as you can.
(1) - One other quick announcement: we should hit a total of 2.2 million page views in the next day or two. If anyone at one of these big fancy CPA Review programs tells you that we are not real, just ask them why we've gotten 2.2 million page views in such a short period of time.
These big courses WANT YOUR MONEY. That is their number one goal.
They will tell you almost anything to GET YOUR MONEY.
Don't be gullible.
My recommendation:
--go to www.CPAreviewforFREE.com
--under CPA Exam Resources, read "Using CPAreviewforFREE"
--try us for 4-6 weeks
--after that, if you still want to send a couple of thousand to the big courses, then that is a considered decision on your part.
Don't let the big courses SCARE YOU OUT OF YOUR MONEY.
(2) - One of the biggest problems of the CPA Exam is that it looks so hard. Everyone hears how difficult it is; how many hours you have to spend. When you first start, it seems like you are beginning to climb Mt. Everest. It is very easy to get overwhelmed and discouraged. A lot of people just have trouble getting started. It can seem so hopeless that they never really get out of the starting gate.
One recommendation is to focus on passing one topic at a time.
For example, if you are studying to pass FAR, focus on a topic such as Accounts Receivable first. Stop thinking about the CPA Exam. Only worry about gaining enough knowledge to pass that ONE topic. My guess is that you can pass Accounts Receivable with 30-90 minutes of preparation. Other than estimating and recording bad debt expense, there is not much to it. So, that is a reasonable goal.
Then, once you have enough knowledge to pass Accounts Receivable, you move on to the next topic-something like Inventory. Okay, that is a bit broader topic but you can probably pass it in 1 hour to 2.5 hours. Then move on to Buildings and Equipment.
In that way, when you wake up each morning, you have a goal that you can actually accomplish. TODAY: pass a topic or two. Don't focus on the CPA Exam, focus on today's topic.
Otherwise, it is easy to wake up with the entire CPA Exam in front of you. You face the burden of studying for a couple of hours without a sense of accomplishment. It feels like you are struggling up Mount Everest and it is winning. Instead of looking at the CPA Exam as a huge mountain that is almost impossible to climb, think of it as a series of small hills. You climb one hill and then begin up the second hill. Now, that is a reasonable goal.
Start right now: what is the very first topic that you want to pass? Start climbing that hill. You can climb a hill-get the first one done today.
(3) - Remember that you can unsubscribe from these email lessons (that I send out every week or two) by scrolling to the bottom of this lesson and clicking on the unsubscribe button.
And, since we do no marketing, we very much appreciate your willingness to tell other folks about www.CPAreviewforFREE.com. YOU are the most important part of our success.
(4) - It is so easy to run out of energy when you are studying for the CPA Exam. Every night you come home from work and you plan to open up www.CPAreviewforFREE.com but you are just soooo very tired. You keep thinking that you will defer study until you have more energy but every time you even think about studying, your energy flies out of your body.
Every night you get to bed time and you have not accomplished what you had wanted to do and that makes you discouraged. It is tough-trust me, I have been there. I well know.
I am currently reading a book about the making of the famous 1967 movie The Graduate. They were getting ready to film a very important scene and Dustin Hoffman was having trouble doing it just right. The director (Mike Nichols) asked Hoffman what was wrong and the actor responded that he was tired.
Nichols took Hoffman aside and said something like: You are going to look back on this movie for the rest of your life. Do you really want to look back at the most important scene in the entire movie and realize that you didn't do it as well as you could have because you were tired? It was the most important scene and you were tired???????
The CPA Exam is very important to your career and to your own feeling of self-confidence. Do you really want to look back and realize that you could have passed except that you were tired?
---If this exam is really so important to you, shouldn't your heart be pumping every time you think about passing?
---If this exam is really so important to your career, shouldn't the adrenaline be racing through your body like a NASCAR racer?
---If this exam is really going to show people what you really can do, shouldn't you wake up each morning excited to have the chance to pass a new topic?
Tired??? Bah! Humbug! The excitement of such a major accomplishment should push tired right out of your head.
I think most mental tiredness is just psychological. We tell ourselves "I have been busy today; my mind is not going to function well." Why not tell ourselves "I have been busy today; my mind is already pumped up and ready to go after the CPA Exam."
We tell ourselves "I just had my dinner; I need to put my feet up and rest and turn on television." Why not tell ourselves "Okay, I'm finished with dinner, now is a good time to put in an hour or two and get closer to passing the CPA Exam." Heck, I'm well over 60 and I don't go lay down after dinner and rest. I get excited about the prospect of getting something accomplished.
We tell ourselves "I don't study well in the morning; my brain does not work well that early." Why not tell ourselves "This is a great time to study; I can add some points when the world is peaceful and quiet and won't disturb me."
Are you telling your mind negative things or positive things? If you fill up your mind with negatives, don't be surprised that it feels tired.
Your mind is as tired or as active as you tell it to be. I know plenty of people who go through life with "mental weariness" because they tell themselves day in and day out that they are just so very tired. I know just as many people who convince themselves that their brain is alive and pumping and ready to go to work.
Guess who passes the CPA Exam?
Which one are you?
(5) - Here's an email I got a day or two ago:
"My exam experience with FAR was not that good. I was a wreck when I came out as I had run out of time and was only able to do the communications part of both simulations. That was the third time I'd taken it and had only done a little bit more than the other times. The only difference this time was that I had used questions from CPA Review for Free and tried to incorporate your 'inch deep, mile wide' attitude. Anyway, I was hopeful, but not as confident as when I did BEC. Bottom line. I passed with 75%!"
CONGRATULATIONS!!! That is just wonderful. That is a perfect example of my advice: remember, you do not have to be perfect; you just have to get enough questions right to pass!!! And you did it!! I know you must be proud of yourself. You did the work and you made it happen. Go out and celebrate-tell your friends and neighbors. YOU did it.
(6) - Some practice problems. The first one here I am taking from my Intermediate Accounting class this past Friday.
Financial Accounting and Reporting
The Palermo Company reported net income in its financial statements of $600,000 (before tax) in Year One. The tax rate is currently 30 percent but is expected to go up to 32 percent at the start of Year Two. The company has revenue of $90,000 that will not be taxed until Year Two. In addition, the company has another $50,000 in revenue that will never be taxed. What does the company show as its income tax expense for Year One?
A - Income tax expense-current is $138,000 and income tax expense-deferred is $27,000
B - Income tax expense-current is $180,000 and income tax expense-deferred is $28,800
C - Income tax expense-current is $153,000 and income tax expense-deferred is $27,000
D - Income tax expense-current is $153,000 and income tax expense-deferred is $28,800
Answer is A
Future tax rates are only used if the rate has been legally enacted, not just anticipated. Thus, all income here is recorded at the current rate of 30 percent since the new rate is only expected. Only $460,000 is to be taxed in the current year ($600,000 less $90,000 and $50,000). At 30 percent, the income tax expense-current is $138,000. The $50,000 will never be taxed and can be ignored. The $90,000 will be taxed next year but the expense is recognized this year at the 30 percent rate so that the income tax expense-deferred is $27,000.
Regulation (Unfortunately, I thought of this one yesterday when I was doing my income tax return for 2008)
Mr. and Mrs. Archibald Taylor are filing their income tax return for the current year. They have short-term capital losses of $10,000 and long-term capital losses of $20,000. Which of the following is correct?
A - They can deduct $3,000 of the short-term losses this year and carry all of the remaining losses forward indefinitely.
B - They can deduct nothing this year but can carry all of the losses back for three years and then forward for up to seven years.
C - They can deduct $3,000 of the long-term losses this year and carry all of the remaining losses forward for up to 20 years.
D - The losses are combined and $3,000 can be deducted this year with the remaining $17,000 carried over for up to seven years.
Answer is A
For individual taxpayers filing a joint return, $3,000 in capital losses can be deducted each year. Short-term losses are deducted first. The remaining amounts can be carried forward indefinitely. In the carryover process, short-term losses remain short-term and long-term losses remain long-term. Corporate rules are quite different for capital gains and losses.
Auditing & Attestation
The Acme Coal Company spends $3 million to buy a new coal mine. Depletion expense is to be computed based on the company's estimation that the mine contains 600,000 tons of coal. Ross and Company CPAs is auditing the financial statements produced by Acme. Ross hires the engineering firm of Less and Low to substantiate the estimation of coal made by company management. The CPA firm has made sure that the engineering firm is independent of Ross and has appropriate credentials. Which of the following is true?
A - The hiring of Less and Low was inappropriate because they are not under the control of the CPA firm.
B - The CPA firm must review all computations made by the engineering firm.
C - The CPA firm must ask the engineering firm to disclose and explain all assumptions and methods that were used in making this estimation.
D - The engineering firm must be independent of the audit client.
Answer is C
Using the work of a specialist in an audit is quite normal. CPAs cannot be expected to have unlimited knowledge on all possible topics (such as estimating the amount of coal in a coal mine). The specialist does not have to be independent but the CPA's reliance on the findings of the specialist should be guarded if independence is lacking. The auditor is probably not capable of reviewing all the work of the specialist. If the auditor had that much knowledge, a specialist would not be needed. However, the CPA needs to be well aware of all assumptions and methods used by the specialist in doing the assigned work.
BEC
A company buys and sells widgets on credit. The inventory conversion period is 31 days. The receivables conversion period is 23 days. The accounts payable conversion period is 28 days. What is the cash conversion period?
A - 23 days
B - 26 days
C - 54 days
D - 82 days
Answer is B
The cash conversion period is the inventory conversion period (31) plus the receivables conversion period (23) less the payable conversion period (28).
And one final thought for the upcoming week:
"Look at a day when you are supremely satisfied at the end. It's not a day when you lounge around doing nothing; it's when you've had everything to do, and you've done it."
Margaret Thatcher
Joe Hoyle
Co-Founder
CPA Review for FREE
Tuesday, March 10, 2009
Don't Let Those Walls Slow You Down
Don't Let Those Walls Slow You Down
From: Joe
(a) - YOU ARE INVITED. I realize that only a small percentage of our readers live here in Richmond, Virginia but I wanted to issue everyone an invitation anyway.
College campuses have had Last Lecture Programs for decades where a professor gives a talk as if it were his last chance to ever speak to the students. What would you say if you only had one final opportunity? It is an interesting question for any teacher.
These programs became especially famous about two years ago because of a wonderful speech (and subsequent book) by Dr. Randy Pausch, a brilliant professor at Carnegie-Mellon University who was dying of cancer at the time.
The University of Richmond is starting an annual Last Lecture series this spring and I was very fortunate to be chosen as its first speaker. If you do live in Richmond, the lecture is open to the public. It is at 7 p.m. on Tuesday, April 7 in the alumni center. I am not yet sure what I will talk about but I am pretty sure that I won't talk about debits and credits. Beyond that, who knows? If you have read these emails for long, you know that I am a person with lots of opinions.
Our campus is beautiful and it is even lovelier in the spring. If you are in the area, do know that you are invited.
(b) - If you have never watched Randy Pausch's speech, you really should join the 9.5 million other people who have watched it on YouTube. It is well worth your time. It is inspirational; it is energizing; it will make you feel better about life.
Just go to www.YouTube.com and search for "Randy Pausch" or "Randy Pausch last lecture." It will help you realize that you do NOT have to spend your life in despair even when times get tough.
(1) - Welcome to CPA Review for FREE. I send out these lessons about every 7-10 days to help you prepare to pass the CPA Exam. If this is your first time with us, my one and only goal is to assist you in getting the points you need to make 75 so that you can pass the CPA Exam. I firmly believe that everyone can pass the CPA Exam and do so without having to pay the outrageous costs charged by other CPA Review programs. If you are lucky enough to have unlimited money and want to give it away, those other programs will gladly take it. But, we have a database of approximately 2,000 excellent questions and answers that everyone can use to prepare for the CPA Exam.
No fees, no costs, no charges.
Just 2,000 great questions and clear answers.
But don't believe me. Be a wise shopper. Just try them for awhile. I amazed that people would hand over $2,000 without first trying a free alternative.
Go to www.CPAreviewforFREE.com. Then, start by reading the information under CPA Exam resources.
After that-go to work and start adding points. Read a question, figure out your response, and read the answer (carefully).
--You have no risk.
--You have no charges.
--You just have hundreds and hundreds of great questions and answers.
Don't you owe it to yourself and to your family to stick your $2,000 back in your pocket and try CPA Review for FREE first.
(2) - As probably everyone knows, the CPA Exam just finished the January-February testing window. The number of visitors to our website during the final four weeks of this testing window was AN AMAZING 43 PERCENT HIGHER than the final four weeks of the October-November testing window.
Honestly, what does that tell you? More and more people are catching on that paying those huge sums is just not necessary to get a passing grade on the CPA Exam.
(3) - Here are some recent emails that I received from our customers.
From Sheila: "I received my BEC score this morning and passed with a 75%! Thank you, thank you, thank you!!! Tonight I will make up my schedule and begin my review using the full approach with CPAreviewforFREE. I started this process a couple of years ago using one of the big name reviews and then another, but though they both claimed to offer support, you are the only one who really has followed through on that promise. Thanks for that as well. I will continue to sing your praises."
From Rose: "I was so happy when I received the email notification this morning that I have passed all of the CPA exam!!! It's been 9 years, from the time when I sat for the old exams, and gave up and then re-picked up and joined the (big name) CPA review course and paid my hard-earned money. Undoubtedly, the CPA review course material was good but expensive. And one day when I tried the (big name) CD, I was informed that the license was expired and I needed to pay again. I was mad since I had paid thousand dollars already. I searched for alternatives on the website and found CPAreviewforfree. I can't believe that this is such a good website with loads of questions and explanations. I made use of this website and finally passed all exams. Thank you, Joe, and I will definitely recommend this website to my friends."
(4) - As always, do remember that you can very easily unsubscribe from this email service. Just scroll to the bottom of this email lesson and click on the button marked "unsubscribe."
(5) - They are playing a lot of basketball these days. In fact, "March Madness" is just around the corner. I rarely pay attention to many games but, when I do, I am fascinated to watch the players when it comes down to the very end of a close contest. I always want to see which player is willing to take the shot that will win (or lose) the game.
That is tough. Anyone can shoot when it is early in the game and not much is on the line. It is much more difficult to come down the court with the clock ticking down 9..8..7.. and this last shot is going to make the difference in the whole game. At that point, many players prefer to pass off and let someone else take that shot. The fear of failure just gets to be overwhelming.
John Havlicek was one of the greatest basketball players ever. I remember reading that he had said that everyone wanted the ball early in the game. "Throw ME the ball!!" they would yell. However, at the very end of a close game, some of those same players would start looking the other way just so you would not throw the ball to them.
They were so afraid of failure that they refused to even try.
When it comes to the CPA Exam, I talk with a lot of people who start becoming obsessed by the chance they might fail. It is easy to start feeling scared. We can all understand how a candidate can become a bit tense. You work hard for months and every time you miss even one little question in practice, it reminds you that you are not perfect, that nothing is ever guaranteed.
The problem is that your mind can start focusing on the wrong things. You can become frozen by the chance of failure. Your mind can start to close down. Never never never think about the word "failure." Wash it out of your mind. The only thing that you should be thinking about is adding points and getting better. That is the thing that I want your brain to focus on as you prepare for the CPA Exam: adding points and getting better.
Read a question on CPAreviewforFREE, work that problem, read the answer, and then take notes if you missed the question. Getting better and adding points.
Always remember that the one thing you have control over is the work you are doing RIGHT NOW to add knowledge and gain points. It is easy to let the fear of failure slow you down. As championship athletes will always tell you:
"You miss 100 percent of the shots you never take."
The only way to ensure that you are going to be a complete failure is just to quit trying. As long as you are working, you are moving toward success.
You will always miss 100 percent of the questions that you don't attempt.
You will always miss 100 percent of the material that you don't cover.
You will always fail 100 percent of the times that you don't try.
Never think about failure. Being negative never helps anyone to get better.
(6) - Speaking of basketball, I was watching a game on Sunday afternoon and Michael Jordan was in the crowd. It seems to be the opinion of most sports people that Jordan was the greatest basketball player ever. Quite an accomplishment. We usually think about people like that as just so talented that it was inevitable that they would be good.
That is not necessarily so. Talent alone is never enough to accomplish much of anything. Effort is always more important than anything else you bring to any endeavor. I'll take effort over talent any day.
I remember hearing Jordan talk once about how he had managed to become such a great player. To me, his response could certainly apply to the CPA Exam and a whole lot of other activities rather than just to basketball.
"If you run into a wall, don't turn around and give up.
Figure out how to climb it, go through it, or work around it."
Do you turn around and give up or do you keep looking for a way to get past the problem?
It seems to me that preparing for the CPA Exam is all about running into walls and how you react to them. Give up? or work to get around them? In truth, which is the real you? When things get tough, will you quit or will you work your way around all of the various walls that impede your progress?
Things will always get tough so you need to think how you are going to respond. Are you a winner?
Whenever you start to study a new tough topic, it will always seem like you are crashing into a brick wall. It is easy to feel overwhelmed and confused. Every time you work a complicated question and get it wrong, you may feel like you've hit that wall full force once again. Each night when you are tired but still need to bear down and study for several hours, you may understand the true meaning of the term "hitting the wall."
As Michael Jordan says, every time you run into one of those walls, you have a choice: give up or figure out how to climb it, go through it, or work around it.
In many ways, you can envision your study time as a long series of walls extending across your path off into the distance as far as you can see. Some of these walls are relatively low and more of a nuisance that anything else. Others, though, are big and may test your abilities to withstand pressure. If you can work around or over or through each of these walls and never let "I quit" enter your mind, there is no reason why you cannot nail down the CPA Exam. Not one reason at all.
Here's a tip: Don't worry about passing the CPA Exam - worry about getting around the next wall that is in your path.
How will you successfully make it to the other side of the next wall that you encounter????? The answer may well determine how quickly you are going to pass the CPA Exam.
(7) - A little practice; let's add some points.
Financial Accounting and Reporting (I taught Advanced Accounting here at the University last week for a friend. This is one of the questions that we worked.)
The City of Sanborn levies an income tax. In Year One, city officials anticipate that the amount of this tax will be $350,000 and will be collected evenly over the period from January 1, Year Two to April 15, Year Two ($100,000 per month and $50,000 for the half month). City officials have a policy that any money collected within 60 days is viewed as available. How much of the revenue should be recognized at the end of Year One?
A - $200,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $200,000 in government-wide financial statements and $350,000 in fund-based financial statements
C - $350,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $350,000 in government-wide financial statements and $350,000 in fund-based financial statements
Answer is C
In state and local government accounting, an income tax (and a sales tax) are known as derived tax revenues. They are taxes on events (the earning of income or the making of a sale). A derived tax revenue is recognized when the taxed event occurs. The income here was earned in Year One so the income tax is recognized within the government-wide financial statements (which use accrual accounting) in Year One. In fund-based financial statements (for the governmental funds), modified accrual accounting is applied so that an additional standard must be met for revenue recognition. The resources must also be available quickly enough so that the money can be used to pay current obligations of Year One. The city has a policy that "available" is identified as anything received in 60 days. Thus, since $100,000 is collected each month, only the $200,000 to be collected in the first two months of Year Two is viewed as available to pay for Year One expenditures.
Auditing and Attestation
The Haynsworth CPA firm is auditing Agnestic Corporation. The auditors have come to the conclusion that certain illegal acts may have occurred during the year so that additional testing will be necessary. Which of the following is most likely to have led to this assessment?
A - The design of the company's internal control policies and procedures has not been revised in four years.
B - Related party transactions have occurred throughout the year.
C - Confirmation of accounts receivable indicates that several recorded balances appear to be understated.
D - Checks were written to "cash" during the year despite policies to the contrary.
Answer is D.
Internal control policies and procedures only need to be revised when they are no longer functioning as intended. A well-designed system might not need to be revised often. Related party transactions are common in many companies and do not, by themselves, indicate any type of illegal activities. Confirmation of receivables which show a pattern of overstatement can possibly indicate that money has been received and then stolen by company employees. However, understatements are more likely to occur because of slowness in posting new sales transactions. Checks should never be written to "cash" because documenting the use made of the money can be very difficult. Hence, checks can be written to "cash" to access money that will then be used for illegal activities.
Regulation
Ms. Polly Atkini collects $1,000 in dividends from a company located in Italy. A foreign tax of $93 was withheld on this income by the local authorities. Ms. Atkini is attempting to determine the impact of this foreign tax when she is filing her United States income tax return for this year. Which of the following is correct?
A - The foreign tax cannot be taken as either an itemized deduction or as a tax credit.
B - The foreign tax must be taken as an itemized deduction.
C - The foreign tax must be taken as a tax credit.
D - The foreign tax can be taken as either an itemized deduction or as a tax credit based on her preference.
Answer is D
The payment of a foreign income tax is one of the few items in federal income tax rules that an item can be used at either of two places. Normally, the benefit is larger if a credit is taken but the taxpayer is also allowed the option of using the amount as an itemized deduction.
BEC
The Bresson Company has recently changed the way that it handles customer service calls based on a benchmarking process. Which of the following is most likely to have taken place?
A - The company studied the methods used by its biggest competitors and found them to be superior to its own.
B - The company hired a consulting firm to smooth out the process that had been used in the past.
C - The company polled its customers to find weaknesses and then took their advice in making changes.
D - The company flowcharted all of its systems to find inherent weaknesses.
Answer is A.
The term "benchmarking" refers to a process of looking at other similar organizations to locate their best practices and then attempt to replicate them to increase its own efficiency. In effect, the company learns from the time and work that has already been carried out by the other organization.
Now is the time to start adding points. Remember, you only have one goal-to add points and get better. As long as you can stay focused on that goal, there is no reason why you cannot pass the CPA Exam in 2009.
Go Get It!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
From: Joe
(a) - YOU ARE INVITED. I realize that only a small percentage of our readers live here in Richmond, Virginia but I wanted to issue everyone an invitation anyway.
College campuses have had Last Lecture Programs for decades where a professor gives a talk as if it were his last chance to ever speak to the students. What would you say if you only had one final opportunity? It is an interesting question for any teacher.
These programs became especially famous about two years ago because of a wonderful speech (and subsequent book) by Dr. Randy Pausch, a brilliant professor at Carnegie-Mellon University who was dying of cancer at the time.
The University of Richmond is starting an annual Last Lecture series this spring and I was very fortunate to be chosen as its first speaker. If you do live in Richmond, the lecture is open to the public. It is at 7 p.m. on Tuesday, April 7 in the alumni center. I am not yet sure what I will talk about but I am pretty sure that I won't talk about debits and credits. Beyond that, who knows? If you have read these emails for long, you know that I am a person with lots of opinions.
Our campus is beautiful and it is even lovelier in the spring. If you are in the area, do know that you are invited.
(b) - If you have never watched Randy Pausch's speech, you really should join the 9.5 million other people who have watched it on YouTube. It is well worth your time. It is inspirational; it is energizing; it will make you feel better about life.
Just go to www.YouTube.com and search for "Randy Pausch" or "Randy Pausch last lecture." It will help you realize that you do NOT have to spend your life in despair even when times get tough.
(1) - Welcome to CPA Review for FREE. I send out these lessons about every 7-10 days to help you prepare to pass the CPA Exam. If this is your first time with us, my one and only goal is to assist you in getting the points you need to make 75 so that you can pass the CPA Exam. I firmly believe that everyone can pass the CPA Exam and do so without having to pay the outrageous costs charged by other CPA Review programs. If you are lucky enough to have unlimited money and want to give it away, those other programs will gladly take it. But, we have a database of approximately 2,000 excellent questions and answers that everyone can use to prepare for the CPA Exam.
No fees, no costs, no charges.
Just 2,000 great questions and clear answers.
But don't believe me. Be a wise shopper. Just try them for awhile. I amazed that people would hand over $2,000 without first trying a free alternative.
Go to www.CPAreviewforFREE.com. Then, start by reading the information under CPA Exam resources.
After that-go to work and start adding points. Read a question, figure out your response, and read the answer (carefully).
--You have no risk.
--You have no charges.
--You just have hundreds and hundreds of great questions and answers.
Don't you owe it to yourself and to your family to stick your $2,000 back in your pocket and try CPA Review for FREE first.
(2) - As probably everyone knows, the CPA Exam just finished the January-February testing window. The number of visitors to our website during the final four weeks of this testing window was AN AMAZING 43 PERCENT HIGHER than the final four weeks of the October-November testing window.
Honestly, what does that tell you? More and more people are catching on that paying those huge sums is just not necessary to get a passing grade on the CPA Exam.
(3) - Here are some recent emails that I received from our customers.
From Sheila: "I received my BEC score this morning and passed with a 75%! Thank you, thank you, thank you!!! Tonight I will make up my schedule and begin my review using the full approach with CPAreviewforFREE. I started this process a couple of years ago using one of the big name reviews and then another, but though they both claimed to offer support, you are the only one who really has followed through on that promise. Thanks for that as well. I will continue to sing your praises."
From Rose: "I was so happy when I received the email notification this morning that I have passed all of the CPA exam!!! It's been 9 years, from the time when I sat for the old exams, and gave up and then re-picked up and joined the (big name) CPA review course and paid my hard-earned money. Undoubtedly, the CPA review course material was good but expensive. And one day when I tried the (big name) CD, I was informed that the license was expired and I needed to pay again. I was mad since I had paid thousand dollars already. I searched for alternatives on the website and found CPAreviewforfree. I can't believe that this is such a good website with loads of questions and explanations. I made use of this website and finally passed all exams. Thank you, Joe, and I will definitely recommend this website to my friends."
(4) - As always, do remember that you can very easily unsubscribe from this email service. Just scroll to the bottom of this email lesson and click on the button marked "unsubscribe."
(5) - They are playing a lot of basketball these days. In fact, "March Madness" is just around the corner. I rarely pay attention to many games but, when I do, I am fascinated to watch the players when it comes down to the very end of a close contest. I always want to see which player is willing to take the shot that will win (or lose) the game.
That is tough. Anyone can shoot when it is early in the game and not much is on the line. It is much more difficult to come down the court with the clock ticking down 9..8..7.. and this last shot is going to make the difference in the whole game. At that point, many players prefer to pass off and let someone else take that shot. The fear of failure just gets to be overwhelming.
John Havlicek was one of the greatest basketball players ever. I remember reading that he had said that everyone wanted the ball early in the game. "Throw ME the ball!!" they would yell. However, at the very end of a close game, some of those same players would start looking the other way just so you would not throw the ball to them.
They were so afraid of failure that they refused to even try.
When it comes to the CPA Exam, I talk with a lot of people who start becoming obsessed by the chance they might fail. It is easy to start feeling scared. We can all understand how a candidate can become a bit tense. You work hard for months and every time you miss even one little question in practice, it reminds you that you are not perfect, that nothing is ever guaranteed.
The problem is that your mind can start focusing on the wrong things. You can become frozen by the chance of failure. Your mind can start to close down. Never never never think about the word "failure." Wash it out of your mind. The only thing that you should be thinking about is adding points and getting better. That is the thing that I want your brain to focus on as you prepare for the CPA Exam: adding points and getting better.
Read a question on CPAreviewforFREE, work that problem, read the answer, and then take notes if you missed the question. Getting better and adding points.
Always remember that the one thing you have control over is the work you are doing RIGHT NOW to add knowledge and gain points. It is easy to let the fear of failure slow you down. As championship athletes will always tell you:
"You miss 100 percent of the shots you never take."
The only way to ensure that you are going to be a complete failure is just to quit trying. As long as you are working, you are moving toward success.
You will always miss 100 percent of the questions that you don't attempt.
You will always miss 100 percent of the material that you don't cover.
You will always fail 100 percent of the times that you don't try.
Never think about failure. Being negative never helps anyone to get better.
(6) - Speaking of basketball, I was watching a game on Sunday afternoon and Michael Jordan was in the crowd. It seems to be the opinion of most sports people that Jordan was the greatest basketball player ever. Quite an accomplishment. We usually think about people like that as just so talented that it was inevitable that they would be good.
That is not necessarily so. Talent alone is never enough to accomplish much of anything. Effort is always more important than anything else you bring to any endeavor. I'll take effort over talent any day.
I remember hearing Jordan talk once about how he had managed to become such a great player. To me, his response could certainly apply to the CPA Exam and a whole lot of other activities rather than just to basketball.
"If you run into a wall, don't turn around and give up.
Figure out how to climb it, go through it, or work around it."
Do you turn around and give up or do you keep looking for a way to get past the problem?
It seems to me that preparing for the CPA Exam is all about running into walls and how you react to them. Give up? or work to get around them? In truth, which is the real you? When things get tough, will you quit or will you work your way around all of the various walls that impede your progress?
Things will always get tough so you need to think how you are going to respond. Are you a winner?
Whenever you start to study a new tough topic, it will always seem like you are crashing into a brick wall. It is easy to feel overwhelmed and confused. Every time you work a complicated question and get it wrong, you may feel like you've hit that wall full force once again. Each night when you are tired but still need to bear down and study for several hours, you may understand the true meaning of the term "hitting the wall."
As Michael Jordan says, every time you run into one of those walls, you have a choice: give up or figure out how to climb it, go through it, or work around it.
In many ways, you can envision your study time as a long series of walls extending across your path off into the distance as far as you can see. Some of these walls are relatively low and more of a nuisance that anything else. Others, though, are big and may test your abilities to withstand pressure. If you can work around or over or through each of these walls and never let "I quit" enter your mind, there is no reason why you cannot nail down the CPA Exam. Not one reason at all.
Here's a tip: Don't worry about passing the CPA Exam - worry about getting around the next wall that is in your path.
How will you successfully make it to the other side of the next wall that you encounter????? The answer may well determine how quickly you are going to pass the CPA Exam.
(7) - A little practice; let's add some points.
Financial Accounting and Reporting (I taught Advanced Accounting here at the University last week for a friend. This is one of the questions that we worked.)
The City of Sanborn levies an income tax. In Year One, city officials anticipate that the amount of this tax will be $350,000 and will be collected evenly over the period from January 1, Year Two to April 15, Year Two ($100,000 per month and $50,000 for the half month). City officials have a policy that any money collected within 60 days is viewed as available. How much of the revenue should be recognized at the end of Year One?
A - $200,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $200,000 in government-wide financial statements and $350,000 in fund-based financial statements
C - $350,000 in government-wide financial statements and $200,000 in fund-based financial statements
B - $350,000 in government-wide financial statements and $350,000 in fund-based financial statements
Answer is C
In state and local government accounting, an income tax (and a sales tax) are known as derived tax revenues. They are taxes on events (the earning of income or the making of a sale). A derived tax revenue is recognized when the taxed event occurs. The income here was earned in Year One so the income tax is recognized within the government-wide financial statements (which use accrual accounting) in Year One. In fund-based financial statements (for the governmental funds), modified accrual accounting is applied so that an additional standard must be met for revenue recognition. The resources must also be available quickly enough so that the money can be used to pay current obligations of Year One. The city has a policy that "available" is identified as anything received in 60 days. Thus, since $100,000 is collected each month, only the $200,000 to be collected in the first two months of Year Two is viewed as available to pay for Year One expenditures.
Auditing and Attestation
The Haynsworth CPA firm is auditing Agnestic Corporation. The auditors have come to the conclusion that certain illegal acts may have occurred during the year so that additional testing will be necessary. Which of the following is most likely to have led to this assessment?
A - The design of the company's internal control policies and procedures has not been revised in four years.
B - Related party transactions have occurred throughout the year.
C - Confirmation of accounts receivable indicates that several recorded balances appear to be understated.
D - Checks were written to "cash" during the year despite policies to the contrary.
Answer is D.
Internal control policies and procedures only need to be revised when they are no longer functioning as intended. A well-designed system might not need to be revised often. Related party transactions are common in many companies and do not, by themselves, indicate any type of illegal activities. Confirmation of receivables which show a pattern of overstatement can possibly indicate that money has been received and then stolen by company employees. However, understatements are more likely to occur because of slowness in posting new sales transactions. Checks should never be written to "cash" because documenting the use made of the money can be very difficult. Hence, checks can be written to "cash" to access money that will then be used for illegal activities.
Regulation
Ms. Polly Atkini collects $1,000 in dividends from a company located in Italy. A foreign tax of $93 was withheld on this income by the local authorities. Ms. Atkini is attempting to determine the impact of this foreign tax when she is filing her United States income tax return for this year. Which of the following is correct?
A - The foreign tax cannot be taken as either an itemized deduction or as a tax credit.
B - The foreign tax must be taken as an itemized deduction.
C - The foreign tax must be taken as a tax credit.
D - The foreign tax can be taken as either an itemized deduction or as a tax credit based on her preference.
Answer is D
The payment of a foreign income tax is one of the few items in federal income tax rules that an item can be used at either of two places. Normally, the benefit is larger if a credit is taken but the taxpayer is also allowed the option of using the amount as an itemized deduction.
BEC
The Bresson Company has recently changed the way that it handles customer service calls based on a benchmarking process. Which of the following is most likely to have taken place?
A - The company studied the methods used by its biggest competitors and found them to be superior to its own.
B - The company hired a consulting firm to smooth out the process that had been used in the past.
C - The company polled its customers to find weaknesses and then took their advice in making changes.
D - The company flowcharted all of its systems to find inherent weaknesses.
Answer is A.
The term "benchmarking" refers to a process of looking at other similar organizations to locate their best practices and then attempt to replicate them to increase its own efficiency. In effect, the company learns from the time and work that has already been carried out by the other organization.
Now is the time to start adding points. Remember, you only have one goal-to add points and get better. As long as you can stay focused on that goal, there is no reason why you cannot pass the CPA Exam in 2009.
Go Get It!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
Monday, March 2, 2009
Make Your Knowledge Solid -- CPA Review for FREE
Filling in the Holes in Swiss Cheese Knowledge
From: Joe
(1) - It is Saturday night in Richmond, Virginia. Do you think the guys who run those great big CPA review courses and who want to charge you thousands of dollars (for pretty mediocre products) are working tonight? Are any of them trying to help YOU tonight? Do they even care if YOU pass? Think about that before you start mailing in those checks.
I have always felt that, if you really really really want to be successful, you should be willing to work when the other guy is not working. It gives you a chance to get ahead. Okay, I am going downstairs a little later tonight to watch a movie with my wife but, for right now, I'm working to help YOU pass the CPA Exam. How many other review courses can say that?
If you are only willing to work when it is easy, if you are only willing to work when it is fun, success is not necessarily your number one priority.
So, if you are planning on taking the CPA Exam in the near future, I hope you are adding a point or two tonight. You don't have to work all the time but it is nice to think: "I'm sitting here adding points when everyone else is wasting their time."
(2) - Quick story that I found funny. I was talking with one of the accounting majors at the University on Thursday. Here was her story:
"I have a friend who is a math major at another university. She has never even taken an accounting course. She doesn't know a thing about debits and credits. However, before every test that she takes, she goes online to YouTube and watches your 'Believe in Yourself' video. She claims that it gets her pumped up and ready to go do a great job on her tests. She watches it all the time."
I laughed and laughed. I don't remember which of the videos is the "Believe in Yourself" video but I was delighted to be helping a math major.
(If you go to YouTube and search for CPAreviewforFREE and you can find out which one it is.)
It is amazing how many people you can influence when you just try to help people believe in themselves. Nothing in life beats a little positive reinforcement. You always strengthen the people around you when you pat someone on the back and say "you are doing a great job; you really have a lot of great talent." Try it. Don't wait for someone else to do it. You do it. Pass it on.
(3) - I received a number of neat emails this week. Here are a few that I wanted to pass along.
From Erik: "It's been a long six months, but I've done it . I PASSED THE CPA EXAM! I logged on early this morning to check my REG score and saw a magical 89. I couldn't believe it. I want to thank you again for cpareviewforfree.com, which I used (in combination with a review book) for all four parts of the exam (98 on FAR in August, 99 on AUD in October, 92 on BEC in November, 89 on REG in January). It is a tremendous resource, and I know it helped me immensely in this accomplishment. Thanks again!"
From NA: "Thank you so much for your website!!! I just received my score for the FARS section and it was amazing! I just know that I could not have done it without your help. I used a CPA review books & CDs to organize my studying but if it wasn't for your questions I would not have had the confidence and strategies to take the exam as well as I did. This was the first section I've taken so passing it definitely gives me the encouragement I need to study for the other 3 sections. Thank you again and I am definitely recommending your website to anyone I know planning to study for the CPA."
From Donna: "Just a quick note to say Thank you for your encouragement and your free questions. I went through your questions and took my Audit test in January. I passed it, after two earlier attempts at 74 points! I enjoy reading your newsletter and respect you for writing such long newsletters."
THANKS to everyone who takes the time to write. I love reading your notes.
(4) - Always remember that you can unsubscribe at any time you wish. Just scroll down to the end of this email or any of our emails and click on the appropriate box.
And, if anyone ever asks you that all-important question: "How do you get those nifty email lessons from Joe Hoyle?" the answer is easy. You go to www.CPAreviewforFREE.com and register. In the registration process, there is a box that asks if you want to get additional materials (these email lessons). Make sure that box is checked. That's all it takes.
(5) - This semester, I teach one class of introductory accounting and two classes of intermediate accounting II. On Wednesday, in my intro class, we went over FIFO and LIFO. On that same day, in the intermediate classes, we went over capital leases (from the lessee's perspective).
We had a good day in all of the classes and, after each, the students were all smiles. Unfortunately, that can be a bad sign. The students were able to FOLLOW what we were doing in class and that led them to make the assumption that they could DO it themselves. In fact, students will often blurt out: I saw exactly what you just did (true) and I can do that myself now (maybe or maybe not). That can be a dangerous assumption in an accounting class.
So, on Friday, in the subsequent class, I brought in practice problems. I had changed a few of the words from Wednesday and some of the numbers and altered the situations slightly but the problems were not radically different than we had done a mere 48 hours before (with all smiles). This time, though, I did not lead them through the problems but rather let them go on their own. I put the students into teams of 2 or 3 and gave them the practice problems and told them that it was Friday and we could all go home when they had worked those questions successfully.
It was amazing how quickly those smiles turned into frowns. After 20 minutes, most of the students were completely lost. Some could not even get the problems started, let alone finished.
What happened? Did they all get stupid between Wednesday and Friday? Did they forget everything? Of course not.
I finally stopped the chaos and told them the following story that comes from 38 years of being a college professor.
--When you go over something, if it is well explained, it can be easy to follow. It is like following a well-worn path. That just proves that you can follow what someone else has done. It does not mean that you can do the problem yourself.
--After a topic is first covered, your knowledge is like a block of Swiss cheese. It looks solid; it looks substantial. However, it is full of holes. And, at first, those holes are gigantic. Any person who knows how to write a good test question can find those holes very easily.
--So, on Wednesday, the students thought they had solid knowledge but I needed for them to understand there were still a lot of holes in that knowledge. I needed for them to keep working rather than sit around congratulating themselves.
--Of course, my point was that every time they worked a problem, especially a slightly different problem, those holes begin to get smaller. If they keep practicing, quite quickly that Swiss cheese knowledge becomes completely solid. Every question they work helps to fill in a hole. It is not enough to follow an explanation; you have to know that you can do the problem yourself.
Unfortunately, college students have a tendency to quit too soon. They often move on before they get all the holes filled in. They then come to a test and the questions are written to find the holes. The students then come to my office, often in tears, with the following story: "I knew that material until I got to the test." I don't want to be mean but the truth is:
---their knowledge looked solid but really did have holes.
---I wrote questions that exposed those holes.
---If they had just worked more problems in advance, those holes would have gone away.
That is exactly why I wanted www.CPAreviewforFREE.com to have thousands of questions and answers. I firmly believe this is the best way to fill in the holes in your knowledge. Work problem and read the answers. Work problems and read the answers.
You can pass this exam. You can get the 75 points you need. But you cannot quit your study until you have knowledge without any serious holes. And, the only way to do that is keep working questions and keep reading those answers and keep taking 10 word notes on the ones you missed. That will do it.
Don't fool yourself. Don't walk into the testing center with Swiss cheese knowledge that has a whole lot of holes. If you seriously want to pass, you have to put in the hours of practice that are necessary to gain the knowledge that will eliminate the holes in your knowledge. Then, when you take the CPA Exam, it is NOT a question of luck. No matter what questions you get, you will be able to answer enough to get that magic grade of 75.
(6) - Time for some practice.
Financial Accounting and Reporting-it seems only fair that I give you a version of the question that I asked my intermediate accounting II students yesterday. With practice, they can get it and so can you.
On January 1, Year One, the Hermione Company leases a machine for $14,000 per year for five years with the first payment made immediately. The asset has an expected life of six years. At the end of five years, Hermione can buy the machine for $5,000 which is viewed as a bargain. The lessor's implicit interest rate (which is known by Hermione) is 10 percent per year. Hermione's own incremental borrowing rate is 6 percent. The present value of $1 in five years at 6 percent is .75 and at 10 percent is .62. The present value of an ordinary annuity of $1 for five years at 6 percent is 4.21 and at 10 percent is 3.79. The present value of an annuity due of $1 for five years at 6 percent is 4.47 and at 10 percent is 4.17. How much expense should Hermione recognize in Year One?
A-$14,000
B-$14,195
C-$15,035
D-$16,406
Answer is B
Because of the bargain purchase option, this a capital lease and the cash flows are recorded at present value. The incremental borrowing rate of 6 percent is used because it is lower than the implicit rate. The first payment is made immediately so the $14,000 payments represent an annuity due. The $5,000 purchase option is a single amount at the end of the fifth year. Present value is $14,000 times 4.47 or $62,580 plus $5,000 times .75 or $3,750 for a total present value of $66,330. Because of the bargain purchase option, depreciation each year will be $11,055 ($66,330/6 years). The lessee expects to use the asset for its entire life. The initial liability is $66,330 but that amount is reduced immediately by the first $14,000 payment to $52,330. When multiplied by the 6 percent annual rate, interest expense of $3,140 is reported for Year One. Total expense is $11,055 (depreciation) plus $3,140 (interest) for a total of $14,195.
Regulation
The Weasley Company had sales in Year One of $500,000 plus dividend income from other domestic corporations of $100,000. The company had ordinary and necessary business expenses of $400,000. All dividends came from companies in which Weasley held 8 percent ownership. The company also made charitable contributions of $40,000 during the year. What is its taxable income?
A-$90,000
B-$100,000
C-$110,000
D-$117,000
Answer is C
The company's operating income is $200,000 ($500,000 plus $100,000 less $400,000). However, the company also gets a deduction for charitable contributions even though it is not an ordinary and necessary business expense. The amount of that deduction in any one year is limited to 10 percent of this operating income figure or $20,000 in this problem (10 percent of $200,000). In addition, because Weasley holds ownership of less than 20 percent of the domestic companies paying dividends, a 70 percent dividends received deduction is available or $70,000. Thus, taxable income is $500,000 plus $100,000 less $400,000 less $20,000 less $70,000 or $110,000.
Auditing and Attestation
A CPA is performing an audit examination of Malfoy, Inc. The CPA has already done the work necessary to gain a general understanding of the company's internal control. The CPA is now looking at the internal control policies and procedures within the accounting system for accounts receivable. The CPA has decided to perform a test of controls in this area. Which is the following is least likely to be true?
A-The system contains an excess number of possible problems so that testing is required.
B-The system appears to be well designed.
C-The CPA hopes to reduce the amount of substantive testing to be necessary.
D-The CPA hopes to reduce overall audit time.
Answer is A
Once a general understanding of internal control has been obtained, the auditor only needs to test specific controls if it is efficient to do so. If the system is well designed, testing specific controls to verify their efficiency can lead to a reduction in the assessed level of control risk. Hopefully, the amount of substantive testing can then be reduced because the desired level of detection risk does not need to be so low. This decrease in substantive testing can lead, possibly, to an overall reduction in the time and cost of performing the audit. If the internal control appears to be weak, no benefit is gained by testing those controls further. It is not likely that the weaknesses can be overcome.
BEC
The Snape Corporation plans to raise $1 million for operating purposes by either issuing a number of bonds to the public or by issuing shares of common stock. Which of the following is not an advantage of issuing the bonds?
A-It is possible for owners to have an increase in profits without making any additional investment.
B-There is less risk associated with the bonds.
C-The cost of bonds is lowered because the resulting interest is deductible for tax purposes.
D-If inflation results between the date of issuance and the maturity date, the money paid back is worth less than the money originally received.
Answer is B
All debt raises the risk of company bankruptcy. If a cash flow problem arises and debts cannot be paid as they come due, the possibility of bankruptcy is always a possibility. However, debts do have advantages. If the company can use the money to increase income by more than the cost of the interest, this leveraging increases net income without any additional funds from the owners. Furthermore, interest expense is tax deductible so that its cost is reduced significantly (whereas dividend payouts are not tax deductible). Finally, if inflation takes place (which is common), the dollars that are eventually used to repay the bonds are worth less than the ones that were received on the day of issuance-a financial benefit.
Have a great week.
Believe in yourself (it really helps).
And
Go out there and help others to believe in themselves.
Joe Hoyle
Co-Founder
CPA Review for FREE
From: Joe
(1) - It is Saturday night in Richmond, Virginia. Do you think the guys who run those great big CPA review courses and who want to charge you thousands of dollars (for pretty mediocre products) are working tonight? Are any of them trying to help YOU tonight? Do they even care if YOU pass? Think about that before you start mailing in those checks.
I have always felt that, if you really really really want to be successful, you should be willing to work when the other guy is not working. It gives you a chance to get ahead. Okay, I am going downstairs a little later tonight to watch a movie with my wife but, for right now, I'm working to help YOU pass the CPA Exam. How many other review courses can say that?
If you are only willing to work when it is easy, if you are only willing to work when it is fun, success is not necessarily your number one priority.
So, if you are planning on taking the CPA Exam in the near future, I hope you are adding a point or two tonight. You don't have to work all the time but it is nice to think: "I'm sitting here adding points when everyone else is wasting their time."
(2) - Quick story that I found funny. I was talking with one of the accounting majors at the University on Thursday. Here was her story:
"I have a friend who is a math major at another university. She has never even taken an accounting course. She doesn't know a thing about debits and credits. However, before every test that she takes, she goes online to YouTube and watches your 'Believe in Yourself' video. She claims that it gets her pumped up and ready to go do a great job on her tests. She watches it all the time."
I laughed and laughed. I don't remember which of the videos is the "Believe in Yourself" video but I was delighted to be helping a math major.
(If you go to YouTube and search for CPAreviewforFREE and you can find out which one it is.)
It is amazing how many people you can influence when you just try to help people believe in themselves. Nothing in life beats a little positive reinforcement. You always strengthen the people around you when you pat someone on the back and say "you are doing a great job; you really have a lot of great talent." Try it. Don't wait for someone else to do it. You do it. Pass it on.
(3) - I received a number of neat emails this week. Here are a few that I wanted to pass along.
From Erik: "It's been a long six months, but I've done it . I PASSED THE CPA EXAM! I logged on early this morning to check my REG score and saw a magical 89. I couldn't believe it. I want to thank you again for cpareviewforfree.com, which I used (in combination with a review book) for all four parts of the exam (98 on FAR in August, 99 on AUD in October, 92 on BEC in November, 89 on REG in January). It is a tremendous resource, and I know it helped me immensely in this accomplishment. Thanks again!"
From NA: "Thank you so much for your website!!! I just received my score for the FARS section and it was amazing! I just know that I could not have done it without your help. I used a CPA review books & CDs to organize my studying but if it wasn't for your questions I would not have had the confidence and strategies to take the exam as well as I did. This was the first section I've taken so passing it definitely gives me the encouragement I need to study for the other 3 sections. Thank you again and I am definitely recommending your website to anyone I know planning to study for the CPA."
From Donna: "Just a quick note to say Thank you for your encouragement and your free questions. I went through your questions and took my Audit test in January. I passed it, after two earlier attempts at 74 points! I enjoy reading your newsletter and respect you for writing such long newsletters."
THANKS to everyone who takes the time to write. I love reading your notes.
(4) - Always remember that you can unsubscribe at any time you wish. Just scroll down to the end of this email or any of our emails and click on the appropriate box.
And, if anyone ever asks you that all-important question: "How do you get those nifty email lessons from Joe Hoyle?" the answer is easy. You go to www.CPAreviewforFREE.com and register. In the registration process, there is a box that asks if you want to get additional materials (these email lessons). Make sure that box is checked. That's all it takes.
(5) - This semester, I teach one class of introductory accounting and two classes of intermediate accounting II. On Wednesday, in my intro class, we went over FIFO and LIFO. On that same day, in the intermediate classes, we went over capital leases (from the lessee's perspective).
We had a good day in all of the classes and, after each, the students were all smiles. Unfortunately, that can be a bad sign. The students were able to FOLLOW what we were doing in class and that led them to make the assumption that they could DO it themselves. In fact, students will often blurt out: I saw exactly what you just did (true) and I can do that myself now (maybe or maybe not). That can be a dangerous assumption in an accounting class.
So, on Friday, in the subsequent class, I brought in practice problems. I had changed a few of the words from Wednesday and some of the numbers and altered the situations slightly but the problems were not radically different than we had done a mere 48 hours before (with all smiles). This time, though, I did not lead them through the problems but rather let them go on their own. I put the students into teams of 2 or 3 and gave them the practice problems and told them that it was Friday and we could all go home when they had worked those questions successfully.
It was amazing how quickly those smiles turned into frowns. After 20 minutes, most of the students were completely lost. Some could not even get the problems started, let alone finished.
What happened? Did they all get stupid between Wednesday and Friday? Did they forget everything? Of course not.
I finally stopped the chaos and told them the following story that comes from 38 years of being a college professor.
--When you go over something, if it is well explained, it can be easy to follow. It is like following a well-worn path. That just proves that you can follow what someone else has done. It does not mean that you can do the problem yourself.
--After a topic is first covered, your knowledge is like a block of Swiss cheese. It looks solid; it looks substantial. However, it is full of holes. And, at first, those holes are gigantic. Any person who knows how to write a good test question can find those holes very easily.
--So, on Wednesday, the students thought they had solid knowledge but I needed for them to understand there were still a lot of holes in that knowledge. I needed for them to keep working rather than sit around congratulating themselves.
--Of course, my point was that every time they worked a problem, especially a slightly different problem, those holes begin to get smaller. If they keep practicing, quite quickly that Swiss cheese knowledge becomes completely solid. Every question they work helps to fill in a hole. It is not enough to follow an explanation; you have to know that you can do the problem yourself.
Unfortunately, college students have a tendency to quit too soon. They often move on before they get all the holes filled in. They then come to a test and the questions are written to find the holes. The students then come to my office, often in tears, with the following story: "I knew that material until I got to the test." I don't want to be mean but the truth is:
---their knowledge looked solid but really did have holes.
---I wrote questions that exposed those holes.
---If they had just worked more problems in advance, those holes would have gone away.
That is exactly why I wanted www.CPAreviewforFREE.com to have thousands of questions and answers. I firmly believe this is the best way to fill in the holes in your knowledge. Work problem and read the answers. Work problems and read the answers.
You can pass this exam. You can get the 75 points you need. But you cannot quit your study until you have knowledge without any serious holes. And, the only way to do that is keep working questions and keep reading those answers and keep taking 10 word notes on the ones you missed. That will do it.
Don't fool yourself. Don't walk into the testing center with Swiss cheese knowledge that has a whole lot of holes. If you seriously want to pass, you have to put in the hours of practice that are necessary to gain the knowledge that will eliminate the holes in your knowledge. Then, when you take the CPA Exam, it is NOT a question of luck. No matter what questions you get, you will be able to answer enough to get that magic grade of 75.
(6) - Time for some practice.
Financial Accounting and Reporting-it seems only fair that I give you a version of the question that I asked my intermediate accounting II students yesterday. With practice, they can get it and so can you.
On January 1, Year One, the Hermione Company leases a machine for $14,000 per year for five years with the first payment made immediately. The asset has an expected life of six years. At the end of five years, Hermione can buy the machine for $5,000 which is viewed as a bargain. The lessor's implicit interest rate (which is known by Hermione) is 10 percent per year. Hermione's own incremental borrowing rate is 6 percent. The present value of $1 in five years at 6 percent is .75 and at 10 percent is .62. The present value of an ordinary annuity of $1 for five years at 6 percent is 4.21 and at 10 percent is 3.79. The present value of an annuity due of $1 for five years at 6 percent is 4.47 and at 10 percent is 4.17. How much expense should Hermione recognize in Year One?
A-$14,000
B-$14,195
C-$15,035
D-$16,406
Answer is B
Because of the bargain purchase option, this a capital lease and the cash flows are recorded at present value. The incremental borrowing rate of 6 percent is used because it is lower than the implicit rate. The first payment is made immediately so the $14,000 payments represent an annuity due. The $5,000 purchase option is a single amount at the end of the fifth year. Present value is $14,000 times 4.47 or $62,580 plus $5,000 times .75 or $3,750 for a total present value of $66,330. Because of the bargain purchase option, depreciation each year will be $11,055 ($66,330/6 years). The lessee expects to use the asset for its entire life. The initial liability is $66,330 but that amount is reduced immediately by the first $14,000 payment to $52,330. When multiplied by the 6 percent annual rate, interest expense of $3,140 is reported for Year One. Total expense is $11,055 (depreciation) plus $3,140 (interest) for a total of $14,195.
Regulation
The Weasley Company had sales in Year One of $500,000 plus dividend income from other domestic corporations of $100,000. The company had ordinary and necessary business expenses of $400,000. All dividends came from companies in which Weasley held 8 percent ownership. The company also made charitable contributions of $40,000 during the year. What is its taxable income?
A-$90,000
B-$100,000
C-$110,000
D-$117,000
Answer is C
The company's operating income is $200,000 ($500,000 plus $100,000 less $400,000). However, the company also gets a deduction for charitable contributions even though it is not an ordinary and necessary business expense. The amount of that deduction in any one year is limited to 10 percent of this operating income figure or $20,000 in this problem (10 percent of $200,000). In addition, because Weasley holds ownership of less than 20 percent of the domestic companies paying dividends, a 70 percent dividends received deduction is available or $70,000. Thus, taxable income is $500,000 plus $100,000 less $400,000 less $20,000 less $70,000 or $110,000.
Auditing and Attestation
A CPA is performing an audit examination of Malfoy, Inc. The CPA has already done the work necessary to gain a general understanding of the company's internal control. The CPA is now looking at the internal control policies and procedures within the accounting system for accounts receivable. The CPA has decided to perform a test of controls in this area. Which is the following is least likely to be true?
A-The system contains an excess number of possible problems so that testing is required.
B-The system appears to be well designed.
C-The CPA hopes to reduce the amount of substantive testing to be necessary.
D-The CPA hopes to reduce overall audit time.
Answer is A
Once a general understanding of internal control has been obtained, the auditor only needs to test specific controls if it is efficient to do so. If the system is well designed, testing specific controls to verify their efficiency can lead to a reduction in the assessed level of control risk. Hopefully, the amount of substantive testing can then be reduced because the desired level of detection risk does not need to be so low. This decrease in substantive testing can lead, possibly, to an overall reduction in the time and cost of performing the audit. If the internal control appears to be weak, no benefit is gained by testing those controls further. It is not likely that the weaknesses can be overcome.
BEC
The Snape Corporation plans to raise $1 million for operating purposes by either issuing a number of bonds to the public or by issuing shares of common stock. Which of the following is not an advantage of issuing the bonds?
A-It is possible for owners to have an increase in profits without making any additional investment.
B-There is less risk associated with the bonds.
C-The cost of bonds is lowered because the resulting interest is deductible for tax purposes.
D-If inflation results between the date of issuance and the maturity date, the money paid back is worth less than the money originally received.
Answer is B
All debt raises the risk of company bankruptcy. If a cash flow problem arises and debts cannot be paid as they come due, the possibility of bankruptcy is always a possibility. However, debts do have advantages. If the company can use the money to increase income by more than the cost of the interest, this leveraging increases net income without any additional funds from the owners. Furthermore, interest expense is tax deductible so that its cost is reduced significantly (whereas dividend payouts are not tax deductible). Finally, if inflation takes place (which is common), the dollars that are eventually used to repay the bonds are worth less than the ones that were received on the day of issuance-a financial benefit.
Have a great week.
Believe in yourself (it really helps).
And
Go out there and help others to believe in themselves.
Joe Hoyle
Co-Founder
CPA Review for FREE
Thursday, February 19, 2009
Dreams Are Worth Pursuing -- CPA Review For FREE
What Does It Really Take To Be Successful
From: Joe
(1) - I realize that a lot of our readers are gearing up to take a part or two of the CPA Exam here at the end of the January-February window. A couple of last minute pieces of advice:
---Work as hard as you can here at the end. Every point you add might be the one point that gets you from 74 to 75.
---Try to review everything one final time between now and the exam so that it is all fresh in your mind. Anything you review now will still be in your head when you take the exam.
---Read the information carefully that came with your Notice To Schedule so you know everything you can about taking the exam. You don't want any surprises at the testing center.
---Think about how much time you have on the exam and how you want to allocate that time. Remember that time management is essential on the CPA Exam.
---Get as relaxed as you can. A small (very small) amount of tension can keep you focused. However, anything more than a small amount of tension ties you in knots and keeps you from doing your best.
---Get a normal amount of sleep the night before the exam. Taking the exam when you are groggy is not a smart move.
---Never think "tired" while you are going through the exam. Okay, that takes discipline but you can do it. You want to have as much energy and concentration on the last question as you had on the first.
---If you see a question that you don't know, don't get rattled. Eliminate as many answers as you can and make a guess. Remember that (except in BEC) about 15-20 percent of the questions are not even graded. They are being tested. Assume the weird questions are the ones not being graded.
---If you've put in the hours, have some confidence. There is no reason that you cannot pass. Confidence is one of the world's best characteristics. I always say that you want to be confident without being cocky.
Finally, if you do take the exam in the near future, or if you have taken it recently, hit reply and drop me a note and tell me how it went. You cannot talk about specific questions-just tell me about the experience in general.
And, tell me: what is the one piece of advice that you would give your best friend if he or she were getting ready to take the CPA Exam?
(2) - I have said this before but I find that I must say it again: last week was our most successful one yet on www.CPAreviewforFREE.com!!!! We had more visitors than in any other week of our entire history. Moreover, we have now had well over 1.7 million page views. We are not to our 10 million goal (yet) but we are certainly getting there. And, that is entirely thanks to you. We do not advertise; we have no money to advertise. That is the only way we can afford to stay free. We depend on you to spread the word. How did you hear about www.CPAreviewforFREE.com? More than likely someone was nice enough to tell you or forward one of our lessons to you or the like. Now, it is your turn. I do hope you'll take a second to tell someone else about us. We love providing thousands of questions for free but we have to depend on you to spread the word.
One of my favorite parts of CPA Review for FREE is getting to work with people all around the world. As you would imagine, a vast majority of our visitors come from inside of the US. However, last week alone, we had visitors from 78 different countries. That's like the United Nations. Last week, the countries with the most visitors to our site were: Canada, South Korea, the Philippines, India, Saudi Arabia, the United Arab Emirates, the Bahamas, Australia, and China. No matter where you are from, everyone is more than welcome to use the information that we provide at www.CPAreviewforFREE.com.
(3) - I am currently reading a book that I find fascinating. It is "Born Standing Up," an autobiography written by the comedian Steve Martin. He talks about growing up in a working class family and, through years of hard work, becoming a famous entertainer.
In reading this book, Martin has said two things that I thought were so interesting that I stopped immediately and wrote them down.
"Perseverance is a great substitute for talent." Martin talks about how he performed his act in hundreds of tiny clubs for about a decade. In those places, a lot of the customers did not think he was funny at all. The feedback was not always encouraging. But he persevered and finally when he was almost broke and about ready to quit, he became a big star. How many of us would have worked for a short while and then gotten totally discouraged and said "I give up. I obviously do not have what it takes to make it as a comedian. I need to quit and get a real job and settle down."
As everyone knows by now, I have worked for nearly 30 years with thousands upon thousands of CPA candidates. I never fail to be surprised by how many people give up on their dreams so quickly. "I want to be a CPA but if I don't pass in a couple of months I'm just giving up." I've heard that line way too many times in my life.
Golly, with that type of attitude, Christopher Columbus would not have made it very far beyond the harbor.
I know everyone wants to get the exam out of the way but this is not a speed race. Failing the CPA Exam does not make you the subject of public ridicule. Taking awhile to pass the CPA Exam does not mean that you should give up on your dream of becoming a CPA and take up dog catching.
Dreams are worth pursuing.
I worry that people put too much pressure on themselves to pass the exam in record time. I have known people who have passed quickly and I have known people who passed slowly (very slowly, in some cases). To be honest, I have never noticed that the people who took longer to pass had a poorer career. In fact, in some cases, they moved on to become quite successful.
We have a fast-paced society, one that often moves at break-neck speed. At times, it is reassuring to know that "Perseverance is a great substitute for talent." I don't know how it is going for you at this very moment. Just remember: if you really want to pass the CPA Exam, then keep working at it because you will pass.
And, as soon as you pass, no one is ever going to ask you how long it took or how many points you got.
When you pass, people will simply come up to you and say: "Congratulations!!! I hear you passed the CPA Exam. I have always been told that the CPA Exam can be a bear; you must really be smart to have passed it when so many people fail." Trust me: that is going to feel good.
The other thing that Steve Martin said that I wrote down was the following. And, I really do think this applies to a lot of successful people. It is one of those weird situations where having problems in life can actually make you a better person. "I was not naturally talented. I did not sing, dance, or act. But working around that minor detail made me inventive." What a great attitude!!!
None of us are as smart as we would like to be.
None of us remember as much from our college courses as we feel we should.
None of us is ever a perfect test-taker.
However, we can look at those minor details as huge road-blocks to prevent us from ever be successful. A lot of folks do look at themselves and their talents in that way.
Or
We can look at those minor details as something we recognize and understand and will just work around AND the working around will actually make us better at what we are doing. Too much talent can actually be bad because it makes us lazy and careless and can prevent us from developing strong habits. A little shortage of talent can actually make us stronger people. It makes us more inventive. Our strength can come from our weakness.
Yes, we have to learn to compensate; we have to learn how best to deal with our shortcomings but, as Steve Martin says, that just makes us more inventive.
So, as you are studying, think of ways that you can take notes in a better fashion or consider new ways of reviewing material that might help you become a better student. Don't just say "darn, I'm just no good at this." That attitude does not do you one bit of good. That is a road block that is going to keep you from success. Instead, ask yourself: "Okay, I missed this question. What can I do to make sure that I will get it right the next time? I know myself better than anyone else. What can I do to get this concept in my head? Be inventive.
Perseverance
And
Inventive
When you are thinking about passing the CPA Exam, those are two words that can go a long way in helping you gain the success that you want.
(4) - As always, if you want to unsubscribe from these email lessons, just scroll to the bottom and click on the link. That takes you off. We love having you but you have the right to come and go as you please.
At www.CPAreviewforFREE.com, we are delighted to offer you
--thousands of excellent questions and well-written answers.
--instructions on using our website to prepare yourself to pass the CPA Exam.
--information about the CPA Exam itself.
This is the kind of information you need to make sure you are ready when you walk into the testing site. AND IT IS ALL FREE!!!!
(5) - In these lessons, I often say that the CPA Exam is a mile wide and an inch deep. Along those same lines, I have said that the questions on the CPA Exam are actually easier than the questions that I give in my intermediate accounting tests. So, even if you did not do great in your college classes, there is no reason why you cannot pass the CPA Exam. In all honesty, the Exam really is all about Perseverance more than any other skill or quality.
So, I thought I would show you my point today by giving a demonstration. I gave a test to my Intermediate Accounting II classes last week. I want to take the first two questions on that test (there were seven questions in total) and compare how I asked the question to how I think those same questions would have been asked on the CPA Exam. Remember, you are preparing for the CPA Exam, not for Intermediate Accounting. This comparison might well help you understand how to prepare yourself for the exam.
Question One on Intermediate Accounting Test: On January 1, Year One, the Robious Company issues a 5 year $50,000 bond that pays 5 percent interest each year starting on December 31, Year One. The negotiated rate is 8 percent per year. The bond is issued for $43,900. The accountant was informed of the transaction and the cash payment of $43,900 but was erroneously told that the negotiated rate had been 10 percent. The accountant made the December 31, Year One and Year Two entries based on that information. In Year Three, the error was discovered. Assume the present value of $1 in five years at 8 percent is .68 and at 10 percent is .45. Assume the present value of an ordinary annuity of $1 for five years at 8 percent is $3.96 and at 10 percent is $3.25. Assume the present value of an annuity due of $1 for five years at 8 percent is $4.28 and at 10 percent is $3.80. Circle any and all of the following that are correct. Some, all, or none may be correct.
A - Net income in Year One was misstated but by less than $632
B - Net income in Year One was misstated by between $631 and $883
C - Net income in Year One was misstated but by more than $882
D - Net income in Year Two was misstated but by less than $745
E - Net income in Year Two was misstated by between $744 and $977
F - Net income in Year Two was misstated but by more than $976
G - At the end of Year Two, the reported liability was misstated but by less than $1,346
H - At the end of Year Two, the reported liability was misstated by between $1,345 and $1,858
I - At the end of Year Two, the reported liability was misstated but by more than $1,857
ANSWER: Here is my quick explanation that I gave to my students for the answer to this question.
The accountant should have multiplied the $43,900 by 8 percent to get $3,512 to be recognized as interest expense in Year One. Since only $2,500 was paid ($50,000 times 5 percent), the extra $1,012 ($3,512 less $2,500) should have been compounded raising the liability from $43,900 to $44,912. In Year Two, the $44,912 should have been multiplied again by 8 percent to get interest expense of $3,593. Only $2,500 was paid so the extra $1,093 ($3,593 less $2,500) should have been compounded to bring the liability up to $46,005.
However, the accountant incorrectly used 10 percent and not 8 percent. The interest expense for Year One was reported as $4,390 ($43,900 times 10 percent). Because $2,500 was paid, the extra $1,890 ($4,390 minus $2,500) was compounded to raise the principal to $45,790. The interest expense for Year Two was then recognized as $4,579 based on the wrong 10 percent rate. Only $2,500 was paid so the extra $2,079 ($4,579 minus $2,500) was compounded to bring the principal up to $47,869.
---Year One expense: should have been $3,512 but was reported as $4,390. The misstatement was the difference of $878.
---Year Two expense: should have been $3,593 but was reported as $4,579. The misstatement was the difference of $986.
---December 31, Year Two liability: should have been $46,005 but was reported as $47,869. The misstatement was the difference of $1,864
CORRECT ANSWERS: B, F, I
CPA EXAM: I think the above question is a good one and in fact most of my students did fine on it. But it would never never never have been on the CPA Exam because there are way too many steps in the process. Questions on the CPA Exam (at least the ones that have been released) tend to focus on one or two steps and that is it. The examiners want to know if you know how to do a very particular task. They test you by setting up questions to address that task. In the above question, you had to read carefully and then do way too many different things and then also make comparisons. Too complicated for the CPA Exam.
Here is how I think this question would have appeared on the CPA Exam:
On January 1, Year One, the Robious Company issues a 5 year $50,000 bond that pays 5 percent interest each year starting on December 31, Year One. The negotiated rate is 8 percent per year. The bond is issued for $43,900.
Question One: What amount of interest expense will the company report on its income statement for Year Two?
A - $2,195
B - $2,500
C - $3,512
D - $3,593
Question Two: What will be the reported balance of the liability on the balance sheet at the end of Year Two?
A - $43,900
B - $44,912
C - $45,775
D - $46,005
Now, these questions really look like CPA Exam questions. The variables and the complexity have been removed. The examiners want to see if you understand how to do a specific task: use the effective rate method to record a bond or note over two years.
The answers to both questions are D and the explanation is as follows:
The accountant should have multiplied the $43,900 by 8 percent to get $3,512 to be recognized as interest expense in Year One. Since only $2,500 was paid ($50,000 times 5 percent), the extra $1,012 ($3,512 less $2,500) should have been compounded raising the liability from $43,900 to $44,912. In Year Two, the $44,912 should have been multiplied again by 8 percent to get interest expense of $3,593. Only $2,500 was paid so the extra $1,093 ($3,593 less $2,500) should have been compounded to bring the liability up to $46,005.
Question Two on Intermediate Accounting Test: Ace Company is a local fitness center in Richmond. To boost sales, it sells a package to its customers which is made up of two pieces of paper. Paper One is the right to a free massage with a retail value of $100. Paper Two is the right to a second massage at a reduced price. The first massage is taken in Year One when the package is bought. The second massage is taken in Year Two. Assume $100 is paid to Ace for the package. Paper Two gives $10 off the retail price of the second massage (a relatively minor amount). Paper Two cannot be transferred so it has no sales value. United States GAAP is fuzzy in this area. Describe three ways that the "$10 off" coupon can be reported.
ANSWER: The $10 off coupon can be ignored completely. No expense is recorded and no liability is recorded. Revenue is recorded for $100 for the first massage and for $90 for the second massage. (This is my preference.)
Or, the company can record the $10 off as a liability in Year One along with an expense of $10. Thus, the $10 reduction in income is associated with the first massage and not the second.
Or, the company can record the $10 off as a liability in Year One along with a $10 deferred expense which is not reclassified as an expense until Year Two. Thus, the reduction in income is associated with the second massage and not the first.
CPA EXAM: This is an interesting question but there is absolutely no way that it could have been given on the CPA Exam because there is no definitive answer. The examiners give questions where there is one and only one right way to handle the problem and that way is usually found in an authoritative pronouncement. If they can help it, there are no gray areas on the CPA Exam. If there are alternative possibilities, they must be based on well-known methods. For example, if they ask about inventory costing, they want to be able to tell you to use FIFO or, possibly, LIFO. On the CPA Exam, every question needs a clear cut and obviously correct answer.
Here is how I think this question would have appeared on the CPA Exam:
Ace Company is a local fitness center in Richmond. To boost sales, it sells a package to its customers which is made up of two pieces of paper. Paper One is the right to a massage. Paper Two is a coupon that can be presented for a $10 cash rebate. One hundred packages are sold for $100 each in Year One. All 100 massages are taken in Year One. The company expects 70 percent of the coupons to be redeemed but not until Year Two. What is net income for Year One?
A - $9,000
B - $9,300
C - $9,500
D - $10,000
Answer is B
Answer: The earning process for the massages is substantially complete in Year One so the $10,000 revenue is recognized at that point. However, because cash must be paid based on the cash rebate, the company also records a liability. The cash payout is estimated based on a 70 percent return rate. The total amount of these cash rebates could be as high as $1,000 (100 times $10) but since only 70 percent are anticipated, the expense and liability are only $700. That amount is recognized in Year One when the debt is incurred. Thus, net income for Year One is $10,000 minus $700 or $9,300.
Notice, here that there are clear rules for handling cash payments where an obligation has been accepted. To the examiners, there is one correct answer and the question is structured to see if you know how to derive that one correct answer.
I hope this demonstration gives you a better feel for how the CPA Exam might be structured a bit differently than the tests you took in college. At least in my opinion, the questions on the CPA Exam are not nearly as complex. If you know the rule, you can almost always get the question correct.
When I run live classes, I almost always start asking the candidates: What rule are they testing in this particular question? That is not a bad way to look at the questions as you go through our questions at www.CPAreviewforFREE.com.
Have a great week.
Remember---every point you get may be the one that moves you from 74 to 75 so go get those points.
From: Joe
(1) - I realize that a lot of our readers are gearing up to take a part or two of the CPA Exam here at the end of the January-February window. A couple of last minute pieces of advice:
---Work as hard as you can here at the end. Every point you add might be the one point that gets you from 74 to 75.
---Try to review everything one final time between now and the exam so that it is all fresh in your mind. Anything you review now will still be in your head when you take the exam.
---Read the information carefully that came with your Notice To Schedule so you know everything you can about taking the exam. You don't want any surprises at the testing center.
---Think about how much time you have on the exam and how you want to allocate that time. Remember that time management is essential on the CPA Exam.
---Get as relaxed as you can. A small (very small) amount of tension can keep you focused. However, anything more than a small amount of tension ties you in knots and keeps you from doing your best.
---Get a normal amount of sleep the night before the exam. Taking the exam when you are groggy is not a smart move.
---Never think "tired" while you are going through the exam. Okay, that takes discipline but you can do it. You want to have as much energy and concentration on the last question as you had on the first.
---If you see a question that you don't know, don't get rattled. Eliminate as many answers as you can and make a guess. Remember that (except in BEC) about 15-20 percent of the questions are not even graded. They are being tested. Assume the weird questions are the ones not being graded.
---If you've put in the hours, have some confidence. There is no reason that you cannot pass. Confidence is one of the world's best characteristics. I always say that you want to be confident without being cocky.
Finally, if you do take the exam in the near future, or if you have taken it recently, hit reply and drop me a note and tell me how it went. You cannot talk about specific questions-just tell me about the experience in general.
And, tell me: what is the one piece of advice that you would give your best friend if he or she were getting ready to take the CPA Exam?
(2) - I have said this before but I find that I must say it again: last week was our most successful one yet on www.CPAreviewforFREE.com!!!! We had more visitors than in any other week of our entire history. Moreover, we have now had well over 1.7 million page views. We are not to our 10 million goal (yet) but we are certainly getting there. And, that is entirely thanks to you. We do not advertise; we have no money to advertise. That is the only way we can afford to stay free. We depend on you to spread the word. How did you hear about www.CPAreviewforFREE.com? More than likely someone was nice enough to tell you or forward one of our lessons to you or the like. Now, it is your turn. I do hope you'll take a second to tell someone else about us. We love providing thousands of questions for free but we have to depend on you to spread the word.
One of my favorite parts of CPA Review for FREE is getting to work with people all around the world. As you would imagine, a vast majority of our visitors come from inside of the US. However, last week alone, we had visitors from 78 different countries. That's like the United Nations. Last week, the countries with the most visitors to our site were: Canada, South Korea, the Philippines, India, Saudi Arabia, the United Arab Emirates, the Bahamas, Australia, and China. No matter where you are from, everyone is more than welcome to use the information that we provide at www.CPAreviewforFREE.com.
(3) - I am currently reading a book that I find fascinating. It is "Born Standing Up," an autobiography written by the comedian Steve Martin. He talks about growing up in a working class family and, through years of hard work, becoming a famous entertainer.
In reading this book, Martin has said two things that I thought were so interesting that I stopped immediately and wrote them down.
"Perseverance is a great substitute for talent." Martin talks about how he performed his act in hundreds of tiny clubs for about a decade. In those places, a lot of the customers did not think he was funny at all. The feedback was not always encouraging. But he persevered and finally when he was almost broke and about ready to quit, he became a big star. How many of us would have worked for a short while and then gotten totally discouraged and said "I give up. I obviously do not have what it takes to make it as a comedian. I need to quit and get a real job and settle down."
As everyone knows by now, I have worked for nearly 30 years with thousands upon thousands of CPA candidates. I never fail to be surprised by how many people give up on their dreams so quickly. "I want to be a CPA but if I don't pass in a couple of months I'm just giving up." I've heard that line way too many times in my life.
Golly, with that type of attitude, Christopher Columbus would not have made it very far beyond the harbor.
I know everyone wants to get the exam out of the way but this is not a speed race. Failing the CPA Exam does not make you the subject of public ridicule. Taking awhile to pass the CPA Exam does not mean that you should give up on your dream of becoming a CPA and take up dog catching.
Dreams are worth pursuing.
I worry that people put too much pressure on themselves to pass the exam in record time. I have known people who have passed quickly and I have known people who passed slowly (very slowly, in some cases). To be honest, I have never noticed that the people who took longer to pass had a poorer career. In fact, in some cases, they moved on to become quite successful.
We have a fast-paced society, one that often moves at break-neck speed. At times, it is reassuring to know that "Perseverance is a great substitute for talent." I don't know how it is going for you at this very moment. Just remember: if you really want to pass the CPA Exam, then keep working at it because you will pass.
And, as soon as you pass, no one is ever going to ask you how long it took or how many points you got.
When you pass, people will simply come up to you and say: "Congratulations!!! I hear you passed the CPA Exam. I have always been told that the CPA Exam can be a bear; you must really be smart to have passed it when so many people fail." Trust me: that is going to feel good.
The other thing that Steve Martin said that I wrote down was the following. And, I really do think this applies to a lot of successful people. It is one of those weird situations where having problems in life can actually make you a better person. "I was not naturally talented. I did not sing, dance, or act. But working around that minor detail made me inventive." What a great attitude!!!
None of us are as smart as we would like to be.
None of us remember as much from our college courses as we feel we should.
None of us is ever a perfect test-taker.
However, we can look at those minor details as huge road-blocks to prevent us from ever be successful. A lot of folks do look at themselves and their talents in that way.
Or
We can look at those minor details as something we recognize and understand and will just work around AND the working around will actually make us better at what we are doing. Too much talent can actually be bad because it makes us lazy and careless and can prevent us from developing strong habits. A little shortage of talent can actually make us stronger people. It makes us more inventive. Our strength can come from our weakness.
Yes, we have to learn to compensate; we have to learn how best to deal with our shortcomings but, as Steve Martin says, that just makes us more inventive.
So, as you are studying, think of ways that you can take notes in a better fashion or consider new ways of reviewing material that might help you become a better student. Don't just say "darn, I'm just no good at this." That attitude does not do you one bit of good. That is a road block that is going to keep you from success. Instead, ask yourself: "Okay, I missed this question. What can I do to make sure that I will get it right the next time? I know myself better than anyone else. What can I do to get this concept in my head? Be inventive.
Perseverance
And
Inventive
When you are thinking about passing the CPA Exam, those are two words that can go a long way in helping you gain the success that you want.
(4) - As always, if you want to unsubscribe from these email lessons, just scroll to the bottom and click on the link. That takes you off. We love having you but you have the right to come and go as you please.
At www.CPAreviewforFREE.com, we are delighted to offer you
--thousands of excellent questions and well-written answers.
--instructions on using our website to prepare yourself to pass the CPA Exam.
--information about the CPA Exam itself.
This is the kind of information you need to make sure you are ready when you walk into the testing site. AND IT IS ALL FREE!!!!
(5) - In these lessons, I often say that the CPA Exam is a mile wide and an inch deep. Along those same lines, I have said that the questions on the CPA Exam are actually easier than the questions that I give in my intermediate accounting tests. So, even if you did not do great in your college classes, there is no reason why you cannot pass the CPA Exam. In all honesty, the Exam really is all about Perseverance more than any other skill or quality.
So, I thought I would show you my point today by giving a demonstration. I gave a test to my Intermediate Accounting II classes last week. I want to take the first two questions on that test (there were seven questions in total) and compare how I asked the question to how I think those same questions would have been asked on the CPA Exam. Remember, you are preparing for the CPA Exam, not for Intermediate Accounting. This comparison might well help you understand how to prepare yourself for the exam.
Question One on Intermediate Accounting Test: On January 1, Year One, the Robious Company issues a 5 year $50,000 bond that pays 5 percent interest each year starting on December 31, Year One. The negotiated rate is 8 percent per year. The bond is issued for $43,900. The accountant was informed of the transaction and the cash payment of $43,900 but was erroneously told that the negotiated rate had been 10 percent. The accountant made the December 31, Year One and Year Two entries based on that information. In Year Three, the error was discovered. Assume the present value of $1 in five years at 8 percent is .68 and at 10 percent is .45. Assume the present value of an ordinary annuity of $1 for five years at 8 percent is $3.96 and at 10 percent is $3.25. Assume the present value of an annuity due of $1 for five years at 8 percent is $4.28 and at 10 percent is $3.80. Circle any and all of the following that are correct. Some, all, or none may be correct.
A - Net income in Year One was misstated but by less than $632
B - Net income in Year One was misstated by between $631 and $883
C - Net income in Year One was misstated but by more than $882
D - Net income in Year Two was misstated but by less than $745
E - Net income in Year Two was misstated by between $744 and $977
F - Net income in Year Two was misstated but by more than $976
G - At the end of Year Two, the reported liability was misstated but by less than $1,346
H - At the end of Year Two, the reported liability was misstated by between $1,345 and $1,858
I - At the end of Year Two, the reported liability was misstated but by more than $1,857
ANSWER: Here is my quick explanation that I gave to my students for the answer to this question.
The accountant should have multiplied the $43,900 by 8 percent to get $3,512 to be recognized as interest expense in Year One. Since only $2,500 was paid ($50,000 times 5 percent), the extra $1,012 ($3,512 less $2,500) should have been compounded raising the liability from $43,900 to $44,912. In Year Two, the $44,912 should have been multiplied again by 8 percent to get interest expense of $3,593. Only $2,500 was paid so the extra $1,093 ($3,593 less $2,500) should have been compounded to bring the liability up to $46,005.
However, the accountant incorrectly used 10 percent and not 8 percent. The interest expense for Year One was reported as $4,390 ($43,900 times 10 percent). Because $2,500 was paid, the extra $1,890 ($4,390 minus $2,500) was compounded to raise the principal to $45,790. The interest expense for Year Two was then recognized as $4,579 based on the wrong 10 percent rate. Only $2,500 was paid so the extra $2,079 ($4,579 minus $2,500) was compounded to bring the principal up to $47,869.
---Year One expense: should have been $3,512 but was reported as $4,390. The misstatement was the difference of $878.
---Year Two expense: should have been $3,593 but was reported as $4,579. The misstatement was the difference of $986.
---December 31, Year Two liability: should have been $46,005 but was reported as $47,869. The misstatement was the difference of $1,864
CORRECT ANSWERS: B, F, I
CPA EXAM: I think the above question is a good one and in fact most of my students did fine on it. But it would never never never have been on the CPA Exam because there are way too many steps in the process. Questions on the CPA Exam (at least the ones that have been released) tend to focus on one or two steps and that is it. The examiners want to know if you know how to do a very particular task. They test you by setting up questions to address that task. In the above question, you had to read carefully and then do way too many different things and then also make comparisons. Too complicated for the CPA Exam.
Here is how I think this question would have appeared on the CPA Exam:
On January 1, Year One, the Robious Company issues a 5 year $50,000 bond that pays 5 percent interest each year starting on December 31, Year One. The negotiated rate is 8 percent per year. The bond is issued for $43,900.
Question One: What amount of interest expense will the company report on its income statement for Year Two?
A - $2,195
B - $2,500
C - $3,512
D - $3,593
Question Two: What will be the reported balance of the liability on the balance sheet at the end of Year Two?
A - $43,900
B - $44,912
C - $45,775
D - $46,005
Now, these questions really look like CPA Exam questions. The variables and the complexity have been removed. The examiners want to see if you understand how to do a specific task: use the effective rate method to record a bond or note over two years.
The answers to both questions are D and the explanation is as follows:
The accountant should have multiplied the $43,900 by 8 percent to get $3,512 to be recognized as interest expense in Year One. Since only $2,500 was paid ($50,000 times 5 percent), the extra $1,012 ($3,512 less $2,500) should have been compounded raising the liability from $43,900 to $44,912. In Year Two, the $44,912 should have been multiplied again by 8 percent to get interest expense of $3,593. Only $2,500 was paid so the extra $1,093 ($3,593 less $2,500) should have been compounded to bring the liability up to $46,005.
Question Two on Intermediate Accounting Test: Ace Company is a local fitness center in Richmond. To boost sales, it sells a package to its customers which is made up of two pieces of paper. Paper One is the right to a free massage with a retail value of $100. Paper Two is the right to a second massage at a reduced price. The first massage is taken in Year One when the package is bought. The second massage is taken in Year Two. Assume $100 is paid to Ace for the package. Paper Two gives $10 off the retail price of the second massage (a relatively minor amount). Paper Two cannot be transferred so it has no sales value. United States GAAP is fuzzy in this area. Describe three ways that the "$10 off" coupon can be reported.
ANSWER: The $10 off coupon can be ignored completely. No expense is recorded and no liability is recorded. Revenue is recorded for $100 for the first massage and for $90 for the second massage. (This is my preference.)
Or, the company can record the $10 off as a liability in Year One along with an expense of $10. Thus, the $10 reduction in income is associated with the first massage and not the second.
Or, the company can record the $10 off as a liability in Year One along with a $10 deferred expense which is not reclassified as an expense until Year Two. Thus, the reduction in income is associated with the second massage and not the first.
CPA EXAM: This is an interesting question but there is absolutely no way that it could have been given on the CPA Exam because there is no definitive answer. The examiners give questions where there is one and only one right way to handle the problem and that way is usually found in an authoritative pronouncement. If they can help it, there are no gray areas on the CPA Exam. If there are alternative possibilities, they must be based on well-known methods. For example, if they ask about inventory costing, they want to be able to tell you to use FIFO or, possibly, LIFO. On the CPA Exam, every question needs a clear cut and obviously correct answer.
Here is how I think this question would have appeared on the CPA Exam:
Ace Company is a local fitness center in Richmond. To boost sales, it sells a package to its customers which is made up of two pieces of paper. Paper One is the right to a massage. Paper Two is a coupon that can be presented for a $10 cash rebate. One hundred packages are sold for $100 each in Year One. All 100 massages are taken in Year One. The company expects 70 percent of the coupons to be redeemed but not until Year Two. What is net income for Year One?
A - $9,000
B - $9,300
C - $9,500
D - $10,000
Answer is B
Answer: The earning process for the massages is substantially complete in Year One so the $10,000 revenue is recognized at that point. However, because cash must be paid based on the cash rebate, the company also records a liability. The cash payout is estimated based on a 70 percent return rate. The total amount of these cash rebates could be as high as $1,000 (100 times $10) but since only 70 percent are anticipated, the expense and liability are only $700. That amount is recognized in Year One when the debt is incurred. Thus, net income for Year One is $10,000 minus $700 or $9,300.
Notice, here that there are clear rules for handling cash payments where an obligation has been accepted. To the examiners, there is one correct answer and the question is structured to see if you know how to derive that one correct answer.
I hope this demonstration gives you a better feel for how the CPA Exam might be structured a bit differently than the tests you took in college. At least in my opinion, the questions on the CPA Exam are not nearly as complex. If you know the rule, you can almost always get the question correct.
When I run live classes, I almost always start asking the candidates: What rule are they testing in this particular question? That is not a bad way to look at the questions as you go through our questions at www.CPAreviewforFREE.com.
Have a great week.
Remember---every point you get may be the one that moves you from 74 to 75 so go get those points.
Subscribe to:
Posts (Atom)