Solidify that Swiss Cheese Knowledge -- www.CPAreviewforFREE.com
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February 24, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
86 Weeks of Operation and 9,407,858 Page Views (without a penny spent on marketing)
Lesson 64
From: Joe
QUICK NOTE ONE: If you are a graduate of the University of Richmond accounting program, we will be having an alumni reunion in Washington, DC on March 11. Send me an email at Jhoyle@cpareviewforfree.com and I’ll send you the invitation. Hope you can make it!!!
QUICK NOTE TWO: If you are a college professor and would like to get a complimentary desk copy of the new Financial Accounting textbook that I wrote with C. J. Skender, go to www.flatworldknowledge.com/printed-book/90996 and click on the request button.
(1) – Always pleased to hear from our candidates. Here is an email that I received a couple of days ago from SH: “I passed the BEC section today and I want to thank you for your help by providing CPA review questions for free. The website helped me in preparing for my exam. I have been using other review materials but your explanations are clearer. Your questions are well written which makes it easier for me to understand. I always look forward to reading you e-mails which inspire me to study hard every day. It's been 26 years since I graduated from college and I have forgotten most of the subjects that I took back then. I am now reviewing for the other 3 sections and I hope to pass these before the year ends.”
Love those success stories.
(2) – Last week was our single biggest week in our entire history (by far). www.CPAreviewforFREE.com had approximately one-quarter of a million page views. Yes, I do know that some of our competitors claim that people do not use our site. Pure nonsense. They are just desperate to keep us from succeeding. Ask them who was reading those quarter million pages of material in one seven day period of time. In fact, our number of visitors was 9.2 percent higher than our previous high week.
Thanks to everyone who helps to spread the word. And, remember, that is an awful lot of points and no one had to spend a penny to get them.
Put your money away and go get those points.
(2) – I was listening to the radio a few days ago and they spoke with one of the people who had just won a gold medal in the Olympics. What a thrill. The guy had worked for years and he had just seen his dreams come true. The announcer asked him how he had managed to get so good at his sport and he responded something like: “You do your practice over and over. You practice the same steps over and over. Even after you get where you can do them perfectly, you keep working. It can be boring but you have to keep doing your steps over and over until it is automatic. And, then you still keep doing them to make sure they stay automatic.”
On our website, we have approximately 2,100 free questions and answers. Work them all; they are free. Once you work them all, work them again. And again. (And again). You want to get where each rule is automatic for you. Yes, you’ll always miss a few—you are human. But the more you work, the more comfortable you will get with the terms, the processes, the calculations. Everything will just become clearer as you work more and more questions and read those answers. When you see a lease question or an itemized deduction question or a statistical sampling question or a cost accounting question, you want to understand how they work. The best way to gain that knowledge is to do as many questions as you can and work them over and over until they are just second nature. Once is never enough.
After the exam is over, if someone asks you “how did you pass the CPA Exam when so many other candidates fail?” you will be able to answer (somewhat like the Olympic gold medalist): I worked questions over and over until I could do them in my sleep. At that point, I knew I was ready to pass.
(3) – We love having you with us and we hope we can continue to add more and more points to your score. At the time, though, that you are ready to unsubscribe to these weekly lessons, just scroll to the bottom of the lesson and click on “unsubscribe.” Stay with us as long as we can be helpful.
(4) – Last week I gave my students their first test of the semester. Several of the students thought they could do the work until they got to the test. Then, suddenly, they couldn’t get the answers to work out. They were upset and frustrated. You may have felt that way at times.
I always tell students that their knowledge forms slowly like a piece of Swiss cheese. It looks solid but it has holes in it. Those holes exist all through their knowledge, often at very critical points. Any person who writes a lot of test questions knows where those holes are likely to be and will write questions to see if the holes actually exist.
So, the goal of anyone learning material should be to fill in the holes, to turn their Swiss cheese knowledge into solid knowledge.
How do you do that? For my students, the problem is often that they will see us work a question in class and they will follow the steps and then believe they can do it. But they never carry through and actually do it themselves. “I saw how you changed that tire so I don’t need to do it myself. I learned how by watching.” It doesn’t work that way. Accounting is never fully learned by watching.
I tell my students that, especially on numerical questions, they should try to come up with the answer. Then, once they read the answer, they should change some of the variables (change 10 years to 12 years and 5 percent to 8 percent interest and the residual value from $20,000 to $25,000) and then try again. Then, change the variables and try again. When you get the question correct two straight times, you know how to do the problem. At that point, you have closed the hole in that part of your Swiss cheese knowledge.
If you miss the question, the step that you miss points right at the hole in your knowledge. Find that point and concentrate on getting it right the next time. Close the hole.
You can never decide that you know how to do a problem simply because you have seen it explained. That’s like enjoying the taste of chocolate by watching someone else eat a piece of chocolate. It doesn’t work that way.
You know how to do a problem when you actually do that problem by yourself (probably twice).
(5) – Practice
FAR – We are doing leases in my intermediate class tomorrow. Seems like a logical place to begin our practice.
Jones buys widgets and marks them up 20 percent and sells them. On January 1, Year One, Jones buys a widget for $30,000 but this time Jones leases the item to another company for its entire 10 year life. Jones sets the annual payments (which begin immediately) at $5,300 in order to earn an annual interest rate of 10 percent. How much will net income increase for Jones during Year One because of this lease?
A - $2,470
B - $3,000
C - $6,000
D - $9,070
Answer is D
This is a capital lease because the life of the lease is 75 percent or more of the life of the asset. Because Jones usually sells the widget, it is a sales type lease for the lessor. The normal profit is recognized immediately. That is $6,000 or 20 percent of $30,000. In addition, interest is recognized for the year. The value of the lease receivable in a sales type lease begins as the sales value. That is $36,000 here ($30,000 cost plus $6,000 markup). However, the first payment of $5,300 reduces that receivable to $30,700. Interest at 10 percent gives revenue for Year One of $3,070 and a total profit for the first year of $9,070 ($6,000 plus $3,070).
Regulation
Tom Haynes lives in the top floor of a house owned by his mother who lives on the bottom floor. Of the total square footage, the bottom floor has 60 percent and the top floor has 40 percent. Haynes pays the county real estate tax on this house for the current year of $10,000. The tax amount was based on the assessed value. It was not overdue at the time of payment. What amount of this payment can Tom Haynes include as an itemized deduction for the current year?
A – Zero
B - $4,000
C - $5,000
D - $10,000
Answer is A
Taxes paid on real estate can normally be taken as an itemized deduction if the tax amount was based on the assessed value of the property. However, to be deductible, the taxpayer must be paying the tax on property that is owned by the taxpayer. Here, the mother owns the property. His payment is, therefore, not deductible. It is basically a gift to his mother.
Auditing
An independent auditor is looking at accounts receivable. More specifically, the auditor seeks to determine whether appropriate steps are taken when the company chooses to write off an account as uncollectible. The auditor expects errors to be made in 2 percent of these cases. The auditor can tolerate a rate as high as 5 percent. Based on these judgments, an appropriate sample size of 140 is computed. Which of the following statements is true?
A – If the expected rate changes to 1 percent, the sample size will be smaller.
B – If the tolerable rate changes to 4 percent, the sample size will be smaller.
C – Judgments cannot be used in a properly planned statistical sampling test.
D – This is an example of a variables sampling plan.
Answer is A
Judgments such as the expected error rate and the maximum tolerable rate are necessary to form the basis for a statistical sampling test. Since an error rate is being estimated, this testing falls under sampling for attributes. Sampling for variables attempts to estimate a total such as an account balance. Sample size varies directly with the expected error rate. Thus, the more expected errors, the larger the sample size, and the less expected errors, the smaller the sample size. Sample size varies inversely with the tolerable error rate. The larger the rate that you can tolerate, the smaller the sample size will be. The smaller the rate you can tolerate, the larger the sample size will be.
BEC
A bakery is opened this year and produces cakes. During the year, the company buys 50,000 pounds of flour for $4.00 per pound. Each cake takes 1 pound and 4 ounces of flour. The company produced 20,000 cakes this year. At the end of the year, another 5,000 cakes are still in process. They are 40 percent complete as to direct labor and factory overhead. Flour is added at the beginning of the process but eggs, milk, baking soda, and butter are added evenly throughout the process. What is the cost of the flour that is included in the reported amount for work-in-process at the end of the year?
A - $10,000
B - $12,500
C - $15,000
D - $25,000
Answer is D
Although the cakes remaining at the end of the year are only 40 percent complete as to direct labor, factory overhead, and most of the materials, the flour is added at the beginning of the process. Therefore, all 5,000 cakes in process have a full amount of flour (1 pound and 4 ounces). For 5,000 cakes, that is a total of 6,250 pounds of material. At $4.00 per pound, the cost of the flour in these in-process cakes is $25,000.
Have a great week – study hard, every point really does count.
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Thursday, February 25, 2010
Friday, February 19, 2010
You Need to Win the 50-50 Battles
Try us FIRST before you spend your hard-earned money.
February 13, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
84 Weeks of Operation and 8,983,803 Page Views (without a penny spent on marketing)
Lesson 63
From: Joe
(a) – Happy Valentine’s Day tomorrow!!! Make it a point of telling everyone you are fond of to have a Happy Valentine’s Day (and do it with gusto) – You’ll
be surprised at how many people you make smile. Life goes better when you make other people smile.
(b) – Unless something weird happens, we will go over 9 million page views this week. We have done this without one piece of paid advertising. We cannot
afford to provide a free site without your willingness to spread the word. We depend on you. That is the truth; we will go out of business without you and
your helping us to spread the word to others about www.CPAreviewforFREE.com.
That is not a threat nor a joke; it is the simple truth. We work hard and we do it all for free. None of our owners has made a penny for all their time and
effort. But, www.CPAreviewforFREE.com goes nowhere without you help in spreading the word. Thanks!!!
(c) – We have gotten a zillion or two requests for our 20 extra FAR questions over the last few days. Last call – if you would like these extra questions and
answers, just send me a note (no, we don’t have a secretary, I actually answer these emails all by myself) at jhoyle@cpareviewforfree.com.
(d) – I sent out our 43rd tip on our Facebook page yesterday. To read all 43, go to www.facebook.com and search for CPAreviewforFREE.
(e) – We have gotten several great emails recently. Here are just a few:
From CM: “Thank you for providing an excellent resource for CPA exam candidates through your website! I am preparing to take the FAR section in 3 weeks and
I've been using the questions provided on your site to reinforce concepts since a friend told me about it last week. Whether or not the actual exam questions
bear any resemblance to your questions, I feel I am making a lot of progress in my understanding of the concepts by working problems on your site. I have
another study system but I prefer your problems because they force me to draw upon more than one area of knowledge and they seem more realistic to actual
situations that may occur in real life. Furthermore, your answer explanations make more sense to me than those provided in my other system!”
From TR: “I just want to say how much I appreciate your website. It has been very helpful in my preparation for the CPA exam. In the fall I passed Regulation
on my first try and spent hours going through your practice multiple choice questions. On Monday I am taking FAR and really hope this is the only time I have
to take it.”
(1) – Probably, the question that I get asked the most is: what is the best way to use www.CPAreviewforFREE.com to pass the CPA Exam. If I were you, the
first thing I would do is go to www.cpareviewforfree.com/resources.cfm?name=article&article_id=4 and read my thoughts on how to use our 2,100 free
questions and answers to get the 75 points you need to pass.
(2) – I took a break the other night and watched a bit of a college basketball game. At the beginning of the game, the announcers said something that I found
very interesting: “We talked to the coach and asked him how his team could possibly win tonight. He told us that during every game there are a lot of 50-50
moments where two players are fighting for the ball or fighting to make a play. ‘If we are going to win,’ he said ‘we have to win those 50-50 situations.’”
In live review classes, I always tell people that there are three kinds of CPA Exam questions. About 20-30 percent are reasonably easy. You may have to
think for a bit but, if you are careful, you should get most of those questions correct. However, another 20-30 percent are just incredibly hard. Those are
for the people who feel an obsession to make 100. Based on the luck of the guess, you can expect to get 25 percent of those correct (and that 25 percent does
help).
But, in the middle, there are about 40-60 percent of the questions that really make a difference. The people who pass are able to get a reasonably high
percentage of those middle questions; the people who come close don’t get quite enough of those middle questions. You need to win the battle of those middle
40-60 percent of the questions. That is the difference in making a 65 and a 75.
People often ask me how I write the questions that I include in www.CPAreviewforFREE.com. Do I, they will ask, try to write really easy questions to make
people feel good or really hard questions to push people to learn everything possible? “Neither” is the answer. I’m trying to write questions that reflect
the middle 40-60 percent. Those are the questions that a person who makes 75 really needs to get right and the person who makes 65 probably won’t get right.
People occasionally ask me about some really difficult topic. They will pose a question that seems virtually impossible to get right and want to know how to
do it. They seem shocked when I don’t seem too concerned about that type of question. Well, of course, I’d like to see everyone get every question right.
But I really don’t think those far out questions are worth the time and energy. That is not the battlefield where you typically get your 75 points.
Yeah, you need to get virtually all of the easy ones right and at least 25 percent of the impossibly hard ones. But everyone does that. It doesn’t make a
huge difference. To pass, you have to get as many of the middle 40-60 percent as possible. The questions that basically take a straight-forward rule and
ask a question to see if you really do understand that rule.
As you work the questions on our site, we are trying to show you that middle section and the rules they are testing.
You need to win those 50-50 battles.
(2) – Unsubcribe? Surely not. But, if you must – go to the end of this email lesson and you’ll find a link. But, if you ask us, we’d prefer for you to
stay around.
(3) – Practice – Okay, I’m ready to see if we can add at least one point to your current CPA Review score. Yeah, let’s add one point—right now!!! Read
these four questions. Read them carefully. Think through the rule that is being tested and figure out your answer. Don’t guess. That is fine on the CPA
Exam but does you no good when you are studying. And, then read my answer. Is there anything in that answer that you didn’t know; anything that you can
add to your storehouse of knowledge that will help you get a similar question correct the next time?
Remember, in studying, it is not getting the questions right that counts—it is being able to get the questions right the NEXT TIME that makes all the
difference in the world.
FAR
Samattin Corporation borrows $800,000 on January 1, Year One from a bank on a five-year note that is supposed to pay cash interest of 10 percent per year.
Samattin fails to make the first interest payment on December 31, Year One. On the next day, the bank restructures the loan with Samattin so that the company
does not go bankrupt. The first year interest is forgiven and the face value of the note is reduced to $500,000. The interest rate is dropped from 10
percent to 6 percent. Instead of being due in four more years, the face value is now due in 9 years. The present value of these future cash flows at a 10
percent effective rate is $380,000. What gain does Samattin recognize on the restructuring of this loan?
A – Zero
B - $110,000 gain
C - $300,000 gain
D - $500,000 gain
Answer is B
In debt restructuring, the bank records its loss using the present value of the future cash payments. However, the debtor (Samattin) compares the amount of
the debt at this moment to the total of the future cash flows. That is the rule. After one year, the debtor owes $800,000 on the original note and $80,000
or one year of interest at 10 percent for a total of $880,000. The future cash flows are now $500,000 plus 6 percent interest ($30,000) for nine years.
That is $270,000 in interest plus $500,000 face value to arrive at total future cash flows of $770,000. The amount owed is dropped from $880,000 to the
total of the future cash flows of $770,000. As a result, the debtor records a gain of $110,000.
BEC
A company sells 20,000 widgets in Year One for $8 each. Variable costs are $4 each and the company made a net income of $50,000. In Year Two, the company
raises the sales price to $10 each because of a 50 percent increase in fixed costs. Variable cost is not impacted. How many units must the company sell
just to break-even?
A – 7,500 units
B – 10,000 units
C - 12,500 units
D – 15,000 units
Answer is A
The fixed cost for Year One must be determined first. Sales were $160,000 (20,000 x $8) and variable costs were $80,000 (20,000 x $4). Sales minus variable
cost minus fixed cost equals net income. Because net income was $50,000, fixed cost must have been $30,000: $160,000 - $80,000 – Fixed Cost = $50,000.
Fixed costs went up 50 percent or $15,000 ($30,000 x 50 percent) so it must be $45,000 in Year Two. The question here asks for the number of units to
breakeven (where there is no net income) so $10 x units sold minus $4 x units sold minus $45,000 is set equal to zero. Sales minus variable costs leaves a
contribution margin of $6 per unit. Six dollars is made on each unit and enough units must be sold to cover the fixed cost of $45,000. The number of units
sold to break even is 7,500 ($45,000 divided by $6).
Regulation
Josh Smith has a salaried job working for a local greenhouse. In addition, he runs a small business of his own where he mows and maintains lawns. Finally,
he invests his money in a number of stocks using an online brokerage service. During the current tax year, he paid $340 in cash for subscriptions to
investment publications to help him buy the right stocks. How should he handle the $340 when filing his federal income tax return?
A – It cannot be deducted.
B – He can reduce any taxable gains from the investments by the $340.
C – He can report the $340 as a deduction to arrive at his adjusted gross income.
D – He can include the $340 as a miscellaneous itemized deduction with only the aggregate amount over 2 percent of his adjusted gross income being deducted.
Answer is D
This cost is not related to a trade or business. It relates to the production of portfolio income and can only be deducted as a miscellaneous itemized
deduction. Only the total of such amounts that exceeds 2 percent of the taxpayer’s adjusted gross income is actually deducted.
Auditing
A company has 26 warehouses spread across the United States that are used to hold its inventory. The company has scheduled the physical inventory to take
place after the close of work on December 31. Which of the following is true?
A – The independent audit firm is responsible for the taking of the physical inventory to ensure that the resulting numbers are appropriate.
B – The independent audit firm need not be present at each location.
C – The independent audit firm must be present at a majority of the locations to provide the necessary oversight.
D – The independent audit firm should hire consultants who will take the physical count for the company so that the process will be done in a proper manner.
Answer is B.
The independent audit firm must observe the taking of the physical inventory which is carried out by the reporting company. However, depending on the
auditor’s assessment of the internal control and the manner by which the count is taken, the independent auditor only needs to observe a sample of this work.
The exact size of this sample is up to the judgment of the auditor and depends on the assessment of the control procedures being followed.
You can do it – you can add a point by just making sure you know the rules that are demonstrated in these four questions.
HAPPY VALENTINE’S DAY!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
3351 Lady Marian Court
Midlothian, VA 23113
February 13, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
84 Weeks of Operation and 8,983,803 Page Views (without a penny spent on marketing)
Lesson 63
From: Joe
(a) – Happy Valentine’s Day tomorrow!!! Make it a point of telling everyone you are fond of to have a Happy Valentine’s Day (and do it with gusto) – You’ll
be surprised at how many people you make smile. Life goes better when you make other people smile.
(b) – Unless something weird happens, we will go over 9 million page views this week. We have done this without one piece of paid advertising. We cannot
afford to provide a free site without your willingness to spread the word. We depend on you. That is the truth; we will go out of business without you and
your helping us to spread the word to others about www.CPAreviewforFREE.com.
That is not a threat nor a joke; it is the simple truth. We work hard and we do it all for free. None of our owners has made a penny for all their time and
effort. But, www.CPAreviewforFREE.com goes nowhere without you help in spreading the word. Thanks!!!
(c) – We have gotten a zillion or two requests for our 20 extra FAR questions over the last few days. Last call – if you would like these extra questions and
answers, just send me a note (no, we don’t have a secretary, I actually answer these emails all by myself) at jhoyle@cpareviewforfree.com.
(d) – I sent out our 43rd tip on our Facebook page yesterday. To read all 43, go to www.facebook.com and search for CPAreviewforFREE.
(e) – We have gotten several great emails recently. Here are just a few:
From CM: “Thank you for providing an excellent resource for CPA exam candidates through your website! I am preparing to take the FAR section in 3 weeks and
I've been using the questions provided on your site to reinforce concepts since a friend told me about it last week. Whether or not the actual exam questions
bear any resemblance to your questions, I feel I am making a lot of progress in my understanding of the concepts by working problems on your site. I have
another study system but I prefer your problems because they force me to draw upon more than one area of knowledge and they seem more realistic to actual
situations that may occur in real life. Furthermore, your answer explanations make more sense to me than those provided in my other system!”
From TR: “I just want to say how much I appreciate your website. It has been very helpful in my preparation for the CPA exam. In the fall I passed Regulation
on my first try and spent hours going through your practice multiple choice questions. On Monday I am taking FAR and really hope this is the only time I have
to take it.”
(1) – Probably, the question that I get asked the most is: what is the best way to use www.CPAreviewforFREE.com to pass the CPA Exam. If I were you, the
first thing I would do is go to www.cpareviewforfree.com/resources.cfm?name=article&article_id=4 and read my thoughts on how to use our 2,100 free
questions and answers to get the 75 points you need to pass.
(2) – I took a break the other night and watched a bit of a college basketball game. At the beginning of the game, the announcers said something that I found
very interesting: “We talked to the coach and asked him how his team could possibly win tonight. He told us that during every game there are a lot of 50-50
moments where two players are fighting for the ball or fighting to make a play. ‘If we are going to win,’ he said ‘we have to win those 50-50 situations.’”
In live review classes, I always tell people that there are three kinds of CPA Exam questions. About 20-30 percent are reasonably easy. You may have to
think for a bit but, if you are careful, you should get most of those questions correct. However, another 20-30 percent are just incredibly hard. Those are
for the people who feel an obsession to make 100. Based on the luck of the guess, you can expect to get 25 percent of those correct (and that 25 percent does
help).
But, in the middle, there are about 40-60 percent of the questions that really make a difference. The people who pass are able to get a reasonably high
percentage of those middle questions; the people who come close don’t get quite enough of those middle questions. You need to win the battle of those middle
40-60 percent of the questions. That is the difference in making a 65 and a 75.
People often ask me how I write the questions that I include in www.CPAreviewforFREE.com. Do I, they will ask, try to write really easy questions to make
people feel good or really hard questions to push people to learn everything possible? “Neither” is the answer. I’m trying to write questions that reflect
the middle 40-60 percent. Those are the questions that a person who makes 75 really needs to get right and the person who makes 65 probably won’t get right.
People occasionally ask me about some really difficult topic. They will pose a question that seems virtually impossible to get right and want to know how to
do it. They seem shocked when I don’t seem too concerned about that type of question. Well, of course, I’d like to see everyone get every question right.
But I really don’t think those far out questions are worth the time and energy. That is not the battlefield where you typically get your 75 points.
Yeah, you need to get virtually all of the easy ones right and at least 25 percent of the impossibly hard ones. But everyone does that. It doesn’t make a
huge difference. To pass, you have to get as many of the middle 40-60 percent as possible. The questions that basically take a straight-forward rule and
ask a question to see if you really do understand that rule.
As you work the questions on our site, we are trying to show you that middle section and the rules they are testing.
You need to win those 50-50 battles.
(2) – Unsubcribe? Surely not. But, if you must – go to the end of this email lesson and you’ll find a link. But, if you ask us, we’d prefer for you to
stay around.
(3) – Practice – Okay, I’m ready to see if we can add at least one point to your current CPA Review score. Yeah, let’s add one point—right now!!! Read
these four questions. Read them carefully. Think through the rule that is being tested and figure out your answer. Don’t guess. That is fine on the CPA
Exam but does you no good when you are studying. And, then read my answer. Is there anything in that answer that you didn’t know; anything that you can
add to your storehouse of knowledge that will help you get a similar question correct the next time?
Remember, in studying, it is not getting the questions right that counts—it is being able to get the questions right the NEXT TIME that makes all the
difference in the world.
FAR
Samattin Corporation borrows $800,000 on January 1, Year One from a bank on a five-year note that is supposed to pay cash interest of 10 percent per year.
Samattin fails to make the first interest payment on December 31, Year One. On the next day, the bank restructures the loan with Samattin so that the company
does not go bankrupt. The first year interest is forgiven and the face value of the note is reduced to $500,000. The interest rate is dropped from 10
percent to 6 percent. Instead of being due in four more years, the face value is now due in 9 years. The present value of these future cash flows at a 10
percent effective rate is $380,000. What gain does Samattin recognize on the restructuring of this loan?
A – Zero
B - $110,000 gain
C - $300,000 gain
D - $500,000 gain
Answer is B
In debt restructuring, the bank records its loss using the present value of the future cash payments. However, the debtor (Samattin) compares the amount of
the debt at this moment to the total of the future cash flows. That is the rule. After one year, the debtor owes $800,000 on the original note and $80,000
or one year of interest at 10 percent for a total of $880,000. The future cash flows are now $500,000 plus 6 percent interest ($30,000) for nine years.
That is $270,000 in interest plus $500,000 face value to arrive at total future cash flows of $770,000. The amount owed is dropped from $880,000 to the
total of the future cash flows of $770,000. As a result, the debtor records a gain of $110,000.
BEC
A company sells 20,000 widgets in Year One for $8 each. Variable costs are $4 each and the company made a net income of $50,000. In Year Two, the company
raises the sales price to $10 each because of a 50 percent increase in fixed costs. Variable cost is not impacted. How many units must the company sell
just to break-even?
A – 7,500 units
B – 10,000 units
C - 12,500 units
D – 15,000 units
Answer is A
The fixed cost for Year One must be determined first. Sales were $160,000 (20,000 x $8) and variable costs were $80,000 (20,000 x $4). Sales minus variable
cost minus fixed cost equals net income. Because net income was $50,000, fixed cost must have been $30,000: $160,000 - $80,000 – Fixed Cost = $50,000.
Fixed costs went up 50 percent or $15,000 ($30,000 x 50 percent) so it must be $45,000 in Year Two. The question here asks for the number of units to
breakeven (where there is no net income) so $10 x units sold minus $4 x units sold minus $45,000 is set equal to zero. Sales minus variable costs leaves a
contribution margin of $6 per unit. Six dollars is made on each unit and enough units must be sold to cover the fixed cost of $45,000. The number of units
sold to break even is 7,500 ($45,000 divided by $6).
Regulation
Josh Smith has a salaried job working for a local greenhouse. In addition, he runs a small business of his own where he mows and maintains lawns. Finally,
he invests his money in a number of stocks using an online brokerage service. During the current tax year, he paid $340 in cash for subscriptions to
investment publications to help him buy the right stocks. How should he handle the $340 when filing his federal income tax return?
A – It cannot be deducted.
B – He can reduce any taxable gains from the investments by the $340.
C – He can report the $340 as a deduction to arrive at his adjusted gross income.
D – He can include the $340 as a miscellaneous itemized deduction with only the aggregate amount over 2 percent of his adjusted gross income being deducted.
Answer is D
This cost is not related to a trade or business. It relates to the production of portfolio income and can only be deducted as a miscellaneous itemized
deduction. Only the total of such amounts that exceeds 2 percent of the taxpayer’s adjusted gross income is actually deducted.
Auditing
A company has 26 warehouses spread across the United States that are used to hold its inventory. The company has scheduled the physical inventory to take
place after the close of work on December 31. Which of the following is true?
A – The independent audit firm is responsible for the taking of the physical inventory to ensure that the resulting numbers are appropriate.
B – The independent audit firm need not be present at each location.
C – The independent audit firm must be present at a majority of the locations to provide the necessary oversight.
D – The independent audit firm should hire consultants who will take the physical count for the company so that the process will be done in a proper manner.
Answer is B.
The independent audit firm must observe the taking of the physical inventory which is carried out by the reporting company. However, depending on the
auditor’s assessment of the internal control and the manner by which the count is taken, the independent auditor only needs to observe a sample of this work.
The exact size of this sample is up to the judgment of the auditor and depends on the assessment of the control procedures being followed.
You can do it – you can add a point by just making sure you know the rules that are demonstrated in these four questions.
HAPPY VALENTINE’S DAY!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
3351 Lady Marian Court
Midlothian, VA 23113
Sunday, February 7, 2010
Constant Improvement to Reach Maximum Potential
CPA Review for FREE
www.CPAreviewforFREE.com
Constant Improvement to Reach Maximum Potential
83 Weeks of Operation and 8,810,800 Page Views (without a penny spent on marketing)
Lesson 62
From: Joe
(a) - Four or five months ago, I sat down one day and wrote 20 FAR questions and made them available to our readers so they could test themselves. I realize that we have added a lot of new subscribers since then so I wanted to make these available once again. Here is how I described what I was doing at that time:
“CPA Exam candidates are always asking how they can tell what areas they need to study. You always want to put your time on the subjects where you are the weakest.
“So, I took the 20 subject categories that we have for Financial Accounting at www.CPAreviewforFREE.com and wrote one basic question for each. I didn’t try to get too hard but I didn’t try to get too easy either. Just tried to cover the basic rules.
“If you want a copy of these questions and answers, drop me an email at Jhoyle@cpareviewforfree.com and I’ll send them to you by attachment.
“Go through these 20 – I’d recommend between 35-50 minutes to get them all done. I’ll include my answers in a separate file. This should help you determine where to start your studies. Any of these that you get right means that you have a pretty good knowledge of that subject area already.”
And, yes, we are currently working on a similar project for the other four parts of the exam.
(b) – My new Introduction to Financial Accounting textbook has been published. If you want to see what a genuine online book looks like (rather than a traditional textbook that is simply put online) go to
www.flatworldknowledge.com/pub/1.0/financial-accounting
If you know any accounting professors, please pass along the link.
(1) – The Super Bowl is being played tomorrow evening. It must be a wonderful feeling to practice and play games for months and months and suddenly you are playing for the championship. It is easy to sit and watch on television and think “geez, it must be fun to compete for the title.”
As you watch the game, keep two things in mind.
---(1) – Those two teams are there because they started working and working incredibly hard back last summer. They got themselves into great physical shape and they ran those plays over and over until they knew them perfectly. Being a champion does not happen by accident. To be a champion, you don’t do half the work and hope the other person does even less. To be a champion, you do all the work and then challenge the other person to try to keep up with you. There is no luck in being this good. It takes a lot of work and a lot of determination. It takes being willing to sacrifice your time and your energy.
My guess is that these guys would have preferred to have partied rather than practice. But they kept practicing. Parties and the like provide temporary pleasure. Championships provide permanent pleasure. One of the hardest things in life is to skip the temporary pleasures so you can attain the permanent pleasures.
---(2) – For the accountant, the CPA Exam is pretty close to the equivalent of the Super Bowl. You study for months to get the best out of yourself. You put all of that time and energy and effort in and then on the big day, you go in there and do your very best to get the points that it will take to win.
Unless a person has taken the CPA Exam, no one realizes what you are having to sacrifice in order to get yourself ready to answer all those questions on the big day. No one fully appreciates how difficult it is to sit in your study on Friday night and answer questions when you would prefer to be having a party.
However, on Sunday evening, one of those teams is going to hold that trophy above their heads and cheer and dance.
And, one of these days, you are going to look at a score and see 75 or more and you are going to have that exact same feeling. You will be ready to cheer and dance.
And, it will all have been worthwhile.
(2) – Some years ago my elder son gave me a book titled “Leading With the Heart” by Mike Krzyzewski (basketball coach at Duke University). Coach K is one of the most successful coaches in the business and I’m always interested in what successful people have to say. It is not a bad idea to keep a motivational book around. It can really help when you get sick of the CPA Exam and just need a bit of encouragement. We are all human beings. No one can keep pushing and pushing forever without some support. It is not bad to set aside 10-15 minutes per day just for such reading.
The underlying theme of Coach K’s book is about how you should always seek to do things the right way – a philosophy in which I truly believe. The book makes a strong point about having the right goals. Coach K said that he always has a goal for his team and that the goal is not winning championships. He said that his goal for each team was “constant improvement in order to reach maximum potential.”
Wow! What a great philosophy. Probably, if you are serious about passing, you have already started to become a bit obsessed with the CPA Exam. Being a bit obsessed is okay but don’t put too much of your focus on passing. That may seem like very odd advice but it is important to have the right goal. Passing the CPA Exam is a goal that cannot be achieved at the current moment; that is a goal can only be achieved when you walk into the exam site and start answering those questions. Your goal today should focus on what you can do right now in the current moment. When it comes to the CPA Exam, I cannot think of a better goal than:
Constant improvement in order to reach maximum potential.
Now, that is a goal that you can, indeed, do something about right now. Work a question on www.CPAreviewforFREE.com, read the answer, ask yourself whether you understand the basic rule being tested, make a 10-word note that will help you remember that basic rule. Those are things you can do today. That is where your focus should be.
If you are able to get anywhere near your maximum potential, you’ll pass the CPA Exam easily. You know that and I know that. You have more than enough potential to pass; it is just making good use of that potential that counts.
Your goal each day should be to work to make the improvement that’s going to move you along. That is going to get you closer. That is one goal that you can always apply to the current moment, the one moment that you can actually use to achieve success.
(3) – We send these email lessons out to approximately 11,000 accountants and other folks about every 7-10 days. We do this for free to help motivate you to do the work that is needed to pass the CPA Exam. We do this to encourage you to use www.CPAreviewforFREE.com to prepare rather than waste your money on some over-priced (and often inefficient) review program.
However, if you ever decide that you would prefer not to receive these email lessons, just scroll to the bottom of any lesson and you’ll find a link that will allow you to unsubscribe. Stay as long as you want, we are glad to have you. But you can certainly unsubscribe whenever you wish.
(4) – Okay it is snowing in Richmond today (again). So, let’s take a few seconds and see if we can add a point or two to your score. If I can help you learn a rule that will get you that much closer to passing, it has been well worth my time and your time both.
FAR
A corporation has 100,000 shares of common stock outstanding and 20,000 shares of nonconvertible preferred stock. A dividend of $1 per share is distributed on the common stock and one of $2 per share is distributed on the preferred stock. Net income is $400,000 and the tax rate is 20 percent. The corporation also has 10,000 bonds with a face value of $100 and an interest rate of 4 percent. Each bond is convertible into two shares of common stock although none have yet been converted. The bonds were issued several years ago at face value. What is reported as diluted earnings per share (rounded)?
A - $2.80
B - $3.27
C - $3.33
D - $3.60
Answer is B
Primary earnings per share must be computed first. That is net income ($400,000) less the dividends to preferred stock (20,000 x $2 or $40,000) to arrive at the income ($360,000) that can be assigned to the common stockholders. That is then divided by the number of outstanding shares of common stock (100,000) to arrive at primary earnings per share of $3.60. To get to diluted earnings per share, the convertible bond is then assumed to have been converted. If converted, 20,000 additional shares would be outstanding (10,000 bonds x 2 shares). If converted, the interest could have been saved ($100 x 4% x 10,000 or $40,000) increasing net income. However, that rise in income would also have increased the amount of income tax expense ($40,000 x 20 percent or $8,000). This assumed conversion brings the income assigned to common stock up to $392,000 ($360,000 + $40,000 - $8,000) and the number of shares up to 120,000 so that diluted earnings per shares is $3.27
($392,000 divided by 120,000).
Regulation
Kasemi is a single taxpayer who has $4,000 in long-term capital gains, $7,000 in short-term capital gains, and $2,000 in short-term capital losses. He is also a 50 percent partner in the OK partnership which had a long-term capital loss this year of $20,000. Kasemi is currently preparing his tax return for the year. Which of the following statements is correct?
A – He can deduct a capital loss for the year on his tax return of $1,000
B – He can deduct a capital loss for the year on his tax return of $3,000
C – He can deduct a capital loss for the year on his tax return of $3,000 but must also report a short-term capital gain of $5,000.
D – He must report a net short-term capital gain of $1,000
Answer is A
Capital gains and losses pass through from a partnership directly to the tax return of the individual partners. Therefore, 50 percent of the partnership long-term capital loss passes through to Kasemi (or $10,000). After that, his long-term capital items net to a $6,000 loss ($10,000 loss and $4,000 gain). His short-term capital items net to a $5,000 gain ($7,000 gain and $2,000 loss). The long-term loss and short-term gain are then netted to arrive at a $1,000 loss ($6,000 loss and $5,000 gain). That amount is below the $3,000 maximum and can be deducted.
Auditing
An independent auditor is performing an audit examination of the Haynesworth Corporation. Currently, the auditor is analyzing the cash payments received from customers for several weeks right after the end of the year. Which of the following is the least likely to be the purpose of this testing?
A – The auditor wants to make sure that sales made near the end of the year did not get recorded in the subsequent year by accident.
B – The auditor is attempting to verify the value reported for the company’s accounts receivable.
C – The auditor is attempting to verify that the accounts receivable at year’s end have not been sold to a bank for financing purposes.
D – The auditor wants to make sure that discounts for quick payment are properly recorded.
Answer is C
When a company sells its receivables, customers are rarely informed. They continue to pay the company which then forwards the money to the buyer. Reviewing collections is not likely to yield any evidence of such a sale. However, cash collections after the end of the year can indicate whether sales were recorded in the right period of time (if the collection period is either longer or shorter than expected, that might signify that the recording date of the original transactions was moved by a few days). If a receivable is collected, that certainly verifies its value. And, the review of collections can be used to make sure that cash discounts are properly recorded.
BEC
Which of the following is the best explanation of a futures contract?
A – Any contract based on anticipated changes in future prices
B - A contract to buy or sell a specified commodity at a certain date in the future, at a market-determined price
C – It is a term used in currency exchanges to signify the acquisition of a currency to be delivered within 90 days to a broker.
D – It is a contract whereby a dealer is allowed to buy a product in the future but is not required to buy that product.
Answer is C.
An example of a futures contract would be an agreement to buy 10,000 barrels of light, sweet crude oil (a particular grade of crude oil) on August 12 of the current year at the price being quoted today in the futures market.
Hope you have less snow than we have in Richmond.
Work hard so that you can win the Super Bowl of the accounting profession: the CPA Exam.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Constant Improvement to Reach Maximum Potential
83 Weeks of Operation and 8,810,800 Page Views (without a penny spent on marketing)
Lesson 62
From: Joe
(a) - Four or five months ago, I sat down one day and wrote 20 FAR questions and made them available to our readers so they could test themselves. I realize that we have added a lot of new subscribers since then so I wanted to make these available once again. Here is how I described what I was doing at that time:
“CPA Exam candidates are always asking how they can tell what areas they need to study. You always want to put your time on the subjects where you are the weakest.
“So, I took the 20 subject categories that we have for Financial Accounting at www.CPAreviewforFREE.com and wrote one basic question for each. I didn’t try to get too hard but I didn’t try to get too easy either. Just tried to cover the basic rules.
“If you want a copy of these questions and answers, drop me an email at Jhoyle@cpareviewforfree.com and I’ll send them to you by attachment.
“Go through these 20 – I’d recommend between 35-50 minutes to get them all done. I’ll include my answers in a separate file. This should help you determine where to start your studies. Any of these that you get right means that you have a pretty good knowledge of that subject area already.”
And, yes, we are currently working on a similar project for the other four parts of the exam.
(b) – My new Introduction to Financial Accounting textbook has been published. If you want to see what a genuine online book looks like (rather than a traditional textbook that is simply put online) go to
www.flatworldknowledge.com/pub/1.0/financial-accounting
If you know any accounting professors, please pass along the link.
(1) – The Super Bowl is being played tomorrow evening. It must be a wonderful feeling to practice and play games for months and months and suddenly you are playing for the championship. It is easy to sit and watch on television and think “geez, it must be fun to compete for the title.”
As you watch the game, keep two things in mind.
---(1) – Those two teams are there because they started working and working incredibly hard back last summer. They got themselves into great physical shape and they ran those plays over and over until they knew them perfectly. Being a champion does not happen by accident. To be a champion, you don’t do half the work and hope the other person does even less. To be a champion, you do all the work and then challenge the other person to try to keep up with you. There is no luck in being this good. It takes a lot of work and a lot of determination. It takes being willing to sacrifice your time and your energy.
My guess is that these guys would have preferred to have partied rather than practice. But they kept practicing. Parties and the like provide temporary pleasure. Championships provide permanent pleasure. One of the hardest things in life is to skip the temporary pleasures so you can attain the permanent pleasures.
---(2) – For the accountant, the CPA Exam is pretty close to the equivalent of the Super Bowl. You study for months to get the best out of yourself. You put all of that time and energy and effort in and then on the big day, you go in there and do your very best to get the points that it will take to win.
Unless a person has taken the CPA Exam, no one realizes what you are having to sacrifice in order to get yourself ready to answer all those questions on the big day. No one fully appreciates how difficult it is to sit in your study on Friday night and answer questions when you would prefer to be having a party.
However, on Sunday evening, one of those teams is going to hold that trophy above their heads and cheer and dance.
And, one of these days, you are going to look at a score and see 75 or more and you are going to have that exact same feeling. You will be ready to cheer and dance.
And, it will all have been worthwhile.
(2) – Some years ago my elder son gave me a book titled “Leading With the Heart” by Mike Krzyzewski (basketball coach at Duke University). Coach K is one of the most successful coaches in the business and I’m always interested in what successful people have to say. It is not a bad idea to keep a motivational book around. It can really help when you get sick of the CPA Exam and just need a bit of encouragement. We are all human beings. No one can keep pushing and pushing forever without some support. It is not bad to set aside 10-15 minutes per day just for such reading.
The underlying theme of Coach K’s book is about how you should always seek to do things the right way – a philosophy in which I truly believe. The book makes a strong point about having the right goals. Coach K said that he always has a goal for his team and that the goal is not winning championships. He said that his goal for each team was “constant improvement in order to reach maximum potential.”
Wow! What a great philosophy. Probably, if you are serious about passing, you have already started to become a bit obsessed with the CPA Exam. Being a bit obsessed is okay but don’t put too much of your focus on passing. That may seem like very odd advice but it is important to have the right goal. Passing the CPA Exam is a goal that cannot be achieved at the current moment; that is a goal can only be achieved when you walk into the exam site and start answering those questions. Your goal today should focus on what you can do right now in the current moment. When it comes to the CPA Exam, I cannot think of a better goal than:
Constant improvement in order to reach maximum potential.
Now, that is a goal that you can, indeed, do something about right now. Work a question on www.CPAreviewforFREE.com, read the answer, ask yourself whether you understand the basic rule being tested, make a 10-word note that will help you remember that basic rule. Those are things you can do today. That is where your focus should be.
If you are able to get anywhere near your maximum potential, you’ll pass the CPA Exam easily. You know that and I know that. You have more than enough potential to pass; it is just making good use of that potential that counts.
Your goal each day should be to work to make the improvement that’s going to move you along. That is going to get you closer. That is one goal that you can always apply to the current moment, the one moment that you can actually use to achieve success.
(3) – We send these email lessons out to approximately 11,000 accountants and other folks about every 7-10 days. We do this for free to help motivate you to do the work that is needed to pass the CPA Exam. We do this to encourage you to use www.CPAreviewforFREE.com to prepare rather than waste your money on some over-priced (and often inefficient) review program.
However, if you ever decide that you would prefer not to receive these email lessons, just scroll to the bottom of any lesson and you’ll find a link that will allow you to unsubscribe. Stay as long as you want, we are glad to have you. But you can certainly unsubscribe whenever you wish.
(4) – Okay it is snowing in Richmond today (again). So, let’s take a few seconds and see if we can add a point or two to your score. If I can help you learn a rule that will get you that much closer to passing, it has been well worth my time and your time both.
FAR
A corporation has 100,000 shares of common stock outstanding and 20,000 shares of nonconvertible preferred stock. A dividend of $1 per share is distributed on the common stock and one of $2 per share is distributed on the preferred stock. Net income is $400,000 and the tax rate is 20 percent. The corporation also has 10,000 bonds with a face value of $100 and an interest rate of 4 percent. Each bond is convertible into two shares of common stock although none have yet been converted. The bonds were issued several years ago at face value. What is reported as diluted earnings per share (rounded)?
A - $2.80
B - $3.27
C - $3.33
D - $3.60
Answer is B
Primary earnings per share must be computed first. That is net income ($400,000) less the dividends to preferred stock (20,000 x $2 or $40,000) to arrive at the income ($360,000) that can be assigned to the common stockholders. That is then divided by the number of outstanding shares of common stock (100,000) to arrive at primary earnings per share of $3.60. To get to diluted earnings per share, the convertible bond is then assumed to have been converted. If converted, 20,000 additional shares would be outstanding (10,000 bonds x 2 shares). If converted, the interest could have been saved ($100 x 4% x 10,000 or $40,000) increasing net income. However, that rise in income would also have increased the amount of income tax expense ($40,000 x 20 percent or $8,000). This assumed conversion brings the income assigned to common stock up to $392,000 ($360,000 + $40,000 - $8,000) and the number of shares up to 120,000 so that diluted earnings per shares is $3.27
($392,000 divided by 120,000).
Regulation
Kasemi is a single taxpayer who has $4,000 in long-term capital gains, $7,000 in short-term capital gains, and $2,000 in short-term capital losses. He is also a 50 percent partner in the OK partnership which had a long-term capital loss this year of $20,000. Kasemi is currently preparing his tax return for the year. Which of the following statements is correct?
A – He can deduct a capital loss for the year on his tax return of $1,000
B – He can deduct a capital loss for the year on his tax return of $3,000
C – He can deduct a capital loss for the year on his tax return of $3,000 but must also report a short-term capital gain of $5,000.
D – He must report a net short-term capital gain of $1,000
Answer is A
Capital gains and losses pass through from a partnership directly to the tax return of the individual partners. Therefore, 50 percent of the partnership long-term capital loss passes through to Kasemi (or $10,000). After that, his long-term capital items net to a $6,000 loss ($10,000 loss and $4,000 gain). His short-term capital items net to a $5,000 gain ($7,000 gain and $2,000 loss). The long-term loss and short-term gain are then netted to arrive at a $1,000 loss ($6,000 loss and $5,000 gain). That amount is below the $3,000 maximum and can be deducted.
Auditing
An independent auditor is performing an audit examination of the Haynesworth Corporation. Currently, the auditor is analyzing the cash payments received from customers for several weeks right after the end of the year. Which of the following is the least likely to be the purpose of this testing?
A – The auditor wants to make sure that sales made near the end of the year did not get recorded in the subsequent year by accident.
B – The auditor is attempting to verify the value reported for the company’s accounts receivable.
C – The auditor is attempting to verify that the accounts receivable at year’s end have not been sold to a bank for financing purposes.
D – The auditor wants to make sure that discounts for quick payment are properly recorded.
Answer is C
When a company sells its receivables, customers are rarely informed. They continue to pay the company which then forwards the money to the buyer. Reviewing collections is not likely to yield any evidence of such a sale. However, cash collections after the end of the year can indicate whether sales were recorded in the right period of time (if the collection period is either longer or shorter than expected, that might signify that the recording date of the original transactions was moved by a few days). If a receivable is collected, that certainly verifies its value. And, the review of collections can be used to make sure that cash discounts are properly recorded.
BEC
Which of the following is the best explanation of a futures contract?
A – Any contract based on anticipated changes in future prices
B - A contract to buy or sell a specified commodity at a certain date in the future, at a market-determined price
C – It is a term used in currency exchanges to signify the acquisition of a currency to be delivered within 90 days to a broker.
D – It is a contract whereby a dealer is allowed to buy a product in the future but is not required to buy that product.
Answer is C.
An example of a futures contract would be an agreement to buy 10,000 barrels of light, sweet crude oil (a particular grade of crude oil) on August 12 of the current year at the price being quoted today in the futures market.
Hope you have less snow than we have in Richmond.
Work hard so that you can win the Super Bowl of the accounting profession: the CPA Exam.
Joe Hoyle
Co-Founder
CPA Review for FREE
Thursday, January 28, 2010
The Flesh Needs To Be Strong
January 27, 2010
CPA Review for FREE
The Flesh Needs To Be Strong
82 Weeks of Operation and 8,625,929 Page Views (without a penny spent on marketing)
Lesson 61
From: Joe
(a) – I want to wish my lovely wife Sarah a happy birthday on Sunday. While I have aged terribly, you haven’t changed one bit since we got married in 1970. I’m a truly lucky guy.
(b) – We are supposed to have a big snowstorm this week-end. If you are in an area where snow is predicted, make sure that you have all of your books and notes available. If you get stuck in your home, you want to be prepared to get in a lot of great study hours. For the CPA Exam, snow storms can be great. You can wrap up in warm blankets and drink hot chocolate and study all day.
(1) – Okay, I’ve got a challenge for you right from the start. I don’t care if you’ve never used our site; stop reading this email right now. Go to www.CPAreviewforFREE.com. Pick the section that you are planning to take next (even if it is in two years). Take one of our random exam tests. Right now. Stop putting it off. Take 20 minutes. Answer the questions as quickly as you can. Read the answers and, for those you missed, see if you can figure out what you needed to do differently to get it right.
Come back in 20 minutes and you should be at least one point closer to passing the CPA Exam. In these emails, I can tell you all kinds of things to be encouraging. However, if you don’t (a) read the questions, (b) work out your answer, and (c) and most importantly, try to learn from your mistakes, then these emails don’t do you any good.
--I want YOU to pass.
--I want YOU to read those questions and read those answers.
--These emails are merely a means to get to an end. The end is working enough questions and reading enough answers so that you can pass.
So, stop reading and go work 20 questions. When you come back, you’ll already be closer to passing.
(2) – I have really been enjoying sending out tips on Facebook. In case you don’t follow our Facebook page (CPA Review for FREE), here is the tip that I sent out this morning.
www.CPAreviewforFREE.com – Tip Thirty-Nine – Today is moving day here in my classes at the University of Richmond. I find that after about 2-3 weeks even the most enthusiastic student starts to get a bit lethargic. There is something about every day looking the same that eventually gets to be a grind. And, learning is never efficient if it feels like a grind.
So, when I sense a drain in energy from my students, I come in and move everyone in class around. I move the ones on the left to the right and the ones on the front to the back and so on. Usually, I feel an immediate surge of enthusiasm. All of a sudden, things feel new again. It won’t last forever but for another 2-3 weeks, the students should do better.
If your preparation is beginning to feel like a grind, you might try switching to a new room when you work: from the study to the kitchen, from the living room to the dining room. Or, take your study space and rearrange the furniture a bit. Anything so that it will have a different feel. Candidates often turn preparation into a type of death march: “I’m going to head down this path and I’m not going to look right or left until I pass or pass out.” The psychology of that approach is just horrible. Think of ways to keep your energy and enthusiasm up. Be your own cheerleader. Create rewards for yourself if you study for a couple of hours. Or, as with my students, shake up your environment a little bit—move yourself or your furniture around. You may be surprised by how much better it feels to study. Joe Hoyle –President, www.CPAreviewforFREE.com
(3) – Another thing I like about our Facebook page is that candidates get to talk to other candidates about their study. Here is one that was posted by one of the candidates a few days ago. I must admit that this person studies more hours per day than I probably would but, what is most important is that she has organized her work into something that really seems to be working for her:
“When I first heard of this website I was skeptical, so I ignored it for a while, but then I got desperate so I checked it out. I have found that each time I go over a question from www.cpareviewforfree.com that I get a stronger grasp over the topic that I already thought I knew inside out.
“If you work, I would recommend that you head over to a library, one that stays open late (i.e. a college campus library) and try to do about 4-6 hours a day during the week and the weekends try to put in another 8 hours. Like Joe says, every hour you add to studying adds a point to your exam. I would recommend that you be consistent with the time that you set aside to study and that each time you study you make an index card for the rule that the question is testing. His questions are straight to the point, so it would behoove you to note the reason why you got the answer right. Joe gave us a tip where he said to limit your flash cards to 10 words, for the most part that has worked for me and it has helped to keep the old material that I have studied fresh in my mind. I used (big course) in conjunction with this website, however I have found that his questions test you on everything that the exam can ask you conceptually. So even if you purchase videos from (big course)
and also text from them, ultimately it is practicing questions over and over that will get you to pass the test and increasing the speed with which you answer questions.”
(4) – If you need to unsubscribe from these free email lessons, just scroll to the bottom of this lesson and click on the link provided. Personally, I’d rather for you to forward it to all of your friends and neighbors but I do understand if you need to unsubscribe.
(5) – I give teaching presentations occasionally (as well as maintain a teaching blog . When I stand in front of a group of teachers, I often start my program with a Bible verse. It comes from the 26th chapter of the book of Matthew, verse 41: “the spirit indeed is willing, but the flesh is weak.”
Whenever I read that verse, the college teachers will all smile and nod their heads. Why is that? Well, the reason is that every teacher knows that virtually every student who walks into their class really does want to learn the material. Sure, the spirit is indeed willing. If you could just pour the knowledge into their heads; if you could just type the information into their DNA, every student would love that. They want to succeed. No one wants to fail; no one wants to do poorly.
However, when you ask students to do the work in order to succeed, you quickly find that their flesh can be awfully weak. For a college teacher, Matthew could have been translated: “Students really do want to do well; they just have a tough time doing the work it takes to do well.”
Okay, let’s take an assessment, how is your spirit? How much do you really want to pass the CPA Exam? Is it an aching hungry? Is it a drive pushing you to the final goal? On a scale of 1-10, how much do you really want to pass the CPA Exam? Honestly, if it is not about a 7 or so, you might want to reconsider the whole idea. It is hard to pass if you lack the spirit.
Now, how is your flesh? How willing are you to sit there and answer those questions and read those answers and take those notes? Why did I start this email with “go work a random question test?” Most people need a little push to do the work because the flesh can be weak.
It is human nature, I am convinced. For a whole lot of people taking the CPA Exam: “the spirit indeed is willing, but the flesh is weak.”
There is no magic cure so how can you go about putting a little push into your flesh.
--Remind yourself every single morning why you want to pass. It is a hard road to travel if you don’t know why you are doing it. “Okay, it is Monday morning and I want to pass the CPA Exam because . . .”
--Set a time goal “I want to pass the CPA Exam by….” Nothing creates urgency like a shortage of time.
--Reward yourself when you do a good job of studying. That makes the rewards for doing the work more immediate. If your only reward is that you’ll take a test in six weeks and hopefully get a passing score in a more weeks, the reward is too far into the future.
Yeah, we are all human. It is always easy, I think, for the spirit to be willing. But it is a much bigger challenge to get the flesh to get up and do the work that is necessary. Don’t let yourself be the kind of person who fails into the trap of “all want and no do.” Wanting is great but the doing is what gets you the points you need.
(5) – Practice – Okay, let’s see if we can add another point to your score, right here.
FAR
You are studying a set of financial statements prepared for the city of Wichita. You find an asset listed as a building which is reported as $2.4 million. The statement also shows accumulated depreciation of $700,000 for a book value of $1.7 million. In which of the following are you not looking as you study the statements for the city of Wichita?
a. Fund-based financial statements for governmental funds
b. Government-wide financial statements for business-type activities
c. Government-wide financial statements for governmental activities
d. Fund-based financial statements for proprietary funds
Answer is A
Government-wide financial statements report all economic resources including all assets (such as a building). That is true for both governmental activities (like the police department) and business-type activities (like a bus service). The fund-based statements for the proprietary funds are reported in the same manner. The accounting for proprietary funds (the bus service, for example, or an internal print shop) are very similar in the government-wide financial statements and the fund-based financial statements. However, the fund-based statements for governmental funds (such as a police department or fire department) only report current financial resources. A building is not a current financial resource and is not reported in those statements.
Auditing
The Machieto Corporation produces a set of financial statements according to United States generally accepted accounting principles. However, by an accident, the accountant reported the book value of the company’s warehouse (as a fixed asset) using a method that was not appropriate under GAAP. The accountant has created a misstatement in which of the following assertions?
a. Existence
b. Presentation
c. Completeness
d. Valuation
Answer is D
The completeness assertion states no transactions or balances have been omitted and none have here. The existence assertion states that no extra transactions or balances have been included and none have been. There is one building and the company is reporting one building. The presentation assertion states that the balances have been properly placed within the financial statements and the building is shown as a fixed asset which is appropriate. The valuation assertion states that the figures being reported have been determined according to US generally accepted accounting principles. That was not the case here.
Regulation
At the beginning of the current year, John Doe is single. However, he marries Helen on January 23. The couple adopts two infant daughters from Russia on May 1 of that year. Unfortunately, Helen dies in a car accident in November of this year. John Doe does not remarry prior to the end of the year. The children do qualify as dependents. What tax status should the taxpayer use when filing his income tax return for this year?
a. Single
b. Head of household
c. Qualifying widow
d. Joint
Answer: D
If a spouse dies during the tax year, the filing status at that time holds (unless a change occurs subsequently such as a remarriage). In this particular case, on the date that Helen died, the couple could file a joint return. Despite her death, that status still applies for that tax year.
BEC
A stockholder of the Chaplin Corporation received each of the following items. All of them are considered asset or capital distributions, except:
a. a stock split of 300 previously unissued shares of the company’s stock
b. a distribution of three acres of land
c. a dividend of $3,000 based on the profits of the company
d. a dividend of $2,000 in cash that is deemed to be a liquidating dividend
Answer is A.
A stock split is a type of stock dividend that neither reduces the assets of the business nor increases the stockholder’s percentage of the ownership. It is not viewed as a distribution but rather as an attempt by the company to reduce the market price of the company’s stock by increasing the supply. It is not viewed as an asset or capital distribution. The business is no worse off and the stockholder is no better off.
If it snows, add points!!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
CPA Review for FREE
The Flesh Needs To Be Strong
82 Weeks of Operation and 8,625,929 Page Views (without a penny spent on marketing)
Lesson 61
From: Joe
(a) – I want to wish my lovely wife Sarah a happy birthday on Sunday. While I have aged terribly, you haven’t changed one bit since we got married in 1970. I’m a truly lucky guy.
(b) – We are supposed to have a big snowstorm this week-end. If you are in an area where snow is predicted, make sure that you have all of your books and notes available. If you get stuck in your home, you want to be prepared to get in a lot of great study hours. For the CPA Exam, snow storms can be great. You can wrap up in warm blankets and drink hot chocolate and study all day.
(1) – Okay, I’ve got a challenge for you right from the start. I don’t care if you’ve never used our site; stop reading this email right now. Go to www.CPAreviewforFREE.com. Pick the section that you are planning to take next (even if it is in two years). Take one of our random exam tests. Right now. Stop putting it off. Take 20 minutes. Answer the questions as quickly as you can. Read the answers and, for those you missed, see if you can figure out what you needed to do differently to get it right.
Come back in 20 minutes and you should be at least one point closer to passing the CPA Exam. In these emails, I can tell you all kinds of things to be encouraging. However, if you don’t (a) read the questions, (b) work out your answer, and (c) and most importantly, try to learn from your mistakes, then these emails don’t do you any good.
--I want YOU to pass.
--I want YOU to read those questions and read those answers.
--These emails are merely a means to get to an end. The end is working enough questions and reading enough answers so that you can pass.
So, stop reading and go work 20 questions. When you come back, you’ll already be closer to passing.
(2) – I have really been enjoying sending out tips on Facebook. In case you don’t follow our Facebook page (CPA Review for FREE), here is the tip that I sent out this morning.
www.CPAreviewforFREE.com – Tip Thirty-Nine – Today is moving day here in my classes at the University of Richmond. I find that after about 2-3 weeks even the most enthusiastic student starts to get a bit lethargic. There is something about every day looking the same that eventually gets to be a grind. And, learning is never efficient if it feels like a grind.
So, when I sense a drain in energy from my students, I come in and move everyone in class around. I move the ones on the left to the right and the ones on the front to the back and so on. Usually, I feel an immediate surge of enthusiasm. All of a sudden, things feel new again. It won’t last forever but for another 2-3 weeks, the students should do better.
If your preparation is beginning to feel like a grind, you might try switching to a new room when you work: from the study to the kitchen, from the living room to the dining room. Or, take your study space and rearrange the furniture a bit. Anything so that it will have a different feel. Candidates often turn preparation into a type of death march: “I’m going to head down this path and I’m not going to look right or left until I pass or pass out.” The psychology of that approach is just horrible. Think of ways to keep your energy and enthusiasm up. Be your own cheerleader. Create rewards for yourself if you study for a couple of hours. Or, as with my students, shake up your environment a little bit—move yourself or your furniture around. You may be surprised by how much better it feels to study. Joe Hoyle –President, www.CPAreviewforFREE.com
(3) – Another thing I like about our Facebook page is that candidates get to talk to other candidates about their study. Here is one that was posted by one of the candidates a few days ago. I must admit that this person studies more hours per day than I probably would but, what is most important is that she has organized her work into something that really seems to be working for her:
“When I first heard of this website I was skeptical, so I ignored it for a while, but then I got desperate so I checked it out. I have found that each time I go over a question from www.cpareviewforfree.com that I get a stronger grasp over the topic that I already thought I knew inside out.
“If you work, I would recommend that you head over to a library, one that stays open late (i.e. a college campus library) and try to do about 4-6 hours a day during the week and the weekends try to put in another 8 hours. Like Joe says, every hour you add to studying adds a point to your exam. I would recommend that you be consistent with the time that you set aside to study and that each time you study you make an index card for the rule that the question is testing. His questions are straight to the point, so it would behoove you to note the reason why you got the answer right. Joe gave us a tip where he said to limit your flash cards to 10 words, for the most part that has worked for me and it has helped to keep the old material that I have studied fresh in my mind. I used (big course) in conjunction with this website, however I have found that his questions test you on everything that the exam can ask you conceptually. So even if you purchase videos from (big course)
and also text from them, ultimately it is practicing questions over and over that will get you to pass the test and increasing the speed with which you answer questions.”
(4) – If you need to unsubscribe from these free email lessons, just scroll to the bottom of this lesson and click on the link provided. Personally, I’d rather for you to forward it to all of your friends and neighbors but I do understand if you need to unsubscribe.
(5) – I give teaching presentations occasionally (as well as maintain a teaching blog . When I stand in front of a group of teachers, I often start my program with a Bible verse. It comes from the 26th chapter of the book of Matthew, verse 41: “the spirit indeed is willing, but the flesh is weak.”
Whenever I read that verse, the college teachers will all smile and nod their heads. Why is that? Well, the reason is that every teacher knows that virtually every student who walks into their class really does want to learn the material. Sure, the spirit is indeed willing. If you could just pour the knowledge into their heads; if you could just type the information into their DNA, every student would love that. They want to succeed. No one wants to fail; no one wants to do poorly.
However, when you ask students to do the work in order to succeed, you quickly find that their flesh can be awfully weak. For a college teacher, Matthew could have been translated: “Students really do want to do well; they just have a tough time doing the work it takes to do well.”
Okay, let’s take an assessment, how is your spirit? How much do you really want to pass the CPA Exam? Is it an aching hungry? Is it a drive pushing you to the final goal? On a scale of 1-10, how much do you really want to pass the CPA Exam? Honestly, if it is not about a 7 or so, you might want to reconsider the whole idea. It is hard to pass if you lack the spirit.
Now, how is your flesh? How willing are you to sit there and answer those questions and read those answers and take those notes? Why did I start this email with “go work a random question test?” Most people need a little push to do the work because the flesh can be weak.
It is human nature, I am convinced. For a whole lot of people taking the CPA Exam: “the spirit indeed is willing, but the flesh is weak.”
There is no magic cure so how can you go about putting a little push into your flesh.
--Remind yourself every single morning why you want to pass. It is a hard road to travel if you don’t know why you are doing it. “Okay, it is Monday morning and I want to pass the CPA Exam because . . .”
--Set a time goal “I want to pass the CPA Exam by….” Nothing creates urgency like a shortage of time.
--Reward yourself when you do a good job of studying. That makes the rewards for doing the work more immediate. If your only reward is that you’ll take a test in six weeks and hopefully get a passing score in a more weeks, the reward is too far into the future.
Yeah, we are all human. It is always easy, I think, for the spirit to be willing. But it is a much bigger challenge to get the flesh to get up and do the work that is necessary. Don’t let yourself be the kind of person who fails into the trap of “all want and no do.” Wanting is great but the doing is what gets you the points you need.
(5) – Practice – Okay, let’s see if we can add another point to your score, right here.
FAR
You are studying a set of financial statements prepared for the city of Wichita. You find an asset listed as a building which is reported as $2.4 million. The statement also shows accumulated depreciation of $700,000 for a book value of $1.7 million. In which of the following are you not looking as you study the statements for the city of Wichita?
a. Fund-based financial statements for governmental funds
b. Government-wide financial statements for business-type activities
c. Government-wide financial statements for governmental activities
d. Fund-based financial statements for proprietary funds
Answer is A
Government-wide financial statements report all economic resources including all assets (such as a building). That is true for both governmental activities (like the police department) and business-type activities (like a bus service). The fund-based statements for the proprietary funds are reported in the same manner. The accounting for proprietary funds (the bus service, for example, or an internal print shop) are very similar in the government-wide financial statements and the fund-based financial statements. However, the fund-based statements for governmental funds (such as a police department or fire department) only report current financial resources. A building is not a current financial resource and is not reported in those statements.
Auditing
The Machieto Corporation produces a set of financial statements according to United States generally accepted accounting principles. However, by an accident, the accountant reported the book value of the company’s warehouse (as a fixed asset) using a method that was not appropriate under GAAP. The accountant has created a misstatement in which of the following assertions?
a. Existence
b. Presentation
c. Completeness
d. Valuation
Answer is D
The completeness assertion states no transactions or balances have been omitted and none have here. The existence assertion states that no extra transactions or balances have been included and none have been. There is one building and the company is reporting one building. The presentation assertion states that the balances have been properly placed within the financial statements and the building is shown as a fixed asset which is appropriate. The valuation assertion states that the figures being reported have been determined according to US generally accepted accounting principles. That was not the case here.
Regulation
At the beginning of the current year, John Doe is single. However, he marries Helen on January 23. The couple adopts two infant daughters from Russia on May 1 of that year. Unfortunately, Helen dies in a car accident in November of this year. John Doe does not remarry prior to the end of the year. The children do qualify as dependents. What tax status should the taxpayer use when filing his income tax return for this year?
a. Single
b. Head of household
c. Qualifying widow
d. Joint
Answer: D
If a spouse dies during the tax year, the filing status at that time holds (unless a change occurs subsequently such as a remarriage). In this particular case, on the date that Helen died, the couple could file a joint return. Despite her death, that status still applies for that tax year.
BEC
A stockholder of the Chaplin Corporation received each of the following items. All of them are considered asset or capital distributions, except:
a. a stock split of 300 previously unissued shares of the company’s stock
b. a distribution of three acres of land
c. a dividend of $3,000 based on the profits of the company
d. a dividend of $2,000 in cash that is deemed to be a liquidating dividend
Answer is A.
A stock split is a type of stock dividend that neither reduces the assets of the business nor increases the stockholder’s percentage of the ownership. It is not viewed as a distribution but rather as an attempt by the company to reduce the market price of the company’s stock by increasing the supply. It is not viewed as an asset or capital distribution. The business is no worse off and the stockholder is no better off.
If it snows, add points!!!!
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Thursday, January 14, 2010
Make it Happen in 2010
78 Weeks of Operation and 7,865,448 Page Views (without a penny spent on marketing)
Lesson 59
From: Joe
(A) - Thanks to everyone who has helped to make 2009 such a wonderfully special year for all of us here at CPA Review for FREE. I just checked and our number
of hits last week was 126 percent higher than during the same week in 2008. Great growth with nothing spent on advertising. And, over the course of 2009,
we averaged (this is the average number not the highest number) 128,092 page views per week. That is adding a lot of points to a lot of CPA Exam scores.
Now, if we can just grow as fast in 2010!!! And, we can with your help. Please tell anyone that you know who is thinking about the CPA Exam that we are
here to help them pass. All of our questions and answers are available for FREE (yes, F R E E) at www.CPAreviewforFREE.com.
(B) – Our daily tips on Facebook have been going wonderfully well. If you have not had a chance yet, go to www.facebook.com and become a fan. Just search
for CPAreviewforFREE. You can read the 27 tips that we have sent out to our fans in the last 27 days. Figure out which one you think is best and let us
know. I really would be interested in knowing what kind of tip is the most helpful.
(C) – Don’t forget that you can download all of our questions and answers for just a small fee. At www.CPAreviewforFREE.com, check out the Store. Having
the questions in a hard copy can be very helpful if you don’t have easy access to the Internet at all times.
(1)---I recently read an article about Walt Disney, the man who created the company that bears his name. (I am probably one of the few people on this list
who is old enough to remember when Mr. Disney himself served as the weekly host of the television program “The Wonderful World of Disney.”)
In this article, the writer talked about how Walt Disney had created his company and then turned it into a gigantic success in both movies and amusement parks.
The writer mentioned one of Mr. Disney’s favorite made-up words: “stick-to-it-ivity” which was described as “his word for tenacity, for perseverance.”
I know that as we enter a brand new year, it may be time for a bit of “stick-to-it-ivity.” Not a bad time to make this YOUR word for 2010.
The pass rate on each part of the CPA Exam is roughly 50 percent. Unfortunately, if my math is correct, that means that the failure rate on each part of the
CPA Exam is also roughly 50 percent.
Thus, I am sure that—as we exit 2009—some of you on this list were disappointed by the CPA Exam this past year. But, as we enter 2010, that is all in the
past. It’s in the past – forget about it. Make it your New Year’s resolution to have the exam behind you by this time next year.
To any of you who were disappointed this year with your results, let me assure you that I fully believe that you can and will pass the CPA Exam. I mean that
truly. If you did not get the scores that you wanted in 2009, that can only mean one of two things:
(a) that you have not yet been able to invest the time that you needed and/or
(b) that you have not yet been able to set up a study routine that will work for you.
With adequate time and the proper approach, you can pass!
So, it may be time for some stick-to-it-ivity. Don’t let the CPA Exam get the best of you. It is easy when you are frustrated to shake your head and say “I
quit.” Quitting is the easiest thing to do in life. Well, DON’T DO IT! You are ready for some tenacity; it is time for some perseverance.
I’m sure there is a bit of an ache in your heart if you scores were not quite there in 2009 but stick to the task. No one has ever won anything important in
life by quitting. Sure, take some time off if necessary and put the exam out of your mind but don’t walk away forever. You may be just so very close to
passing. You may not believe how close you are to getting that passing grade.
If you have not yet passed the CPA Examination, it is time for you to have a bit of stick-to-it-ivity. I realize that it is not easy but don’t let the CPA
Exam get the best of you. Every success in life is sweet but a success that requires tenacity and perseverance is ever so much sweeter. It is those
successes that add zest to life.
Stick-to-it-ivity. Walt Disney would be proud of you.
(2) – I don’t spend much time watching television but I do know that they are playing a lot of football games over the next few days and weeks. In both the
colleges and the pros, they are playing to see who will become the champions. That has to be a big thrill—to go all the way through a long season and get to
the end of year with a chance to be the champion.
I once heard a coach say about football players: “Everyone wants to be the star quarterback during the football games in November and December but it is the
person who is able to work in the heat of July and August who actually achieves that goal.”
That may well be true about football but I know for certain that it is also very true about the CPA Exam. Most people think you pass the CPA Exam when you
walk into the exam site and start answering questions. Wrong, completely wrong. That is not where the passing grade comes from. You pass the CPA Exam during
the weeks and months leading up to the test day, each time that you sit down at a desk and do the real work. Each time that you work a question and carefully
read the answer.
How you perform on the eventual test day is no more than the result of what you can do right now. If you do the work now, you can pass when you walk into the
exam site; if you don’t work now, your chances go way down.
I’m not sure who is going to win any of the football games over the next few days but I would be willing to bet that the ones who practiced hardest back in the
summer really have a great chance.
I’m also not sure who is going to pass the CPA Exam but I would be willing to bet it is those people who are studying the hardest, day in and day out, right
now, that have the greatest chance.
So, forget about taking the CPA Exam—focus all of your attention on January 1, 2010. What are you going to accomplish in the next 24 hours. That is what
really counts.
(3) - We have roughly 10,000 people currently on our subscription list who get these email lessons about every 7-10 days. They come from all parts of the
globe, people just like you, people working to pass the CPA Exam. We would love to add more folks to our list. We enjoy having the opportunity to be of
service. We do this to help people and we would like to help even more if possible. So, if this lesson has been forwarded to you and you would like to join
all of these other candidates who receive our lessons automatically each week, we would love to add you. There is no obligation; these lessons are genuinely
free.
To subscribe, just go to www.CPAreviewforFREE.com and register. It will ask you if you want more information. That is referring to these lessons so make sure
to check that box.
If you ever want to unsubscribe, just scroll to the bottom of any email lesson (like this one) and click on the link that indicates Unsubscribe.
(4) – Let’s start the new year off with a bit of practice.
FAR
The City of Dylan buys $100,000 in supplies for cash and then uses $70,000 during the current year in one of its governmental funds (the police department, for
example). Which of the following statements is true in connection with the preparation of fund-based financial statements?
A – Under the consumption method, expenditures are $70,000 while under the purchases method expenditures are $70,000.
B – Under the consumption method, expenditures are $100,000 while under the purchases method expenditures are $100,000.
C – Under the consumption method, expenditures are $70,000 while under the purchases method expenditures are $100,000.
D – Under the consumption method, expenditures are $100,000 while under the purchases method expenditures are $70,000.
Answer is C
Under the consumption method, only the amount of supplies or prepaid expenses that are consumed ($70,000) are reported on fund-based statements as
expenditures. Under the purchases method, the entire amount of supplies or prepaid expenses that are purchased ($100,000) are reported on fund-based
statements as expenditures.
Auditing
A CPA firm is performing an audit engagement and it currently beginning to assess the amount of control risk. Which of the following is not viewed as one of
the components of a company’s internal control?
A – Control environment
B – Risk assessment
C – Control activities
D – Design and formulation
Answer is D
The components of internal control are control environment (policies and procedures that show the company’s overall commitment to good internal control), risk
assessment (policies and procedures to identify areas within operations where the most risk exists so that extra preventative measures can be taken),
information and communication systems (policies and procedures to ensure that information is gathered and communicated properly), control activities (policies
and procedures to ensure that operations are carried out in the way intended by management), and monitoring (policies and procedures involving the ongoing
assessment of internal control).
Regulation
Company S has 100,000 shares of voting common stock outstanding and no preferred stock. Company P wants to acquire control over Company S and would like to
acquire enough shares so that a consolidated tax return can also be filed? How many shares must Company P acquire so that a consolidated tax return is
allowed?
A – 50,001
B – 80,000
C – 90,000
D – 100,000
Answer is B
For tax purposes, a consolidated return can be filed if the acquiring corporation acquires at least 80 percent of the voting power and 80 percent of each class
of nonvoting stock of the other corporation. In tax rules, which are different than used for financial reporting purposes, 80 percent ownership is the
minimum level where two companies are basically viewed as one entity.
BEC
A company manufactures widgets. A widget takes 2 pounds of material at $9 per pound and 3 hours of labor at $16 per hour. Factory overhead is applied at
the rate of $6 per direct labor hour. The company wants to have a gross profit percentage of 30 percent. What should the company set as its sales price
for each widget?
A - $109.20
B - $115.40
C - $118.60
D - $120.00
Answer is D
Each widget has a total cost of $84.00. That is direct material of $18 (2 times $9), direct labor of $48 (3 times $16), and factory overhead of $18 (3 times
$6). Because the company wants a gross profit percentage of 30 percent, the sales prices (SP) should be: SP – 84 = .30SP. Or, with rearrangement: .70
SP = 84. By dividing both sides by .70, SP = 120. That is the sales price to get that gross profit percentage.
Have a great 2010!!!!!
Joe Hoyle
President
www.CPAreviewforFREE.com
Lesson 59
From: Joe
(A) - Thanks to everyone who has helped to make 2009 such a wonderfully special year for all of us here at CPA Review for FREE. I just checked and our number
of hits last week was 126 percent higher than during the same week in 2008. Great growth with nothing spent on advertising. And, over the course of 2009,
we averaged (this is the average number not the highest number) 128,092 page views per week. That is adding a lot of points to a lot of CPA Exam scores.
Now, if we can just grow as fast in 2010!!! And, we can with your help. Please tell anyone that you know who is thinking about the CPA Exam that we are
here to help them pass. All of our questions and answers are available for FREE (yes, F R E E) at www.CPAreviewforFREE.com.
(B) – Our daily tips on Facebook have been going wonderfully well. If you have not had a chance yet, go to www.facebook.com and become a fan. Just search
for CPAreviewforFREE. You can read the 27 tips that we have sent out to our fans in the last 27 days. Figure out which one you think is best and let us
know. I really would be interested in knowing what kind of tip is the most helpful.
(C) – Don’t forget that you can download all of our questions and answers for just a small fee. At www.CPAreviewforFREE.com, check out the Store. Having
the questions in a hard copy can be very helpful if you don’t have easy access to the Internet at all times.
(1)---I recently read an article about Walt Disney, the man who created the company that bears his name. (I am probably one of the few people on this list
who is old enough to remember when Mr. Disney himself served as the weekly host of the television program “The Wonderful World of Disney.”)
In this article, the writer talked about how Walt Disney had created his company and then turned it into a gigantic success in both movies and amusement parks.
The writer mentioned one of Mr. Disney’s favorite made-up words: “stick-to-it-ivity” which was described as “his word for tenacity, for perseverance.”
I know that as we enter a brand new year, it may be time for a bit of “stick-to-it-ivity.” Not a bad time to make this YOUR word for 2010.
The pass rate on each part of the CPA Exam is roughly 50 percent. Unfortunately, if my math is correct, that means that the failure rate on each part of the
CPA Exam is also roughly 50 percent.
Thus, I am sure that—as we exit 2009—some of you on this list were disappointed by the CPA Exam this past year. But, as we enter 2010, that is all in the
past. It’s in the past – forget about it. Make it your New Year’s resolution to have the exam behind you by this time next year.
To any of you who were disappointed this year with your results, let me assure you that I fully believe that you can and will pass the CPA Exam. I mean that
truly. If you did not get the scores that you wanted in 2009, that can only mean one of two things:
(a) that you have not yet been able to invest the time that you needed and/or
(b) that you have not yet been able to set up a study routine that will work for you.
With adequate time and the proper approach, you can pass!
So, it may be time for some stick-to-it-ivity. Don’t let the CPA Exam get the best of you. It is easy when you are frustrated to shake your head and say “I
quit.” Quitting is the easiest thing to do in life. Well, DON’T DO IT! You are ready for some tenacity; it is time for some perseverance.
I’m sure there is a bit of an ache in your heart if you scores were not quite there in 2009 but stick to the task. No one has ever won anything important in
life by quitting. Sure, take some time off if necessary and put the exam out of your mind but don’t walk away forever. You may be just so very close to
passing. You may not believe how close you are to getting that passing grade.
If you have not yet passed the CPA Examination, it is time for you to have a bit of stick-to-it-ivity. I realize that it is not easy but don’t let the CPA
Exam get the best of you. Every success in life is sweet but a success that requires tenacity and perseverance is ever so much sweeter. It is those
successes that add zest to life.
Stick-to-it-ivity. Walt Disney would be proud of you.
(2) – I don’t spend much time watching television but I do know that they are playing a lot of football games over the next few days and weeks. In both the
colleges and the pros, they are playing to see who will become the champions. That has to be a big thrill—to go all the way through a long season and get to
the end of year with a chance to be the champion.
I once heard a coach say about football players: “Everyone wants to be the star quarterback during the football games in November and December but it is the
person who is able to work in the heat of July and August who actually achieves that goal.”
That may well be true about football but I know for certain that it is also very true about the CPA Exam. Most people think you pass the CPA Exam when you
walk into the exam site and start answering questions. Wrong, completely wrong. That is not where the passing grade comes from. You pass the CPA Exam during
the weeks and months leading up to the test day, each time that you sit down at a desk and do the real work. Each time that you work a question and carefully
read the answer.
How you perform on the eventual test day is no more than the result of what you can do right now. If you do the work now, you can pass when you walk into the
exam site; if you don’t work now, your chances go way down.
I’m not sure who is going to win any of the football games over the next few days but I would be willing to bet that the ones who practiced hardest back in the
summer really have a great chance.
I’m also not sure who is going to pass the CPA Exam but I would be willing to bet it is those people who are studying the hardest, day in and day out, right
now, that have the greatest chance.
So, forget about taking the CPA Exam—focus all of your attention on January 1, 2010. What are you going to accomplish in the next 24 hours. That is what
really counts.
(3) - We have roughly 10,000 people currently on our subscription list who get these email lessons about every 7-10 days. They come from all parts of the
globe, people just like you, people working to pass the CPA Exam. We would love to add more folks to our list. We enjoy having the opportunity to be of
service. We do this to help people and we would like to help even more if possible. So, if this lesson has been forwarded to you and you would like to join
all of these other candidates who receive our lessons automatically each week, we would love to add you. There is no obligation; these lessons are genuinely
free.
To subscribe, just go to www.CPAreviewforFREE.com and register. It will ask you if you want more information. That is referring to these lessons so make sure
to check that box.
If you ever want to unsubscribe, just scroll to the bottom of any email lesson (like this one) and click on the link that indicates Unsubscribe.
(4) – Let’s start the new year off with a bit of practice.
FAR
The City of Dylan buys $100,000 in supplies for cash and then uses $70,000 during the current year in one of its governmental funds (the police department, for
example). Which of the following statements is true in connection with the preparation of fund-based financial statements?
A – Under the consumption method, expenditures are $70,000 while under the purchases method expenditures are $70,000.
B – Under the consumption method, expenditures are $100,000 while under the purchases method expenditures are $100,000.
C – Under the consumption method, expenditures are $70,000 while under the purchases method expenditures are $100,000.
D – Under the consumption method, expenditures are $100,000 while under the purchases method expenditures are $70,000.
Answer is C
Under the consumption method, only the amount of supplies or prepaid expenses that are consumed ($70,000) are reported on fund-based statements as
expenditures. Under the purchases method, the entire amount of supplies or prepaid expenses that are purchased ($100,000) are reported on fund-based
statements as expenditures.
Auditing
A CPA firm is performing an audit engagement and it currently beginning to assess the amount of control risk. Which of the following is not viewed as one of
the components of a company’s internal control?
A – Control environment
B – Risk assessment
C – Control activities
D – Design and formulation
Answer is D
The components of internal control are control environment (policies and procedures that show the company’s overall commitment to good internal control), risk
assessment (policies and procedures to identify areas within operations where the most risk exists so that extra preventative measures can be taken),
information and communication systems (policies and procedures to ensure that information is gathered and communicated properly), control activities (policies
and procedures to ensure that operations are carried out in the way intended by management), and monitoring (policies and procedures involving the ongoing
assessment of internal control).
Regulation
Company S has 100,000 shares of voting common stock outstanding and no preferred stock. Company P wants to acquire control over Company S and would like to
acquire enough shares so that a consolidated tax return can also be filed? How many shares must Company P acquire so that a consolidated tax return is
allowed?
A – 50,001
B – 80,000
C – 90,000
D – 100,000
Answer is B
For tax purposes, a consolidated return can be filed if the acquiring corporation acquires at least 80 percent of the voting power and 80 percent of each class
of nonvoting stock of the other corporation. In tax rules, which are different than used for financial reporting purposes, 80 percent ownership is the
minimum level where two companies are basically viewed as one entity.
BEC
A company manufactures widgets. A widget takes 2 pounds of material at $9 per pound and 3 hours of labor at $16 per hour. Factory overhead is applied at
the rate of $6 per direct labor hour. The company wants to have a gross profit percentage of 30 percent. What should the company set as its sales price
for each widget?
A - $109.20
B - $115.40
C - $118.60
D - $120.00
Answer is D
Each widget has a total cost of $84.00. That is direct material of $18 (2 times $9), direct labor of $48 (3 times $16), and factory overhead of $18 (3 times
$6). Because the company wants a gross profit percentage of 30 percent, the sales prices (SP) should be: SP – 84 = .30SP. Or, with rearrangement: .70
SP = 84. By dividing both sides by .70, SP = 120. That is the sales price to get that gross profit percentage.
Have a great 2010!!!!!
Joe Hoyle
President
www.CPAreviewforFREE.com
Wednesday, December 30, 2009
Congratulations on All Your Work in 2009
Try us FIRST before you spend your hard-earned money.
December 22, 2009
CPA Review for FREE
www.CPAreviewforFREE.com
Congratulations on All Your Work in 2009
77 Weeks of Operation and 7,749,405 Page Views (without a penny spent on marketing)
Lesson 58
From: Joe
(1) – Happy Holidays!!! from all of us here at www.CPAreviewforFREE.com. We hope you have a great and wonderful holiday season and that 2010 turns out to be the very best year of your entire life. Go for it!!!
I am actually sitting here in Richmond looking out my window on most of the 15 inches of snow that we had this past week-end (which appears to be very intent on hanging around). It is amazing how much work you can get accomplished if you cannot get your car down your very steep driveway.
(2) – FACEBOOK - I just finished posting my 17th tip in my “30 tips in 30 days” program on Facebook. This one was on Joe’s own “Four C’s for Success on the CPA Exam.” If you are interested in signing up to get these, go to www.facebook.com and search for CPAreviewforFREE and sign up.
(3) – TEXTBOOK - I have written some over the past few months about my new textbook that will be coming out in just the next few days. It is a free on-line book. If you are a college student or a college professor and want to learn more, here is a story about my writing of this book.
news.richmond.edu/features/article/www/690/award-winning-accounting-professor-keeps-teaching-fresh-after-30-years.html
If you are interested in actual information about the textbook itself, you can go to (tell your teachers to have a look):
www.flatworldknowledge.com/printed-book/1638
I have poured three years of my life into that book – I’ll let you decide whether that was a good allocation of time or not.
(4) – UNSUBSCRIBE – If you should ever decide that you are ready to stop hearing from us, you can scroll to the bottom of this lesson (or any other email lesson) and click on the box and unsubscribe. We certainly love having you but we’ll leave it up to you as to how long you stick around (have you ever noticed that most emails hide the “unsubscribe message” so that you can barely find it – we want you to stay only as long as you want to).
(5) – WHO STUDIES THE MOST – We get weekly statistics about the traffic on our site. We typically have visitors from about 80 locations every week. The 50 states of the United States make up one location and then we get traffic from many other locations around the world. We always get extra information about the traffic from the top 10 locations each week. One of my habits is to look and see which of those top locations actually studies the most. For some reason, that seems interesting to me. I figure that indicates who is really most interested in learning the material and passing.
Last week, the winner was the Philippines. The average person from the Philippines stayed on www.CPAreviewforFREE.com for 39 minutes and 8 seconds each time they visited. That was following closely by Puerto Rico with an excellent 34 minutes and 28 seconds. The United States was a respectable 21 minutes and 51 seconds.
Okay, if you are not from one of those three locations, spend some extra time this week on the site so that you can get your area into our “who studies the most” designation.
(6) – SALUTE – I want to pause for a moment here as we near the end of 2009 to raise a salute to every single one of you who studied for the CPA Exam this year whether you have taken it yet or not. It takes an incredible amount of time, energy, and perseverance to get yourself ready for this exam. In some ways, it is like preparing for the Olympics. You should be very pleased about all that you have been able to accomplish this year. No one ever gets as much done as they would like but you took a good shot at it. Anyone can talk about preparing – you did it. I realize that the one and only goal is to pass the CPA Exam but I just have to tell you how pleased I am that you have worked so hard in 2009.
Whether you pass or fail, the CPA Exam is an incredible challenge. One of the hard parts is that so few people really understand how difficult it is – until you have done it, you cannot appreciate the amount of effort you have to expend to prepare. Well, I did that preparation myself and I do understand. So, I want to pass along my praise.. You have taken on a real challenge and you have not backed down. Good for you!!!!
One of my all-time favorite quotes comes from President Theodore Roosevelt. I was reminded of this quote because it was mentioned in Time magazine this week. I have used this quote often and it really does mirror my feelings. It applies to all of you who have worked to make yourselves better this year so that you can pass the CPA Exam.
From President Roosevelt: “The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again… who spends himself in a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who at the worst, if he fails, at least he fails while daring greatly.”
Strive valiantly, my friends.
This is a worthy cause.
What more could I possibly add?
(7) – PRACTICE
FAR
Company A buys Company B and pays $5 million more than the fair value of the identifiable assets and liabilities. The $5 million was recorded as Goodwill. Which of the following statements is true?
A – Goodwill is amortized to expense over 40 years.
B – The rules have changed so that goodwill is now expensed immediately.
C – Goodwill must be checked for impairment periodically and reduced if impaired.
D – Goodwill is amortized over an appropriate period of 40 years or less.
Answer is C
Goodwill is no longer amortized. It is recorded as an intangible asset on a consolidated balance sheet. This reported balance must then be checked periodically for possible impairment. If impaired, it is reduced and a loss recognized.
BEC
A company has seven divisions. The Blue Division is very slow at sending out invoices so that cash collections are delayed. The management of the Blue Division looks at the invoice systems operating within the other six divisions and discovers that the Green Division has the best practices in this area of the business. Therefore, where practical, they adopt some of these practices for use by the Blue Division. What is this process called?
A – Maximization of Time
B – Benchmarking
C – Quantum Time Theory
D – Hagler’s Theory of Routine Processes
Answer is B
Company officials should always be looking for better ways to do things so that their own organization is able to become more efficient on a continuous basis. Comparisons should be made between the way that activities are executed by the organization and the procedures carried out by others, in other divisions and even in other companies. The process of discovering weaknesses and using the results obtained from others to create improvement is known as benchmarking.
Auditing and Attestation
The Waynesboro Corporation has recently installed a new computer payroll processing program. Before the program is used to compute actual payroll checks for the employees, test data is going to be run through the computer to see how it would be processed. Which of the following is least likely to be tested in this manner?
A – Two checks requested for the same employee
B – A check requested for an employee who quit two months earlier.
C – A check requested for an employee working more than 60 hours per week.
D – A check requested for an employee paid an hourly rate of $12 per hour.
Answer is D
Test data hopes to verify that the computer will produce an error report where there is a problem (such as in A and B) or a potential problem (such as in C) that must be cleared before actual processing proceeds. The fact that some employees are paid hourly wages is not a problem and there is nothing suspicious about a rate of $12 per hour (roughly $24,000 per year).
Regulation
Jay Wilkinson serves as the host at a fancy restaurant in New Orleans. As such, he wears a nice jacket so that he has an appropriate professional look. However, he must pay $30 per week to have the jacket cleaned and looking nice. How much of the cleaning costs can he deduct as a miscellaneous itemized deduction on his income tax return?
A – Zero
B – 20 percent of the amount spent
C – 50 percent of the amount spent
D – 100 percent of the amount spent
Answer is A
If these costs were incurred as ordinary and necessary expenses of traveling away from home for the person’s business, profession, or job, they are deductible. However, this expense here was not during business travel and is, therefore, not deductible. Most employees are expected to wear clean clothes while at work but no deduction is allowed for that cleaning. The fact that it was a nice jacket worn at a fancy restaurant is not important to the tax laws.
Have a wonderful and happy holiday!!!
Hug, at least one person you love – in fact, hug a lot of people that you love.
Joe Hoyle
Co-Founder
CPA Review for FREE
December 22, 2009
CPA Review for FREE
www.CPAreviewforFREE.com
Congratulations on All Your Work in 2009
77 Weeks of Operation and 7,749,405 Page Views (without a penny spent on marketing)
Lesson 58
From: Joe
(1) – Happy Holidays!!! from all of us here at www.CPAreviewforFREE.com. We hope you have a great and wonderful holiday season and that 2010 turns out to be the very best year of your entire life. Go for it!!!
I am actually sitting here in Richmond looking out my window on most of the 15 inches of snow that we had this past week-end (which appears to be very intent on hanging around). It is amazing how much work you can get accomplished if you cannot get your car down your very steep driveway.
(2) – FACEBOOK - I just finished posting my 17th tip in my “30 tips in 30 days” program on Facebook. This one was on Joe’s own “Four C’s for Success on the CPA Exam.” If you are interested in signing up to get these, go to www.facebook.com and search for CPAreviewforFREE and sign up.
(3) – TEXTBOOK - I have written some over the past few months about my new textbook that will be coming out in just the next few days. It is a free on-line book. If you are a college student or a college professor and want to learn more, here is a story about my writing of this book.
news.richmond.edu/features/article/www/690/award-winning-accounting-professor-keeps-teaching-fresh-after-30-years.html
If you are interested in actual information about the textbook itself, you can go to (tell your teachers to have a look):
www.flatworldknowledge.com/printed-book/1638
I have poured three years of my life into that book – I’ll let you decide whether that was a good allocation of time or not.
(4) – UNSUBSCRIBE – If you should ever decide that you are ready to stop hearing from us, you can scroll to the bottom of this lesson (or any other email lesson) and click on the box and unsubscribe. We certainly love having you but we’ll leave it up to you as to how long you stick around (have you ever noticed that most emails hide the “unsubscribe message” so that you can barely find it – we want you to stay only as long as you want to).
(5) – WHO STUDIES THE MOST – We get weekly statistics about the traffic on our site. We typically have visitors from about 80 locations every week. The 50 states of the United States make up one location and then we get traffic from many other locations around the world. We always get extra information about the traffic from the top 10 locations each week. One of my habits is to look and see which of those top locations actually studies the most. For some reason, that seems interesting to me. I figure that indicates who is really most interested in learning the material and passing.
Last week, the winner was the Philippines. The average person from the Philippines stayed on www.CPAreviewforFREE.com for 39 minutes and 8 seconds each time they visited. That was following closely by Puerto Rico with an excellent 34 minutes and 28 seconds. The United States was a respectable 21 minutes and 51 seconds.
Okay, if you are not from one of those three locations, spend some extra time this week on the site so that you can get your area into our “who studies the most” designation.
(6) – SALUTE – I want to pause for a moment here as we near the end of 2009 to raise a salute to every single one of you who studied for the CPA Exam this year whether you have taken it yet or not. It takes an incredible amount of time, energy, and perseverance to get yourself ready for this exam. In some ways, it is like preparing for the Olympics. You should be very pleased about all that you have been able to accomplish this year. No one ever gets as much done as they would like but you took a good shot at it. Anyone can talk about preparing – you did it. I realize that the one and only goal is to pass the CPA Exam but I just have to tell you how pleased I am that you have worked so hard in 2009.
Whether you pass or fail, the CPA Exam is an incredible challenge. One of the hard parts is that so few people really understand how difficult it is – until you have done it, you cannot appreciate the amount of effort you have to expend to prepare. Well, I did that preparation myself and I do understand. So, I want to pass along my praise.. You have taken on a real challenge and you have not backed down. Good for you!!!!
One of my all-time favorite quotes comes from President Theodore Roosevelt. I was reminded of this quote because it was mentioned in Time magazine this week. I have used this quote often and it really does mirror my feelings. It applies to all of you who have worked to make yourselves better this year so that you can pass the CPA Exam.
From President Roosevelt: “The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again… who spends himself in a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who at the worst, if he fails, at least he fails while daring greatly.”
Strive valiantly, my friends.
This is a worthy cause.
What more could I possibly add?
(7) – PRACTICE
FAR
Company A buys Company B and pays $5 million more than the fair value of the identifiable assets and liabilities. The $5 million was recorded as Goodwill. Which of the following statements is true?
A – Goodwill is amortized to expense over 40 years.
B – The rules have changed so that goodwill is now expensed immediately.
C – Goodwill must be checked for impairment periodically and reduced if impaired.
D – Goodwill is amortized over an appropriate period of 40 years or less.
Answer is C
Goodwill is no longer amortized. It is recorded as an intangible asset on a consolidated balance sheet. This reported balance must then be checked periodically for possible impairment. If impaired, it is reduced and a loss recognized.
BEC
A company has seven divisions. The Blue Division is very slow at sending out invoices so that cash collections are delayed. The management of the Blue Division looks at the invoice systems operating within the other six divisions and discovers that the Green Division has the best practices in this area of the business. Therefore, where practical, they adopt some of these practices for use by the Blue Division. What is this process called?
A – Maximization of Time
B – Benchmarking
C – Quantum Time Theory
D – Hagler’s Theory of Routine Processes
Answer is B
Company officials should always be looking for better ways to do things so that their own organization is able to become more efficient on a continuous basis. Comparisons should be made between the way that activities are executed by the organization and the procedures carried out by others, in other divisions and even in other companies. The process of discovering weaknesses and using the results obtained from others to create improvement is known as benchmarking.
Auditing and Attestation
The Waynesboro Corporation has recently installed a new computer payroll processing program. Before the program is used to compute actual payroll checks for the employees, test data is going to be run through the computer to see how it would be processed. Which of the following is least likely to be tested in this manner?
A – Two checks requested for the same employee
B – A check requested for an employee who quit two months earlier.
C – A check requested for an employee working more than 60 hours per week.
D – A check requested for an employee paid an hourly rate of $12 per hour.
Answer is D
Test data hopes to verify that the computer will produce an error report where there is a problem (such as in A and B) or a potential problem (such as in C) that must be cleared before actual processing proceeds. The fact that some employees are paid hourly wages is not a problem and there is nothing suspicious about a rate of $12 per hour (roughly $24,000 per year).
Regulation
Jay Wilkinson serves as the host at a fancy restaurant in New Orleans. As such, he wears a nice jacket so that he has an appropriate professional look. However, he must pay $30 per week to have the jacket cleaned and looking nice. How much of the cleaning costs can he deduct as a miscellaneous itemized deduction on his income tax return?
A – Zero
B – 20 percent of the amount spent
C – 50 percent of the amount spent
D – 100 percent of the amount spent
Answer is A
If these costs were incurred as ordinary and necessary expenses of traveling away from home for the person’s business, profession, or job, they are deductible. However, this expense here was not during business travel and is, therefore, not deductible. Most employees are expected to wear clean clothes while at work but no deduction is allowed for that cleaning. The fact that it was a nice jacket worn at a fancy restaurant is not important to the tax laws.
Have a wonderful and happy holiday!!!
Hug, at least one person you love – in fact, hug a lot of people that you love.
Joe Hoyle
Co-Founder
CPA Review for FREE
Tuesday, December 22, 2009
You Have a Wonderful Opportunity
You Have a Wonderful Opportunity
76 Weeks of Operation and 7,631,253 Page Views (without a penny spent on marketing)
Lesson 57
From: Joe
(1) – FACEBOOK We have now sent out 10 tips in our 30 Tips in 30 Days program on Facebook. After the 30 days are up, I’d like to continue to do something
similar 2-3 times per week. Or maybe we’ll just go for a 60 Tips in 60 Days program.
If you want to receive our daily tips on Facebook, here are the directions: If you are already a member of Facebook, type in "CPAreviewforFREE" in
the search box to get to our page. If you are not a member, go to www.facebook.com and create an account. Apparently it is easy (even for an older time like
me) because we are adding fans at a very nice pace.
(If you have any trouble signing up because you are not a Facebook person, hit reply and we’ll have our Facebook expert contact you about getting started.)
(2) – Whenever you get ready to stop receiving these weekly email lessons, you can unsubscribe by scrolling to the bottom of any lesson. Click on the link and
you’ll be off.
However, if it were up to us, we’d just as soon have you stay. We are well over 10,000 subscribers and I can hardly wait to have 20,000 or even 100,000. The
cost is the same for us. So, stay for as long as you wish.
And, tell your friends. In fact, if you are looking for just the perfect holiday gift for a loved one, remember that a subscription to our email lessons
might just be the thing that would brighten up that person’s life. Plus, the cost is excellent (free).
(3) – My wife was working last Saturday so I took my two daughters to see the movie: The Princess and the Frog. Okay, it is a cartoon so it probably is not
going to rival The Godfather. But, it did have an excellent message: “You can do anything that you set your mind on.” The heroine was a child who was very
poor but wanted to start a restaurant of her own and that was the message her father kept pushing. So, she worked double and triple shifts to make that dream
come true.
Well, in all honesty, I do not know that you can do every single thing that you set your mind on. There are a few dreams (a friend of mine dreams of swimming
in the Olympics, for example) that are a bit unlikely. However, I will tell you exactly what I do believe:
--If you don’t want something badly enough to set your mind on it, you don’t really want it.
--If you don’t want something badly enough to do the work, you don’t really want it.
--If you don’t want something badly enough, you are probably not going to get it.
So, the question I would pose to you, today, on December 14, 2009, is: how badly do you want to pass the CPA Exam? Simply question but the answer can be
complicated. Everyone will say that they are dying to pass but that is just “lip service” – how badly do you really want to pass?
I can tell you two ways that you can find out for yourself.
First, there are times every day when you can study or you can do something that is more interesting.
You can study or you can watch television.
You can study or you can read a magazine.
You can study or you can go to a movie.
Count how often each day “You can study” wins. If it is 80 percent or more of the time, then you are probably serious about passing the CPA Exam. It doesn’t
have to be 100 percent of the time but it ought to be a solid majority. Study needs to win very frequently.
When faced with temptation, if you choose to study most of the time that is a great sign that you really have set your mind on passing.
Second, I have said often in these email lessons that you should plan out how many hours per day (on the average) that you want to study. Are you able to
study one hour each day, 90 minutes each day, two hours each day or what? In your life, what is a reasonable goal?
Then, of course, keep track of the number of days that you are able to hit that goal. Again, it doesn’t have to be 100 percent of the time but if you are not
able to meet the hourly goal at least 70-80 percent of the time, it may be that you just think you want to pass the CPA Exam but you have not really set your
mind on passing.
“You can do anything that you set your mind on.”
(4) – Over the years in these email lessons, I have written several times about Thomas Edison, one of the most successful people in history and, apparently,
one of the hardest working people in history (hmm, could there be a connection?).
Someone must have read those previous lessons and remembered them because I received the following Thomas Edison quote in an email:
“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
I love the idea that the CPA Exam represents an “opportunity.” I often hear the CPA Exam described in negative terms such as “painful,” “torturous,” “cruel,”
and the like. But that makes the whole process seem like drudgery. And, I think you are so much better off if you can adopt a different mindset.
Participating in the Olympics would be an opportunity.
Playing in the Super Bowl would be an opportunity.
Taking the field in the World Series would be an opportunity.
So, why is the CPA Exam not an “opportunity” – it gives you the chance to pit yourself against the best known accounting exam in the history of the world. It
is an exam that you can pass but only if you do your best. It is an exam that is recognized throughout the world as the pinnacle of achievement in the
accounting profession.
Yeah, it really does qualify as an opportunity.
But, as Edison says, people often miss their greatest opportunities because they “look like work.” I know we all love to play and have fun but some of the
greatest thrills in my life have come from taking on a challenging opportunity—one that required the best of me every day, one that required me to put in some
serious work.
Work on your mindset. Every single morning ask yourself to describe the CPA Exam in just one word. That is not a bad exercise. That one word may not
always be “opportunity” depending on how you are feeling on that day but, hopefully, you will view it as an opportunity on most days.
That is always a good start to any day.
(5) – Now for a little practice. Work these questions today and see how you do. Wait 7 days and try them again. Obviously, what you want is a higher
score the second time. That is what you want: progress.
Good luck – go get them!!!
FAR
You buy two investments in equity securities. Each one cost $7,000 and each one goes up to $10,000 in value by the end of the year. One was a trading
security and one was available-for-sale. Each company declared a cash dividend on December 1 of the current year, payable to owners on record as of December
26. You received two dividend checks of $400 each on January 8 of the following year. Which of the following statements is true? (Assume that you have
not chosen to account for the available-for-sale security as if it were a trading security.)
A – Your net income goes up a total of $3,000 because of each investment.
B – Your net income goes up a total of $3,400 because of each investment.
C – Your net income goes up $3,400 because of the trading security but $400 because of the available-for-sale security.
D – Your net income goes up $3,000 because of the trading security but is unchanged because of the available-for-sale security.
Answer is C
The dividend received on both investments is recognized as revenue in the current period because the date of record (December 26) is in the current period. In
addition, the $3,000 increase in value of the trading security is also recognized within net income (for a total of $3,400). However, the increase in value
of the available-for-sale security is reported within accumulated other comprehensive income that appears in stockholders’ equity and not within net income.
Only the dividend affects net income in connection with the available-for-sale security.
Auditing and Attestation
A CPA firm is auditing the financial statements prepared by the Lion Corporation for the year ending December 31, Year One. The auditors are concerned that a
number of accounts payable were not included in the year-end liabilities. Which of the following audit procedures would help the auditors make certain that
the accounts payable balance is not understated?
A – Confirm a sample of the year-end accounts payable balances.
B – Review the cause for the cash disbursements made in the first month or two of Year Two.
C – Compare the balances in accounts payable to receiving reports created by the company.
D – Check the math and extensions on the accounts payable balances recorded during the last month of Year One.
Answer is B
A, C, and D involve the examination of balances that were already recorded prior to the end of Year One. However, that is not the problem that is suspected
by the auditors. The auditors are concerned about payable balances that were omitted in Year One. Only answer B looks at transactions that might not have
been recorded appropriately in Year One. The auditors will look at cash disbursements in Year Two and determine when the liability was created and whether it
was recorded in the correct time period.
Regulation
James Miller operates a wine shop as a sole proprietorship. On a Wednesday evening, he holds a meeting with several of his suppliers. The meeting lasts for
several hours as they discuss various wines that will become available during the following year. After the meeting, Miller takes the entire group to a
local minor league baseball game and pays for the entire event. How much of this cost can he deduct for income tax purposes?
A – Zero
B – Twenty percent
C – Fifty percent
D – All of it
Answer is C
Fifty percent of entertainment expenses can be deducted for tax purposes as long as it is directly related or associated with the active conduct of the
taxpayer’s trade or business. This rule is met if the entertainment precedes or follows a substantial business discussion. That rule is met in this
situation.
BEC
Lenit Corporation recently acquired widgets from a company in the country of Becktle where the currency is the romtag. Each romtag is currently worth $.40
and Lenit must pay 100,000 romtags in 60 days (value of $40,000). The treasurer for Lenit believes that the value of the romtag is going to go up over the
next 60 days so that a more valuable currency will have to be paid and money will be lost. What action is the treasurer most likely to take?
A - Acquire a forward exchange contract that allows the company to buy 100,000 romtags in 60 days for exactly $.41.
B - Sell the widgets in the U. S. as quickly as possible even if they must be sold at a loss.
C - Buy the next batch of widgets in some other country.
D - Begin production of widgets in the U. S.
Answer is A.
The fluctuation of currency values is always a concern but one that can be managed through a hedging arrangement. The company has a 100,000 romtag payable.
To create a hedge, the company needs to establish a 100,000 romtag receivable. The forward exchange contract is set up here so that the company will get
100,000 romtags in 60 days. That is a receivable. Any change in the value of the romtag will cause equal and offsetting changes in the receivable and the
payable. Thus, a gain on one cancels out a loss on the other. The company does have to pay $41,000 for the romtags that will be received which is $1,000
more than the current value of the liability. That is the cost of establishing the hedge. The company knows that amount and has judged it to be more
reasonable than the uncertainty of waiting to see what paying 100,000 romtags will cost the company in 60 days.
Have a great week
Work hard
Accomplish everything you set out to do.
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
76 Weeks of Operation and 7,631,253 Page Views (without a penny spent on marketing)
Lesson 57
From: Joe
(1) – FACEBOOK We have now sent out 10 tips in our 30 Tips in 30 Days program on Facebook. After the 30 days are up, I’d like to continue to do something
similar 2-3 times per week. Or maybe we’ll just go for a 60 Tips in 60 Days program.
If you want to receive our daily tips on Facebook, here are the directions: If you are already a member of Facebook, type in "CPAreviewforFREE" in
the search box to get to our page. If you are not a member, go to www.facebook.com and create an account. Apparently it is easy (even for an older time like
me) because we are adding fans at a very nice pace.
(If you have any trouble signing up because you are not a Facebook person, hit reply and we’ll have our Facebook expert contact you about getting started.)
(2) – Whenever you get ready to stop receiving these weekly email lessons, you can unsubscribe by scrolling to the bottom of any lesson. Click on the link and
you’ll be off.
However, if it were up to us, we’d just as soon have you stay. We are well over 10,000 subscribers and I can hardly wait to have 20,000 or even 100,000. The
cost is the same for us. So, stay for as long as you wish.
And, tell your friends. In fact, if you are looking for just the perfect holiday gift for a loved one, remember that a subscription to our email lessons
might just be the thing that would brighten up that person’s life. Plus, the cost is excellent (free).
(3) – My wife was working last Saturday so I took my two daughters to see the movie: The Princess and the Frog. Okay, it is a cartoon so it probably is not
going to rival The Godfather. But, it did have an excellent message: “You can do anything that you set your mind on.” The heroine was a child who was very
poor but wanted to start a restaurant of her own and that was the message her father kept pushing. So, she worked double and triple shifts to make that dream
come true.
Well, in all honesty, I do not know that you can do every single thing that you set your mind on. There are a few dreams (a friend of mine dreams of swimming
in the Olympics, for example) that are a bit unlikely. However, I will tell you exactly what I do believe:
--If you don’t want something badly enough to set your mind on it, you don’t really want it.
--If you don’t want something badly enough to do the work, you don’t really want it.
--If you don’t want something badly enough, you are probably not going to get it.
So, the question I would pose to you, today, on December 14, 2009, is: how badly do you want to pass the CPA Exam? Simply question but the answer can be
complicated. Everyone will say that they are dying to pass but that is just “lip service” – how badly do you really want to pass?
I can tell you two ways that you can find out for yourself.
First, there are times every day when you can study or you can do something that is more interesting.
You can study or you can watch television.
You can study or you can read a magazine.
You can study or you can go to a movie.
Count how often each day “You can study” wins. If it is 80 percent or more of the time, then you are probably serious about passing the CPA Exam. It doesn’t
have to be 100 percent of the time but it ought to be a solid majority. Study needs to win very frequently.
When faced with temptation, if you choose to study most of the time that is a great sign that you really have set your mind on passing.
Second, I have said often in these email lessons that you should plan out how many hours per day (on the average) that you want to study. Are you able to
study one hour each day, 90 minutes each day, two hours each day or what? In your life, what is a reasonable goal?
Then, of course, keep track of the number of days that you are able to hit that goal. Again, it doesn’t have to be 100 percent of the time but if you are not
able to meet the hourly goal at least 70-80 percent of the time, it may be that you just think you want to pass the CPA Exam but you have not really set your
mind on passing.
“You can do anything that you set your mind on.”
(4) – Over the years in these email lessons, I have written several times about Thomas Edison, one of the most successful people in history and, apparently,
one of the hardest working people in history (hmm, could there be a connection?).
Someone must have read those previous lessons and remembered them because I received the following Thomas Edison quote in an email:
“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
I love the idea that the CPA Exam represents an “opportunity.” I often hear the CPA Exam described in negative terms such as “painful,” “torturous,” “cruel,”
and the like. But that makes the whole process seem like drudgery. And, I think you are so much better off if you can adopt a different mindset.
Participating in the Olympics would be an opportunity.
Playing in the Super Bowl would be an opportunity.
Taking the field in the World Series would be an opportunity.
So, why is the CPA Exam not an “opportunity” – it gives you the chance to pit yourself against the best known accounting exam in the history of the world. It
is an exam that you can pass but only if you do your best. It is an exam that is recognized throughout the world as the pinnacle of achievement in the
accounting profession.
Yeah, it really does qualify as an opportunity.
But, as Edison says, people often miss their greatest opportunities because they “look like work.” I know we all love to play and have fun but some of the
greatest thrills in my life have come from taking on a challenging opportunity—one that required the best of me every day, one that required me to put in some
serious work.
Work on your mindset. Every single morning ask yourself to describe the CPA Exam in just one word. That is not a bad exercise. That one word may not
always be “opportunity” depending on how you are feeling on that day but, hopefully, you will view it as an opportunity on most days.
That is always a good start to any day.
(5) – Now for a little practice. Work these questions today and see how you do. Wait 7 days and try them again. Obviously, what you want is a higher
score the second time. That is what you want: progress.
Good luck – go get them!!!
FAR
You buy two investments in equity securities. Each one cost $7,000 and each one goes up to $10,000 in value by the end of the year. One was a trading
security and one was available-for-sale. Each company declared a cash dividend on December 1 of the current year, payable to owners on record as of December
26. You received two dividend checks of $400 each on January 8 of the following year. Which of the following statements is true? (Assume that you have
not chosen to account for the available-for-sale security as if it were a trading security.)
A – Your net income goes up a total of $3,000 because of each investment.
B – Your net income goes up a total of $3,400 because of each investment.
C – Your net income goes up $3,400 because of the trading security but $400 because of the available-for-sale security.
D – Your net income goes up $3,000 because of the trading security but is unchanged because of the available-for-sale security.
Answer is C
The dividend received on both investments is recognized as revenue in the current period because the date of record (December 26) is in the current period. In
addition, the $3,000 increase in value of the trading security is also recognized within net income (for a total of $3,400). However, the increase in value
of the available-for-sale security is reported within accumulated other comprehensive income that appears in stockholders’ equity and not within net income.
Only the dividend affects net income in connection with the available-for-sale security.
Auditing and Attestation
A CPA firm is auditing the financial statements prepared by the Lion Corporation for the year ending December 31, Year One. The auditors are concerned that a
number of accounts payable were not included in the year-end liabilities. Which of the following audit procedures would help the auditors make certain that
the accounts payable balance is not understated?
A – Confirm a sample of the year-end accounts payable balances.
B – Review the cause for the cash disbursements made in the first month or two of Year Two.
C – Compare the balances in accounts payable to receiving reports created by the company.
D – Check the math and extensions on the accounts payable balances recorded during the last month of Year One.
Answer is B
A, C, and D involve the examination of balances that were already recorded prior to the end of Year One. However, that is not the problem that is suspected
by the auditors. The auditors are concerned about payable balances that were omitted in Year One. Only answer B looks at transactions that might not have
been recorded appropriately in Year One. The auditors will look at cash disbursements in Year Two and determine when the liability was created and whether it
was recorded in the correct time period.
Regulation
James Miller operates a wine shop as a sole proprietorship. On a Wednesday evening, he holds a meeting with several of his suppliers. The meeting lasts for
several hours as they discuss various wines that will become available during the following year. After the meeting, Miller takes the entire group to a
local minor league baseball game and pays for the entire event. How much of this cost can he deduct for income tax purposes?
A – Zero
B – Twenty percent
C – Fifty percent
D – All of it
Answer is C
Fifty percent of entertainment expenses can be deducted for tax purposes as long as it is directly related or associated with the active conduct of the
taxpayer’s trade or business. This rule is met if the entertainment precedes or follows a substantial business discussion. That rule is met in this
situation.
BEC
Lenit Corporation recently acquired widgets from a company in the country of Becktle where the currency is the romtag. Each romtag is currently worth $.40
and Lenit must pay 100,000 romtags in 60 days (value of $40,000). The treasurer for Lenit believes that the value of the romtag is going to go up over the
next 60 days so that a more valuable currency will have to be paid and money will be lost. What action is the treasurer most likely to take?
A - Acquire a forward exchange contract that allows the company to buy 100,000 romtags in 60 days for exactly $.41.
B - Sell the widgets in the U. S. as quickly as possible even if they must be sold at a loss.
C - Buy the next batch of widgets in some other country.
D - Begin production of widgets in the U. S.
Answer is A.
The fluctuation of currency values is always a concern but one that can be managed through a hedging arrangement. The company has a 100,000 romtag payable.
To create a hedge, the company needs to establish a 100,000 romtag receivable. The forward exchange contract is set up here so that the company will get
100,000 romtags in 60 days. That is a receivable. Any change in the value of the romtag will cause equal and offsetting changes in the receivable and the
payable. Thus, a gain on one cancels out a loss on the other. The company does have to pay $41,000 for the romtags that will be received which is $1,000
more than the current value of the liability. That is the cost of establishing the hedge. The company knows that amount and has judged it to be more
reasonable than the uncertainty of waiting to see what paying 100,000 romtags will cost the company in 60 days.
Have a great week
Work hard
Accomplish everything you set out to do.
Joe Hoyle
www.youtube.com/watch?v=LjwHxVbZq1o
Co-Founder
CPA Review for FREE
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