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September 29, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
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Lesson 80
From: Joe
(a) – VERY SPECIAL ANNOUNCEMENT: SUBSCRIPTION SERVICE FOR REGULATION IS NOW AVAILABLE. As most of you know, we started offering a subscription service for FAR several weeks ago and quite a number of you have taken advantage of that program and its 620 slides.
Now, for Regulation, we have created over 880 slides that you can view over the Internet that tells you exactly what we believe you need to know—this material covers the basics in law and tax and gets you ready to make 75 and pass that part of the CPA Exam.
As with FAR, a subscription for Regulation will be $15 per month or $30 for three months. What else can you possibly get for $15 per month? That’s 50 cents per day to get over 880 slides explaining the topics covered in the Regulation part of the CPA Exam. That’s less than 2 cents per slide for a month.
Of course, our 2,100 free questions and answers will always stay free. The subscription service provides the content you need to supplement those questions and answers.
--To gain access, go to www.CPAreviewforFREE.com. Click on “Store” at the top right of the home page, click on “here” under the “Essential Content,” log into your account (or register if you have not registered previously), and Click on “Paid Content.” Then, purchase one month of online access for $15 or 3 months for $30.
--When you subscribe – read my study program first. You certainly can proceed in any manner that you wish but I would prefer for you to see how I envisioned this program before you get started.
--And, one final thing, we've listened to our users and now offer our content in a printable form! If you have already purchased the online subscription but would like to print out the content, you can upgrade your subscription and purchase the printable version under "Paid Content" after logging into your account. OR, if you have never purchased the Essential content, you can purchase the online subscription and print it as needed.
(b) – I think one of the things that is most helpful when you are preparing for the CPA Exam is to hear about other people JUST LIKE YOU who have passed the exam. That is very reassuring. We’ve gotten a gazillion emails recently from candidates. Wish I had space to print them all. Here are just a few that were emailed in or posted on our Facebook page:
From DT: "I want to thank you for your help in passing the exam. I just found out my final grade this morning and it was all thanks to your site. Prior to using CPA review for free I purchased a $1600 review package. Your site was better than anything I could have purchased. Thanks again!!!!!”
From SL: “Your subscription content for FAR helped me pass on my first try! I GOT AN 81!!!”
From LQ: "Just found out I passed BEC! I did the questions on CPA Review for Free only. I went into an old college textbook just to cover 2 topics I felt weak in. But this site was primarily the source to get me over 75! Thank you"
From LP: "Thanks for this site and all of your encouragement! I received my last score yesterday and passed with three 99's and an 89 on BEC! I took all four parts in four months, so if anyone reading this site has the opportunity to study full time in between graduation and starting work, I encourage them to do so =)"
From OO: “Thank you CPAreviewforFREE. I passed Audit with 82. I used your questions for my final review. Your tips and motivational e-mails are really helpful and much appreciated.”
From RK: “Thank you! I just got my results for FAR and I passed with an 88%! Using CPA review for free was a wonderful resource for me. The multiple choice questions helped me learn the ground rules for each subject. I made flash cards just like you suggested to help review those concepts. I will now be studying for REG (my last test) and hopefully I will be sending you another thank you note around Christmas time with more successful results. I would also like to add that it has been 19 years since I received my accounting degree. I am saying this to encourage others who may have taken some time to pursue other goals. It takes incredible perseverance but it's highly possible to pass. And I think it's going to be worth it.”
From PL: “I recently passed all four parts of the CPA exam. I found your site after I took the first two sections, so I only had the benefit of it for the last two. The practice questions really helped me study. I only wish I had discovered them earlier. I heartily endorse your website and your advice to study at least one hour per day and take as many practice tests as you can.”
From MK: “I just wanted to let you know that I passed FAR with a 95! I found out this morning and still cannot believe that it's finally over. When I walked out of the exam, I thought that there was no possible way that I passed - the exam questions concentrated on only a few areas vs. covering the surface of everything; I had multiple questions that were very similar/identical to one another; and I had a lot of very obscure questions. But I guess I wasn't the only one that felt this way. That being said, I wanted to say thank you for everything you have done. Whenever I started to doubt myself, think that I couldn't study for one more minute, or that there was no way that I could pass, I would read one of your inspirational emails. Your emails would restore my confidence and help me think 'I CAN DO THIS!'. I would then sit down and go through all of your questions, read the explanations, and slowly a light would come on. Thus, I do not think that I would have passed
without your fabulous questions and touching emails. Bottom line, thank you for taking the time to care, you truly are a hero and an inspiration to us all.”
From ME: “I would like to express my deepest appreciation to your website and to you as its creator. I received my FAR score a few days ago, 82. I finally passed after three unsuccessful attempts (66, 72, and 73)! First time I used a (big course) review (big mistake!), it did not help me at all, but the software expired...lost time and money. The FAR exam was a very big challenge for me. English is my second language. I earned a degree in Accounting, but did not deeply understand a lot of the transactions and events. The questions provided on "CPA for Free" web site explain a lot of very complicated topics from a different point of view compared to other CPA review courses. You have absolutely excellent questions for a lot of financial accounting concepts, such as different types of leases, income tax calculating, governmental and non-for-profit organization, etc. I tried to complete at least 1 quiz each lunch break every day. I enjoyed your inspiring e-mails and
used it as guidance for my preparation.”
Okay – make it your goal to write me a letter just like these within the next year!!! That is a reasonable goal – one that you can accomplish!!! Go for it.
(1) – Larry Bird was one of the greatest basketball players to ever play the game. He just had the knack. We often think that people like that are just born with great talent but Larry Bird once said: “When I was young, I never wanted to leave the court until I got things exactly correct.”
Most of us have exactly the opposite attitude—we cannot wait to get finished. We hurry up so we can quit. We are dying to finish so we get to stop. But notice what Bird says “I never WANTED to leave the court until I got things exactly correct.”
How would your study be different each day if you started by saying “I don’t want to quit this topic until I can get the questions correct.” “I don’t want to stop working on leases until I know how to do capitalized leases.”
What is your attitude?
Is it: “I hate it but I have to study” or “I am going to force myself to sit here until I learn this stuff” or “this is painful but I must study.”
Those are such negative attitudes. That just cannot be helpful. No wonder people hate to study if that is how they feel. Who wants to feel like that?
But just imagine -- what if your attitude was “I want to sit here and figure out how to do earnings per share” or “I never learned bonds in college but I really do want to know how they work” or “I want to be an accountant because I like accounting so I am looking forward to learning more accounting tonight.”
I think society causes us a problem because there is a general feeling that working to learn is painful, dull, and boring. No -- watching television is painful, dull, and boring – learning stuff makes us smarter and helps us to know more. That should be exciting. That should feel good.
Let me make a suggestion. If you are having trouble putting in the time that you need, step back and assess your attitude. How do you view upcoming study sessions? If you think of them as misery to be endured then you are talking yourself into failure. If you can convince yourself that studying and learning are actually interesting endeavors, you will have taken a great first step toward getting those 75 points that you need to pass.
(2) – As always if you wish to unsubscribe from these email lessons, scroll to the bottom of this lesson and click on unsubscribe. We’ll miss you but you honestly do have that right.
(3) – I was listening to NPR (national public radio) a few weeks back and they were talking and some expert made an astute comment: “incentives make a difference.” His comment was based on a story of how to get people to do what you want them to do. He made the obvious comment that we all have incentives for what we do. If you make those incentives the right one, people will do amazing things. If you make that incentive wrong, people will do virtually nothing. It is not you that is holding yourself down but the incentives that you have set.
If you have followed these lessons for long, you already know that I tend to push focusing on today because that is the only day where you can make a difference in your grade. So, what is your incentive for studying today? I think that is a great question. I think that is a question you should address every day. I think that can make a big difference in your progress. Why do you want to study today?
Of course, there are the obvious answers: I want to pass the CPA Exam, I want to be a professional accountant, I want to be recognized as a Certified Public Accountant. Those are good but none of them focus your attention on today. Those are big picture incentives. I want to focus on today.
So, before you start studying, think of an incentive for today. Personalize them as much as you can. You are trying to push yourself to have a great today.
--If I answer 40 questions today on www.CPAreviewforFREE.com, I’ll buy myself an ice cream cone.
--If I study for two hours without taking a break, I’ll go for a swim in the pool.
--If I prepare 35 flash cards, I’ll spend ten minutes emailing by friends.
Each person is different. There are incentives that will push you to accomplish much. The secret is to figure out what they are. Every day, when you start to study, consider setting a goal with an incentive. Because incentives really do make a difference.
(4) – Practice – always a good time to answer some questions. The first one comes from my intermediate accounting class today.
FAR
The Winslet Company issues a four-year $80,000, 5 percent serial bond on January 1, Year One. Each December 31, starting on December 31, Year One, the company will pay $20,000 plus interest of 5 percent on the unpaid face value for that year. The bond is issued for 90 percent of face value ($72,000) to yield an annual rate of 8 percent. What is the interest expense to be recognized for Year Two?
A - $4,301
B - $4,621
C - $5,901
D - $6,221
Answer is A
Interest expense the first year is $72,000 times 8 percent or $5,760. However, the company pays interest of only $4,000 ($80,000 times 5 percent). The unpaid portion of the interest ($5,760 - $4,000 or $1,760) must be compounded (added to the principal balance). In addition, a $20,000 payment is also made on the face value. That reduces the liability. Therefore, the liability balance for Year Two is $72,000 + $1,760 - $20,000 or $53,760. At 8 percent, the interest for the second year is $4,301 ($53,760 times 8 percent).
Regulation
The Asimov Corporation has revenues of $300,000, ordinary and necessary expenses of $200,000, a long-term capital gain of $4,000, and a short-term capital loss of $5,000. What is its taxable income?
A - $97,000
B - $99,000
C - $100,000
D - $104,000
Answer is C
This corporation has a net capital-loss for the year of $1,000. However, corporations are not allowed to deduct capital losses. Therefore, the only tax effects come from the revenues and the expenses that net to $100,000. The $1,000 net loss can be carried back for three years and forward for five years to reduce taxable capital gains.
Auditing
Auditors are examining the financial statements for the Haynesworth Corporation. The company maintains a checking account with the Second National Bank. The auditors request and get a bank cut-off statement to verify the checks that cleared in the first few days of the subsequent year. Which of the following is the most likely reason for carrying out this procedure?
A – The company is trying to overstate its cash balance.
B – The company is trying to understate its liability balance.
C – The company is trying to overstate its revenue balance.
D – The company is trying to understate its expense balance.
Answer is B.
If the checks clear in a reasonable period of time, there is no problem at all. If they do not clear in a reasonable period of time, it means the payment was recorded but possibly was not sent to the recipient. Why would that be? What is the possible benefit of recording a payment but not mailing the check? The company gets to reduce its liability balance so that it reports a lower amount of liabilities without actually losing any of its cash.
BEC
The Acme Washing Company was owned by the Winslow Group. It was sold to a team of five of Acme’s vice-presidents for a total price for $34.6 million. The vice-presidents put up $600,000 in cash and borrowed the remainder from a group of three banks. The assets of Acme were pledged as security for the loan. Which of the following terms is used to describe this transaction?
A – Reverse acquisition
B – Pooling of interests
C – Leveraged buyout
D – Congeneric merger
Answer is C
A leveraged buyout is a transaction that is mostly financed by taking on debt with little money being contributed by the owners. Here, they only put up $600,000 to buy a $34.6 million company. Pooling of interests is an old accounting term that is no longer used for new acquisitions. A congeneric merger a type of merger where two companies operate in related industries but do not offer the same products.
Okay, go out and focus on today and let’s start adding some points and move up to that 75 point level.
Thursday, September 30, 2010
Monday, August 30, 2010
Make Each Day Your Masterpiece
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
112 Weeks of Operation and 15,534,135 Page Views (without a penny spent on marketing)
Lesson 79
From: Joe
(1) – Friday, on our Facebook.com page (CPAreviewforFREE), I issued the following challenge to all of our friends and fans. What interested me most was how many people wrote in to say they would make that commitment, they would accept my challenge of getting the CPA Exam passed by this time next year. I hereby put the same challenge out to you. Make that commitment!!! Do it now!!!
Facebook: “I want to challenge you (yes, YOU), right here today on 8/27/10, to make a commitment that you are going to finish the CPA exam in the next 12 months. You are going to pass it all. One year from today, I want you to write me and say ‘I am finished!’ It will take work, sacrifice and some serious self-discipline. But, the way you start to achieve this success is to make that commitment. Do it!! Today!! Right now!”
(2) – We had a huge week last week. We had (by far) our largest number of visitors and approximately 325,000 page views. We had visitors from 102 countries – I’m not sure I even knew there were that many countries. (Well, yeah, I really did.)
(3) – Why are we experiencing such rapid growth? Here are a couple of recent emails that I received that should explain this. Trust me, this is not an accident.
From JW: “Passed FAR with a 77. . . . After trying XXXX self-review software and XXXXXX flash cards, the time I spend answering questions on your site is truthfully the most valuable review I've done. I chose to use your site exclusively during my final exam preparation for FAR, because I knew I understood the material after working through the more complex questions.”
From JT: “Thank you so much for this excellent (FREE) website. The questions did a great job preparing me for the exam and the drill-down capabilities were fantastic, allowing me to work harder on the sections I wasn't as well-versed in. I sure am glad I didn’t waste $2,500 and 1,000 hours of my life studying with XXXXXX – I was able to pass all four parts of the exam, first try, with nothing more than this website and some year-old borrowed XXXXX books.”
(4) – Don’t forget that for a mere $15 per month you can access our on-line FAR content. Over 620 content slides. Why use a borrowed book that may be out of date? We will have the other three parts of the exam available very soon (over the next few weeks).
(5) – I am going to give you a piece of advice that most of those other big-name review courses are not giving. I guess the word on the street is to take BEC if you can in October or November before it is extended by 30 minutes and three written communications questions are added. There seems to be a flood of people rushing to take BEC before the end of 2010.
From my experience, most college graduates (even accounting majors) write pretty well. They know how to create a business letter or a memorandum. Okay, I don’t meet many Shakespeare's in accounting but you don’t have to be Shakespeare to write a business letter.
Remember, as long as a written communication question is “on topic,” the content is not graded—-only the use of the English language.
So, in looking at BEC, you have a choice:
--Take in 2010 – 100 percent of the grade is based on knowledge of content
--Take in 2011 – 85 percent of the grade is based on knowledge of content and 15 percent is based on the ability to use the English language properly.
I think most blanket advice is wrong and stupid. It seems to me that those of you who really write poorly (you know who you are) should take the BEC exam in 2010. However, those of you who write reasonably well (and, yes, you know who you are) might well prefer to wait until 2011 and take advantage of that writing skill.
Forget blanket advice. Think about which exam suits your skills and talents best.
(6) – I received an email from a dear friend a few days back. He ended it with a quote from John Wooden, the legendary UCLA basketball coach. Apparently, Wooden’s father gave him this advice when he was a small boy and it stuck with him throughout his adult life.
“Make each day your masterpiece.”
We spend a lot of time dwelling on the past.
We spend a lot of time planning for the future.
But when it comes down to accomplishing something, making something happen, the only day that actually counts is today. The only day where you can add points to your score is today. The only day that really makes any difference is today.
And, one of the absolutely great things about life is that every day is a new day. When you wake up each morning, you do have the chance to make that day your masterpiece. Even if yesterday was awful and a waste time, you can still make great use of today. You have the opportunity to make today a special day, one to remember – that one day when you knock it out of the park.
No matter how bad yesterday was—every new day provides the remarkable offer of a new chance.
Even if you didn’t add a single point yesterday; you can still add them today.
I know that you can’t climb Mt. Everest every day or create a new invention every day but you can make the most of the time you are given.
In a basketball game, if a team is behind at halftime by a lot of points, the coach will invariably explain to the team that they cannot catch up all at once. They have to work slowly to catch up, one minute or one possession at a time.
No matter how far behind you are – you can start catching up today.
It seems to me that people who truly succeed:
--Learn from the past
--Plan for the future
--Focus on today.
When you got up this morning, what did you focus on?
Did you focus on having a great day where you could get in some serious study for the CPA Exam?
Or, did you whine about another defeated day?
If you expect defeat, you will get it.
But, if you expect to create a masterpiece, you have taken the very important first step to getting there.
(7) – As our lawyers always tell us – “remind your subscribers that they have the right to unsubscribe from these free email lessons whenever they wish. Tell them that they can just scroll to the bottom of the lesson and we have included a link that allows them to easily and quickly unsubscribe.”
Don’t you love lawyers?
(8) – Practice – let’s create a masterpiece.
FAR
A company owes a bank $1 million on a long-term loan that comes due on July 2, Year Two. The company is currently preparing a December 31, Year One, balance sheet that will be issued on February 17, Year Two. On January 3, Year Two, the company refinanced this entire debt with the bank by signing for a debt that will not come due until 2019. How is the original debt reported on the December 31, Year One balance sheet?
A – As a current liability under US GAAP but as a noncurrent liability under IFRS.
B – As a noncurrent liability under US GAAP but as a current liability under IFRS.
C – As a current liability under both US GAAP and IFRS.
D – As a noncurrent liability under both US GAAP and IFRS.
Answer is B
The US GAAP portion of this question could be tested now but the IFRS portion could only be tested starting in 2011. Under US GAAP, the refinancing of the debt (or the obtaining of a noncancellable agreement to refinance) must take place before the statements are issued for the debt to be moved to noncurrent. That was done—it is reported as noncurrent. Under IFRS, the company must take action before the balance sheet date. That was not done—it is reported as current.
Regulation
On January 1, Year One, the Acme Company begins operations and spends $41,000 in organization expenditures. How much of this amount can be deducted for corporate income tax purposes in Year One?
A – Zero
B - $5,000
C - $7,400
D - $41,000
Answer is C
Organizational expenditures to get a business into operation can be deducted immediately but only up to $5,000. This $5,000 amount must be reduced (but not below zero) by the amount by which organizational expenditures exceed $50,000. This is not the case here. Remaining expenditures (in this case $36,000 or $41,000 less $5,000) are deducted evenly over a 180-month period beginning with the month in which the corporation begins business. Thus, $36,000/180 months means that $200 can be deducted per month or $2,400 for the entire year. The Year One deduction is $5,000 plus $2,400 or $7,400.
Auditing
The Raleins Corporation is being audited by its CPA firm which is currently looking at accounts receivables. The auditors want to reduce the audit risk of a material misstatement existing in accounts receivable to 4 percent. That is considered an acceptable level of risk. Inherent risk has already been assessed at 50 percent. Control risk has been assessed at 40 percent. The auditors are now beginning their substantive testing of accounts receivable which will gradually reduce the assessed level of detection risk. What is the level of detection risk the auditors must achieve from their substantive tests of accounts receivable?
A. 2 percent
B. 20 percent
C. 25 percent
D. 40 percent
Answer is B
The CPA must gather evidence until overall audit risk is reduced to an appropriately low level (4 percent in this case). Mathematically, audit risk is the inherent risk times the control risk times the auditor's detection risk. Inherent risk has already been assessed by the CPAs as 50 percent and control risk as 40 percent. At this point, .50 times .40 gives .20 (or 20 percent risk). How much substantive testing is still needed to reduce detection risk so that overall audit risk drops from this 20 percent level to 4 percent (or .04)? Or, stated differently, .50 x .40 x DR = .04. Only 20 percent or .20 will reduce the current .20 down to .04. When detection risk drops to 20 percent, then .50 x .40 x .20 will equal the desired level of audit risk of 4 percent.
BEC
The Norfolk Company signs a contract to sell 10,000 barrels of a specified grade of crude oil (for example light, sweet crude oil) on May 9, Year One, to a customer for $78 per barrel regardless of the market price on that date. What type of contract is this?
A. Redeemable contract
B. Futures contract
C. Deliverable contract
D. Simultaneous contract
Answer is B
A futures contract is a contract between two parties to buy or sell a specified asset of standardized quantity and quality at a specified future date at a price agreed upon when the contract is signed.
Make today your masterpiece!!!!
Joe Hoyle
President
CPA Review for FREE
www.CPAreviewforFREE.com
112 Weeks of Operation and 15,534,135 Page Views (without a penny spent on marketing)
Lesson 79
From: Joe
(1) – Friday, on our Facebook.com page (CPAreviewforFREE), I issued the following challenge to all of our friends and fans. What interested me most was how many people wrote in to say they would make that commitment, they would accept my challenge of getting the CPA Exam passed by this time next year. I hereby put the same challenge out to you. Make that commitment!!! Do it now!!!
Facebook: “I want to challenge you (yes, YOU), right here today on 8/27/10, to make a commitment that you are going to finish the CPA exam in the next 12 months. You are going to pass it all. One year from today, I want you to write me and say ‘I am finished!’ It will take work, sacrifice and some serious self-discipline. But, the way you start to achieve this success is to make that commitment. Do it!! Today!! Right now!”
(2) – We had a huge week last week. We had (by far) our largest number of visitors and approximately 325,000 page views. We had visitors from 102 countries – I’m not sure I even knew there were that many countries. (Well, yeah, I really did.)
(3) – Why are we experiencing such rapid growth? Here are a couple of recent emails that I received that should explain this. Trust me, this is not an accident.
From JW: “Passed FAR with a 77. . . . After trying XXXX self-review software and XXXXXX flash cards, the time I spend answering questions on your site is truthfully the most valuable review I've done. I chose to use your site exclusively during my final exam preparation for FAR, because I knew I understood the material after working through the more complex questions.”
From JT: “Thank you so much for this excellent (FREE) website. The questions did a great job preparing me for the exam and the drill-down capabilities were fantastic, allowing me to work harder on the sections I wasn't as well-versed in. I sure am glad I didn’t waste $2,500 and 1,000 hours of my life studying with XXXXXX – I was able to pass all four parts of the exam, first try, with nothing more than this website and some year-old borrowed XXXXX books.”
(4) – Don’t forget that for a mere $15 per month you can access our on-line FAR content. Over 620 content slides. Why use a borrowed book that may be out of date? We will have the other three parts of the exam available very soon (over the next few weeks).
(5) – I am going to give you a piece of advice that most of those other big-name review courses are not giving. I guess the word on the street is to take BEC if you can in October or November before it is extended by 30 minutes and three written communications questions are added. There seems to be a flood of people rushing to take BEC before the end of 2010.
From my experience, most college graduates (even accounting majors) write pretty well. They know how to create a business letter or a memorandum. Okay, I don’t meet many Shakespeare's in accounting but you don’t have to be Shakespeare to write a business letter.
Remember, as long as a written communication question is “on topic,” the content is not graded—-only the use of the English language.
So, in looking at BEC, you have a choice:
--Take in 2010 – 100 percent of the grade is based on knowledge of content
--Take in 2011 – 85 percent of the grade is based on knowledge of content and 15 percent is based on the ability to use the English language properly.
I think most blanket advice is wrong and stupid. It seems to me that those of you who really write poorly (you know who you are) should take the BEC exam in 2010. However, those of you who write reasonably well (and, yes, you know who you are) might well prefer to wait until 2011 and take advantage of that writing skill.
Forget blanket advice. Think about which exam suits your skills and talents best.
(6) – I received an email from a dear friend a few days back. He ended it with a quote from John Wooden, the legendary UCLA basketball coach. Apparently, Wooden’s father gave him this advice when he was a small boy and it stuck with him throughout his adult life.
“Make each day your masterpiece.”
We spend a lot of time dwelling on the past.
We spend a lot of time planning for the future.
But when it comes down to accomplishing something, making something happen, the only day that actually counts is today. The only day where you can add points to your score is today. The only day that really makes any difference is today.
And, one of the absolutely great things about life is that every day is a new day. When you wake up each morning, you do have the chance to make that day your masterpiece. Even if yesterday was awful and a waste time, you can still make great use of today. You have the opportunity to make today a special day, one to remember – that one day when you knock it out of the park.
No matter how bad yesterday was—every new day provides the remarkable offer of a new chance.
Even if you didn’t add a single point yesterday; you can still add them today.
I know that you can’t climb Mt. Everest every day or create a new invention every day but you can make the most of the time you are given.
In a basketball game, if a team is behind at halftime by a lot of points, the coach will invariably explain to the team that they cannot catch up all at once. They have to work slowly to catch up, one minute or one possession at a time.
No matter how far behind you are – you can start catching up today.
It seems to me that people who truly succeed:
--Learn from the past
--Plan for the future
--Focus on today.
When you got up this morning, what did you focus on?
Did you focus on having a great day where you could get in some serious study for the CPA Exam?
Or, did you whine about another defeated day?
If you expect defeat, you will get it.
But, if you expect to create a masterpiece, you have taken the very important first step to getting there.
(7) – As our lawyers always tell us – “remind your subscribers that they have the right to unsubscribe from these free email lessons whenever they wish. Tell them that they can just scroll to the bottom of the lesson and we have included a link that allows them to easily and quickly unsubscribe.”
Don’t you love lawyers?
(8) – Practice – let’s create a masterpiece.
FAR
A company owes a bank $1 million on a long-term loan that comes due on July 2, Year Two. The company is currently preparing a December 31, Year One, balance sheet that will be issued on February 17, Year Two. On January 3, Year Two, the company refinanced this entire debt with the bank by signing for a debt that will not come due until 2019. How is the original debt reported on the December 31, Year One balance sheet?
A – As a current liability under US GAAP but as a noncurrent liability under IFRS.
B – As a noncurrent liability under US GAAP but as a current liability under IFRS.
C – As a current liability under both US GAAP and IFRS.
D – As a noncurrent liability under both US GAAP and IFRS.
Answer is B
The US GAAP portion of this question could be tested now but the IFRS portion could only be tested starting in 2011. Under US GAAP, the refinancing of the debt (or the obtaining of a noncancellable agreement to refinance) must take place before the statements are issued for the debt to be moved to noncurrent. That was done—it is reported as noncurrent. Under IFRS, the company must take action before the balance sheet date. That was not done—it is reported as current.
Regulation
On January 1, Year One, the Acme Company begins operations and spends $41,000 in organization expenditures. How much of this amount can be deducted for corporate income tax purposes in Year One?
A – Zero
B - $5,000
C - $7,400
D - $41,000
Answer is C
Organizational expenditures to get a business into operation can be deducted immediately but only up to $5,000. This $5,000 amount must be reduced (but not below zero) by the amount by which organizational expenditures exceed $50,000. This is not the case here. Remaining expenditures (in this case $36,000 or $41,000 less $5,000) are deducted evenly over a 180-month period beginning with the month in which the corporation begins business. Thus, $36,000/180 months means that $200 can be deducted per month or $2,400 for the entire year. The Year One deduction is $5,000 plus $2,400 or $7,400.
Auditing
The Raleins Corporation is being audited by its CPA firm which is currently looking at accounts receivables. The auditors want to reduce the audit risk of a material misstatement existing in accounts receivable to 4 percent. That is considered an acceptable level of risk. Inherent risk has already been assessed at 50 percent. Control risk has been assessed at 40 percent. The auditors are now beginning their substantive testing of accounts receivable which will gradually reduce the assessed level of detection risk. What is the level of detection risk the auditors must achieve from their substantive tests of accounts receivable?
A. 2 percent
B. 20 percent
C. 25 percent
D. 40 percent
Answer is B
The CPA must gather evidence until overall audit risk is reduced to an appropriately low level (4 percent in this case). Mathematically, audit risk is the inherent risk times the control risk times the auditor's detection risk. Inherent risk has already been assessed by the CPAs as 50 percent and control risk as 40 percent. At this point, .50 times .40 gives .20 (or 20 percent risk). How much substantive testing is still needed to reduce detection risk so that overall audit risk drops from this 20 percent level to 4 percent (or .04)? Or, stated differently, .50 x .40 x DR = .04. Only 20 percent or .20 will reduce the current .20 down to .04. When detection risk drops to 20 percent, then .50 x .40 x .20 will equal the desired level of audit risk of 4 percent.
BEC
The Norfolk Company signs a contract to sell 10,000 barrels of a specified grade of crude oil (for example light, sweet crude oil) on May 9, Year One, to a customer for $78 per barrel regardless of the market price on that date. What type of contract is this?
A. Redeemable contract
B. Futures contract
C. Deliverable contract
D. Simultaneous contract
Answer is B
A futures contract is a contract between two parties to buy or sell a specified asset of standardized quantity and quality at a specified future date at a price agreed upon when the contract is signed.
Make today your masterpiece!!!!
Joe Hoyle
President
CPA Review for FREE
www.CPAreviewforFREE.com
Thursday, August 19, 2010
Keep Working--You Can Make It
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
111 Weeks of Operation and 15,209,997 Page Views (without a penny spent on marketing)
Lesson 78
From: Joe
(a) – We had the most visitors in our history this past week and went over 15 million total page views on our website. Yeah!!! And a whole lot of the thanks go to everyone who helps to spread the word about www.CPAreviewforFREE.com.
(b) – Last spring, I made available a practice quiz for FAR of 20 new questions and answers so that you can look for your strengths and weaknesses. Take 30 – 40 minutes and see how you feel in an exam mode. The questions are on a variety of topics. If anyone is interested in receiving these, I’ll make those same 20 Q & A available for a few days. Drop me an email at Jhoyle@cpareviewforfree.com
(c) – Our new subscription service for FAR is up and running and doing great. We are currently putting the final touches on Regulation and hope to have it available in a week or two. For $15 per month or $30 for 3 months, you get online access that allows you to review 620+ slides covering all of the important information in FAR. This is not a quick cram—this is a legitimate program that marries our free questions with our 620 content slides.
--To gain access, go to www.CPAreviewforFREE.com. Click on “Store” at the top right of the home page, click on “here” under the “Essential Content,” log into your account (or register if you have not registered previously), and click on “Paid Content.” Then, purchase one month of online access for $15 or 3 months for $30.
--How does it work? Well, here’s an example. For land, buildings, and equipment, we have dozens of slides that explain all aspects of the financial accounting for these assets. Four of those slides are specifically about the capitalization of interest. To illustrate, here are those four. For this topic, this is exactly what I believe you need to know.
*
Slide One:
Capitalization of Interest
Capitalization of interest cost is necessary during the period of time when fixed assets (and inventory specially built for a customer) are constructed. This interest is incurred prior to any revenues being generated so the matching principle requires that the expensing of the interest be delayed (by being added to the cost of the asset). Expensing eventually takes place through the depreciation process. Interest is only capitalized during the period of construction.
It is not the amount of interest paid that is capitalized. The amount capitalized is computed as:
Average accumulated expenditures X Interest rate X Period of construction
Slide Two:
If a building project has no accumulated expenditures on the first day of the year but work gradually increases the accumulated expenditures to $1.2 million by the last day of the year, a simple average of those accumulated expenditures is $600,000 ([-0- + $1,200,000]/2).
The interest rate to be used in this computation is the rate for any money specifically borrowed to finance the construction project. For example, if a company borrows $1.2 million at an annual rate of 5 percent to finance this building, then 5 percent is the applicable rate.
However, if no debt is incurred specifically for a construction project, the interest rate to be used is the weighted average rate of the company’s other debts. (Note that interest must be capitalized during construction even if no specific debt was incurred for the project.)
Slide Three:
Example. The Jones Company borrows $5 million on January 1, Year One to build a new warehouse. This debt has an annual interest rate of 8 percent. During Year One, $2 million is spent on this construction project evenly throughout the period. During Year Three, $3 million is spent on this construction project evenly throughout the period.
What is the capitalized cost of this warehouse on December 31, Year One? What is the capitalized cost of this warehouse on December 31, Year Two?
December 31, Year One: The accumulated expenditure total on this warehouse on the first day of the year was zero but had risen steadily to $2 million as of the last day of the year. The average accumulated expenditures for the period was $1,000,000 ([-0- + $2,000,000]/2). Since the annual interest rate was 8 percent, the capitalized interest was $80,000. That amount is removed from interest expense and reclassified as part of the cost of the warehouse which now has a reported cost to date of $2,080,000.
Slide Four:
December 31, Year Two: The accumulated expenditure total on this warehouse on the first day of the second year is $2,080,000 (see above). Another $3,000,000 is spent evenly over the year to arrive at $5,080,000. The average accumulated expenditures for Year Two is $3,580,000 ([$2,080,000 + $5,080,000]/2). The amount of interest to be capitalized is $3,580,000 X 8 percent or $286,400. This interest charge raises the capitalized cost from $5,080,000 by $286,400 to $5,366,400.
After the asset is completed and used in generating revenues, all further interest is expensed. In addition, at that time, the depreciation of the cost can begin so that these costs (interest and depreciation) are matched with revenues.
*
Four slides and you should know enough to be able to pass the topic of capitalized interest. That is how you pass the CPA Exam; you learn to pass each topic—one at a time.
(1) – I have been reading a book (“Mao’s Last Dancer”) about a Chinese peasant boy who works incredibly hard and eventually becomes one of the top ballet dancers in the world. A lot of the book focuses on his early training when he moves quickly from extreme poverty to a national dance academy where he is pushed to learn ballet—something he does not even understand at first.
In the book, he talks about how difficult it is to learn each dance movement. He is shown a new step or a turn and his first reaction is “I cannot possibly do that. Someone else may be able to do it, but not me.”
And, sure enough, for the longest time, he cannot master the new move. He tries and fails, he tries and fails, and he tries and fails. However, what really sets this young man apart from the other dancers in the academy is that he keeps trying even though he continues to fail. The other dancers practice three times each day (in a building without air conditioning) but he practices six times each day (at times breaking into the studio at night so he can practice alone). The other dancers are satisfied with being okay; he wants to be great. His desire is as large as his talent. His desire may be more important than his talent.
So many times, after he has failed and failed and failed with a new dance movement, he’ll have a break-through and suddenly he can do it. It just happens—almost without warning. With enough practice, one day he can actually do what he had originally thought was impossible.
The word that I really like in that story is “break-through.” That is the way learning, especially when you are dealing with a very difficult topic, usually happens. Learning is just full of epiphanies. You miss the question, you miss the question, you miss the question and suddenly you have a break-through. Without warning, you see how the pieces fit together to form the correct answer. Once you catch on, the process frequently seems rather simple: “Why did I not see that before now—it is obvious how it works.”
But that is just the way learning often works—you have to miss and practice, miss and practice until eventually you’ll have your own personal break-through and you will find that you have mastered the concept. That is a wonderful feeling. In learning, there is little that feels better than that quiet pause followed by “Oh, I see it now.”
In learning, too many people give up too quickly. They never reach the “break-through” point. The work is too hard or the failure is too devastating. They don’t have enough confidence to keep pushing or they don’t want success badly enough. They walk away saying “I just cannot do this.”
Here’s what I want you to know: Those frustrations are normal; they are no reason to quit. Failure is a natural part of getting to success. Yeah, it is tough to miss questions but that is just the way the learning process works. If you keep plugging, if you keep pushing yourself, you will have a break-through and suddenly you’ll say “Oh, I see it now.” And, that is going to feel great.
(2) – As always, I want to remind you that you can always unsubscribe from these email lessons at any point in time. We love having you with us but we don’t want you to stay one minute longer than you wish. To unsubscribe, scroll to the bottom of this lesson (or any lesson) and click on the unsubscribe button.
On the other hand, if you or a friend (or a sworn enemy) wants to receive these free email lessons every week or two, go to www.CPAreviewforFREE.com and register and make sure the box about getting additional material for the CPA Exam is checked. These email lessons are that additional material.
(3) – Practice (and if you had not anticipated the first question, you have not been getting these lessons for very long).
FAR
The Mills Company can buy a retail store for $1 million on January 1, Year One and start selling inventory immediately. However, company officials decide to build a store instead so they can get everything exactly as they want. They borrow $1 million on that date and spend the money evenly over the year and the store is completed on December 31, Year One. They start making sales the next day. The building has a 10-year life and no salvage value and straight-line depreciation is used. Which of the following statements is not true?
A – No depreciation expense will be recognized in Year One.
B – Interest expense of $35,000 is reported on the company’s income statement in Year One.
C – On the 12/31/1 balance sheet, the building is reported at $1,070,000.
D – Depreciation expense for Year Two is $103,500.
Answer is C
Interest paid for this first year is $70,000 ($1,000,000 X 7%). Because the building is constructed, a part of that interest is capitalized. The average accumulated expenditure figure for that period is $500,000 which is (0 + 1,000,000)/2. The interest rate is 7 percent so $35,000 is capitalized ($500,000 x 7 percent). That amount is moved from interest expense to the building account. Interest expense is dropped from $70,000 to $35,000 and the cost of the building is raised from $1,000,000 to $1,035,000. No revenues are earned in Year One so no depreciation expense is recognized. Depreciation for Year Two is $1,035,000/10 years or $103,500.
Regulation
Wilson owns stock in two companies. Each investment cost $10,000. Both investments drop in value to $9,000. At that point, he gives one investment to Adam and the other investment to Sara. Adam’s investment goes up in value to $10,400 and he sells it. Sara’s investment goes down in value to $8,500 and she sells it. What are the tax effects created by these sales?
A. Adam has a $400 taxable gain and Sara has a $1,500 taxable loss.
B. Adam has a $1,400 taxable gain and Sara has a $500 taxable loss.
C. Adam has a $400 taxable gain and Sara has a $500 taxable loss.
D. Adam has a $1,400 taxable gain and Sara has a $1,500 taxable loss.
Answer is C
Adam has a gain and Sara has a loss. If property is received as a gift, a gain on the eventual sale is determined by comparing the amount received to the previous owner’s basis. Adam’s gain is $10,400 less $10,000 or $400. If property is received as a gift, a loss on the eventual sale is determined by comparing the amount received to the lower of the previous owner’s basis or the fair value at the date of gift. Fair value of $9,000 was lower than the previous basis of $10,000 so $9,000 is used. Sara’s loss is $9,000 less $8,500 or $500.
Auditing
An auditor finds a journal entry where a company records the acquisition of a machine for $7,000 cash. The auditor then searches for the related source documents—original documents on which the acquisition was initially recorded (such as a purchase requisition, receiving report, and vendor invoice). Which of the following assertions is the auditor most likely seeking evidence to substantiate?
A – Allocation
B – Presentation
C – Existence
D – Completeness
Answer is C
When an auditor starts at the end of the accounting process where the recording has been made and then moves backwards toward the beginning of the system to find relevant source documents, the auditor is usually trying to substantiate proof of the existence of the transaction. Here, the company is reporting a machine but did they really buy a machine, is there adequate proof that the reported account does exist. (Completeness is usually substantiated by starting at the beginning of the process with the source documents and then following the information through the system to ensure that nothing got lost along the way.)
BEC
Henri Corporation produces product XC7. They plan to hire workers for $18.00 per hour and produce 8,000 units of XC7. Each unit should take four hours of labor to produce. In actual practice, Henri produces 9,000 units of XC7 but it takes the workers 35,000 hours at a total labor cost of $683,000. What is the labor rate variance for this period?
A. $35,000 unfavorable
B. $53,000 unfavorable
C. $18,000 favorable
D. $19,514 favorable
Answer is B
The company paid $683,000 for 35,000 hours of labor. At the standard rate of $18.00 per hour, the company should only have paid $630,000. The company paid $53,000 more for those hours than the standard. That is the labor rate variance and it is unfavorable because they paid more than anticipated.
Keep working – you will get there.
Joe Hoyle
President
CPA Review for FREE
www.CPAreviewforFREE.com
111 Weeks of Operation and 15,209,997 Page Views (without a penny spent on marketing)
Lesson 78
From: Joe
(a) – We had the most visitors in our history this past week and went over 15 million total page views on our website. Yeah!!! And a whole lot of the thanks go to everyone who helps to spread the word about www.CPAreviewforFREE.com.
(b) – Last spring, I made available a practice quiz for FAR of 20 new questions and answers so that you can look for your strengths and weaknesses. Take 30 – 40 minutes and see how you feel in an exam mode. The questions are on a variety of topics. If anyone is interested in receiving these, I’ll make those same 20 Q & A available for a few days. Drop me an email at Jhoyle@cpareviewforfree.com
(c) – Our new subscription service for FAR is up and running and doing great. We are currently putting the final touches on Regulation and hope to have it available in a week or two. For $15 per month or $30 for 3 months, you get online access that allows you to review 620+ slides covering all of the important information in FAR. This is not a quick cram—this is a legitimate program that marries our free questions with our 620 content slides.
--To gain access, go to www.CPAreviewforFREE.com. Click on “Store” at the top right of the home page, click on “here” under the “Essential Content,” log into your account (or register if you have not registered previously), and click on “Paid Content.” Then, purchase one month of online access for $15 or 3 months for $30.
--How does it work? Well, here’s an example. For land, buildings, and equipment, we have dozens of slides that explain all aspects of the financial accounting for these assets. Four of those slides are specifically about the capitalization of interest. To illustrate, here are those four. For this topic, this is exactly what I believe you need to know.
*
Slide One:
Capitalization of Interest
Capitalization of interest cost is necessary during the period of time when fixed assets (and inventory specially built for a customer) are constructed. This interest is incurred prior to any revenues being generated so the matching principle requires that the expensing of the interest be delayed (by being added to the cost of the asset). Expensing eventually takes place through the depreciation process. Interest is only capitalized during the period of construction.
It is not the amount of interest paid that is capitalized. The amount capitalized is computed as:
Average accumulated expenditures X Interest rate X Period of construction
Slide Two:
If a building project has no accumulated expenditures on the first day of the year but work gradually increases the accumulated expenditures to $1.2 million by the last day of the year, a simple average of those accumulated expenditures is $600,000 ([-0- + $1,200,000]/2).
The interest rate to be used in this computation is the rate for any money specifically borrowed to finance the construction project. For example, if a company borrows $1.2 million at an annual rate of 5 percent to finance this building, then 5 percent is the applicable rate.
However, if no debt is incurred specifically for a construction project, the interest rate to be used is the weighted average rate of the company’s other debts. (Note that interest must be capitalized during construction even if no specific debt was incurred for the project.)
Slide Three:
Example. The Jones Company borrows $5 million on January 1, Year One to build a new warehouse. This debt has an annual interest rate of 8 percent. During Year One, $2 million is spent on this construction project evenly throughout the period. During Year Three, $3 million is spent on this construction project evenly throughout the period.
What is the capitalized cost of this warehouse on December 31, Year One? What is the capitalized cost of this warehouse on December 31, Year Two?
December 31, Year One: The accumulated expenditure total on this warehouse on the first day of the year was zero but had risen steadily to $2 million as of the last day of the year. The average accumulated expenditures for the period was $1,000,000 ([-0- + $2,000,000]/2). Since the annual interest rate was 8 percent, the capitalized interest was $80,000. That amount is removed from interest expense and reclassified as part of the cost of the warehouse which now has a reported cost to date of $2,080,000.
Slide Four:
December 31, Year Two: The accumulated expenditure total on this warehouse on the first day of the second year is $2,080,000 (see above). Another $3,000,000 is spent evenly over the year to arrive at $5,080,000. The average accumulated expenditures for Year Two is $3,580,000 ([$2,080,000 + $5,080,000]/2). The amount of interest to be capitalized is $3,580,000 X 8 percent or $286,400. This interest charge raises the capitalized cost from $5,080,000 by $286,400 to $5,366,400.
After the asset is completed and used in generating revenues, all further interest is expensed. In addition, at that time, the depreciation of the cost can begin so that these costs (interest and depreciation) are matched with revenues.
*
Four slides and you should know enough to be able to pass the topic of capitalized interest. That is how you pass the CPA Exam; you learn to pass each topic—one at a time.
(1) – I have been reading a book (“Mao’s Last Dancer”) about a Chinese peasant boy who works incredibly hard and eventually becomes one of the top ballet dancers in the world. A lot of the book focuses on his early training when he moves quickly from extreme poverty to a national dance academy where he is pushed to learn ballet—something he does not even understand at first.
In the book, he talks about how difficult it is to learn each dance movement. He is shown a new step or a turn and his first reaction is “I cannot possibly do that. Someone else may be able to do it, but not me.”
And, sure enough, for the longest time, he cannot master the new move. He tries and fails, he tries and fails, and he tries and fails. However, what really sets this young man apart from the other dancers in the academy is that he keeps trying even though he continues to fail. The other dancers practice three times each day (in a building without air conditioning) but he practices six times each day (at times breaking into the studio at night so he can practice alone). The other dancers are satisfied with being okay; he wants to be great. His desire is as large as his talent. His desire may be more important than his talent.
So many times, after he has failed and failed and failed with a new dance movement, he’ll have a break-through and suddenly he can do it. It just happens—almost without warning. With enough practice, one day he can actually do what he had originally thought was impossible.
The word that I really like in that story is “break-through.” That is the way learning, especially when you are dealing with a very difficult topic, usually happens. Learning is just full of epiphanies. You miss the question, you miss the question, you miss the question and suddenly you have a break-through. Without warning, you see how the pieces fit together to form the correct answer. Once you catch on, the process frequently seems rather simple: “Why did I not see that before now—it is obvious how it works.”
But that is just the way learning often works—you have to miss and practice, miss and practice until eventually you’ll have your own personal break-through and you will find that you have mastered the concept. That is a wonderful feeling. In learning, there is little that feels better than that quiet pause followed by “Oh, I see it now.”
In learning, too many people give up too quickly. They never reach the “break-through” point. The work is too hard or the failure is too devastating. They don’t have enough confidence to keep pushing or they don’t want success badly enough. They walk away saying “I just cannot do this.”
Here’s what I want you to know: Those frustrations are normal; they are no reason to quit. Failure is a natural part of getting to success. Yeah, it is tough to miss questions but that is just the way the learning process works. If you keep plugging, if you keep pushing yourself, you will have a break-through and suddenly you’ll say “Oh, I see it now.” And, that is going to feel great.
(2) – As always, I want to remind you that you can always unsubscribe from these email lessons at any point in time. We love having you with us but we don’t want you to stay one minute longer than you wish. To unsubscribe, scroll to the bottom of this lesson (or any lesson) and click on the unsubscribe button.
On the other hand, if you or a friend (or a sworn enemy) wants to receive these free email lessons every week or two, go to www.CPAreviewforFREE.com and register and make sure the box about getting additional material for the CPA Exam is checked. These email lessons are that additional material.
(3) – Practice (and if you had not anticipated the first question, you have not been getting these lessons for very long).
FAR
The Mills Company can buy a retail store for $1 million on January 1, Year One and start selling inventory immediately. However, company officials decide to build a store instead so they can get everything exactly as they want. They borrow $1 million on that date and spend the money evenly over the year and the store is completed on December 31, Year One. They start making sales the next day. The building has a 10-year life and no salvage value and straight-line depreciation is used. Which of the following statements is not true?
A – No depreciation expense will be recognized in Year One.
B – Interest expense of $35,000 is reported on the company’s income statement in Year One.
C – On the 12/31/1 balance sheet, the building is reported at $1,070,000.
D – Depreciation expense for Year Two is $103,500.
Answer is C
Interest paid for this first year is $70,000 ($1,000,000 X 7%). Because the building is constructed, a part of that interest is capitalized. The average accumulated expenditure figure for that period is $500,000 which is (0 + 1,000,000)/2. The interest rate is 7 percent so $35,000 is capitalized ($500,000 x 7 percent). That amount is moved from interest expense to the building account. Interest expense is dropped from $70,000 to $35,000 and the cost of the building is raised from $1,000,000 to $1,035,000. No revenues are earned in Year One so no depreciation expense is recognized. Depreciation for Year Two is $1,035,000/10 years or $103,500.
Regulation
Wilson owns stock in two companies. Each investment cost $10,000. Both investments drop in value to $9,000. At that point, he gives one investment to Adam and the other investment to Sara. Adam’s investment goes up in value to $10,400 and he sells it. Sara’s investment goes down in value to $8,500 and she sells it. What are the tax effects created by these sales?
A. Adam has a $400 taxable gain and Sara has a $1,500 taxable loss.
B. Adam has a $1,400 taxable gain and Sara has a $500 taxable loss.
C. Adam has a $400 taxable gain and Sara has a $500 taxable loss.
D. Adam has a $1,400 taxable gain and Sara has a $1,500 taxable loss.
Answer is C
Adam has a gain and Sara has a loss. If property is received as a gift, a gain on the eventual sale is determined by comparing the amount received to the previous owner’s basis. Adam’s gain is $10,400 less $10,000 or $400. If property is received as a gift, a loss on the eventual sale is determined by comparing the amount received to the lower of the previous owner’s basis or the fair value at the date of gift. Fair value of $9,000 was lower than the previous basis of $10,000 so $9,000 is used. Sara’s loss is $9,000 less $8,500 or $500.
Auditing
An auditor finds a journal entry where a company records the acquisition of a machine for $7,000 cash. The auditor then searches for the related source documents—original documents on which the acquisition was initially recorded (such as a purchase requisition, receiving report, and vendor invoice). Which of the following assertions is the auditor most likely seeking evidence to substantiate?
A – Allocation
B – Presentation
C – Existence
D – Completeness
Answer is C
When an auditor starts at the end of the accounting process where the recording has been made and then moves backwards toward the beginning of the system to find relevant source documents, the auditor is usually trying to substantiate proof of the existence of the transaction. Here, the company is reporting a machine but did they really buy a machine, is there adequate proof that the reported account does exist. (Completeness is usually substantiated by starting at the beginning of the process with the source documents and then following the information through the system to ensure that nothing got lost along the way.)
BEC
Henri Corporation produces product XC7. They plan to hire workers for $18.00 per hour and produce 8,000 units of XC7. Each unit should take four hours of labor to produce. In actual practice, Henri produces 9,000 units of XC7 but it takes the workers 35,000 hours at a total labor cost of $683,000. What is the labor rate variance for this period?
A. $35,000 unfavorable
B. $53,000 unfavorable
C. $18,000 favorable
D. $19,514 favorable
Answer is B
The company paid $683,000 for 35,000 hours of labor. At the standard rate of $18.00 per hour, the company should only have paid $630,000. The company paid $53,000 more for those hours than the standard. That is the labor rate variance and it is unfavorable because they paid more than anticipated.
Keep working – you will get there.
Joe Hoyle
President
CPA Review for FREE
www.CPAreviewforFREE.com
Tuesday, August 10, 2010
Six Hints to Help You Pass the CPA Exam
Try us FIRST before you spend your hard-earned money.
August 9, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
109 Weeks of Operation and 14,640,175 Page Views (without a penny spent on marketing)
Lesson 77
From: Joe
(a) - Our subscription service for FAR is now up and running. We will have the other three parts ready as soon as we can. I actually received two emails (about 24 hours apart) from one of our first customers to use our subscription service:
From ES: "I'm so very grateful for you and the rest of your team for making studying so much easier. I'm actually enjoying reading through the FAR slides, and I'm comprehending the information much better than I did by using XXX review. Your review material increases my confidence level tremendously! . . . I really can't send enough praise and thanks your way. As I'm making my way through all of the FAR slides, I have decided, without a doubt, that the $15 I paid for a one-month subscription is by far the best investment I've ever made. You truly have a knack for making this material seem so simple and straightforward. The free multiple choice questions were good enough, but this FAR review is simply phenomenal. Best wishes in preparing the slides for the other 3 sections -- you've got something really great here. I'm so grateful to have had college professors who knew about your site and passed the info. along because your review material has been a total blessing!"
Okay, what is the deal?
--For $15 per month or $30 for 3 months, you get online access that allow you to review 620+ slides covering all of the important information in FAR. This is not a quick cram-this is a legitimate program that marries our free questions with our 620 content slides.
--You also get a study guide to direct you logically through the entire program. You are not left to wander around; we tell you what to do to work your way through our program so you can get those 75 points you need.
--Most programs cost thousands. We cost 50 cents per day. That's it. Think about it. You are risking $15.00. We believe, as ES said above, it will be the best investment you ever made.
--To gain access, here is what you need to do. Go to www.CPAreviewforFREE.com. Click on "Store" at the top right of the home page, click on "here" under the "Essential Content," log into your account (or register if you have not registered previously), and Click on "Paid Content." Then, purchase one month of online access for $15 or 3 months for $30.
--One suggestion if you subscribe - read the study program first. You certainly can proceed in any manner that you wish but I would like for you to see how I envisioned this program before you get started.
(1) - I know that a lot of you will be taking one or more parts of the CPA Exam during the remainder of the July-August window. So, when I woke up this morning, I started thinking about what I want you to think about as you walk into the test site. What should be on your mind as you enter the building and you show your IDs and you get ready to start up that exam? I came up with the following six recommendations. I believe if you can keep each of these six in mind, you've made a great stride toward passing that exam.
a. Stay loose. Getting overly tense and nervous is really a bad idea. No one does well when they tie themselves into emotional knots. I tell candidates to wiggle their fingers (so they are not clenching their fists) and wiggle their lower jaws (so they are not clenching their teeth). I find that such actions actually do help you stay loose. Play soothing (but maybe a little upbeat) music as you drive to the facility. Remember the exam is not five minutes long-getting yourself worked into a fever pitch might not be a bad idea for a 5-minute wrestling match. This is something entirely different - it is a mental test that will last 2 ½ to 4 ½ hours. To get the most out of yourself, stay loose, calm, and relaxed.
b. During the exam, you have to watch your time very carefully. In each part (except BEC), you have three multiple-choice testlets and two simulations. In BEC, you have three multiple-choice testlets. You need to be very aware as to how much time you plan to spend in each part. Yes, you will have to push yourself constantly but you can get through each exam in the time allotted. You do not want to finish early but you absolutely cannot afford to leave questions blank. Know how much time you want to spend in each area, keep an eye on the time, and keep pushing.
c. I would bet that almost as many points are lost on the CPA Exam through carelessness as are lost through lack of knowledge. People misread words or pick up the wrong numbers. I wrote a friend yesterday and said that I needed 150 booklets in 30 days. He then wrote his secretary (and copied me) telling the secretary that I needed 30 booklets in 150 days. On the CPA Exam, you absolutely cannot do something like that. For the questions that you really do know, you need to get 90 percent or more of them correct. Yeah, we are all human and make mistakes but you have to cut those careless errors down to a minimum. Don't throw away a passing score by being careless.
d. People tend to slow down pretty quickly over time. They get tired but it is also just human nature. On the exam, you need to be going as strong the last hour of the exam as you were the first hour. Monitor yourself. Don't let yourself start dragging. Tiredness is often no more than mental laziness (you are taking an exam - you are not digging ditches). The person who can still be answering questions at a crisp pace at the end of the exam has a great chance to get the points needed to pass.
e. I have said this before but it bears repeating. If you do not know an answer, eliminate as many possible answers as you can and make a guess. Never Never Never leave anything blank. Your grade is entirely based on the number of right answers you get.
f. Don't be rattled if you see questions that you do not know. If you have spent enough time studying (60-100 hours per part), anything you find that you have never seen before is something that other candidates have not seen before either. You are not striving for perfection. You just want to pass. There are always going to be some weird questions tossed in. That's just part of the game. Eliminate as many answers as you can, take a guess, move on.
g. (Okay, I lied about being six - I really have seven recommendations.) And, I have said this before also. The written communication answers only have to be "on topic." After that they are not graded on content, only on the use of the English language. Don't be so concerned about getting the answer absolutely "right." Worry about writing well. Short words, short sentences, and short paragraphs. For about a million years, "Elements of Style" by Strunk and White has been the first word and the last word as to the proper use of the English language. Go to a library, find a copy, sit down and read it.
Once you go to the CPA Exam, your only goal is to get the knowledge out of your head and onto that computer screen so you can show them that you deserve to pass. I think these recommendations will help.
(2) - If you would like to unsubscribe from these email lessons, just scroll to the bottom of this (or any) lesson and click on "unsubscribe." It is no big deal; it is easy. We love having all 14,000 of you folks but don't hesitate to unsubscribe at any time you wish.
(3) - I attended a meeting last Tuesday with the CPA Examiners in San Francisco as they talked about the upcoming changes in the CPA Exam starting in 2011. I took notes and what follows are my notes from that meeting. One piece of advice: pass the exam in 2010 and you won't have to worry about 2011. Second piece of advice: yeah, the exam is going to change some but I really don't think it will have a huge impact on you or your testing experience. Some change, sure. Much change-not really.
From my notes:
The following is somewhat random as it is a summation of the rambling conversation that takes place in virtually any meeting. Speaking for the AICPA were Michael Decker (Director of Operations and Development) and Elaine Rodeck (Director of Exam Strategy). Unless specifically stated, the following refers to the CPA Exam after major changes are started in January 2011.
--One of the reasons they are going (in all parts except BEC) to 6-7 smaller simulations (known as task-based simulations) rather than the current two very large simulations is so that they can release the scores to candidates faster. They hope that by the end of 2011, everyone will be getting their scores within four weeks of taking each part of the exam.
--Growth in the number of people taking the exam continues to go up at about 3 percent per year.
--Many candidates want to take the exam late in each window. Because of capacity issues, they urge candidates to schedule their exams as early as possible. If they have no available seats, then they have no available seats. They especially worry about the end of November-schedule early.
--They constantly survey candidates on their exam experience at the testing site and the satisfaction rate is 98.4 percent which is considered extremely high. The number of candidates who have a bad testing experience has gone down rather dramatically since the exam was first computerized.
--As most people probably know, starting in January 2011, the written communications questions will be removed from FAR, Auditing, and Regulation. Instead, three written communications questions will be asked in BEC. Of those, two will be graded and the other will be for pre-testing purposes (to see if the question is properly written). However, for obvious reasons, the candidate will not be told which two will be graded.
--Starting in 2011, the Auditing exam will be 30 minutes shorter (down to 4 hours) and BEC will be 30 minutes longer (up to three hours).
--On Auditing, FAR, and Regulation, one of the 6-7 task-based simulations will be a research question. The research functionality that the candidate will use will be improved (they feel) in 2011.
--Someone asked: "Candidates can pay to have a regrade of their exam scores. In recent years, how many regrades have led to grade improvements?" And, the response was: "I think the answer is zero." (Before you send them your regrade money, please read that response again carefully. Their feeling is always going to be the same: they have already graded the close exams so many many times before they send the scores out to you that there is no possible way they could have missed a point.)
--They reiterated (for about the 900th time) that in the written communication questions, they do not grade on content but on use of the English language. However, they do have a CPA read the answers to make sure they are related to the point of the question. In other words, if the question is on capital leases, then the answer has to be on capital leases. After that, it is all about the candidate's use of the English language and not about getting the content correct.
--If you are taking the exam in 2011, be sure to go to www.cpa-exam.org and look at the content specifications outlines (CSOs). There will be some differences-especially in Auditing and BEC.
--As they always do, they urged (practically begged) candidates to go to www.cpa-exam.org and do the sample exams and tutorials before coming to the test site. They still have the samples up for 2010 but, in the fall, they will have them up for the 2011 exam.
--In one of the most interesting points, Ms. Rodeck made a great point something like: "The secret to passing the CPA Exam is to get off Facebook and IM and truly study." I could not agree more. I am amazed by how much time people spend on forums talking about the CPA Exam. I guess it is more fun than studying.
--Starting in 2011, the exam will have coverage of international standards which could possibly be tested in FAR, Auditing, and/or BEC but not in Regulation. The word was that the international standards would be introduced gradually. Personally, I think it will be awhile (maybe quite awhile) before international standards are a major part of the CPA Exam. It is good, though, to know about the international standards. However, I would not become obsessed by them.
--They still plan to offer the CPA Exam internationally but it will not be during the first quarter of 2011. When the exam is offered outside of the US, it will be in English and not in the local language.
--The pass rate continues to fluctuate slightly over time. In the first quarter of 2010, the pass rates were: Auditing: 48.94 percent, BEC: 47.80 percent, FAR: 46.70 percent, Regulation: 50.60 percent.
--Starting in 2011, the way the score is weighted will change. Currently, BEC is 100 percent multiple-choice and the other three parts are 70 percent from the multiple-choice and 30 percent from simulations. In 2011, BEC will be 85 percent from multiple-choice and 15 percent from the written communications questions. The other three parts will be 60 percent from multiple-choice and 40 percent from the 6-7 task based simulations.
--In the research questions, they want a citation to show where you found the correct answer. However, there can be more than one correct citation.
(4) - Practice - it is never a bad idea to see if we can add one more point to your score right here as you read this email lesson.
FAR
On January 1, Year One, the Motzart Company issued a 10-year $1 million bond that paid 6 percent annual interest. It was issued for 86 percent of face value in order to yield an annual interest rate of 8 percent. The company used the straight-line method to amortize the discount and reported a net income for Year One of $100,000. Then, the independent auditors asserted that there was a material difference between the straight-line and effective rate methods so that the effective rate method had to be used. After making the necessary adjustment, what amount did the company report as its net income?
A. $98,600
B. $99,480
C. $100,520
D. $101,400
Answer is C.
The company paid cash interest of $6,000 per year ($100,000 times 6 percent) and recognized amortization of the $14,000 discount at the rate of $1,400 per year over the ten-year life of the bond. So, using the straight-line method, the company recognized interest expense for Year One of $7,400 (cash plus discount amortization). However, under the effective rate method, interest expense is 8 percent times $86,000 or $6,880 for Year One. Thus, the expense would have been $520 lower ($7,400 less $6,880) so that net income is $520 higher or $100,520.
Regulation
What is the purpose of the National Labor Relations Act (also known as the Wagner Act)?
A. It requires overtime payment when employees work more than a specified period of time.
B. It establishes 40 hours per week as the point in time at which overtime must be paid.
C. It requires the employee's responsibility to pay social security taxes.
D. It specifies the rights that employees have to join or form labor organizations.
Answer is D
This particular US law was passed in 1935 to establish the rights that workers had to become part of labor unions and other such organizations. Not surprisingly, it was passed during the Great Depression when many workers were paid very small amounts for the work they did.
Auditing
The Venthura Corporation is a privately-held company that is being auditing by the independent firm of Smith and Rapunzel CPAs. In assessing control risk, the auditors become aware of a significant deficiency in the company's internal control. What should the auditors do as a result?
A. Provide a qualified audit opinion.
B. Release a formal report to the stockholders and any other member of the public who are directly involved with the company.
C. Issue a written report describing the problem to the board of directors and the management of the company.
D. Switch the audit to a review because sufficient evidence for an opinion cannot be obtained.
Answer is C
A significant deficiency in internal control is a serious problem. However, it does not necessarily mean that an audit cannot be carried out by extensive testing and other measures. It also does not mean that material misstatements actually exist in the financial statements. So, a qualified opinion is not justified simply because of this problem. Therefore, the board of directors (representing the stockholders) and the management must be formally informed. The auditor should watch carefully the company's reaction to the problem because it will probably indicate how seriously they take internal control within the organization.
BEC
A company hopes to benefit over the next few years from the economies of scale. Which of the following is most likely to cause this hope?
A. The company hopes to have better trained workers because it has now been in operation for a critical period of time.
B. The company hopes that expansion will create a lower cost per unit for its products.
C. The company hopes to be able to change the type of operation so that its variable costs will decrease significantly although fixed costs will rise.
D. The company hopes to gradually increase its sales price while its cost remains unchanged due to better market recognition.
Answer is B
As a company expands (through growth or acquisition), it hopes that its average production costs will fall on a per unit basis. Many costs will not grow proportionally with the increase in units sold. If sales price and demand remain stable, profits should rise. Hopefully, this anticipated drop in average cost can be created by such things as buying in larger quantities and spreading advertising expenditures over more products.
Quick comment:
Several weeks ago, I mentioned that my new favorite quotation is "Your dream isn't big enough if it doesn't scare you." I love that quote and have repeated it to many people whom I know. I originally read it on someone's website. So, earlier today I decided to go to Google and figure out who really did say these words in the first place. When I typed in the phrase and hit search, one of the very first sources that popped up was www.CPAreviewforFREE.com. I just had to laugh - apparently, if you repeat something often enough, people will start to give you the credit.
Joe Hoyle
President
CPA Review for FREE
www.CPAreviewforFREE.com
3351 Lady Marian Court
Midlothian, VA 23113
August 9, 2010
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
109 Weeks of Operation and 14,640,175 Page Views (without a penny spent on marketing)
Lesson 77
From: Joe
(a) - Our subscription service for FAR is now up and running. We will have the other three parts ready as soon as we can. I actually received two emails (about 24 hours apart) from one of our first customers to use our subscription service:
From ES: "I'm so very grateful for you and the rest of your team for making studying so much easier. I'm actually enjoying reading through the FAR slides, and I'm comprehending the information much better than I did by using XXX review. Your review material increases my confidence level tremendously! . . . I really can't send enough praise and thanks your way. As I'm making my way through all of the FAR slides, I have decided, without a doubt, that the $15 I paid for a one-month subscription is by far the best investment I've ever made. You truly have a knack for making this material seem so simple and straightforward. The free multiple choice questions were good enough, but this FAR review is simply phenomenal. Best wishes in preparing the slides for the other 3 sections -- you've got something really great here. I'm so grateful to have had college professors who knew about your site and passed the info. along because your review material has been a total blessing!"
Okay, what is the deal?
--For $15 per month or $30 for 3 months, you get online access that allow you to review 620+ slides covering all of the important information in FAR. This is not a quick cram-this is a legitimate program that marries our free questions with our 620 content slides.
--You also get a study guide to direct you logically through the entire program. You are not left to wander around; we tell you what to do to work your way through our program so you can get those 75 points you need.
--Most programs cost thousands. We cost 50 cents per day. That's it. Think about it. You are risking $15.00. We believe, as ES said above, it will be the best investment you ever made.
--To gain access, here is what you need to do. Go to www.CPAreviewforFREE.com. Click on "Store" at the top right of the home page, click on "here" under the "Essential Content," log into your account (or register if you have not registered previously), and Click on "Paid Content." Then, purchase one month of online access for $15 or 3 months for $30.
--One suggestion if you subscribe - read the study program first. You certainly can proceed in any manner that you wish but I would like for you to see how I envisioned this program before you get started.
(1) - I know that a lot of you will be taking one or more parts of the CPA Exam during the remainder of the July-August window. So, when I woke up this morning, I started thinking about what I want you to think about as you walk into the test site. What should be on your mind as you enter the building and you show your IDs and you get ready to start up that exam? I came up with the following six recommendations. I believe if you can keep each of these six in mind, you've made a great stride toward passing that exam.
a. Stay loose. Getting overly tense and nervous is really a bad idea. No one does well when they tie themselves into emotional knots. I tell candidates to wiggle their fingers (so they are not clenching their fists) and wiggle their lower jaws (so they are not clenching their teeth). I find that such actions actually do help you stay loose. Play soothing (but maybe a little upbeat) music as you drive to the facility. Remember the exam is not five minutes long-getting yourself worked into a fever pitch might not be a bad idea for a 5-minute wrestling match. This is something entirely different - it is a mental test that will last 2 ½ to 4 ½ hours. To get the most out of yourself, stay loose, calm, and relaxed.
b. During the exam, you have to watch your time very carefully. In each part (except BEC), you have three multiple-choice testlets and two simulations. In BEC, you have three multiple-choice testlets. You need to be very aware as to how much time you plan to spend in each part. Yes, you will have to push yourself constantly but you can get through each exam in the time allotted. You do not want to finish early but you absolutely cannot afford to leave questions blank. Know how much time you want to spend in each area, keep an eye on the time, and keep pushing.
c. I would bet that almost as many points are lost on the CPA Exam through carelessness as are lost through lack of knowledge. People misread words or pick up the wrong numbers. I wrote a friend yesterday and said that I needed 150 booklets in 30 days. He then wrote his secretary (and copied me) telling the secretary that I needed 30 booklets in 150 days. On the CPA Exam, you absolutely cannot do something like that. For the questions that you really do know, you need to get 90 percent or more of them correct. Yeah, we are all human and make mistakes but you have to cut those careless errors down to a minimum. Don't throw away a passing score by being careless.
d. People tend to slow down pretty quickly over time. They get tired but it is also just human nature. On the exam, you need to be going as strong the last hour of the exam as you were the first hour. Monitor yourself. Don't let yourself start dragging. Tiredness is often no more than mental laziness (you are taking an exam - you are not digging ditches). The person who can still be answering questions at a crisp pace at the end of the exam has a great chance to get the points needed to pass.
e. I have said this before but it bears repeating. If you do not know an answer, eliminate as many possible answers as you can and make a guess. Never Never Never leave anything blank. Your grade is entirely based on the number of right answers you get.
f. Don't be rattled if you see questions that you do not know. If you have spent enough time studying (60-100 hours per part), anything you find that you have never seen before is something that other candidates have not seen before either. You are not striving for perfection. You just want to pass. There are always going to be some weird questions tossed in. That's just part of the game. Eliminate as many answers as you can, take a guess, move on.
g. (Okay, I lied about being six - I really have seven recommendations.) And, I have said this before also. The written communication answers only have to be "on topic." After that they are not graded on content, only on the use of the English language. Don't be so concerned about getting the answer absolutely "right." Worry about writing well. Short words, short sentences, and short paragraphs. For about a million years, "Elements of Style" by Strunk and White has been the first word and the last word as to the proper use of the English language. Go to a library, find a copy, sit down and read it.
Once you go to the CPA Exam, your only goal is to get the knowledge out of your head and onto that computer screen so you can show them that you deserve to pass. I think these recommendations will help.
(2) - If you would like to unsubscribe from these email lessons, just scroll to the bottom of this (or any) lesson and click on "unsubscribe." It is no big deal; it is easy. We love having all 14,000 of you folks but don't hesitate to unsubscribe at any time you wish.
(3) - I attended a meeting last Tuesday with the CPA Examiners in San Francisco as they talked about the upcoming changes in the CPA Exam starting in 2011. I took notes and what follows are my notes from that meeting. One piece of advice: pass the exam in 2010 and you won't have to worry about 2011. Second piece of advice: yeah, the exam is going to change some but I really don't think it will have a huge impact on you or your testing experience. Some change, sure. Much change-not really.
From my notes:
The following is somewhat random as it is a summation of the rambling conversation that takes place in virtually any meeting. Speaking for the AICPA were Michael Decker (Director of Operations and Development) and Elaine Rodeck (Director of Exam Strategy). Unless specifically stated, the following refers to the CPA Exam after major changes are started in January 2011.
--One of the reasons they are going (in all parts except BEC) to 6-7 smaller simulations (known as task-based simulations) rather than the current two very large simulations is so that they can release the scores to candidates faster. They hope that by the end of 2011, everyone will be getting their scores within four weeks of taking each part of the exam.
--Growth in the number of people taking the exam continues to go up at about 3 percent per year.
--Many candidates want to take the exam late in each window. Because of capacity issues, they urge candidates to schedule their exams as early as possible. If they have no available seats, then they have no available seats. They especially worry about the end of November-schedule early.
--They constantly survey candidates on their exam experience at the testing site and the satisfaction rate is 98.4 percent which is considered extremely high. The number of candidates who have a bad testing experience has gone down rather dramatically since the exam was first computerized.
--As most people probably know, starting in January 2011, the written communications questions will be removed from FAR, Auditing, and Regulation. Instead, three written communications questions will be asked in BEC. Of those, two will be graded and the other will be for pre-testing purposes (to see if the question is properly written). However, for obvious reasons, the candidate will not be told which two will be graded.
--Starting in 2011, the Auditing exam will be 30 minutes shorter (down to 4 hours) and BEC will be 30 minutes longer (up to three hours).
--On Auditing, FAR, and Regulation, one of the 6-7 task-based simulations will be a research question. The research functionality that the candidate will use will be improved (they feel) in 2011.
--Someone asked: "Candidates can pay to have a regrade of their exam scores. In recent years, how many regrades have led to grade improvements?" And, the response was: "I think the answer is zero." (Before you send them your regrade money, please read that response again carefully. Their feeling is always going to be the same: they have already graded the close exams so many many times before they send the scores out to you that there is no possible way they could have missed a point.)
--They reiterated (for about the 900th time) that in the written communication questions, they do not grade on content but on use of the English language. However, they do have a CPA read the answers to make sure they are related to the point of the question. In other words, if the question is on capital leases, then the answer has to be on capital leases. After that, it is all about the candidate's use of the English language and not about getting the content correct.
--If you are taking the exam in 2011, be sure to go to www.cpa-exam.org and look at the content specifications outlines (CSOs). There will be some differences-especially in Auditing and BEC.
--As they always do, they urged (practically begged) candidates to go to www.cpa-exam.org and do the sample exams and tutorials before coming to the test site. They still have the samples up for 2010 but, in the fall, they will have them up for the 2011 exam.
--In one of the most interesting points, Ms. Rodeck made a great point something like: "The secret to passing the CPA Exam is to get off Facebook and IM and truly study." I could not agree more. I am amazed by how much time people spend on forums talking about the CPA Exam. I guess it is more fun than studying.
--Starting in 2011, the exam will have coverage of international standards which could possibly be tested in FAR, Auditing, and/or BEC but not in Regulation. The word was that the international standards would be introduced gradually. Personally, I think it will be awhile (maybe quite awhile) before international standards are a major part of the CPA Exam. It is good, though, to know about the international standards. However, I would not become obsessed by them.
--They still plan to offer the CPA Exam internationally but it will not be during the first quarter of 2011. When the exam is offered outside of the US, it will be in English and not in the local language.
--The pass rate continues to fluctuate slightly over time. In the first quarter of 2010, the pass rates were: Auditing: 48.94 percent, BEC: 47.80 percent, FAR: 46.70 percent, Regulation: 50.60 percent.
--Starting in 2011, the way the score is weighted will change. Currently, BEC is 100 percent multiple-choice and the other three parts are 70 percent from the multiple-choice and 30 percent from simulations. In 2011, BEC will be 85 percent from multiple-choice and 15 percent from the written communications questions. The other three parts will be 60 percent from multiple-choice and 40 percent from the 6-7 task based simulations.
--In the research questions, they want a citation to show where you found the correct answer. However, there can be more than one correct citation.
(4) - Practice - it is never a bad idea to see if we can add one more point to your score right here as you read this email lesson.
FAR
On January 1, Year One, the Motzart Company issued a 10-year $1 million bond that paid 6 percent annual interest. It was issued for 86 percent of face value in order to yield an annual interest rate of 8 percent. The company used the straight-line method to amortize the discount and reported a net income for Year One of $100,000. Then, the independent auditors asserted that there was a material difference between the straight-line and effective rate methods so that the effective rate method had to be used. After making the necessary adjustment, what amount did the company report as its net income?
A. $98,600
B. $99,480
C. $100,520
D. $101,400
Answer is C.
The company paid cash interest of $6,000 per year ($100,000 times 6 percent) and recognized amortization of the $14,000 discount at the rate of $1,400 per year over the ten-year life of the bond. So, using the straight-line method, the company recognized interest expense for Year One of $7,400 (cash plus discount amortization). However, under the effective rate method, interest expense is 8 percent times $86,000 or $6,880 for Year One. Thus, the expense would have been $520 lower ($7,400 less $6,880) so that net income is $520 higher or $100,520.
Regulation
What is the purpose of the National Labor Relations Act (also known as the Wagner Act)?
A. It requires overtime payment when employees work more than a specified period of time.
B. It establishes 40 hours per week as the point in time at which overtime must be paid.
C. It requires the employee's responsibility to pay social security taxes.
D. It specifies the rights that employees have to join or form labor organizations.
Answer is D
This particular US law was passed in 1935 to establish the rights that workers had to become part of labor unions and other such organizations. Not surprisingly, it was passed during the Great Depression when many workers were paid very small amounts for the work they did.
Auditing
The Venthura Corporation is a privately-held company that is being auditing by the independent firm of Smith and Rapunzel CPAs. In assessing control risk, the auditors become aware of a significant deficiency in the company's internal control. What should the auditors do as a result?
A. Provide a qualified audit opinion.
B. Release a formal report to the stockholders and any other member of the public who are directly involved with the company.
C. Issue a written report describing the problem to the board of directors and the management of the company.
D. Switch the audit to a review because sufficient evidence for an opinion cannot be obtained.
Answer is C
A significant deficiency in internal control is a serious problem. However, it does not necessarily mean that an audit cannot be carried out by extensive testing and other measures. It also does not mean that material misstatements actually exist in the financial statements. So, a qualified opinion is not justified simply because of this problem. Therefore, the board of directors (representing the stockholders) and the management must be formally informed. The auditor should watch carefully the company's reaction to the problem because it will probably indicate how seriously they take internal control within the organization.
BEC
A company hopes to benefit over the next few years from the economies of scale. Which of the following is most likely to cause this hope?
A. The company hopes to have better trained workers because it has now been in operation for a critical period of time.
B. The company hopes that expansion will create a lower cost per unit for its products.
C. The company hopes to be able to change the type of operation so that its variable costs will decrease significantly although fixed costs will rise.
D. The company hopes to gradually increase its sales price while its cost remains unchanged due to better market recognition.
Answer is B
As a company expands (through growth or acquisition), it hopes that its average production costs will fall on a per unit basis. Many costs will not grow proportionally with the increase in units sold. If sales price and demand remain stable, profits should rise. Hopefully, this anticipated drop in average cost can be created by such things as buying in larger quantities and spreading advertising expenditures over more products.
Quick comment:
Several weeks ago, I mentioned that my new favorite quotation is "Your dream isn't big enough if it doesn't scare you." I love that quote and have repeated it to many people whom I know. I originally read it on someone's website. So, earlier today I decided to go to Google and figure out who really did say these words in the first place. When I typed in the phrase and hit search, one of the very first sources that popped up was www.CPAreviewforFREE.com. I just had to laugh - apparently, if you repeat something often enough, people will start to give you the credit.
Joe Hoyle
President
CPA Review for FREE
www.CPAreviewforFREE.com
3351 Lady Marian Court
Midlothian, VA 23113
Friday, July 30, 2010
Push Yourself to Victory
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
108 Weeks of Operation and 14,367,517 Page Views (without a penny spent on marketing)
Lesson 76
From: Joe
(a) – SPECIAL ANNOUNCEMENT: SUBSCRIPTION SERVICE FOR FAR WILL BE AVAILABLE VERY SOON. As I announced in my previous email, to help us cover the cost of operating this website, in the next few days, we are going to make available a subscription service for the content that we think you need in order to pass the exam. I believe our 2,100 free questions plus our new subscription content will make this the PERFECT CPA review program. We are rolling out FAR first as we work diligently on getting the other three parts ready.
For FAR, we have created over 620 slides that you can view over the Internet that tells you exactly what we believe you need to know—this material covers the basics and gets you ready to make 75 and pass that exam.
For FAR, a subscription will be $15 per month or $30 for three months. What else can you possibly get for $15 per month? That’s 50 cents per day to get over 620 slides explaining the topics covered in the FAR part of the CPA Exam. And they are written by an educator—to help make sure you actually do understand how to answer the questions that you will face.
Of course, our 2,100 free questions will always stay free. If you are interested in subscribing for FAR, watch your email—we will send out information in a very few days that will tell you exactly what you need to know to sign up.
(b) – Last December, I posted a daily study tip on our Facebook page (search for “CPAreviewforFREE”) for over a month. I’m going to do that again for the next several weeks (although I’m not sure I can make it every day because of business travel—but I’ll try to get most days). Just a quick study tip to start off your day. Please feel free to become one of our fans to get these delivered to your wall automatically.
(c) – I’ll be in San Francisco next Tuesday morning for a meeting with the CPA Examiners who will be telling us all about the changes that will take place with the CPA Exam starting in 2011. I’ll keep you informed of anything that I learn of interest.
(d) – A week or two ago, we crossed 14 million page views here at www.CPAreviewforFREE and also had the busiest week in our entire history. The number of visitors that week was 6.4 percent higher than in any previous week of our existence. Thanks for spreading the word about www.CPAreviewforFREE.com. We hope to hit 20,000,000 page views by the end of 2010 and, with your help, we can make it!!!
(e) – Always nice to get notes from the folks who use our site.
From JC: “I just wanted to thank you for setting up this wonderful resource. It has been my primary source used to study for the CPA exam. So far I have taken 3 out of the 4 sections (Audit, BEC, and REG) and have passed them all on the first try. This website has been an invaluable tool. You really cannot be commended enough for setting up this CPA study aid.”
From LL: “I thank God for you and your site. I just found out this afternoon that I passed REG (1st try). I also passed BEC and AUD on my first try back in late February and late April. I'm now studying for FAR. I used XX books and supplemented them with XX lectures and your site. As part of the preparation of each exam, I worked through every single question on CPAreviewforFREE. Similar to some of the earlier feedback you received, I really liked the quality of your MCQs and explanations. In doing your MCQs, I felt more confident about my ability to learn and retain the information. Your regular emails also provide me the needed ongoing inspiration. Thank you!”
From CK: “This is just to pass my sincere gratitude for the great CPA review questions that you have provided for free on the website. I just received the results for my final CPA exam which I took at the end of last month and I passed it. It was AUD and I got an 86 on it. I used your questions for all the four parts. The questions are great at re-enforcing concepts. I am going to unsubscribe soon but I wanted to say THANK YOU VERY MUCH before I leave. I have encouraged a lot of my friends who want to take the CPA exam to use the questions as well. God bless you in a very special way.”
(1) – I was on vacation a few weeks ago. To pass the time in an airport, I was reading a novel. One of the characters was really into exercise and she made a statement: “I like to push myself until I’m absolutely exhausted.”
This got me to thinking about how hard we really do push ourselves each day. Oh yeah, we all talk about being exhausted but are we really? Or, are we just whining? I’m not a big believer in pushing yourself to absolute exhaustion because you have to be able to get up and do it again the next day. However, when you are studying for the CPA Exam, how hard do you really push yourself?
If you were a character in a book talking about studying for the CPA Exam, which line would be you?
--I like to push myself until I get bored.
--I like to push myself until I can think of something more interesting to do.
--I like to push myself until I get sleepy.
--I like to push myself until I can think of any excuse to quit.
Although these are probably pretty common goals, they are hardly the road to success. How much DO you push yourself to accomplish and how much SHOULD you push yourself to accomplish?
One of my problems is that if I say “I’m going to push myself until I’m absolutely exhausted,” I’m probably going to feel absolutely exhausted in about two minutes. The mind loves to play games; the mind loves to play tricks: “I’m tired; I’m bored; I’m absolutely exhausted; I’m starving to death; I don’t want to work.”
So, I prefer to set time goals for myself. For example, I might say: I’m going to study 50 minutes and then take a 10 minute break and then work for another 50 minutes. That is a very objective goal. I can prove whether I did it or not. I place my watch next to my computer. I write down when I start and when I stop and I have evidence (sounds like an auditor) of whether I put in the time. If this were a novel, maybe my character could say: “I like to push myself until I have put in the amount of time that I established as my goal.”
What I usually find is that when I do manage to hit that final time line, then I love to try to push myself for 15 more minutes. I don’t want to exhaust myself because I really do need to study again tomorrow but I want to prove that I can push myself beyond my own expectations.
First, I write down my time goals: 50 minutes, 10-minute break, 50 more minutes. When I get to the end of that stretch, I always ask: “Can’t I do just another 15 minutes—I might be able to add another point or two by answering questions for 15 more minutes.” And, yeah, when you get there, most people really are able to push themselves beyond their goal and add that extra 15 minutes. Somehow the time you put in AFTER you have reached your goal really feels worthwhile. You feel like you are stretching yourself and you are going to be a stronger person as a result.
(2) – As I have mentioned before, my wife and I went to Paris for our vacation. People have asked me what I enjoyed seeing the most. The answer is easy: the Winged Victory at the Louvre.
www.en.wikipedia.org/wiki/Winged_Victory_of_Samothrace
I love the name.
I love the power.
I love the mystery.
As you stand there in front of that statue, you really feel the strength. Somehow the sculptor captured the power and strength – you understand the majesty of the victory that this character is announcing to the world.
No one knows who created this work but it is hard to look at it without wanting that same feeling: look at what I have been able to accomplish!!!
(3) – If you want to unsubscribe from getting these weekly email lessons, just scroll to the bottom of this lesson and you’ll find an unsubscribe button. Easy as that. Click on it and your name will be removed from our list.
If you have friends who want to receive these free lessons, they can go to www.CPAreviewforFREE.com and register. When they do that, there is a box that asks if they want additional information about the CPA Exam. Make sure that box is checked because that “additional information” is our weekly email lessons.
(4) – I was in a hotel a few days ago in North Carolina having breakfast and several young people walked through the hotel. They apparently were on some type of work trip with their church (which was from Illinois). One of the young people wore a t-shirt with the question on the back: What’s Your Excuse?
I always wonder about what excuses I am using to keep myself from accomplishing things those that I want to do.
--It is easy to see the excuses that other people use.
--It is much more difficult to see the excuses that you use to hold yourself back.
So, if you have a really close friend, just ask them: What excuses do you hear me using that might be keeping me from being as successful as I would like? Do I have a tendency to put up my own personal road blocks that keep me from getting to where I want to be?
People always tell me that they know their own weaknesses, that they are able to assess themselves. I am not sure that is always true. I think it is impossible to see yourself without some type of filter – you may be too hard on yourself or you may be too easy on yourself. But I’m not sure anyone is a perfect judge of themselves.
You have to assure the friend that you will not get upset and that you really only want one piece of information (“you don’t have to tell me about all of my weaknesses”). You want to know what excuses you seem to fall back on. What excuses automatically pop out of your mouth? Excuses can almost become a speech habit that spill out to give you a reason not to move forward.
Find out—ask someone. Regardless of what they tell you, work hard (for a week or two) to avoid that excuse completely. You may well start to see a change in how you approach tasks without your built-in excuse. If you don’t have that road block standing in your way, you may well be surprised by how much you find that you really are able to accomplish.
(5) – PRACTICE TIME – Here are four more free questions to give you more chances to add points—which is really the name of this game.
FAR
The City of Linton has a general fund that reports $500,000 in assets and $200,000 in liabilities. Thus, the balance sheet for this fund shows a fund balance of $300,000 which is divided into five different categories. Which of the following is not one of those five fund balance categories?
A. Fund balance—nonspendable
B. Fund balance—committed
C. Fund balance—assigned
D. Fund balance—unrestricted
Answer is D.
The five fund balance categories are (1) fund balance-nonspendable -- reflects assets such as supplies that cannot be spent and money that has been restricted by an outside party so that it cannot be spent, (2) fund-balance restricted -- reflects money that has been restricted by an outside party for a particular purpose, (3) fund-balance committed -- reflects assets that have been designated for a specific purpose by the highest level of decision-making authority inside of the government, (4) fund-balance assigned -- reflect assets that have been designated for a specific purpose by officials within the government but not at the highest level of decision-making authority, and (5) fund-balance unassigned -- reflects all of the remaining net assets of the fund. “Unrestricted” is a term that is more often used in reporting not-for-profit organizations than it is in governmental accounting.
Auditing
A CPA has been engaged to issue a report of the findings coming from the performance of specific agreed-upon procedures. Which of the following is not true?
A. The CPA must be independent.
B. The CPA and specified parties must have agreed on criteria to be used.
C. The subject matter can be reasonably measured.
D. The report will be issued to the public in general.
Answer is D.
In these types of engagements, it is important that all relevant parties have a clear understanding of what is being done and how evaluations are being made. It is also important that the CPA has some way to make an evaluation that is not pure guesswork. The assumption is that the general public could not possibly be aware of the understanding that exists between the parties involved and, therefore, might be mislead in some way by the nature of the report. They do not possess an adequate understanding. These engagements should be clearly defined by all parties involved but, then, only those parties should receive a copy of the CPA’s report.
BEC
What is the GDP deflator?
A. An index for measuring deflation in a specific industry.
B. A method for measuring price changes in all final goods and services produced by an economy.
C. A method of measuring price changes in general markets in specific locations like New York City or the state of Wisconsin.
D. A means of measuring price changes for the goods that are obtained by consumers.
Answer is B.
According to Wikipedia, “in economics, the GDP deflator (implicit price deflator for GDP) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.”
Regulation
A company is going through bankruptcy liquidation and has the following four debts (each of which is below any maximum allowed amount): (1) - $10,000 owed to employees for working the two weeks before an order for relief was issued, (2) - $13,000 in government claims for unpaid taxes, (3) - $15,000 in administrative expenses, and (4) - $1,000 for a deposit made by a customer where the product was never delivered. Assuming that adequate money is available, in what order will these claims be paid?
A. 2, 1, 4, 3
B. 1, 3, 2, 4
C. 3, 1, 4, 2
D. 4, 2, 1, 3
Answer is C
Federal bankruptcy laws have been created to organize bankruptcies, especially when liquidation occurs, so that all parties are treated fairly. In addition, everyone should be able to go into the liquidation with some idea as to the chance of receiving payment. Certain unsecured liabilities are deemed to have priority and they are paid before other unsecured liabilities. Furthermore, these liabilities with priority are paid in a legally specified order. For these four debts, that order would be: administrative expenses, debts to employees incurred within the 180 days prior to the filing of a petition for bankruptcy (up to a maximum that is currently $10,950 per individual—any additional amount is a completely unsecured claim), deposits made by customers (up to a maximum that is currently $2,425 per claim—any additional amount is a completely unsecured claim, and government claims for unpaid taxes.
I know it is really hot throughout much of the country right now. So, stay inside and study and add points and get that CPA Exam passed.
Joe Hoyle
Co-Founder
CPA Review for FREE
www.CPAreviewforFREE.com
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
108 Weeks of Operation and 14,367,517 Page Views (without a penny spent on marketing)
Lesson 76
From: Joe
(a) – SPECIAL ANNOUNCEMENT: SUBSCRIPTION SERVICE FOR FAR WILL BE AVAILABLE VERY SOON. As I announced in my previous email, to help us cover the cost of operating this website, in the next few days, we are going to make available a subscription service for the content that we think you need in order to pass the exam. I believe our 2,100 free questions plus our new subscription content will make this the PERFECT CPA review program. We are rolling out FAR first as we work diligently on getting the other three parts ready.
For FAR, we have created over 620 slides that you can view over the Internet that tells you exactly what we believe you need to know—this material covers the basics and gets you ready to make 75 and pass that exam.
For FAR, a subscription will be $15 per month or $30 for three months. What else can you possibly get for $15 per month? That’s 50 cents per day to get over 620 slides explaining the topics covered in the FAR part of the CPA Exam. And they are written by an educator—to help make sure you actually do understand how to answer the questions that you will face.
Of course, our 2,100 free questions will always stay free. If you are interested in subscribing for FAR, watch your email—we will send out information in a very few days that will tell you exactly what you need to know to sign up.
(b) – Last December, I posted a daily study tip on our Facebook page (search for “CPAreviewforFREE”) for over a month. I’m going to do that again for the next several weeks (although I’m not sure I can make it every day because of business travel—but I’ll try to get most days). Just a quick study tip to start off your day. Please feel free to become one of our fans to get these delivered to your wall automatically.
(c) – I’ll be in San Francisco next Tuesday morning for a meeting with the CPA Examiners who will be telling us all about the changes that will take place with the CPA Exam starting in 2011. I’ll keep you informed of anything that I learn of interest.
(d) – A week or two ago, we crossed 14 million page views here at www.CPAreviewforFREE and also had the busiest week in our entire history. The number of visitors that week was 6.4 percent higher than in any previous week of our existence. Thanks for spreading the word about www.CPAreviewforFREE.com. We hope to hit 20,000,000 page views by the end of 2010 and, with your help, we can make it!!!
(e) – Always nice to get notes from the folks who use our site.
From JC: “I just wanted to thank you for setting up this wonderful resource. It has been my primary source used to study for the CPA exam. So far I have taken 3 out of the 4 sections (Audit, BEC, and REG) and have passed them all on the first try. This website has been an invaluable tool. You really cannot be commended enough for setting up this CPA study aid.”
From LL: “I thank God for you and your site. I just found out this afternoon that I passed REG (1st try). I also passed BEC and AUD on my first try back in late February and late April. I'm now studying for FAR. I used XX books and supplemented them with XX lectures and your site. As part of the preparation of each exam, I worked through every single question on CPAreviewforFREE. Similar to some of the earlier feedback you received, I really liked the quality of your MCQs and explanations. In doing your MCQs, I felt more confident about my ability to learn and retain the information. Your regular emails also provide me the needed ongoing inspiration. Thank you!”
From CK: “This is just to pass my sincere gratitude for the great CPA review questions that you have provided for free on the website. I just received the results for my final CPA exam which I took at the end of last month and I passed it. It was AUD and I got an 86 on it. I used your questions for all the four parts. The questions are great at re-enforcing concepts. I am going to unsubscribe soon but I wanted to say THANK YOU VERY MUCH before I leave. I have encouraged a lot of my friends who want to take the CPA exam to use the questions as well. God bless you in a very special way.”
(1) – I was on vacation a few weeks ago. To pass the time in an airport, I was reading a novel. One of the characters was really into exercise and she made a statement: “I like to push myself until I’m absolutely exhausted.”
This got me to thinking about how hard we really do push ourselves each day. Oh yeah, we all talk about being exhausted but are we really? Or, are we just whining? I’m not a big believer in pushing yourself to absolute exhaustion because you have to be able to get up and do it again the next day. However, when you are studying for the CPA Exam, how hard do you really push yourself?
If you were a character in a book talking about studying for the CPA Exam, which line would be you?
--I like to push myself until I get bored.
--I like to push myself until I can think of something more interesting to do.
--I like to push myself until I get sleepy.
--I like to push myself until I can think of any excuse to quit.
Although these are probably pretty common goals, they are hardly the road to success. How much DO you push yourself to accomplish and how much SHOULD you push yourself to accomplish?
One of my problems is that if I say “I’m going to push myself until I’m absolutely exhausted,” I’m probably going to feel absolutely exhausted in about two minutes. The mind loves to play games; the mind loves to play tricks: “I’m tired; I’m bored; I’m absolutely exhausted; I’m starving to death; I don’t want to work.”
So, I prefer to set time goals for myself. For example, I might say: I’m going to study 50 minutes and then take a 10 minute break and then work for another 50 minutes. That is a very objective goal. I can prove whether I did it or not. I place my watch next to my computer. I write down when I start and when I stop and I have evidence (sounds like an auditor) of whether I put in the time. If this were a novel, maybe my character could say: “I like to push myself until I have put in the amount of time that I established as my goal.”
What I usually find is that when I do manage to hit that final time line, then I love to try to push myself for 15 more minutes. I don’t want to exhaust myself because I really do need to study again tomorrow but I want to prove that I can push myself beyond my own expectations.
First, I write down my time goals: 50 minutes, 10-minute break, 50 more minutes. When I get to the end of that stretch, I always ask: “Can’t I do just another 15 minutes—I might be able to add another point or two by answering questions for 15 more minutes.” And, yeah, when you get there, most people really are able to push themselves beyond their goal and add that extra 15 minutes. Somehow the time you put in AFTER you have reached your goal really feels worthwhile. You feel like you are stretching yourself and you are going to be a stronger person as a result.
(2) – As I have mentioned before, my wife and I went to Paris for our vacation. People have asked me what I enjoyed seeing the most. The answer is easy: the Winged Victory at the Louvre.
www.en.wikipedia.org/wiki/Winged_Victory_of_Samothrace
I love the name.
I love the power.
I love the mystery.
As you stand there in front of that statue, you really feel the strength. Somehow the sculptor captured the power and strength – you understand the majesty of the victory that this character is announcing to the world.
No one knows who created this work but it is hard to look at it without wanting that same feeling: look at what I have been able to accomplish!!!
(3) – If you want to unsubscribe from getting these weekly email lessons, just scroll to the bottom of this lesson and you’ll find an unsubscribe button. Easy as that. Click on it and your name will be removed from our list.
If you have friends who want to receive these free lessons, they can go to www.CPAreviewforFREE.com and register. When they do that, there is a box that asks if they want additional information about the CPA Exam. Make sure that box is checked because that “additional information” is our weekly email lessons.
(4) – I was in a hotel a few days ago in North Carolina having breakfast and several young people walked through the hotel. They apparently were on some type of work trip with their church (which was from Illinois). One of the young people wore a t-shirt with the question on the back: What’s Your Excuse?
I always wonder about what excuses I am using to keep myself from accomplishing things those that I want to do.
--It is easy to see the excuses that other people use.
--It is much more difficult to see the excuses that you use to hold yourself back.
So, if you have a really close friend, just ask them: What excuses do you hear me using that might be keeping me from being as successful as I would like? Do I have a tendency to put up my own personal road blocks that keep me from getting to where I want to be?
People always tell me that they know their own weaknesses, that they are able to assess themselves. I am not sure that is always true. I think it is impossible to see yourself without some type of filter – you may be too hard on yourself or you may be too easy on yourself. But I’m not sure anyone is a perfect judge of themselves.
You have to assure the friend that you will not get upset and that you really only want one piece of information (“you don’t have to tell me about all of my weaknesses”). You want to know what excuses you seem to fall back on. What excuses automatically pop out of your mouth? Excuses can almost become a speech habit that spill out to give you a reason not to move forward.
Find out—ask someone. Regardless of what they tell you, work hard (for a week or two) to avoid that excuse completely. You may well start to see a change in how you approach tasks without your built-in excuse. If you don’t have that road block standing in your way, you may well be surprised by how much you find that you really are able to accomplish.
(5) – PRACTICE TIME – Here are four more free questions to give you more chances to add points—which is really the name of this game.
FAR
The City of Linton has a general fund that reports $500,000 in assets and $200,000 in liabilities. Thus, the balance sheet for this fund shows a fund balance of $300,000 which is divided into five different categories. Which of the following is not one of those five fund balance categories?
A. Fund balance—nonspendable
B. Fund balance—committed
C. Fund balance—assigned
D. Fund balance—unrestricted
Answer is D.
The five fund balance categories are (1) fund balance-nonspendable -- reflects assets such as supplies that cannot be spent and money that has been restricted by an outside party so that it cannot be spent, (2) fund-balance restricted -- reflects money that has been restricted by an outside party for a particular purpose, (3) fund-balance committed -- reflects assets that have been designated for a specific purpose by the highest level of decision-making authority inside of the government, (4) fund-balance assigned -- reflect assets that have been designated for a specific purpose by officials within the government but not at the highest level of decision-making authority, and (5) fund-balance unassigned -- reflects all of the remaining net assets of the fund. “Unrestricted” is a term that is more often used in reporting not-for-profit organizations than it is in governmental accounting.
Auditing
A CPA has been engaged to issue a report of the findings coming from the performance of specific agreed-upon procedures. Which of the following is not true?
A. The CPA must be independent.
B. The CPA and specified parties must have agreed on criteria to be used.
C. The subject matter can be reasonably measured.
D. The report will be issued to the public in general.
Answer is D.
In these types of engagements, it is important that all relevant parties have a clear understanding of what is being done and how evaluations are being made. It is also important that the CPA has some way to make an evaluation that is not pure guesswork. The assumption is that the general public could not possibly be aware of the understanding that exists between the parties involved and, therefore, might be mislead in some way by the nature of the report. They do not possess an adequate understanding. These engagements should be clearly defined by all parties involved but, then, only those parties should receive a copy of the CPA’s report.
BEC
What is the GDP deflator?
A. An index for measuring deflation in a specific industry.
B. A method for measuring price changes in all final goods and services produced by an economy.
C. A method of measuring price changes in general markets in specific locations like New York City or the state of Wisconsin.
D. A means of measuring price changes for the goods that are obtained by consumers.
Answer is B.
According to Wikipedia, “in economics, the GDP deflator (implicit price deflator for GDP) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.”
Regulation
A company is going through bankruptcy liquidation and has the following four debts (each of which is below any maximum allowed amount): (1) - $10,000 owed to employees for working the two weeks before an order for relief was issued, (2) - $13,000 in government claims for unpaid taxes, (3) - $15,000 in administrative expenses, and (4) - $1,000 for a deposit made by a customer where the product was never delivered. Assuming that adequate money is available, in what order will these claims be paid?
A. 2, 1, 4, 3
B. 1, 3, 2, 4
C. 3, 1, 4, 2
D. 4, 2, 1, 3
Answer is C
Federal bankruptcy laws have been created to organize bankruptcies, especially when liquidation occurs, so that all parties are treated fairly. In addition, everyone should be able to go into the liquidation with some idea as to the chance of receiving payment. Certain unsecured liabilities are deemed to have priority and they are paid before other unsecured liabilities. Furthermore, these liabilities with priority are paid in a legally specified order. For these four debts, that order would be: administrative expenses, debts to employees incurred within the 180 days prior to the filing of a petition for bankruptcy (up to a maximum that is currently $10,950 per individual—any additional amount is a completely unsecured claim), deposits made by customers (up to a maximum that is currently $2,425 per claim—any additional amount is a completely unsecured claim, and government claims for unpaid taxes.
I know it is really hot throughout much of the country right now. So, stay inside and study and add points and get that CPA Exam passed.
Joe Hoyle
Co-Founder
CPA Review for FREE
Wednesday, July 14, 2010
Make that Improvement and Pass that Exam
Over 2,100 FREE CPA Review Questions and Answers Available for YOU
105 Weeks of Operation and 13,506,577 Page Views (without a penny spent on marketing)
Lesson 75
From: Joe
(a) -OFFICIALLY BIG ANNOUNCEMENT: Ever since we first got started with CPAreviewforFREE.com, we constantly get emails like the following from so many of our candidates: "love you questions and answers-they are the best in the business but I'd love to have some content to help me to get over the rough patches."
So, this summer we have been writing content (day in and day out). We write exactly what we think you need to know to pass each part of the CPA Exam. Most review courses give you everything in the possible world and expect you to figure it out. We want to give you want we believe you need.
Unfortunately, we cannot hire the talent we need and still provide this content for free. Here is what we plan to do gradually over the remainder of the summer:
(Step One) Our 2,100 FREE questions and answers will remain absolutely free. If all you want is to use our questions and answers, nothing changes at all. Those are there for you.
(Step Two) Our new content will be available over the Internet through a one-month or three-month subscription option. No books to lug around, no outdated materials, access from anywhere: laptop, desktop, cell phone. We will provide the basics on every subject that YOU need to know to pass. We are not going to charge you the thousands of dollars that everyone else seems to want from you. We are going to keep this content as cheap as we possibly can. We will provide more information about this program and the complete details over the next few weeks.
(Step Three) We will also provide a study guide so that you can merge our free questions and answers with our new subscription service to provide you with a logical program that can get you through the CPA Exam in the most efficient (and cheapest) way possible.
Click here ( www.cpareviewforfree.com/resources.cfm?name=article&article_id=30 ) for a sample of content for FAR--Statement of Cash Flows. (This is a temporary file so it may not look as polished as our permanent files will be.)
Our philosophy is to provide you with exactly what you need in order to pass the CPA Exam. Get it done-get it over with. If you are studying for FAR, go look at the Statement of Cash Flows content and start adding even more points.
(b) - During the first week of July, we had over 300,000 page views for the first time in our history. In our first week of existence in 2008, we had 1,920 page views. Last week, we had 311,106 page views. And, we did that, with no money spent on advertising. Think about that. People recognize our quality. Build a better mousetrap and the world will beat a path to your door.
(c) - I was looking at a website this morning (for an artist, no less) and he had the following quote.
"Your dream isn't big enough if it doesn't scare you."
I read a lot and see a lot of quotes. Most are nice but don't really touch me. That was a quote that really meant something to me. I pass it along to you for that reason.
(1) - I was in Paris last week for a vacation. I do not speak French. I worried that I would not be able to get around because I could not speak the language. And, sure enough, the first day was rough. I was afraid that I might starve to death. But, gradually, subtly, without me even noticing, I started to pick up a few new words in French each day and I started recognizing what people were trying to say to me. By the end of the trip, I could even get through the subway system and order a meal without too much difficulty.
Learning is like that. It is subtle. It happens without your noticing. People don't learn in big chunks. People learn in tiny grains. However, through persistence, it is amazing how quickly those tiny grains add up and come together and start creating actual knowledge and understanding.
People who study for the CPA Exam are often looking for that "AHA" moment where they go from not knowing to knowing. Their dream is: "One minute I did not understand leases and then suddenly I understood it all with such wonderful clarity. I am so happy." Yeah, that would be nice but learning almost never happens that way. You start off understanding 40 percent of what you read. You answer a few questions and you read the answers and, without really noticing, you actually understand 45 percent and then 50 percent and so on. Eventually, you can become an expert that way.
It is easy to get discouraged because we all want "instant knowledge." The human brain just does not work that efficiently. Your brain learns gradually and constantly. Kind of like the sun rising-it happens so steadily that you don't even notice the change. But, it is dark one minute and then it begins to get lighter and lighter and, suddenly, the sun is up. And, you never really saw any movement.
--How do you pass the CPA Exam? Put in 60-100 hours of good quality study for each part. The brain will take care of the rest.
--Why does that work? As you read and answer questions, your mind gradually comes to understand the various topics. Not all at once but little by little.
--Why do you keep missing questions? The learning is slow and steady-no one jumps directly into brilliance. For example, if you are going to study 100 hours for FAR, it is perfectly logical that you will make 1 percent of the needed improvement for every full hour that you study. Yeah, that seems slow but if you make 1 percent improvement every hour, before you know it you will understand more than enough to pass.
I did not starve to death in Paris. I learning some of the language and had a great time.
Make that 1 percent improvement every hour and you'll pass the CPA Exam.
(2) - Here are a couple of wonderful emails that I got recently. Always love to hear from you:
From NN: "I received today the results of my REG exam: 84!!! Not bad!! I am so happy!!! And, I was so worried because I did not complete one of the tabs. I also passed FAR in April. And, I am working on AUD and BEC for the July/August window. Now, I know that I really can do it!!! I can accomplish my favorite goal: 'Successful completion of the four exams in the first attempt.'"
From RM: "I am writing you to update you on my progress with the CPA exam and it is with great pride that I can tell you that I have successfully passed all four parts! I took FAR shortly after a vacation in St. Thomas (where I spent the entire time studying) and anxiously waited for the scores. I found out that I passed FAR with a 79 as I was studying for my REG exam which I was to take the next morning. I can't tell you how big of a boost that was, knowing that the REG exam was going to be my last section. Just last week I found out that I passed REG with a 78, and I am finally done. It took me just about a year, and it is my proudest accomplishment yet. A close friend took me out for a celebratory dinner, and my family, co-workers, and friends were all elated that I had passed. CPA Review for Free was a huge help in that and your weekly emails kept me motivated."
Studying while in St. Thomas-now that is true dedication and self-discipline.
(3) - Formal and official announcement so that we don't break any laws: You are always able to unsubscribe at any time you wish from these email lessons. We love interacting with so many thousands of people around the world (well over 13,000) but you certainly can unsubscribe whenever you wish. Just scroll to the bottom of the page and click on the link. And, poof, you are unsubscribed.
(4) - My younger daughter went to work camp this past week where a group of about 200 youth gathered to fix up houses that needed repair in a poorer neighborhood. At the end of the week, the group made a presentation of what they had accomplished. The presentation was in a gymnasium of a school. When I walked in on Saturday morning for that presentation, the very first thing I noticed was a big banner that read:
You Can
When You Believe You Can
I am always of the opinion that humans have almost unlimited capabilities. People have the capacity to do almost anything that they set their minds to do.
The one thing that stands in the way for most people is their own belief in what they can accomplish.
You know your own weaknesses better than anyone else.
You know what scares you.
You know all of those things that you really don't know.
It is easy to believe: I can't.
On the outside, you probably resemble a person in complete control of every situation but, if you are like most people, you are always a bit tentative and scared. It is always easy, when thinking about ourselves, to dwell on those weaknesses that only we know about.
That is just going to hold you back. You are a very capable person. You are obviously not perfect but you have more than enough (a) brain power, (b) self discipline, (c) desire, and (d) energy to pass the CPA Exam. What else is needed?
You have the brain power.
You have the self discipline.
You have the desire.
You have the energy.
What else could you possibly need to pass the CPA Exam?
You Can
When You Believe You Can.
(5) - Okay, time for a little practice. If you get these all correct, good for you. If you miss one or more, then you have a wonderful opportunity to add a point to your score.
FAR
A company has the following three cash flows: $10,000 received as interest revenue, $20,000 paid as interest expense, and $40,000 received as dividend revenue. How are these three reported on a statement of cash flows?
A - $50,000 cash inflow from investing activities and a $20,000 cash outflow for financing activities.
B - $50,000 cash inflow from investing activities and a $20,000 cash outflow for operating activities
C - $40,000 cash inflow from investing activities and a $10,000 cash outflow for operating activities.
D - $30,000 cash inflow from operating activities
Answer is D
FASB has held that interest revenue, interest expense, and dividend revenue should all be reported on the statement of cash flows as operating activities. That classification system has not always been popular but it is GAAP.
Regulation
A taxpayer is divorced but currently provides all of the care for an invalid sister who lived in a hospital all year but who still qualifies as the taxpayer's dependent. The taxpayer wants to file as a head of household but cannot. Which of the following is the most likely reason for not being able to file as a head of household?
A - The taxpayer is divorced; a person who is a head of household can never have been married.
B - The person being cared for is a sister rather than a son or daughter.
C - The sister is a dependent which means that a different tax status is required.
D - The sister does not live in a home maintained by the taxpayer.
Answer is D
The following comes from the IRS publication explaining how to qualify as head of household: "You may be able to file as head of household if you meet all the following requirements. You are unmarried or 'considered unmarried' on the last day of the year. You paid more than half the cost of keeping up a home for the year. A 'qualifying person' lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the 'qualifying person' is your dependent parent, he or she does not have to live with you." The sister is a qualifying person. Thus, because she did not live with the taxpayer, the taxpayer only qualifies as a head of household if the dependent had been a parent who was living in the hospital.
Auditing
An auditor is studying events that occurred in the period just after the end of the year under audit but before the financial statements were issued. At present, the auditor is looking for significant events that occurred that had no impact on the year-end balances reported by the client. What is the most likely purpose of the auditor's work?
A - The auditor is looking for any needed adjusting entries that should be made to reported figures.
B - The auditor is looking for evidence that will impact the audit for the subsequent year.
C - The auditor is looking for information that must be disclosed in the financial statements soon to be released.
D - The auditor is looking for evidence that impacts the balance sheet and income statement figures to be reported.
Answer is C
Because the information in the problem indicates that these events had no impact on the year-end balances reported by the client, this work is unlikely to provide either significant audit evidence about reported balances or the necessity of adjusting entries. Instead, these transactions or other events-although not directly related to the financial statements under audit-are significant to the readers of the financial statements and must be disclosed. The auditor is making certain that all events that need to be disclosed in the financial statements are included.
BEC
A US company sells its goods in France and also buys goods in France and sells them in the US. At one point in time, 1 Euro can be exchanged for $1.20. Later, 1 Euro can be exchanged for $1.30. What is the impact on this company of the change in the exchange rate?
A - Goods bought in France will need to sell for more in the US.
B - Goods manufactured in the US will need to sell for more in France.
C - Goods bought in the US will cost the company more money to acquire.
D - The US dollar has become more valuable.
Answer is A
One Euro used to be worth $1.20 but now has grown in value and is worth $1.30. One Euro buys more dollars. Therefore, the Euro is worth more in comparison to the dollar and the dollar is worth less in comparison to the Euro. Inside of each country there is no impact. The effect is created by going from one country's currency to the other. Goods bought in France will be paid for with the more valuable Euro. However, when sold in the US, the company will receive the less valuable dollar. To maintain its profit margin, the company will have to sell the goods in the US for more of those less valuable dollars.
I cannot think of anything better to tell you in leaving than what I've already said: "Your dream isn't big enough if it doesn't scare you."
Have a great week to all of you!!!
Joe Hoyle
President
CPA Review for FREE
www.CPAreviewforFREE.com
105 Weeks of Operation and 13,506,577 Page Views (without a penny spent on marketing)
Lesson 75
From: Joe
(a) -OFFICIALLY BIG ANNOUNCEMENT: Ever since we first got started with CPAreviewforFREE.com, we constantly get emails like the following from so many of our candidates: "love you questions and answers-they are the best in the business but I'd love to have some content to help me to get over the rough patches."
So, this summer we have been writing content (day in and day out). We write exactly what we think you need to know to pass each part of the CPA Exam. Most review courses give you everything in the possible world and expect you to figure it out. We want to give you want we believe you need.
Unfortunately, we cannot hire the talent we need and still provide this content for free. Here is what we plan to do gradually over the remainder of the summer:
(Step One) Our 2,100 FREE questions and answers will remain absolutely free. If all you want is to use our questions and answers, nothing changes at all. Those are there for you.
(Step Two) Our new content will be available over the Internet through a one-month or three-month subscription option. No books to lug around, no outdated materials, access from anywhere: laptop, desktop, cell phone. We will provide the basics on every subject that YOU need to know to pass. We are not going to charge you the thousands of dollars that everyone else seems to want from you. We are going to keep this content as cheap as we possibly can. We will provide more information about this program and the complete details over the next few weeks.
(Step Three) We will also provide a study guide so that you can merge our free questions and answers with our new subscription service to provide you with a logical program that can get you through the CPA Exam in the most efficient (and cheapest) way possible.
Click here ( www.cpareviewforfree.com/resources.cfm?name=article&article_id=30 ) for a sample of content for FAR--Statement of Cash Flows. (This is a temporary file so it may not look as polished as our permanent files will be.)
Our philosophy is to provide you with exactly what you need in order to pass the CPA Exam. Get it done-get it over with. If you are studying for FAR, go look at the Statement of Cash Flows content and start adding even more points.
(b) - During the first week of July, we had over 300,000 page views for the first time in our history. In our first week of existence in 2008, we had 1,920 page views. Last week, we had 311,106 page views. And, we did that, with no money spent on advertising. Think about that. People recognize our quality. Build a better mousetrap and the world will beat a path to your door.
(c) - I was looking at a website this morning (for an artist, no less) and he had the following quote.
"Your dream isn't big enough if it doesn't scare you."
I read a lot and see a lot of quotes. Most are nice but don't really touch me. That was a quote that really meant something to me. I pass it along to you for that reason.
(1) - I was in Paris last week for a vacation. I do not speak French. I worried that I would not be able to get around because I could not speak the language. And, sure enough, the first day was rough. I was afraid that I might starve to death. But, gradually, subtly, without me even noticing, I started to pick up a few new words in French each day and I started recognizing what people were trying to say to me. By the end of the trip, I could even get through the subway system and order a meal without too much difficulty.
Learning is like that. It is subtle. It happens without your noticing. People don't learn in big chunks. People learn in tiny grains. However, through persistence, it is amazing how quickly those tiny grains add up and come together and start creating actual knowledge and understanding.
People who study for the CPA Exam are often looking for that "AHA" moment where they go from not knowing to knowing. Their dream is: "One minute I did not understand leases and then suddenly I understood it all with such wonderful clarity. I am so happy." Yeah, that would be nice but learning almost never happens that way. You start off understanding 40 percent of what you read. You answer a few questions and you read the answers and, without really noticing, you actually understand 45 percent and then 50 percent and so on. Eventually, you can become an expert that way.
It is easy to get discouraged because we all want "instant knowledge." The human brain just does not work that efficiently. Your brain learns gradually and constantly. Kind of like the sun rising-it happens so steadily that you don't even notice the change. But, it is dark one minute and then it begins to get lighter and lighter and, suddenly, the sun is up. And, you never really saw any movement.
--How do you pass the CPA Exam? Put in 60-100 hours of good quality study for each part. The brain will take care of the rest.
--Why does that work? As you read and answer questions, your mind gradually comes to understand the various topics. Not all at once but little by little.
--Why do you keep missing questions? The learning is slow and steady-no one jumps directly into brilliance. For example, if you are going to study 100 hours for FAR, it is perfectly logical that you will make 1 percent of the needed improvement for every full hour that you study. Yeah, that seems slow but if you make 1 percent improvement every hour, before you know it you will understand more than enough to pass.
I did not starve to death in Paris. I learning some of the language and had a great time.
Make that 1 percent improvement every hour and you'll pass the CPA Exam.
(2) - Here are a couple of wonderful emails that I got recently. Always love to hear from you:
From NN: "I received today the results of my REG exam: 84!!! Not bad!! I am so happy!!! And, I was so worried because I did not complete one of the tabs. I also passed FAR in April. And, I am working on AUD and BEC for the July/August window. Now, I know that I really can do it!!! I can accomplish my favorite goal: 'Successful completion of the four exams in the first attempt.'"
From RM: "I am writing you to update you on my progress with the CPA exam and it is with great pride that I can tell you that I have successfully passed all four parts! I took FAR shortly after a vacation in St. Thomas (where I spent the entire time studying) and anxiously waited for the scores. I found out that I passed FAR with a 79 as I was studying for my REG exam which I was to take the next morning. I can't tell you how big of a boost that was, knowing that the REG exam was going to be my last section. Just last week I found out that I passed REG with a 78, and I am finally done. It took me just about a year, and it is my proudest accomplishment yet. A close friend took me out for a celebratory dinner, and my family, co-workers, and friends were all elated that I had passed. CPA Review for Free was a huge help in that and your weekly emails kept me motivated."
Studying while in St. Thomas-now that is true dedication and self-discipline.
(3) - Formal and official announcement so that we don't break any laws: You are always able to unsubscribe at any time you wish from these email lessons. We love interacting with so many thousands of people around the world (well over 13,000) but you certainly can unsubscribe whenever you wish. Just scroll to the bottom of the page and click on the link. And, poof, you are unsubscribed.
(4) - My younger daughter went to work camp this past week where a group of about 200 youth gathered to fix up houses that needed repair in a poorer neighborhood. At the end of the week, the group made a presentation of what they had accomplished. The presentation was in a gymnasium of a school. When I walked in on Saturday morning for that presentation, the very first thing I noticed was a big banner that read:
You Can
When You Believe You Can
I am always of the opinion that humans have almost unlimited capabilities. People have the capacity to do almost anything that they set their minds to do.
The one thing that stands in the way for most people is their own belief in what they can accomplish.
You know your own weaknesses better than anyone else.
You know what scares you.
You know all of those things that you really don't know.
It is easy to believe: I can't.
On the outside, you probably resemble a person in complete control of every situation but, if you are like most people, you are always a bit tentative and scared. It is always easy, when thinking about ourselves, to dwell on those weaknesses that only we know about.
That is just going to hold you back. You are a very capable person. You are obviously not perfect but you have more than enough (a) brain power, (b) self discipline, (c) desire, and (d) energy to pass the CPA Exam. What else is needed?
You have the brain power.
You have the self discipline.
You have the desire.
You have the energy.
What else could you possibly need to pass the CPA Exam?
You Can
When You Believe You Can.
(5) - Okay, time for a little practice. If you get these all correct, good for you. If you miss one or more, then you have a wonderful opportunity to add a point to your score.
FAR
A company has the following three cash flows: $10,000 received as interest revenue, $20,000 paid as interest expense, and $40,000 received as dividend revenue. How are these three reported on a statement of cash flows?
A - $50,000 cash inflow from investing activities and a $20,000 cash outflow for financing activities.
B - $50,000 cash inflow from investing activities and a $20,000 cash outflow for operating activities
C - $40,000 cash inflow from investing activities and a $10,000 cash outflow for operating activities.
D - $30,000 cash inflow from operating activities
Answer is D
FASB has held that interest revenue, interest expense, and dividend revenue should all be reported on the statement of cash flows as operating activities. That classification system has not always been popular but it is GAAP.
Regulation
A taxpayer is divorced but currently provides all of the care for an invalid sister who lived in a hospital all year but who still qualifies as the taxpayer's dependent. The taxpayer wants to file as a head of household but cannot. Which of the following is the most likely reason for not being able to file as a head of household?
A - The taxpayer is divorced; a person who is a head of household can never have been married.
B - The person being cared for is a sister rather than a son or daughter.
C - The sister is a dependent which means that a different tax status is required.
D - The sister does not live in a home maintained by the taxpayer.
Answer is D
The following comes from the IRS publication explaining how to qualify as head of household: "You may be able to file as head of household if you meet all the following requirements. You are unmarried or 'considered unmarried' on the last day of the year. You paid more than half the cost of keeping up a home for the year. A 'qualifying person' lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the 'qualifying person' is your dependent parent, he or she does not have to live with you." The sister is a qualifying person. Thus, because she did not live with the taxpayer, the taxpayer only qualifies as a head of household if the dependent had been a parent who was living in the hospital.
Auditing
An auditor is studying events that occurred in the period just after the end of the year under audit but before the financial statements were issued. At present, the auditor is looking for significant events that occurred that had no impact on the year-end balances reported by the client. What is the most likely purpose of the auditor's work?
A - The auditor is looking for any needed adjusting entries that should be made to reported figures.
B - The auditor is looking for evidence that will impact the audit for the subsequent year.
C - The auditor is looking for information that must be disclosed in the financial statements soon to be released.
D - The auditor is looking for evidence that impacts the balance sheet and income statement figures to be reported.
Answer is C
Because the information in the problem indicates that these events had no impact on the year-end balances reported by the client, this work is unlikely to provide either significant audit evidence about reported balances or the necessity of adjusting entries. Instead, these transactions or other events-although not directly related to the financial statements under audit-are significant to the readers of the financial statements and must be disclosed. The auditor is making certain that all events that need to be disclosed in the financial statements are included.
BEC
A US company sells its goods in France and also buys goods in France and sells them in the US. At one point in time, 1 Euro can be exchanged for $1.20. Later, 1 Euro can be exchanged for $1.30. What is the impact on this company of the change in the exchange rate?
A - Goods bought in France will need to sell for more in the US.
B - Goods manufactured in the US will need to sell for more in France.
C - Goods bought in the US will cost the company more money to acquire.
D - The US dollar has become more valuable.
Answer is A
One Euro used to be worth $1.20 but now has grown in value and is worth $1.30. One Euro buys more dollars. Therefore, the Euro is worth more in comparison to the dollar and the dollar is worth less in comparison to the Euro. Inside of each country there is no impact. The effect is created by going from one country's currency to the other. Goods bought in France will be paid for with the more valuable Euro. However, when sold in the US, the company will receive the less valuable dollar. To maintain its profit margin, the company will have to sell the goods in the US for more of those less valuable dollars.
I cannot think of anything better to tell you in leaving than what I've already said: "Your dream isn't big enough if it doesn't scare you."
Have a great week to all of you!!!
Joe Hoyle
President
CPA Review for FREE
www.CPAreviewforFREE.com
Saturday, July 3, 2010
Becoming a Champion
Becoming a Champion
From: Joe
(a) – I fully realize that our economic times are quite scary at the moment. I truly hope that everyone who gets these emails is doing okay financially. If you are like me, you are both mystified and a bit wary. I am confident that things are going to get better and that the economy will come back strong. However, we will all feel better when things start to look better. I just hope that you have not been facing truly difficult financial issues in the last couple of weeks.
I am old enough to have seen a number of economic ups and downs over the years. One thing that always happens in such times is that people get more interested in making their resumes look better. Makes perfectly good sense. One of the best ways to improve that resume is to add the letters C P A after your name. Whether you are in Walla Walla or Katmandu, those three letters mean something important.
So, if you know someone who is struggling with the economy at the moment, one recommendation is to take the CPA Exam and get it passed. Not a bad way to spend some time. Those three letters will put you ahead of the pack if you are looking for a new job or a promotion.
The problem, of course, is that CPA review can be extremely expensive. Today, people are not in position to shell out several thousand dollars for prep programs (especially mediocre programs). It’s a tough call: I need to pass versus I cannot afford to prepare.
But, wait a minute!!! CPA Review For FREE (www.CPAreviewforFREE.com) provides you with a full range of practice questions to allow you to prepare for the CPA Exam for FREE (“free” as in no cost). You can get those three important letters after your name and you can prepare for free. What a deal; what an opportunity.
Now is the perfect time to get started. Move to the head of the class: pass the CPA Exam.
I once had a friend who had years and years of experience in CPA Review give me some good advice: “Anyone who works 2,000 well-written questions and carefully studies the answers should be able to pass the CPA Exam.” I hate to tell you this but much of the huge amount of materials that other review courses provide is just to allow them to jack up the price and charge you so much money. I know it looks impressive but if your goal is to pass the exam all that material can be overkill. “Anyone who works 2,000 well-written questions and carefully studies the answers should be able to pass the CPA Exam.”
(b) – As always, thanks for forwarding our emails along. www.CPAreviewforFREE.com gets more and more visitors every week. Last week, for example, we had a 42 percent jump in the number of pages that were viewed over our previous high. 42 percent jump in one week!!! People are clearly discovering how well our questions and answers help them to prepare.
(1) – We all have heroes. One of mine has always been the legendary football coach Vince Lombardi, who became famous in the 60s for coaching the Green Bay Packers to a number of championships.
What I like about Lombardi is not that he won a lot of football games. Many people do that. Plus, after all, football is really just a game. What I really like was his attitude. He believed that every person was capable of winning if they simply prepared themselves in the proper way. In fact, he was probably best known as a coach who took average players and turned them into champions. What a wonderful thing to be remembered for.
Anyone can win if they have the best players. That is no trick; that is no challenge. The excitement comes from taking average people and pushing them to do their best. And, I have found, in my life, that when people really do their best, things go very well.
If you have read these emails for long (I have been doing them off and on now for over ten years), I have always held that everyone can pass the CPA Exam. That is not an idle statement. It takes work, it takes focus, it takes dedication, it takes desire, it takes sacrifice, it takes good materials, it takes hours, it takes confidence. But it can be done.
Work
Focus
Dedication
Desire
Sacrifice
Good Materials
Hours
Confidence
There is no reason, if you have those eight magic ingredients, that you cannot mix up a brew that will turn you into a CPA. The trouble is that people come to the table with only 3 or 4 and then decide that they are not good enough to be CPAs. Baloney!!! As Shakespeare so aptly says in Julius Caesar: “The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings.” When you have these eight, YOU can succeed at virtually anything you attempt. You really can leap tall buildings with a single bound.
So, where does this lead us?
--Make a plan. By when do you want to have the CPA Exam passed? Stop being random. Set a firm goal. Always start at the end and work backwards.
--Ask yourself what you need to accomplish to get to that goal. Be reasonable: working 28 hours per day is not going to work. If you read these emails, you know that I recommend 250-400 hours to pass all four parts of the exam. When are you going to spend those hours? What are you going to do in those hours?
--Once you have a plan in place, have an honest conversation with yourself and ask a couple of serious questions and give truthful answers.
Can I do this as currently set up? If not, go back and rearrange the schedule. There is no reason to get started doing something that you simply cannot do. That is a loser from the start. Create a plan that is doable and will turn you into a winner.
What will be my biggest obstacles? What can I do at the start to lessen the problems that those obstacles pose? You know yourself. What is really going to hold you back and how do you get around that? Don’t be naïve; understand your weaknesses and address them before they cause a problem.
Why do I want to do this? It is very important to have a clear understanding of why you are seeking to become a CPA. When times get tough and you get tired and sick of it, it is easy to quit if you don’t have a well defined purpose for the study.
Can I have the right attitude? If you go into your preparation thinking it is going to be the worst few months of your life, this journey can be miserable. It is hard to be successful when you are miserable. If you go into this thinking it will be an interesting mental challenge, everything gets easier. Trust me on that. How do you go about setting up a positive mental attitude?
How can I reward myself along the way? Most people are not used to performing long tasks without a break. You can just wear down and become completely inefficient. I am a big believer that taking breaks is good for you. You need to study well. Don’t study more than 3-4 days straight without a day off. Don’t study more than 90 minutes straight without a 15 minute break. During those breaks, think what you can do that will make you feel better. You want to use the breaks to refresh yourself. They don’t give you points for wearing out.
How can I make sure I believe in myself? We are all very aware of our failings. Every person has some concern that they are not good enough. How do you go about making sure that you have the confidence you need to succeed at such a challenging task? One answer is to do the work and realize how much stronger you are becoming as you move through the process. Step back and make an honest appraisal of all that you have accomplished. It is not where you start that counts but the progress that you make toward your goal that truly does matter.
I am not a huge baseball fan but I have been intrigued by the Tampa Bay team. They are playing Boston at the moment and I have no idea who will win. However, Tampa Bay did something that I always find interesting. In one year, they have gone from the worst record to the best record in their division. That is truly amazing.
How do you do something like that? You work hard, you believe in yourself, you spend time practicing to get better.
Face it; there are no real secrets to becoming successful. We all know what it takes.
(2)-Just a reminder. If you want or need to unsubscribe, just scroll to the bottom of this email lesson and you will find a link that pulls your name off our list. We are glad to have you with us but you are more than entitled to unsubscribe whenever you wish.
(3)-Let’s do some practice work. Here are a few new questions that I want to add to our database at www.CPAreviewforFREE.com. You will get a chance to practice on them before they hit our website.
Regulation
Mary, a single individual, has provided more than half of the support for the following three people. Her mother who lives in a nursing home and who earned $10,000 in social security and $2,000 in interest income. Her son who is 19 and a full-time student who received $20,000 in scholarship income. Her friend who is in the process of getting a divorce. She has no income and is not filing a joint return with her estranged husband. How many dependents can Mary include on her personal tax return?
A – Zero
B – One
C – Two
D – Three
Answer is D
The mother is a dependent because she earned such a low amount of income that was subject to taxation. The son is a dependent because he is under 24 and a full-time student so that the amount of income is not a factor. The friend is a dependent because she does not file a joint return. There are five basic rules for being a dependent and these individuals meet the specific rule that appears to be in question for them.
Financial Accounting
Ace Company buys inventory on December 18, Year One for 20,000 vilsecks, a foreign currency. On that day, one vilseck is worth $.24. At the end of Year One, the inventory is still held and the debt is not yet paid. On that date, one vilseck is worth $.25. Ace might be a foreign subsidiary that is being consolidated with a US parent company so that translation is appropriate. Ace might be a US company making a purchase from a foreign supplier so that a remeasurement is appropriate. What gain or loss is reported in each case at the end of Year One?
A – If this is a translation, there is a $200 gain. If this is a remeasurement, there is a $200 loss.
B – If this is a translation, there is no gain or loss. If this is a remeasurement, there is a $200 loss.
C – If this is a translation, there is no gain or loss. If this is a remeasurement, there is no gain or loss.
D – If this is a translation, there is a $200 gain. If this is a remeasurement, there is a $200 gain.
Answer is B
In the translation of a foreign subsidiary, all assets and liabilities are adjusted at year-end to the new exchange rate. Therefore, both balances at December 18 are equal to 20,000 times $.24 or $4,800. At December 31, both are translated at 20,000 times $.25 or $5,000. The $200 gain in the reported value of the inventory is offset by the $200 loss in the reported amount of the payable. In contrast, in the remeasurement of an individual transaction, only monetary assets and liabilities (cash, payables, receivables, and accounts reported at fair value) are adjusted to new exchange rates. Again, both balances at December 18 are equal to 20,000 times $.24 or $4,800. However, at December 31, only the payable is adjusted to 20,000 times $.25 or $5,000. The increase in the liability creates a $200 loss. The inventory remains at $4,800 for reporting purposes.
Auditing and Attestation
A company is talking with a local CPA about doing either a compilation or a review of its financial statements for the current period. Which of the following statements is true?
A – In a compilation, the CPA provides limited (sometimes referred to as negative) assurance.
B – For the most part, a compilation is limited to making inquiries and carrying out analytical procedures.
C – A review is a presentation of client information in the form of financial statements.
D – A review might well include a comparison of the results for the current period to anticipated numbers in a budget or forecast.
Answer is D
A review consists primarily of inquiry of company officials and the performance of analytical procedures. In this way, the CPA is able to provide limited assurance that nothing was noted that indicated the presence of any material modifications that needed to be made to be in conformity with generally accepted accounting principles. Comparing current figures to anticipated figures helps to highlight balances that do not appear to be correct or normal. In contrast a compilation is primarily the presentation of the client numbers in the form of financial statements with no assurance at all being given.
BEC
On January 1, Year One, a company spends $60,000 on an investment that will return $20,000 on each December 31 of Years One, Two, and Three as well as an additional $30,000 on December 31, Year Three. The company has a desired rate of return of 10 percent per year. The present value of $1 paid in three periods at a 10 percent rate of return is .751. The present value of an annuity due of $1 paid over three periods at a 10 percent rate of return is 2.736. The present value of an ordinary annuity of $1 paid over three periods at a 10 percent rate of return is 2.487. Which of the following statements is true?
A – The investment has a positive net present value of $ 7,590.
B – The investment has a positive net present value of $12,270.
C – The investment has a positive net present value of $16,860.
D – The investment has a positive net present value of $17,250.
Answer is B
A positive net present value indicates that the present value of the future cash flows determined based on a desired rate of return is higher than the cost of making the investment. These specific cash flows have a present value of $20,000 times 2.487 ($49,740) plus $30,000 times .751 ($22,530) for a total of $72,270. The first three payments are an ordinary annuity since they begin one period after the investment is bought. The cost of the investment is $60,000 so that the net present value is the excess $12,270. Investments with a positive net present value are viewed as good investments.
Have a great week. Do not let the roller coaster ride of the economy distract you from getting the points you need to pass the CPA Exam.
Joe Hoyle
Co-Founder
CPA Review For FREE
From: Joe
(a) – I fully realize that our economic times are quite scary at the moment. I truly hope that everyone who gets these emails is doing okay financially. If you are like me, you are both mystified and a bit wary. I am confident that things are going to get better and that the economy will come back strong. However, we will all feel better when things start to look better. I just hope that you have not been facing truly difficult financial issues in the last couple of weeks.
I am old enough to have seen a number of economic ups and downs over the years. One thing that always happens in such times is that people get more interested in making their resumes look better. Makes perfectly good sense. One of the best ways to improve that resume is to add the letters C P A after your name. Whether you are in Walla Walla or Katmandu, those three letters mean something important.
So, if you know someone who is struggling with the economy at the moment, one recommendation is to take the CPA Exam and get it passed. Not a bad way to spend some time. Those three letters will put you ahead of the pack if you are looking for a new job or a promotion.
The problem, of course, is that CPA review can be extremely expensive. Today, people are not in position to shell out several thousand dollars for prep programs (especially mediocre programs). It’s a tough call: I need to pass versus I cannot afford to prepare.
But, wait a minute!!! CPA Review For FREE (www.CPAreviewforFREE.com) provides you with a full range of practice questions to allow you to prepare for the CPA Exam for FREE (“free” as in no cost). You can get those three important letters after your name and you can prepare for free. What a deal; what an opportunity.
Now is the perfect time to get started. Move to the head of the class: pass the CPA Exam.
I once had a friend who had years and years of experience in CPA Review give me some good advice: “Anyone who works 2,000 well-written questions and carefully studies the answers should be able to pass the CPA Exam.” I hate to tell you this but much of the huge amount of materials that other review courses provide is just to allow them to jack up the price and charge you so much money. I know it looks impressive but if your goal is to pass the exam all that material can be overkill. “Anyone who works 2,000 well-written questions and carefully studies the answers should be able to pass the CPA Exam.”
(b) – As always, thanks for forwarding our emails along. www.CPAreviewforFREE.com gets more and more visitors every week. Last week, for example, we had a 42 percent jump in the number of pages that were viewed over our previous high. 42 percent jump in one week!!! People are clearly discovering how well our questions and answers help them to prepare.
(1) – We all have heroes. One of mine has always been the legendary football coach Vince Lombardi, who became famous in the 60s for coaching the Green Bay Packers to a number of championships.
What I like about Lombardi is not that he won a lot of football games. Many people do that. Plus, after all, football is really just a game. What I really like was his attitude. He believed that every person was capable of winning if they simply prepared themselves in the proper way. In fact, he was probably best known as a coach who took average players and turned them into champions. What a wonderful thing to be remembered for.
Anyone can win if they have the best players. That is no trick; that is no challenge. The excitement comes from taking average people and pushing them to do their best. And, I have found, in my life, that when people really do their best, things go very well.
If you have read these emails for long (I have been doing them off and on now for over ten years), I have always held that everyone can pass the CPA Exam. That is not an idle statement. It takes work, it takes focus, it takes dedication, it takes desire, it takes sacrifice, it takes good materials, it takes hours, it takes confidence. But it can be done.
Work
Focus
Dedication
Desire
Sacrifice
Good Materials
Hours
Confidence
There is no reason, if you have those eight magic ingredients, that you cannot mix up a brew that will turn you into a CPA. The trouble is that people come to the table with only 3 or 4 and then decide that they are not good enough to be CPAs. Baloney!!! As Shakespeare so aptly says in Julius Caesar: “The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings.” When you have these eight, YOU can succeed at virtually anything you attempt. You really can leap tall buildings with a single bound.
So, where does this lead us?
--Make a plan. By when do you want to have the CPA Exam passed? Stop being random. Set a firm goal. Always start at the end and work backwards.
--Ask yourself what you need to accomplish to get to that goal. Be reasonable: working 28 hours per day is not going to work. If you read these emails, you know that I recommend 250-400 hours to pass all four parts of the exam. When are you going to spend those hours? What are you going to do in those hours?
--Once you have a plan in place, have an honest conversation with yourself and ask a couple of serious questions and give truthful answers.
Can I do this as currently set up? If not, go back and rearrange the schedule. There is no reason to get started doing something that you simply cannot do. That is a loser from the start. Create a plan that is doable and will turn you into a winner.
What will be my biggest obstacles? What can I do at the start to lessen the problems that those obstacles pose? You know yourself. What is really going to hold you back and how do you get around that? Don’t be naïve; understand your weaknesses and address them before they cause a problem.
Why do I want to do this? It is very important to have a clear understanding of why you are seeking to become a CPA. When times get tough and you get tired and sick of it, it is easy to quit if you don’t have a well defined purpose for the study.
Can I have the right attitude? If you go into your preparation thinking it is going to be the worst few months of your life, this journey can be miserable. It is hard to be successful when you are miserable. If you go into this thinking it will be an interesting mental challenge, everything gets easier. Trust me on that. How do you go about setting up a positive mental attitude?
How can I reward myself along the way? Most people are not used to performing long tasks without a break. You can just wear down and become completely inefficient. I am a big believer that taking breaks is good for you. You need to study well. Don’t study more than 3-4 days straight without a day off. Don’t study more than 90 minutes straight without a 15 minute break. During those breaks, think what you can do that will make you feel better. You want to use the breaks to refresh yourself. They don’t give you points for wearing out.
How can I make sure I believe in myself? We are all very aware of our failings. Every person has some concern that they are not good enough. How do you go about making sure that you have the confidence you need to succeed at such a challenging task? One answer is to do the work and realize how much stronger you are becoming as you move through the process. Step back and make an honest appraisal of all that you have accomplished. It is not where you start that counts but the progress that you make toward your goal that truly does matter.
I am not a huge baseball fan but I have been intrigued by the Tampa Bay team. They are playing Boston at the moment and I have no idea who will win. However, Tampa Bay did something that I always find interesting. In one year, they have gone from the worst record to the best record in their division. That is truly amazing.
How do you do something like that? You work hard, you believe in yourself, you spend time practicing to get better.
Face it; there are no real secrets to becoming successful. We all know what it takes.
(2)-Just a reminder. If you want or need to unsubscribe, just scroll to the bottom of this email lesson and you will find a link that pulls your name off our list. We are glad to have you with us but you are more than entitled to unsubscribe whenever you wish.
(3)-Let’s do some practice work. Here are a few new questions that I want to add to our database at www.CPAreviewforFREE.com. You will get a chance to practice on them before they hit our website.
Regulation
Mary, a single individual, has provided more than half of the support for the following three people. Her mother who lives in a nursing home and who earned $10,000 in social security and $2,000 in interest income. Her son who is 19 and a full-time student who received $20,000 in scholarship income. Her friend who is in the process of getting a divorce. She has no income and is not filing a joint return with her estranged husband. How many dependents can Mary include on her personal tax return?
A – Zero
B – One
C – Two
D – Three
Answer is D
The mother is a dependent because she earned such a low amount of income that was subject to taxation. The son is a dependent because he is under 24 and a full-time student so that the amount of income is not a factor. The friend is a dependent because she does not file a joint return. There are five basic rules for being a dependent and these individuals meet the specific rule that appears to be in question for them.
Financial Accounting
Ace Company buys inventory on December 18, Year One for 20,000 vilsecks, a foreign currency. On that day, one vilseck is worth $.24. At the end of Year One, the inventory is still held and the debt is not yet paid. On that date, one vilseck is worth $.25. Ace might be a foreign subsidiary that is being consolidated with a US parent company so that translation is appropriate. Ace might be a US company making a purchase from a foreign supplier so that a remeasurement is appropriate. What gain or loss is reported in each case at the end of Year One?
A – If this is a translation, there is a $200 gain. If this is a remeasurement, there is a $200 loss.
B – If this is a translation, there is no gain or loss. If this is a remeasurement, there is a $200 loss.
C – If this is a translation, there is no gain or loss. If this is a remeasurement, there is no gain or loss.
D – If this is a translation, there is a $200 gain. If this is a remeasurement, there is a $200 gain.
Answer is B
In the translation of a foreign subsidiary, all assets and liabilities are adjusted at year-end to the new exchange rate. Therefore, both balances at December 18 are equal to 20,000 times $.24 or $4,800. At December 31, both are translated at 20,000 times $.25 or $5,000. The $200 gain in the reported value of the inventory is offset by the $200 loss in the reported amount of the payable. In contrast, in the remeasurement of an individual transaction, only monetary assets and liabilities (cash, payables, receivables, and accounts reported at fair value) are adjusted to new exchange rates. Again, both balances at December 18 are equal to 20,000 times $.24 or $4,800. However, at December 31, only the payable is adjusted to 20,000 times $.25 or $5,000. The increase in the liability creates a $200 loss. The inventory remains at $4,800 for reporting purposes.
Auditing and Attestation
A company is talking with a local CPA about doing either a compilation or a review of its financial statements for the current period. Which of the following statements is true?
A – In a compilation, the CPA provides limited (sometimes referred to as negative) assurance.
B – For the most part, a compilation is limited to making inquiries and carrying out analytical procedures.
C – A review is a presentation of client information in the form of financial statements.
D – A review might well include a comparison of the results for the current period to anticipated numbers in a budget or forecast.
Answer is D
A review consists primarily of inquiry of company officials and the performance of analytical procedures. In this way, the CPA is able to provide limited assurance that nothing was noted that indicated the presence of any material modifications that needed to be made to be in conformity with generally accepted accounting principles. Comparing current figures to anticipated figures helps to highlight balances that do not appear to be correct or normal. In contrast a compilation is primarily the presentation of the client numbers in the form of financial statements with no assurance at all being given.
BEC
On January 1, Year One, a company spends $60,000 on an investment that will return $20,000 on each December 31 of Years One, Two, and Three as well as an additional $30,000 on December 31, Year Three. The company has a desired rate of return of 10 percent per year. The present value of $1 paid in three periods at a 10 percent rate of return is .751. The present value of an annuity due of $1 paid over three periods at a 10 percent rate of return is 2.736. The present value of an ordinary annuity of $1 paid over three periods at a 10 percent rate of return is 2.487. Which of the following statements is true?
A – The investment has a positive net present value of $ 7,590.
B – The investment has a positive net present value of $12,270.
C – The investment has a positive net present value of $16,860.
D – The investment has a positive net present value of $17,250.
Answer is B
A positive net present value indicates that the present value of the future cash flows determined based on a desired rate of return is higher than the cost of making the investment. These specific cash flows have a present value of $20,000 times 2.487 ($49,740) plus $30,000 times .751 ($22,530) for a total of $72,270. The first three payments are an ordinary annuity since they begin one period after the investment is bought. The cost of the investment is $60,000 so that the net present value is the excess $12,270. Investments with a positive net present value are viewed as good investments.
Have a great week. Do not let the roller coaster ride of the economy distract you from getting the points you need to pass the CPA Exam.
Joe Hoyle
Co-Founder
CPA Review For FREE
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