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How to Move Forward Quiz

noreply@blogger.com (Go Figure) — Wed, 26 Aug 2015 13:39:00 +0000

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August 20, 2015

Lesson 164

From: Joe

How to Keep Moving Forward Quiz

I have recently been reading a novel where one of the main characters is a college football coach. In the book, a friend visits the coach and sees the following quote taped to the wall: “A good coach will make his players see what they can be rather than what they are.” I liked the quote so well that I looked it up in Google and found that those words were originally said by Ara Parasheghian who was a very successful football coach at Notre Dame from 1964 through 1974.

Like the coach in the book, I really like the quote. It always strikes me that there is little reason to worry about who you are right now. The more important questions are: who do you want to become and how can you keep moving forward to achieve that goal? How great can you become?

Moving forward really does not require talent or intelligence. They are both helpful but they are certainly not required. It seems to me that moving forward requires desire (you have to want to move forward or nothing will ever get done), belief in yourself (it is virtually impossible to achieve any goal if you do not think you can make it), and work (hard work alone will not create a winner but no one is ever truly going to be successful without hard work.

Desire

Belief in Yourself

Hard Work

Only three things but it is amazing how far those three attributes can carry you. With those three, you can move mountains. Write them on your wall.

Okay, my guess is that most of the people reading these email lessons are working to pass the comprehensive CPA Exam. So, let’s stop for a moment and assess your progress. How would you rate yourself on each of my three criteria? Learn more and take the quiz...

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Don't Just Take Our Word For It

We always love to get emails from our candidates. Here’s one that we received recently (slightly edited).

“Thank you. I have been working the questions. They are doing the job, because the questions are really annoying me (i.e. forcing me to think) !! This is exactly what I want in preparing for the exam. I also use XXXXX, but find the CPAreviewforFree questions more challenging. I want tougher questions while studying.”

Love to get the positive words from someone who clearly understands what is needed to pass the CPA Exam.

This email reminded me of a recent conversation that I had (at lunch one day at Taco Bell) with a friend of mine who also teaches accounting in college. He was quite mystified and was asking for clarification. Although I didn’t take notes, here are the basics of that conversation.

My friend: “Last week, I went onto the website of several of the major CPA review programs because I wanted to get some questions to use in my class during the fall. All of the questions that I found were terrible. Many of them were over 25 years old. They looked like questions from the Civil War. And a lot of the questions were just poorly written and flawed. I could not have used any of those questions in my class. I really had expected better. What’s going on with these review programs and these poor questions?”

Me: “Well, the CPA Exam became non-disclosed in 1994, about the time that many of the current candidates were born. The review courses don’t want to spend the time and money to write new questions so they continue to use a lot of questions that were on the exam before 1994. That way they can say that they use questions that were on the CPA Exam even though it was 25 years ago. You’ll occasionally see questions in their materials that were literally on the CPA Exam in the 1970s.”

My friend: “Don’t you write your own questions for CPAreviewforFREE?”

Me: “Sure, we have over 2,500 free questions and we have written them all within the last couple of years. I probably wrote 2/3 of them myself. They are fresh. They are up to date. They have good answer explanations. But, remember, I have taught in college for 44 years now so I have an awful lot of experience at writing test questions.”

My friend: “Why don’t the other review courses write more of their own questions?”

Me: “Well, you will have to ask them. My bet is that few of their people really have long term experience as classroom teachers who are forced to write test questions over and over for real tests and explain answers to real students. Teaching in college requires you to be able to write hundreds of test questions each year but working in CPA Review does not.”

My friend: “But doesn’t the AICPA release test questions each year from the current CPA exam?”

Me: “Certainly, but there has always been a question about the ones that they are willing to release. If you were the examiners, would you release questions that were working well? My guess is that they tend to release questions that are flawed in some way. You and I have taught for a long time. We could actually read some of the questions they release and spot the problem with the questions. Some words are confusing or the question will just be too convoluted. Sometimes the questions are simply too easy and, therefore, don’t show who should pass. The examiners track the questions on the exam carefully. They know the ones that have problems. Why realize great questions that are working well?”

My friend: “What is the best thing about writing your own questions?”

Me: “Oh, there are several advantages. You get a more complete coverage. You can look at a topic like accounts receivable and think about the different ways that a question can be asked and then you can write individual questions for each of those parts of the topic. I really like having an example of every possible question. That takes some professional thinking. I also like to write better explanations. Read some of the explanations of the other programs and they are terrible. I have often said that the single most important aspect of CPA Review is the answer to the practice questions. Reading those answers is how people learn to answer the next question correctly. And, you can make the questions hard enough that the candidate gets stronger and stronger. Weak questions produce weak candidates. Strong questions produce strong candidates.

My friend: “And, your 2,600 questions are available for free?”

Me: “Absolutely free.”

My friend: “And, some candidates still don’t use them? I don’t understand that.”

Me: “I guess that is the reason that half the people fail each part of the exam.”

Practice Some Free Questions

Time for a little practice. Have fun. Read the questions, come up with your best answer, and then read my answer (carefully) at the end.

FAR

In Year One, a company is found guilty by the government of violating certain environmental regulations and fined $1.4 million. The company has filed an appeal that will be judged in early in Year Three. At the end of Year One, the company believes that it is probable that the company will eventually lose between $100,000 and $500,000. No number within that range is a better estimate than any other. It is also reasonably possible that it will lose as much as $800,000. Near the end of Year Two, the company and the government agree on a $1 million penalty. What loss does the company recognize in Year Two at the time of settlement?

A. $200,000

B. $500,000

C. $700,000

D. $900,000

Auditing

The CPA firm of Roberts & Lynes is currently audited the financial statements of the Amsterdam Corporation. Below are four actions taken by the auditors. Which of these actions is most likely to have provided evidence about the valuation and allocation financial statement assertion in connection with the Amsterdam Corporation’s Inventory balance?

A. Select inventory items found in the company’s warehouse and trace them to the final inventory listing.

B. Select items on the final inventory listing and make sure the item is physically present in the company’s warehouse at the end of the year.

C. Examine invoices received from the company’s suppliers.

D. Examine cancelled checks paid subsequent to the end of the year for inventory purchases

Regulation

Paul and Art are equal partners in their partnership. For the current year, the partnership has revenues of $90,000 and ordinary expenses of $50,000. In addition, for the work that he does during the year, Paul receives a guaranteed payment of $24,000 each year. No other cash distributions were paid to the owners. What is the overall impact on Paul’s individual income tax return for this year?

A. Increase taxable income by $8,000

B. Increase taxable income by $20,000

C. Increase taxable income by $24,000

D. Increase taxable income by $32,000

BEC

A manufacturing company has a current ratio of 3:1. What can be said about the acid-test ratio (sometimes referred to as the quick ratio)?

A. The acid-test ratio will be lower.

B. The acid-test ratio will be higher.

C. The acid-test ratio will be the same.

D. The acid-test ratio could be either higher or lower.

Answers

FAR

The answer is D.

When a contingent loss is probable within a range, the best estimate is recognized. If no amount within the range is better than any other, then the lowest amount should be recorded. Thus, in Year One, the company reports a loss and liability of $100,000. In Year Two, when the penalty is settled at $1 million, the other $900,000 loss must be recognized.

Auditing

The answer is C.

Here, the inventory account is being tested to see if the figure reported as an asset is properly valued on the balance sheet. For example, if a table is reported as $55, is that number valued according US GAAP? Valuation for inventory is normally the lower of cost or market. The invoices will show the cost of inventory items and, therefore, can be used in determining the proper valuation. Comparing inventory items that are present to the final listing does not relate to valuation but, rather, to completeness (no units have been left out) and existence (no units have been incorrectly added). Cancelled checks do not provide individual cost figures but rather show the impact on accounts payable and cash of the payment being made.

Regulation

The answer is D.

First, the guaranteed payment to the partner of $24,000 was paid for work done and is taxable income to Paul. The partnership has income of $40,000 ($90,000 less $50,000) but that figure is reduced by the $24,000 which is taxable directly to Paul and leaves the ordinary income at $16,000. As an equal partner, Paul is taxed on half of that amount or $8,000. His taxable income is increased by $32,000 ($24,000 plus $8,000).

BEC

Answer is A

The current ratio is found by taking a company’s current assets and dividing the amount by its current liabilities. It is a measure of liquidity. The acid-test ratio is a more immediate measure of the ability to pay debts and is found by removing inventory (and, sometimes prepaid expenses and supplies) from the current ratio equation. A manufacturing company would have inventory. Remaining that balance from the asset side will reduce the size of the resulting acid-test ratio

Joe Hoyle

President, CPAreviewforFREE

Be a Verb; New Practice Questions

noreply@blogger.com (Go Figure) — Tue, 23 Jun 2015 20:34:00 +0000

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June 23, 2015

Lesson 163

From: Joe

Article: Be a Verb and Change

I have a few sayings in my life that I really like. They inspire me to do the things I want to do (or should do). I was reading a book yesterday by one of my favorite authors (David Mitchell) and came upon a likeness of one of these wonderful quotes: “The soul is a verb. . . . Not a noun.”

My version of that sentiment: I want to be a verb and not a noun.

A verb is an action word (either physical action or mental action) that tells what is happening. “Runs” is a verb. “Thinks” is a verb. “Studies” is a verb.

A noun is a person, place, or thing. “Dog” is a noun. “Teacher” is a noun. “Apple” is a noun.

I have always wanted to think of myself as a verb. I like the idea that I am heading some place. I like the idea that I am getting better. I like the idea that every day, every hour, every minute can be a step forward. I try to live my life with that improvement in mind.

I am not really interested in being defined as a noun. There’s nothing wrong with nouns. I just feel like they put me in a box and restrict what I can become. I do not want to be limited and the best way I can avoid that is to think of myself as a verb. I am always moving beyond my present state to become better.

It amazes me that, when I talk with students or with candidates taking the CPA Exam, they will often start to define themselves and they frequently do so in very negative ways. They put themselves into a box.

--I am a weak student.

--I am not a very organized person.

--I am slow worker.

--I am a poor test-taker.

To me, it just seems like they are climbing into a big personal box that restricts their advancement. That noun is a limitation on what they can become. That box holds them back from the success they want.

How does a person become a verb? How do you push yourself to get better?

William Faulkner once famously wrote: “Try to be better than yourself.” To me, that is the essence of being a verb. You are not locked in a box. You are moving toward your goals.

Okay, how can you get better? Well, you can pay a consultant $500 per hour to tell you this or I can just tell you for free. Let’s go with free. I like free. Here are 5 Steps:

Step One – Have goals—both short term and long term. What do you want to accomplish in the next 24 hours (be specific)? What do you want to accomplish over the next two weeks (be specific)? What do you want to accomplish over the next one to five years (be specific)?

In fact, I have my 24 hour list sitting right here beside of me on this desk as I type.

I often tell my students that if they don’t have goals any action is okay. You cannot get lost if you are not going anywhere.

Step Two – Make good use of your time. We all have 168 hours each week. If you eat and sleep for 70 hours per week, that still leaves you with 98 hours to accomplish stuff. How well you use those 98 hours is probably the key difference between success and mediocrity. Too many people just let those hours wash away without benefit. Don’t do that. Be aware of what you are accomplishing. As you move through your day, think about what you are doing at the current moment and whether it is moving you toward your goal. Awareness is a great attribute to possess. Steps 3-5...

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Check it Out

We often have people write in to us to ask: “I want to use your products so I can pass the CPA Exam without paying much money. How can I do this?” We received an email this past week from a person who passed all four parts of the CPA Exam and paid virtually nothing. She told us exactly how she did it. This is a roadmap that can clearly work. If you are infinitely rich and want to spend several thousand dollars to pass the CPA Exam, then go for it. But, if you value your money and don’t see a good reason to throw it away, here’s a strategy that you should consider.

Since don't advertise, we depend on people like YOU to spread the word. If you know someone who is getting ready to start preparing for the CPA Exam, send them this message. Thanks!!!

The following message comes from Tamara M:

I’m finally done! I passed all four parts of the CPA exam on the first try, using only CPA Review For Free questions and materials. The materials are designed to help you make a 75 and that’s all I needed to pass! It took many hours of studying on top of working at least 50 hours a week, so I know it can be done!

My study plan:

1. I set up a spreadsheet to track my scores. I listed out the exam area and every testing section within that area. Then I weighted my scores by the number of questions in that section compared to the total number of questions in the entire exam area.

2. I went through every single free question and documented my scores so I would know which areas needed more study. Most of the time, all of the areas needed more study!

3. I read the answer explanations on every single question and took bullet point notes to help me remember the main ideas.

4. I used the downloadable materials that can be purchased from the website to study any areas that I did not understand after taking the tests and reading the explanations. I just read the areas I didn’t understand, not the entire book. I didn’t want to get bogged down in reading and lose precious time. I spent less than 5 hours of study time in each section reading the materials. Almost all of my time was spent taking the free tests, making notes, and reviewing.

5. I kept taking the tests, reading the answer explanations, and reviewing my notes until I made at least an 85 on each testing section.

6. I made flash cards for topics I had a hard time remembering and kept those cards with me so I could study anytime I had two free minutes. I studied standing in line at the grocery store, waiting for clients, at the doctor’s office, waiting for meetings to start and while cooking dinner.

7. I tried to make my study time as pleasant as possible. I wanted to be able to spend time with my family and still have a little bit of a life during this process, so I made every effort to spend time weekly doing something I love while studying. I studied at the beach. I studied at the pool. I studied on my back patio around the fire pit with my family and dogs. I studied in the living room with ear plugs and white noise so that I could still be with my family, but couldn’t hear the TV or noise. One of the things I loved about CPAReviewforFree.com was I could take the tests on my iPad so it made studying anywhere possible. I had to stay motivated and I knew being isolated and away from my family would make me lose momentum, so I made it work for me and had a little bit of fun during the process.

8. I put in LOTS of hours of studying. I studied over 200 hours for FAR, 175 for BEC, 130 for REG and 120 for AUD.

Here are my scores:

AUD: 81 – 05/03/14

BEC: 77 – 02/04/15

FAR: 78 – 05/05/15

REG: 84 – 06/09/15

It was all worth it, because I have finished all of the tests, only had to take each test once, and will be a CPA this month!

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Practice, Practice, Practice

Okay, it is hard to beat TM’s message above. She knew what she wanted to do and she went out and did it. Congratulations to her and all of the other candidates who have nailed down this exam.

But now it is your time so let’s practice a little bit. Read the questions below, come up with your answer and then read our answer very carefully.

FAR

On January 1, Year One, the Hector Company issues bonds with a face value of $100,000 and a stated annual cash interest rate of 5 percent for $95,000 to yield a negotiated effective annual interest rate of 6 percent. Interest is paid everyDecember 31 and the effective rate method is being applied. This issuance was on a date when the annual market rate of interest was 7 percent for the other companies in the same industry as Hector. Which of the following is true?

A. The $95,000 is the present value of the future cash flows discounted at the 7 percent market rate.

B. Interest paid on December 31, Year One, is $4,750.

C. Interest expense for Year One will be reported as $4,750.

D. On a December 31, Year One, balance sheet, the payable will be reported as $95,700.

REG

Mr. and Mrs. Fallon made several contributions to qualified charities this past year. Land (which had been held for four years) with a tax basis of $5,000 and a fair value of $8,000 was donated to a church. Cash of $6,000 was given to a university. Household items (primarily furniture) with a cost of $2,900 and fair value of $1,050 were given to a hospital. The taxpayer's adjusted gross income is $70,000. What total can this couple include within its income tax itemized deductions as charitable contribution for the year?

A. $12,050

B. $13,900

C. $15,050

D. $16,900

BEC

Irena Anderson’s income goes up during a period of time by 17 percent. Over the same period, the quantity of product G that she buys increases by only 10 percent. Which of the following statements is true?

A. Product G is neither a necessity nor a luxury good for her.

B. Product G is a necessity for her.

C. Product G is a luxury good for her.

D. Product G is both a necessity and a luxury good for her

AUDITING

The Hernandez Corporation is audited by Miley and Cyrus CPAs. The audit team is attempting to assess the control risk associated with the company’s inventory system before starting any substantive testing of the inventory accounts. During the current year, 350,000 receiving reports were created and recorded in the company’s perpetual inventory system. Based on prior audits and an evaluation of the complexity of the tasks involved, the audit team expects an overall error rate of 1.5 percent. The audit team has decided to view control risk at an acceptably low level if it is believed that the population of receiving reports contains 4.5 percent errors or less. A sample of 400 of these documents is selected randomly and 4 errors are found. Statistical techniques are applied to this sample of 400 items and an upper deviation rate of 3.0 percent is calculated. What is the allowance for sampling risk?

A. 1.5 percent

B. 2.0 percent

C. 3.0 percent

D. 3.5 percent

Answers

FAR

Answer is D

The price paid for the bond will be computed as the present value of the future cash flows discounted at the 6 percent rate negotiated by the buyer and seller. After that, the interest paid for each year will be the $100,000 face value times the cash rate of 5 percent or $5,000. The interest expense will be the $95,000 book value times the effective rate of 6 percent or $5,700. The additional $700 ($5,700 less $5,000) is compounded (not paid so it is added to the balance) and brings the book value up from $95,000 to $95,700.

REG

Answer is C

The Fallons can deduct all of the $6,000 cash donated but only the $1,050 fair value for the household items. Long-term capital gain property (such as the land) is deductible at fair value if this amount does not exceed 30 percent of the couple’s adjusted gross income (30 percent of $70,000 or $21,000). Thus, the entire $8,000 fair value of the land can be included as an itemized deduction. That brings the total deductible amount to $15,050 ($6,000 plus $1,050 plus $8,000).

BEC

Answer B is correct

With a luxury good, the person buys little when income is low but buys more and more as income goes up. With a necessity, the person buys a lot even when income is low but buys less and less as income goes up. Here, she has bought less and less as her income rose. Product G is a necessity.

AUDITING

The answer is B

This question is checking to see if you understand the vocabulary used in statistical sampling. The sample drawn by the auditor found that errors occurred at a rate of 1 percent (4 out of 400). Statistical sampling techniques indicated that the population could actually contain errors at a rate as high as 3.0 percent (the upper deviation rate). The difference between the deviation rate of the sample (1 percent) and the possible upper deviation rate for the population (3.0 percent) is known as the allowance for sampling risk. Here, the allowance is 2.0 percent (3.0 percent minus 1 percent). Statistically, the actual population characteristics are not expected to be more than 2.0 percent above that of the sample. Although not addressed by this question, the audit team should accept this population as having a reasonably low error rate because the upper deviation rate of the population (3.0 percent) is lower than the audit team’s tolerable deviation rate of 4.5 percent. According to this one test, control risk appears to be acceptably low for these documents.

To see more FREE questions, click here.

Go for it! You can do it!

Joe Hoyle

President, CPAreviewforFREE

I Shall Astonish You All

noreply@blogger.com (Go Figure) — Fri, 29 May 2015 14:51:00 +0000

May 27, 2015

Lesson 162

From: Joe

I Shall Astonish You All

My wife and I went to the movies on Saturday night to see Far From the Madding Crowd. The movie was set about 150 years ago. A young woman is poor but inherits a large but failing farm. It is obvious that no one expects her to save the place—failure seems inevitable. As one of her first actions, she calls all the workers together and tells them the following.

“Don't anyone suppose that because I'm a woman, I don't understand the difference between bad goings-on and good. I shall be up before you're awake, I shall be afield before you're up, and I shall have breakfasted before you're afield. In short, I shall astonish you all.”

I just loved that quote. As soon as I got home that evening, I looked it up on Google just to get the words correct. Why did I love her words so much? Gosh, there are many reasons.Reasons...

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Create a Challenging Competition

I get up each morning and stretch. At my age, I need to stretch once or twice every day just to keep my body from becoming brittle. In the morning, I stretch at about 5:50. On the local PBS radio station at that time, they have a short show by Garrison Keillor called “The Writer’s Almanac” where he discusses writers and reads a poem, all in just five minutes per day. This morning he informed his listeners (and me) that it was the birthday of Ralph Waldo Emerson who said “nothing great was ever achieved without enthusiasm.” Ah, another fabulous quote and I had written it down before 6 in the morning.

When I talk with people about passing the CPA Exam, I am always surprised by how unenthusiastic they often seem. “I don’t want to study.” “I don’t want to learn.” “I don’t want to take those tests.” I always think to myself—oh my gosh, this must be so difficult for you to do. No one with that attitude can possibly want to do the necessary work. Every day of study must seem like sheer drudgery.

But we all love to see competition—for many, it is one of the most interesting things in their lives. Two tennis players battle for hours and we watch spellbound. Two basketball teams play into overtime to determine the championship and we can hardly look away. Baseball players go at each other for 9 innings trying to show who is most deserving. Who wouldn’t love that level of great competition? More...

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Practice Makes Perfect (Or Good Enough to Pass the CPA Exam)

Okay, let’s practice a bit. Read the following four questions and see how well you do. After you have selected your answers, scroll down and read my answers. If you get a question correct, that’s great/wonderful/super but it does not do you much good. But, if you miss a question and then study how to arrive at the correct answer, you have a chance to hit an important goal: Moving your score that much closer to the passing score that you want on the CPA Exam.

FAR

The Farena Corporation has 100,000 shares of $5 par value common stock outstanding. In the past few years, these shareholders have been paid a $.30 per share dividend each year. The company also has 20,000 shares of $40 par value preferred stock outstanding. These shares are entitled to a $1 per share cumulative cash dividend each year. That dividend has been paid every year since the stock was issued. In the current year, because of operating problems, the company’s board of directors did not declare or pay a dividend on either the common stock or the preferred stock. Which of the following statements is true?

A. The company should report a liability of $20,000.

B. The company should report a liability of $30,000.

C. The company should report a liability of $50,000.

D. The company should not report any liability.

REG

Regina Everton is filling out her current federal income tax return. Which of the following is deductible as an itemized deduction as a gift to charity?

A. Value of her time in helping do the primary work of a qualified charity.

B. The monetary value of blood given to a qualified blood bank.

C. Cash gifts to civic leagues, labor unions, and chambers of commerce.

D. A gift to the federal government if the gift is solely for public purposes.

BEC

A company is considering the possibility of buying equipment. It will cost $500,000 and be depreciated over 5 years with no residual value for both tax and financial reporting purposes. The equipment is expected to generate cash operating revenue of $280,000 each year and cash operating expenses (without income taxes) of $130,000 each year. The effective tax rate is 40 percent. For convenience, assume straight-line depreciation. In deciding whether to make this investment, what is the best estimate of the payback period?

A. 3.33 Years

B. 3.85 Years

C. 4.20 Years

D. 5.00 Years

AUDITING

An independent auditor is working with a client company and is currently seeking answers to an internal control questionnaire. The next question is: Are paid notes canceled, stamped “Paid,” and the filed away? What is the most likely concern that prompts the auditor to ask this question?

A. The auditor wants to ensure that debts are paid as they come due.

B. The auditor wants to ensure that paid debts are removed from the accounting records.

C. The auditor wants to ensure that the same debt is not paid multiple times.

D. The auditor wants to ensure that interest is properly calculated on the note and then paid.

Answers

FAR

Answer is D.

Until a dividend is declared by the board of directors, it is not reported as a liability. If a dividend had been declared on either the common or the preferred stock but not paid, then a liability would have been reported. If a preferred stock dividend is cumulative and missed, then the company must pay that amount first in the future before any dividends can be paid on the common stock. That information must be disclosed. However, no liability is reported until the board actually declares the dividend.

REG

Answer is D

As might be imagined, these four examples are taken almost verbatim from the IRS book of instructions. To be deductible as a gift to charity, there must be the sacrifice of an asset that is conveyed to a qualified charity. Time and blood are not considered assets in the traditional sense because they do not have a direct cost to the taxpayer (like a car would have or shares of stock would have). A civic league, labor unions, and chambers of commerce are not viewed by the government as qualified charities. A gift to the federal government is an itemized deduction as long as it is for a public purpose. For example, a cash gift to reduce the federal budget deficit qualifies as does a gift to a national park.

BEC

The answer is B.

For an investment, the payback period is the length of time it takes the buyer to collect net cash inflows equal to the cost. A quick payback period is viewed as a better investment. If cash is generated evenly over time, the payback period is the cost of the asset divided by the annual cash inflow. Here, the company makes a cash profit of $150,000 each year ($280,000 less $130,000). Annual depreciation is $100,000 ($500,000/5 years) so taxable income is $50,000 (cash income of $150,000 less depreciation of $100,000). The annual tax payment is $20,000 ($50,000 times 40 percent). The actual cash collection is $130,000 after subtracting the $20,000 paid in taxes from the $150,000 net operating cash inflow. The payback period is the $500,000 cost divided by the net annual cash inflow of $130,000 or 3.85 years.

AUDITING

Answer is C

The key words in the question being asked by the auditor have to do with canceling the debt, marking it paid, and then filing it away. Those actions by themselves do not ensure that the debt is paid when it comes due (it might have been paid very late and had the same actions taken). Those actions by themselves do not ensure that the debt is removed from the accounting records (those actions can be taken and the debt still not be removed from the accounting records). Those actions by themselves have nothing to do with the computation and payment of interest. However, by canceling the debt and marking it paid and then safeguarding it in the files, a dishonest employee cannot try to use the document to get the amount paid a second time. In questions like this, always connect the key words to what the auditor is hoping to prevent.

To see more FREE questions, click here.

Go for it! You can do it!

Joe Hoyle

President, CPAreviewforFREE

Success is Not How Much More Money You Spend; Free Practice Questions

noreply@blogger.com (Go Figure) — Wed, 13 May 2015 14:29:00 +0000

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OVER 2,500 FREE CPA Review Questions and Answers Available to YOU (for FREE)

March 3, 2015

Lesson 160

From: Joe

Success is Not on How Much Money You Spend

It is snowing here in Richmond, Virginia, today. We have at least 6 inches of snow on the ground. It is cold and still snowing. So, I have a day that I can use. I am stuck here at the house. How should I spend my time? I have decided to talk with you about how to achieve success on the CPA Exam. For me, that’s an extremely good use of time.

After being in the CPA Review business now for 35 years, what is my advice to you? Not the person beside of you, or the person in front of you, or the person behind you. No, what is my advice to you?

This morning my wife and I were having breakfast at our kitchen table. The newspaper did not arrive so she was reading from her iPad. “Here is something” she informed me “that sounds like advice that you might pass along to CPA Exam candidates.”

It was a few words from John C. Maxwell. And, she was right. This is what I want to say to you today.

“You’ll never change your life until you change something you do daily. The secret of your success or happiness is found in your daily routine.”

At the university, I am always amazed by how many students want to make better grades without making any changes in their study habits.

--Study a little, make a bad grade.

Then, they come to me, often in tears, and confess “I guess I am just not cut out for this accounting stuff.” That’s pure nonsense. No one ever makes improvement without making change. And that improvement will be much more effective if it becomes part of your daily regimen.

I have always argued that I could help anyone learn to pass the CPA Exam but that is true only if the person is willing to change.

Let’s say that you are planning to take a part of the CPA Exam at the beginning of April—in about five weeks. However, you’ve already failed that part previously. And, you don’t see how you can improve. You are stalled. You are sure you are going to fail yet again. Unfortunately, for most candidates, their next response seems to be: SPEND MORE MONEY. They assume that they need another expensive study program that will show them exactly the same information that the last expensive program provided. That’s not a change. It is just throwing money away.

Success is not based on how much money you spend. Success is based on how efficiently you spend your moments on this planet. If things are not going as you would prefer, YOU MUST MAKE A CHANGE. Daily life should be built in such a way as to bring you the success that you truly want. If you are not willing to change, you probably don’t really want the success.

So, what is my advice? First,

Need more help passing the exam at a very competitive price? Look no further. Please check out our CPA review course partner, Fast Forward Academy. Their materials include videos, textbooks, apps, study schedule, intelligent learning to help identify your weak spots.

Super – now let’s do a little practice

Answering questions and reading answers is always the perfect way to add points. The answers are below all questions.

FAR

The Allen Company reports the disposal of a discontinued operation in its financial statements. Which of the following is least likely to qualify for that type of financial reporting?

A. The sale of a subsidiary.

B. The sale of all businesses within a major geographical area

C. The sale of a major line of business

D. The sale of a major equity method investment.

REGULATION

Susan James has graduated from college and is now paying off her student loans. This past year, she paid interest on those loans and plans to take this interest as a deduction to arrive at her adjusted gross income for federal income tax purposes. Which of the following is true?

A. The interest can relate to the cost of tuition but not room and board.

B. The interest can relate to the cost of room and board but not books and supplies

C. The interest can relate to the cost of tuition but not books and supplies.

D. The interest can relate to both the cost of tuition and books and supplies.

AUDITING

According to the standards of the Public Company Accounting Oversight Board, which of the following is not a reason for the independent auditor to establish an understanding with the audit committee of the client company in connection with the appointment or retention of the independent auditor?

A. To communicate the objective of the audit

B. To communicate the cost of the audit

C. To communicate the responsibilities of the auditor

D. To communicate the responsibilities of the management of the reporting entity.

BEC

The Logan Corporation produced 1,000 widgets during the past year at a total cost of $165,000. After the job had been completed, an inspection indicated that 100 of these units were seriously defective and would have to be destroyed with no residual value. Which of the following is true?

A. If the spoilage of these 100 units was considered abnormal, the cost of the company’s inventory should be recorded at an amount greater than $165 per unit.

B. If the spoilage of these 100 units was considered abnormal, the cost of the company’s inventory should be recorded at an amount less than $165 per unit.

C. If the spoilage of these 100 units was considered normal, the cost of the company’s inventory should be recorded at an amount greater than $165 per unit.

D. If the spoilage of these 100 units was considered normal, the cost of the company’s inventory should be recorded at exactly $165 per unit.

Answers

FAR

Answer is A

This area of US GAAP has been adjusted recently. The applicable Accounting Standards Update states: Only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results will be reported as discontinued operations in the financial statements. The disposal of a major geographical area, the sale of a major line of business, and the sale of a major equity method investment are all listed as examples. A subsidiary is not included because, without more information, it is not possible to tell whether the sale of a single subsidiary is a significant shift in an entity’s operations and financial results. The company might have multiple subsidiaries that perform similar functions so that a current disposal is made purely for economic and efficiency reasons.

REGULATION

Answer is D

According to Publication 970 of the Internal Revenue Service (IRS): “For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. They include amounts paid for the following items.

--Tuition and fees.

--Room and board.

--Books, supplies, and equipment.

--Other necessary expenses (such as transportation).

AUDITING

Answer is B

According to paragraph 5 of PCAOB Auditing Standard Number 16, the “auditor should establish an understanding of the terms of the audit engagement with the audit committee. This understanding includes communicating to the audit committee the following:

--The objective of the audit;

--The responsibilities of the auditor; and

--The responsibilities of management.

BEC

Answer is C

If the spoilage is viewed by the company as abnormal, the cost of these 100 units should be separated and reported directly as a period cost to reduce current net income. The remaining 900 units should still cost $165 per unit because they have not absorbed any of the cost of the lost units. Those units are neither penalized nor rewarded because other units were lost in some unexpected way. However, if the spoilage is viewed as normal, the cost of the remaining good units must absorb this additional cost. The $165,000 total cost was spent to create 900 good units, an amount that is greater than $165 per unit.

Joe Hoyle, President

www.CPAreviewforFREE.com

Go from Almost Passing the Exam to Passing the Exam; New Practice Questions

noreply@blogger.com (Go Figure) — Wed, 13 May 2015 14:25:00 +0000

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May 12, 2015

Lesson 161

From: Joe

How to Go from Good (up to a 74 on the Exam) to Great (Passing the Exam)

A few weeks ago, I was asked to present the keynote speech at the Richmond College Senior Recognition Dinner. Senior students who had excelled during their time here on campus were honored for all they had accomplished. As always when I speak at such events, I wanted to impart a few words that the audience could carry with them and think about over the following days and weeks.

At the event, I talked about something I had seen recently. As I remembered it, ESPN—the television sports channel—had done a show on a famous and very successful college basketball coach. The announcers wanted to find out how he had managed to be so successful for so many years. If you think about it, college basketball is extremely interesting and pays its coaches well. Why are there only a relatively few who seem to be successful on an ongoing basis? Yes, there are clearly some but it is not a very high number who seem to win consistently.

The coach being interviewed was Geno Auriemma, head coach of the University of Connecticut women’s basketball team. The accomplishments of his teams are almost unbelievable. They have won 10 national championships, including the last three straight. The team has been in the Final Four for each of the last 8 years. The University of Connecticut team has had five undefeated seasons with Auriemma as coach and once won 90 games in a row.

Those records are hard to even comprehend. Coach Auriemma is, indeed, a winner. He is a successful coach by any scale. He knows how to make great things happen.

On the ESPN show, the announcer asked him to talk about how he had been so successful. He chatted about several things but one thing stood out to me. More...

Watch this video from Roger CPA review which provides instruction on Individual Income Tax Returns. Roger is entertaining while providing the information you need to pass the CPA exam.

Like what you see? Great! Get a $100 discount, now, for their course by providing the promo code: Free100. Hurry now as this offer ends June 1, 2015!

Change Your Attitude Regarding Correct and Incorrect Responses

I drove to my younger daughter’s college yesterday to bring her home for the summer vacation. I had to carry her numerous bags and boxes through the dorm and out to my car in the parking lot. I must have made that trip 15 or so times. On every trip, I passed a door where a student had written a couple of interesting formulas:

Start -----> Success (probably won’t happen)

Start--->Fail--->Fail--->Fail--->Success (this will work)

Every time I walked past that door, I thought more about the bottom formula. Every time you are studying and work a question and get it correct, you learn absolutely nothing. No points are added. Every time you work a question and get it wrong and then have the self-discipline to study the correct answer, you have a wonderful chance to add knowledge to your brain.

Too many CPA Exam candidates get upset when they miss a question during practice. That’s the wrong attitude. You need to realize that you have just located a spot where you can add knowledge and get closer to passing the CPA Exam. I know that can be a hard lesson to accept. Everyone wants to get 100 percent of the questions correct because that makes them feel confident. But, in truth, getting 100 adds nothing to your brain or to your chances of passing. If you can learn from even one missed question, then that does add more than a correct answer.

But you have to do the work. You can’t think about working questions or dream about working questions or pray about working questions. You actually have to do it. Over and over. You have to be methodical. It is often a lonely task. But it will get you where you want to go. If you want to pass the CPA Exam, get on with it. Answer questions and when you miss one, celebrate a little bit because you have found a spot where you have the chance to add some knowledge.

That is how you go from good to great.

Fast Forward Academy’s CPA review program offers you a comprehensive approach to passing the CPA exam. This course offers all types of methods to help you pass--intelligent learning to focus on the right subjects, books, online, mobile, study calendar, text message reminders, and many more.

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Practice These Questions Now!

Okay, let’s practice a bit. Here are some typical CPA Exam questions. Read the question, come up with your answer. If you are right, move on. If you are wrong, read the answer questions below all the questions carefully and learn from it.

Adding knowledge adds points.

FAR

The Jennings Company reports net income of $500,000 for the current year. The company has 30,000 shares of nonconvertible preferred stock outstanding for the entire year that pays an annual cash dividend of $3 per share. A cash dividend of $60,000 is paid on the common stock. At the beginning of the year, the company has 100,000 shares of common stock outstanding. On April 1, 20,000 shares of this stock were reacquired by the company as treasury stock. The company also has 10,000 stock options outstanding. For $10 each option can be used to obtain one new share of common stock. The average price of the stock for this year was $25 per share. No income effect was recognized this year in connection with the issuance of these stock options. The company’s effective tax rate was 30 percent. What should the company report as its diluted earnings per share?

A. $3.85

B. $4.32

C. $4.51

D. $5.49

Regulation

Robert J. Forester starts a business in New York and invites his friend Sylvia Winslow to work with him on this new endeavor. When they begin, Forester makes the following statement: “Let’s just make it simple and share all profits evenly.” That is all that is ever said about this arrangement. Which of the following is true?

A. This is a partnership unless evidence to the contrary exists.

B. This is not a partnership because Forester does not specifically mention the word “partner” or “partnership.”

C. This is not a partnership because the agreement was incomplete—it only talks about profits and does not specify the handling of losses.

D. This is not a partnership because the agreement was not in writing which is required.

Auditing

The auditing firm of House and Staunton is currently performing an independent audit of the financial statements produced by the South Central Corporation. The audit team is currently testing the accounts receivable balance for any evidence that might indicate a material misstatement. One member of the audit team is looking through the subsidiary ledger for amounts due from officers of the company. What of the following is the most likely objective of this work?

A. To determine that South Central actually owns or controls all of the reported accounts receivable reported at the balance sheet date.

B. To determine that all accounts receivable are properly presented in the financial statements.

C. To determine that the reported accounts receivable balance represents all of the amounts owed to South Central as of the balance sheet date with no accounts omitted.

D. To determine that the accounts receivable balance is properly reduced to the net realizable value on the balance sheet date.

BEC

The Middleton Company produces a variety of widgets. Each model is first designed by company engineers and then produced in the company’s manufacturing plant. Model 96 widget is created by combining two pounds of material XY with six hours of labor. Several thousand Model 96 widgets are manufactured each month. A cost of $24,000 has been assigned to the production of these widgets for the design time that was required. The inclusion of the design time in the cost of these units indicates which of the following is most likely being applied?

A. Traditional activity-based cost accounting

B. Traditional process cost accounting

C. Traditional standard cost accounting

D. Traditional job order cost accounting

ANSWERS

FAR

Answer is C.

A company’s reported earnings per share is a common stock computation. It starts by taking the reported net income of $500,000 and subtracting the $90,000 dividend paid to preferred stock. That leaves $410,000 as the income assigned to common stock. The company has 100,000 shares of common stock outstanding for the first three months of the year (100,000 times 3 or 300,000) and 80,000 shares outstanding for the final 9 months (80,000 times 9 or 720,000). The weighted average for the year is (300,000 + 720,000)/12 or 85,000 shares. Basic earnings per share is the $410,000 in net income left over for the common stockholders divided by 85,000 weighted average shares are $4.82 per share. For diluted earnings per share, the stock options must be included. According to US GAAP, those options are first assumed to be converted with the money then used to buy back treasury stock shares at its average price for the year. If the options are converted, 10,000 new shares would be issued (one for each option) and $100,000 in cash received (10,000 times $10). The company might do an infinite amount with that cash but US GAAP assumes that all companies will use the $100,000 to buy back new shares of treasury stock at the average price for the year. That $25 average price would buy back 4,000 shares (or $100,000/$25). The earnings portion of diluted earnings per share remains at $410,000. There is no related income effect. The basic number of shares of 85,000 is first increased by 10,000 shares because of the assumed conversion of the options. Then, the $100,000 in cash that would be received is assumed to be used to buy back 4,000 shares of treasury stock. For diluted EPS, the number of shares is 85,000 plus 10,000 less 4,000 or 91,000 shares of common stock. Diluted EPS is computed as $410,000/91,000 or $4.51 per share.

Regulation

The answer is: A

A partnership agreement can be very informal and does not have to be in writing or any other specified form. Simply agreeing to split profits is normally considered a sufficient indication that a partnership has been formed. Because no statement was made here as to the handling of losses, the same ratio used for profits will also apply to any subsequent losses.

Auditing

The answer is B.

A company’s officers are viewed as related parties and, thus, any receivables owed to the company by these individuals need to be disclosed as part of proper presentation. The staff auditor is looking for evidence that any such receivables exist but have not been separately disclosed on the balance sheet by the reporting company.

BEC

The answer is A

Traditional process, job order, and standard cost accounting have always focused exclusively on the manufacturing process. Raw materials are turned into a final product and the material, labor, and factory overhead are included in arriving at a cost figure. Activity-based costing extends the idea of a product’s cost to include all value-adding activities such as the design function. Designing Model 96 is a cost of this product even though it is not a manufacturing cost. In activity-based cost accounting, the cost of that value-added activity is included.

Go for it! You can do it!

Joe Hoyle

President, CPAreviewforFREE

What Do Marbles Have to Do with Passing the CPA Exam?; Question Tutorial

noreply@blogger.com (Go Figure) — Sun, 08 Mar 2015 23:36:00 +0000

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OVER 2,500 FREE CPA Review Questions and Answers Available to YOU (for FREE)

Lesson 159, February 3, 2015

From: Joe

It is hard to do the work that is necessary in order to pass the CPA Exam

What do you really need to do in order to have a great chance to pass the CPA Exam in 2015? I am a big believer that when the CPA Exam changed to a computerized exam in 2004, the way to prepare needed to change. The exam today rewards “works a lot of questions” more than it rewards “learns a lot of material” with the paper and pencil exam (and the pass rate jumped from about 34 percent to about 50 percent).

We offer over 2,500 questions covering all parts of the CPA Exam. We hear from people all the time who pass the exam by working those questions. I have long recommended that if you work every question twice and pay close attention to the answers for the ones you miss, you have a great chance to pass the CPA Exam without paying a single penny. Can you imagine?

But you cannot just talk about working the questions. You have to sit there and actually do the work. As you have heard me say so many times in these emails, HOURS = POINTS. There is no short cut. You have to put in the time.

We all know that. The only question is how should you (yes, YOU --- not some other person) go about putting in those hours? I want to offer two suggestions that I think can help.

First, set up a calendar and decide how many hours you plan to study each day. It is even better if you can identify the specific time you are going to study. If you just say “I’ll study when I have enough time,” you will never have enough time. If you just say “I’ll study when I feel like it,” you will never feel like it.

If you have always been an average student and want to become a great student, the first thing to keep in mind is the importance of planning.

--When are you going to take your next part of the CPA Exam?

--How many total hours do you want to study for that next part? I always recommend 60-100. I don’t think you can make a perfect score with 60-100 hours but most people can pass with that much intense study and that is the only goal you should have. How many hours do you plan to study?

--How many days do you plan to study during that period of time? People rarely are able to study every day so do you plan to study 4 days per week or five or maybe six?

Now, the easy part. More…

What Do Marbles Have to Do with Passing the CPA Exam?

One more comment about the previous message. It is always helpful to work on your own motivation. So, let’s assume that you are going to push to do 72 hours for your next part of the exam. Get two jars and 72 marbles. Put the marbles in one of the jars and label it “WORK NEEDED TO PASS.” Label the other jar “WORK DONE” and every time you complete an hour of study, move one marble from the first jar to the second. There is something about seeing the first jar gradually empty and the second jar gradually fill up that will really make you feel good and will help keep your motivation levels high.

Consider our partner, Fast Forward Academy, to study for the CPA exam. No two people are exactly the same. Fast Forward Academy identies the areas YOU specifically need to study. Then, Fast Forward Academy adjusts and accommodates your study by shaping their tools and content with laser focus to your exact needs.

This is not a one-size-fits-all obsolete industrial model to education, but rather the future... a one-size-fits-YOU custom approach to learning and succeeding.

Prepare for the CPA Exam As If You are Preparing for the Super Bowl

– As I write this right now, the Super Bowl is scheduled to be played in about four hours. Of course, it is always exciting to watch teams like New England and Seattle play.

But I’m always left with three questions:

– I wonder how much good sitting on a couch for four hours watching a bunch of rich people (people I don’t know) play a game does me. Those players get a great work out and lots of money and I get fatter and older while I sit here. I am not trying to be a grinch but I wonder why I prefer to watch rather than do. The excitement in life comes from doing, not from watching other people do.

– I wonder if Tom Brady and Richard Sherman and Russell Wilson would be willing to sit around for four hours on a Sunday evening and watch me take the CPA Exam and cheer me on. Somehow I doubt it. I think I care for those players more than they care about me. I wonder why I care so much about someone else’s success. Why am I not more excited about my own possible success?

– I wonder how those two teams and those players managed to get to the Super Bowl. There are dozens of professional teams and some of those other teams were excellent this season. Why did these two teams make it all the way? My guess is that if you went up and asked any of the players on either team they would say something like “we just worked harder than everyone else. Hour after hour we worked to be the best we could be. Starting back in the summer, we spent so much time getting ourselves into perfect mental and physical condition for this game. Yes, we have a lot of talent but that talent doesn’t do much good unless you have the will necessary to put in the hours and hours of practice.”

My last point there is pretty obvious. We all recognize that winning and success takes incredible discipline, a discipline necessary to do all that work. However, it is harder for us to see that in our own lives. We look for shortcuts. We try to get favors. We pray for luck. We make excuses.

No. It just doesn’t work that way. I cannot guarantee you success by working harder but I honestly believe your chances go up every time you work another problem and read the answer. Start right now. How many hours do you want to study today and when are you going to make it happen? How many hours do you want to study tomorrow and when are you going to make it happen?

We all want to be winners. Time to get started and make that happen.

Walk Through an AUD Analytical Procedures Question with Joe

I was looking through my computer files this afternoon and found this videofrom last summer that talks about how to answer an AUD question about analytical procedures. Never a bad idea to see how questions should be answered on the CPA Exam.

Joe

Success is Not How Much More Money You Spend; Free Practice Questions

noreply@blogger.com (Go Figure) — Sun, 08 Mar 2015 23:24:00 +0000

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OVER 2,500 FREE CPA Review Questions and Answers Available to YOU (for FREE)

March 3, 2015

Lesson 160

From: Joe

Success is Not on How Much Money You Spend

After being in the CPA Review business now for 35 years, what is my advice to you? Not the person beside of you, or the person in front of you, or the person behind you. No, what is my advice to you?

It was a few words from John C. Maxwell. And, she was right. This is what I want to say to you today.

“You’ll never change your life until you change something you do daily. The secret of your success or happiness is found in your daily routine.”

At the university, I am always amazed by how many students want to make better grades without making any changes in their study habits.

--Study a little, make a bad grade.

I have always argued that I could help anyone learn to pass the CPA Exam but that is true only if the person is willing to change.

So, what is my advice? First,

Super – now let’s do a little practice

Answering questions and reading answers is always the perfect way to add points. The answers are below all questions.

FAR

The Allen Company reports the disposal of a discontinued operation in its financial statements. Which of the following is least likely to qualify for that type of financial reporting?

A. The sale of a subsidiary.

B. The sale of all businesses within a major geographical area

C. The sale of a major line of business

D. The sale of a major equity method investment.

REGULATION

A. The interest can relate to the cost of tuition but not room and board.

B. The interest can relate to the cost of room and board but not books and supplies

C. The interest can relate to the cost of tuition but not books and supplies.

D. The interest can relate to both the cost of tuition and books and supplies.

AUDITING

A. To communicate the objective of the audit

B. To communicate the cost of the audit

C. To communicate the responsibilities of the auditor

D. To communicate the responsibilities of the management of the reporting entity.

BEC

A. If the spoilage of these 100 units was considered abnormal, the cost of the company’s inventory should be recorded at an amount greater than $165 per unit.

B. If the spoilage of these 100 units was considered abnormal, the cost of the company’s inventory should be recorded at an amount less than $165 per unit.

C. If the spoilage of these 100 units was considered normal, the cost of the company’s inventory should be recorded at an amount greater than $165 per unit.

D. If the spoilage of these 100 units was considered normal, the cost of the company’s inventory should be recorded at exactly $165 per unit.

Answers

FAR

Answer is A

REGULATION

Answer is D

--Tuition and fees.

--Room and board.

--Books, supplies, and equipment.

--Other necessary expenses (such as transportation).

AUDITING

Answer is B

--The objective of the audit;

--The responsibilities of the auditor; and

--The responsibilities of management.

BEC

Answer is C

Joe Hoyle, President

www.CPAreviewforFREE.com

Psst! Get a Sponsor; Price Increase April 15; MCQs Always Free

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Special Announcement

From: Lynn, CEO of CPAreviewforFREE

Thanks for How Far We've Come

It has been almost seven wonderful years since we started CPAreviewforFREE! We have grown from a very small online presence to a global village of CPA candidates and students from 144 out of 195 countries in the world! It just blows our minds. Along with the growth comes the challenge of keeping the material up to date, being responsive to user questions, providing motivational articles to keep you pumped to outlast the rigors of studying for the CPA exam and maintaining all the social media platforms. That's not to mention all the administrative stuff we do, too. Whew!

We do all of this because we know we hear wonderful comments and feedback from all of you! Thank you and always stay in touch with us. It keeps us going.

Announcing a Price Increase on our Premium Products

In the almost seven years, we have not increased the price of our premium products even once. We've held out as long as we could, but we know you expect the best when you use our site for free or purchase materials from us. So we are announcing a price increase on our premium products effective April 15. Why April 15? We thought it was kind of clever given the fact we are all about accounting and that's when tax returns must be filed in the U.S. You'll note the prices are still low, just not rock bottom. Here are the new prices:

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Get a CPA Exam Sponsor

When you look outside the window and think, what do you wonder? Is it the day you pass the CPA exam without skipping over all the hard work you will put into your studies? That's day dreaming. Day dreaming won't get you that CPA, hard work will. If you are known to procrastinate (with the best of us), get someone to help keep you in line. Let's call that person a sponsor. It could be a partner, friend, significant other, family member--whomever, but preferably someone who lives with you. Why? Because you will be home for most of your studying and that's where you will squander your time away with social media, online surfing/streaming, tv, video games or hobbies. Who knows best you are slacking off on your studying? Your sponsor. It will be up to them to help you stay on track. Don't abuse them by cutting down on your studies only to have them nag you to get back on track.

Work with your sponsor on how they can help you. Remember something has to give. There aren't enough hours in the day to continue your normal lifestyle while studying for the exam. You need between 60 and 100 hours of study per part. Sit down with your sponsor and figure out how you are going to achieve those hours of study. It's only fair that they have a say in the process and it emphasizes your seriousness to pass each part the first time. For example...

As you know, we are passionate about helping people succeed and Fast Forward Academy’s CPA review program is heads above the programs currently out in the marketplace. We are approached frequently to partner with other programs, but Fast Forward Academy’s free and premium product lines provide a fully integrated review program for desktop, tablet, mobile and online. They are aligned with our vision to provide an exceptional service to our candidates at a reasonable price.

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Now that you've had a break by reading this newsletter, you should get back to studying.

Go for it! You can do it!

Lynn Sheehan, CEO

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Don't Just Re-read Study Material--Retrieve It; New MCQs to Study

noreply@blogger.com (Go Figure) — Fri, 09 Jan 2015 19:57:00 +0000

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January 9, 2015

Lesson 158

From: Joe

Happy Holidays

Happy Holidays to all of our readers who live and work around the world. At this holiday season, we here at CPA Review for FREE want to wish you the very best in joy and happiness. And, as you begin 2015, set your goals and make your plans so that this new year will be your greatest one ever. Without goals and plans, you are depending on luck and Success, with a capital “S”, should never be based on luck.

Get Yourself (or someone else) Motivated to do Great Things

And, just in case you missed a few of the people on your Christmas shopping list, let me assure you that copies of my book (Don’t Just Dream About Success, Stack the Odds in Your Favor) are still available on Amazon for under $9.00. Okay, it is a little late for Christmas but what could be more thoughtful than a gift that pushes a person you love to have a great 2015? Start this new year with the goal of making a truly giant step toward Success.

Let’s start today’s lesson with an easy question.

If you want to pass the CPA Exam in 2015, how should you study? In other words, what is the best way to gain the knowledge you need in order to be successful on this very challenging test?

I have recently been reading a book titled Make It Stick – The Science of Successful Learning, by Brown, Roediger, and McDaniel. As you might imagine, I am always deeply interested in how people can learn more effectively. I have found this book to be especially insightful. One of the things that these authors often assert (and I believe) is that reading material over and over is not very helpful in getting the key elements into your memory. According to them and their research, it is the retrieval of information that really solidifies learning. If you want to learn something, pull it out of your memory over and over and your knowledge will get stronger and stronger. It is much like physical exercise. As they say in the book, “One of the best habits a learner can instill in herself is regular self-quizzing to recalibrate her understanding of what she does and does not know.”

They even have a chapter titled “To Learn, Retrieve.”

How can you do this in practice as you work to pass the CPA Exam? How do you get “retrieval” into your study plan? Here are a couple of my recommendations. Learn how...

If you want to learn more about our website, watch this short video.

Our partner, Fast Forward Academy, has a comprehensive review course program with many more bells and whistles than our course. It has:

ü Study Bank

ü Study Planner

ü Study Community Access

ü FastBook (intelligent textbook)

ü Instructor Support

Let’s do some practice. Let’s add some points.

In addition to the questions below, here is a question and answer explained in a video from Joe on the cost volume profit and break even point question from BEC.

FAR

Helping Heart (Heart) is a not-for-profit entity that is affiliated with another not-for-profit entity named Handy Hand (Hand). To help Heart become more efficient, Hand sends its assistant accountant to work for Heart for two months. This employee’s cost to Hand is $3,000 per month although the value of the services is actually $3,200 per month. The difference is not considered significant. All costs are paid for by Hand. Heart receives this employee’s work for free. How does Helping Heart report the work done by the assistant accountant?

A. As an expense of $6,000

B. As an expense of $6,400

C. As an asset of $6,400

D. No recording is made of this work because it is paid for my Hand

Auditing and Attestation

Lot Corp requested Moon, CPA to audit its current year financial statements. The prior year financial statements produced by Lot were audited by Williams, CPA. Before accepting the engagement, Moon, CPA requested permission to make inquiries of Williams, CPA, and Lot Corp consented without restrictions. However, Williams, CPA has chosen to provide only a limited response. Which of the following would be an appropriate step for Moon, CPA to take?

A. Ask Lot Corp to compel Williams, CPA to provide a full response.

B. Consider the need to perform alternative audit procedures.

C. Consider the implications for engagement acceptance.

D. Withdraw from the engagement as a limited response is highly suspect.

Regulation

James Edwards comes to you to ask if he can file his income tax return as a head of household. He tells you the following story. “I am single but I pay more than half of the cost of the house that my elderly father lives in as his principal residence. This house is about 200 miles from my principal residence.” Which of the following statements is correct?

A. James Edwards cannot file as a head of household because the father lives in a different principal residence.

B. Head of household is only available if the housing costs are paid for a son, daughter, grandson, granddaughter, or foster child.

C. James Edwards can file as a head of household but only if the he receives an exemption for his father for income tax purposes.

D. James Edwards can file as a head of household because the father’s house is less than 250 miles away from his house.

BEC

James Felder is president of the Highblue Corporation. The board of directors has become concerned that Felder is putting the company at extreme risk because of some of the decisions that he has made over the past year. They are looking into salary patterns that might have led to this behavior. Which of these is most likely to have influenced Felder in his decision-making?

A. He gets paid $450,000 per year.

B. He gets paid $100,000 per year plus 10 percent of the company’s after tax net income.

C. He gets paid $200,000 per year plus 1,000 stock options that cannot be exercised for five years.

D. He gets paid $125,000 per year plus 500 shares of the company’s common stock that must be held for four years.

Answers:

FAR

Answer is A.

When employees of one not-for-profit entity work for another affiliated not-for-profit entity, the recipient records its expense at the cost of the services to the donor. Fair value is only used if it is significantly different than cost (which is not the case in this problem).

Auditing & Attestation

Answer is C.

Consider when this problem takes place. The audit has not yet been accepted or started. The new CPA is simply trying to determine if problems might exist with the client or with the audit that would make acceptance of the engagement untenable. The new auditor is not thinking about actual audit procedures or withdrawing from engagement. The new auditor is trying to decide whether to accept the new engagement. Prior to acceptance of an initial audit engagement, the successor auditor should evaluate the impact of the predecessor auditor’s response (or lack thereof) on the decision to accept the engagement.

Regulation

Answer is C

Head of household status applies to a wide range of relatives where the taxpayer pays more than half of the cost of housing. Head of household status only applies if the person lives with you except for a parent who does not have to live with you. However, the taxpayer must still be able to claim the person as an exemption. The distance of the parent’s home is not relevant.

BEC

Answer is B

Risky behavior can often be associated with the possibility of an immediate boost in compensation. In A, there is no chance that Felder will receive a direct increase in pay based on his actions. In C and D, there might be an increase in income but it will only happen several years into the future and might be damaged by risky activities at the current time. However, in B, Felder might be gambling that his decisions will cause a sudden jump in net income that will lead to an immediate, significant increase in his compensation for the year.

You Can Do It!

Joe Hoyle

Co-Founder CPAreviewforFREE

CPAreviewforFREE

See Changes to the CPA Exam for 2015; New MCQs

noreply@blogger.com (Go Figure) — Wed, 03 Dec 2014 14:26:00 +0000

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December 2, 2014

Lesson 157

From: Joe

Prepare NOW to Start Off With a Bang in 2015

We are now in December, an off month for the CPA Exam. Are you going to be ready for the 2015 CPA Exam? If you are not yet a CPA, make it a top priority to get those three letters after your name in 2015. There is no reason that you cannot pass the CPA Exam and move your career forward and into high gear.

I was reading a novel this morning. The main character has been involved in some unethical activities in the past but he meets a woman whom he likes and starts to wonder if he is worthy of her. He wakes up on a new day and the first thing he says to himself is “Today’s the day I either change my life or I don’t.”

What a great way to put it! We all do stuff that isn’t really moving us in a direction that we want. The question is never “should we change” but rather “will we change?” Everyone talks about change but not enough do it. When it comes to change, talk is cheap. If you have been thinking about the CPA Exam for some time now, isn’t it time that you begin to change your attitude? It is not a question of whether you can pass the CPA Exam. I’ve been in this business for over 30 years and I’ve never met anyone who couldn’t pass the CPA Exam with the right effort and the right materials. Yes, it takes time. And, it takes a genuine effort. You have to work a lot of questions and you have to study a lot of answers. You have to be methodical. You have to work those questions over and over until the process sticks solidly in your brain.

No matter how long you have tried to pass the CPA Exam or how long you have thought about the CPA Exam, are you ready to do the work that needs to be done so you can pass that exam in 2015? Why put it off any longer? Let’s get it done. When you wake up each morning, you should take a moment to bring reality into immediate focus: “Today’s the day I either change my life or I don’t.”

That’s the choice you have to make.

We here at www.CPAreviewforFREE.com are ready to help. We have over 2,600 free questions and answers created to guide you through each topic. I always tell people that, at a minimum, if they will work all of our questions twice and read each answer carefully, they should have an excellent chance of earning 75 points and passing the exam. (And, doing it for free.) There are always more things that you can do. The list is never ending. But, as a first step in passing the CPA Exam in 2015, work every question twice – pay close attention to how you got the answer or how we explain the answer – and you should be ready to give the CPA Exam a legitimate shot.

Android and Apple Smart Phone/Tablet Apps

We do have apps for the iphone/ipad AND android. We have a free light version of 50 multiple choice questions for FAR and over 400 mcq's per part for all four sections of the CPA exam for $9.99/part. While these questions are the same as the questions on the website, additional features have been included.

Each question is ranked easy, medium and hard which can be sorted and worked by question difficulty.
Each question is timed to help you pace yourself while working the questions.
At the end of each section, the percent correct are calculated.

The best part? Once downloaded onto your smartphone/tablet, all the questions and content reside on your phone. No internet connectivity or data useage is required after the download. You can practice your questions while tucked in your sleeping bag in the middle of the Sierra Nevada mountains if you want.

The point is: practice anywhere at anytime for a very low cost.

New Changes for the CPA Exam in 2015

A new set of Content Specification Outlines for the CPA Exam takes over onJanuary 1, 2015. If you go to the official website (www.cpa-exam.org), you can download the 2014 version as well as the newly updated 2015 version. Some years, the changes are radical while other years the changes are less significant. It seems to me that the changes for 2015 are, for the most part, rather minor and will be discussed in future newsletters.

One of the biggest changes for 2015 is that in the FAR section of the CPA Exam, coverage will now include the liquidation basis of accounting as created by a recent FASB US GAAP Update. As a result of several well-known liquidation cases such as Circuit City, FASB decided to provide formal accounting rules for companies getting ready to be liquidated. Because many candidates do not necessarily have a great understanding of these new rules, here is information that we now provide in “The Essentials” portion of our website (that we sell to provide financial support for our free questions and answers). Liquidation Basis of Accounting changes.

Give Back Today, Giving Tuesday, to Project HOPE, Our Partner

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Case Study: How to Prepare for the Exam the WRONG WAY

Several years ago, I had a student in one of my Intermediate Accounting II classes. I’ll call her Katherine. Katherine seemed like a bright young person. Unfortunately, she came to class each and every day totally unprepared. She never did the assignments or read the book. She could not answer a single question that I asked during class discussions. But, she did take copious notes. I think she wrote down every word that was spoken in class each day.

We arrived at the first test and Katherine made a low D. I wasn’t surprised. She had been merely an observer in class and not a participant. You cannot learn accounting by just taking notes.

I honestly expected Katherine’s work to improve. I figured the D would scare her into doing better. I was wrong. She continued to show up each day having done absolutely no preparation in advance but she sure could take great notes.

Consequently, Katherine made another D on the second test. By that time, I just assumed she was going to make a D in the course. She seemed determined to continue heading down a path that was not bringing her good results.

After receiving her grade on the second test, Katherine showed up in my office nearly hysterical. She told me that she had never made either a C or a D on any test in her life and didn’t understand why she had made D’s on both of my first two tests.

I told her the truth: She never prepared for class and, therefore, couldn’t really follow the subtle issues that we discussed in class. She was not able to learn what we were talking about because she was too busy trying to write down every word so she could memorize them.

She responded that she had always prepared in this way. In middle school, high school, and college, she didn’t waste her time reading the textbook and preparing. Instead, she paid close attention in class. She wrote it all down and then memorized it. And, of course, she had then made virtually all A’s on her examinations.

Okay, let’s say the story stops right there. What lessons can we learn from Katherine? More...

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Practice, Practice, Practice

Time to add some points as we get you ready for the 2015 CPA Exam.

FAR

The Moon Corporation believes that bankruptcy is imminent. The company has a building in New York that will have to be sold to help pay for the company’s debts. On a statement of net assets in liquidation, how will this land be reported?

A. At historical cost

B. At net book value

C. At fair value

D. At net realizable value

Auditing and Attestation

The CPA firm of Able and Body is studying the program change controls that a client company maintains in connection with its computer processing department. Which of the following is not a reason for this examination?

A. The auditors want to make certain that all changes to computer programs are made in accordance with the company’s policies.

B. The auditors want to make certain that all changes to computer programs are approved by the computer operators.

C. The auditors want to make certain that all changes to computer programs have been properly documented.

D. The auditors want to make certain that all changes to computer programs are properly validated before being placed into operations.

Regulation

Right before the end of the current year, the Rose Corporation (located in Oregon) received an unexpected cash dividend of $40,000 from the DiMaggio Corporation (located in Idaho). Rose owns 18 percent of the outstanding common stock shares of DiMaggio. How did this late collection impact the amount of taxable income to be reported by Rose?

A. No change is caused in taxable income.

B. Taxable income will go up by $7,200

C. Taxable income will go up by $8,000

D. Taxable income will go up by $12,000

BEC

The Hammerhall Corporation is considering the possibility of investing in a new project. If the project is undertaken, sales will amount to $70,000 per year. Variable cash operating expenses are expected to be 60 percent of that amount. Fixed operating expense (made up of only depreciation expense) will be $12,000 per year. The company’s effective tax rate is 30 percent. What is the annual after-tax cash inflow that is anticipated if this project moves forward?

A. $11,200

B. $13,800

C. $19,600

D. $23,200

Answers

FAR

Answer is D

In liquidation, the debtors and other interested parties are primarily interested in the amount of cash that will become available. Therefore, assets are reported at the amount of cash that will be received from the liquidation which is often referred to as the net realizable value. Fair value is not used for this reporting because officials might be in a hurry to conclude the liquidation and be forced to sell the building before they have time to get the actual fair value from the property.

Auditing & Attestation

Answer is B

Changes in computer programs should be properly authorized but that normally is by the programmers and the departments that are actually involved with the transactions. Computer operators should have only limited information about the specific workings of computer programs because they have direct physical access to the computers. By limiting what they know about the workings of critical programs, they are less likely to be able to manipulate those programs in some fraudulent manner. However, the programs should be created in accordance with company policies and should be properly tested and documented.

Regulation

Answer is D

All dividends collected by one domestic corporation from another domestic corporation are included in taxable income. However, a dividends received deduction is also provided that then removes a portion of those same dividends. The amount of the deduction depends on the level of ownership. If ownership is below 20 percent, the deduction is 70 percent. If ownership is 20 percent or more but less than 80 percent, the deduction is 80 percent. If ownership is 80 percent or more, the dividends do not have any effect on taxable income. Because Rose owns 18 percent of DiMaggio, the $40,000 dividend is included but the dividends received deduction is 70 percent of that amount or $28,000 which leaves an increase in taxable income of $12,000.

BEC

Answer is D

The amount of income taxes to be paid must first be determined. Based on the information provided, taxable income will be the $70,000 in sales less variable cost of $42,000 (60 percent of sales) and also less $12,000 from the fixed operating expenses. That gives a taxable income of $16,000 for an income tax of $4,800 ($16,000 times 30 percent). However, in computing the after-tax cash inflow, the depreciation expense is omitted because it has no direct cash effect. Because it must be paid in cash, the income tax is included. The applicable amount is $70,000 less $42,000 less $4,800 or $23,200.

Okay, it is December. We are moving quickly toward 2015. When you wake up each morning, take a moment to bring reality into immediate focus: “Today’s the day I either change my life or I don’t.”

Now go out and go for it!

New MCQs; New Site Enhancement; Don't be a Watcher, Be a Doer

noreply@blogger.com (Go Figure) — Tue, 21 Oct 2014 15:18:00 +0000

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September 16, 2014

Lesson 156

From: Joe

NEW!!

If you haven't completed our most recent survey, please take 2 minutes (I promise, that's it!) to help us continue to improve the site.

You Can Do It, Too!

We always love hearing from the folks who use our materials. Below and to the right are a couple of recent messages we received:

From TMM: “Thank you CPA for Free - I have finally passed all four sections of the CPA exam. I used both your free materials, and your motivational book to get me through when I almost gave up. Thank you for what you are doing for others like me. Yes, the CPA exam is a serious challenge and takes many sacrifices. It took me three years, but I made the sacrifices and finally passed. … I really need to buy your book in hard copy, so I can write notes all over it this time. It really encouraged me to keep pushing myself and working at a high level when I wanted to give up and/or have fun.”

If You Are New to the Site

If you want to know how our program works, the best way to learn is to watch the short videothat I made. It provides the ins and outs of using CPAreviewforFREE.com.

And, as long as you are watching some short videos, here is one that I made which talks about my success book (the one that TMM mentions above in her message): Don't Just Dream About Success, Stack the Odds in Your Favor.

Don't Be a Watcher. Be a Doer.

One of the great parts of my job is that I get email messages from former students, often people who were in one of my classes many years ago. It is always fun to catch up with folks who once worked so carefully with you in their quest for success. It is fascinating to see what they remember about the experience.

I got just such an email last week from a candidate who had been in my live CPA Review course in about 1990. I could not remember seeing or hearing from him in the past few decades.

This voice from the past wrote something that I immediately found fascinating, especially since he could still recall this specific advice from 25 years ago:

“In that class, in an attempt to keep us from wasting valuable time in front of the television, you said, ‘most people care more about the success of their favorite sports team than about their own.’”

Yeah, I am sure I said that. I sometimes get frustrated with CPA exam candidates and with college students when they seem so interested in sitting in front of a television screen watching other people battling to be successful. They urge these strangers to work harder without urging themselves to work any harder. These “observers” often get outrageously happy or morbidly upset by the actions of a team of athletes hundreds of miles away with whom they are not connected in the least. What’s wrong with this picture?

Many people are, indeed, extremely interested in someone else doing the hard work that is necessary to become successful while they sit passively in their chair going nowhere. I will have students who are not prepared for class because they just had to watch a college or pro football game on television. Their own passing and failing is trivial to them compared to the Green Bay Packers or Seattle Seahawks.

Passing the CPA Exam is a little important to some candidates but watching a bunch of strangers throw a ball around is extremely important. I am always amazed to walk into a restaurant where a large gathering of people will just be screaming at the various televisions around the room. A lot of energy put to no good use.

Here’s my question: Why don’t these people get that excited about their own work and their own successes?

I don’t have a good answer for that question. As I tell my students here at the university, “You have to truly want to succeed before you have any chance of success. That desire to be at the top has to live in your heart, gnawing at your insides. You can’t ‘kinda’ want to succeed or ‘sorta’ want to succeed. That is not enough desire to provide you with the ambition needed to turn off that television set and go to work.”

I have nothing against sports. I watch a little myself. However, those three hours that we sit around passively watching someone else play a game on television is a lot of valuable time that is squandered. Would those players stop their lives just so they could cheer for you?

So, with the World Series coming up in baseball and the college football season now underway and the pro football season in full blast, where does that leave you? In life, you can be a “watcher” or you can be a “doer.” Here's how to be a doer. More..

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As the Exam Gets Closer, Be in Control, Get It Done

When I was in high school, one of the great basketball players was John Havlicek who was a star first at Ohio State and then with the Boston Celtics. He was just the hardest working player who seemed to always be at the right place at the right time.

I liked him so well that I bought his autobiography and read it when I was young. All these years later, I only remember one part of that book but I remember that part very well. I try to live that part.

Havlicek said that during a game all the other players would call for the ball because they wanted to shoot and make points. But, at the end of the game, if the score was close, many of the players would stop asking for the ball. They would look away and not make eye contact. They were afraid of messing up at the most important moment of the game. When the game was on the line, they wanted someone else to take the shot.

Havlicek went on to say...More

Practice, Practice, Practice

As always, I want to ask you a couple of practice questions just to keep up the process of adding points to your grade. Read the questions. Think about the answers. Read my explanations. Learn.

FAR – This question is actually adapted from the Intermediate Accounting II class that I taught at the university yesterday.

In Year One, Winner Company sues Loser Company for $1 million. At the end of Year One, both companies think it is probable that Winner will win $200,000 but reasonably possible that Winner will win $350,000. The suit drags on and at the end of Year Two both companies think it is now probable that Winner will win $240,000 but reasonably possible that Winner will win $410,000. What do each of these companies recognize on their income statements for Year Two?

a. Winner records zero in Year Two and Loser records a $40,000 loss.

b. Winner records a $40,000 gain in Year Two and Loser records a $40,000 loss.

c. Winner records zero in Year Two and Loser records a $60,000 loss

d. Winner records a $60,000 gain in Year Two and Loser records a $60,000 loss.

AUDITING AND ATTESTATION

Under most circumstances, a CPA cannot receive a fee that is contingent on the outcome of the work being done. Such an action is viewed as damaging to the CPA’s appearance of independence. In which of the following situations is the CPA allowed to accept a contingent fee?

a. The review of a client’s financial statements rather than an audit.

b. The preparation of a client’s federal income tax return.

c. The compilation of a client’s financial statements that the CPA expects to be used by a third party

d. The representation of a client during an IRS examination of a federal income tax return.

REGULATION

On January 1, John Jacob sold shares of Ford Motor Company to his daughter Emily. The original cost had been $11,000 to Jacob but the sale was for $7,000, the market value of those shares on that date. Emily held the shares until September 1 when she started college and sold them to an outside party for $8,300 to help pay for tuition. What does each party report on their separate federal income tax returns?

a. John reports a loss of $2,700 and Emily reports neither gain nor loss.

b. John reports a loss of $4,000 and Emily reports a gain of $1,300

c. John reports no loss and Emily reports no gain.

d. John reports no loss and Emily reports a gain of $1,300

BEC

A company sells popular books and is having trouble getting new books to its stores quickly enough to sell when they first come out and customer demand is high. Executives of the company study the process used by a large grocery chain to get fresh vegetables to its various stores when the harvesting time first takes place. What is this method of improvement called?

a. Economic development introduction

b. Haynes regression analysis

c. Benchmarking

d. Quantum re-engineering

Answers

FAR

Answer is A

Accounting tends to be a bit conservative. Therefore, companies do not recognize anticipated gains. Thus, Winner recognizes no income statement effect until the eventual settlement. On the other hand, losses are recognized when they are both probably and subject to a reasonable estimation. Loser will recognize a $200,000 loss in Year One. That figure then needs to be adjusted to $240,000 at the end of Year Two. The $40,000 increase is an additional loss recognized in Year Two.

AUDITING AND ATTESTATION

Answer is D

Rule 302 of the AICPA Code of Professional Conduct prohibits contingent fees that are based on the findings of the work of a CPA. However, contingent fees are allowed in certain types of tax matters such as an IRS examination where the final outcome is set by an independent party. The work is not being performed for the benefit of the public in any way but rather the final judgment is made by the IRS, a party that is unrelated to the reporting company and does not care whether the CPA is independent.

REGULATION

Answer is C

The sale was to a related party from father to daughter. Thus, the loss has no impact as long as Emily continues to hold the shares. They are still within the family. When she sells the shares, the $4,000 loss incurred by the father can be used to reduce, or in this case, eliminate the entire $1,300 gain of the daughter. However, the remaining $2,700 loss cannot be deducted. The remaining reduction is lost.

BEC

Answer is C

When improvement is needed, company officials will often look for the best methods and processes that can be found. These best practices are then studied carefully to determine how those methods and processes can be adapted to their own companies. Here, officials are trying to get newly available products delivered to a wide variety of locations as quickly as possible. Apparently, the large grocery chain has developed systems that do that job well. Book store officials want to learn from and then utilize some of those same procedures. That is referred to as benchmarking. Because of competition, benchmarking is often done between companies in different industries.

Now go out and go for it!

Joe Hoyle,

Co-Founder CPAreviewforFREE

CPAreviewforFREE

Joe's Videos Explain How to Add Four Points to Your Score

noreply@blogger.com (Go Figure) — Tue, 12 Aug 2014 16:16:00 +0000

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August 1, 2014

Lesson 155

From: Joe

You can still pass all 4 parts before the end of the year!

August begins and a lot of you guys are getting ready to take one or more parts of the CPA Exam before the summer window closes. Now is the time to put on the push. Now is the time to work as many questions as possible to get yourself ready to earn those 75 points that you need in order to pass.

A great sports team gets stronger as the big game approaches.

A champion athlete gets stronger as the big match moves to its conclusion.

A great CPA Exam candidate gets stronger as the exam approaches.

You want to be at your very strongest on the day you walk into the test site.

Remember, www.CPAreviewforFREE.com has 2,500 free (yes, FREE) questions and answers. I wrote most of them myself based on my 34 years in the review business. Work them once and learn from your mistakes and then work them again. Do that and you should be ready and raring to go into that site and knock out that exam.

In hopes of adding points in the quickest possible way, I want to do something entirely different in today’s email lesson. I spent a lot of time on this lesson because I want to help you pass. At the same time, you can help us. We here at CPA Review for FREE would greatly appreciate your passing this message along to anyone that you know who is getting ready to take the CPA Exam. I think this is the quickest way that you will ever see to add points to your score.

Below, I have written four essential questions, one for each part of the exam – information that I really believe that you should know in order to demonstrate the knowledge to pass. I want you to work each question. However, instead of a written answer, I have made four short videos to guide you through each answer.

I want you to LEARN how to answer these questions. Don’t just read the answer. I want you to see how to get to the answer.

Remember, work the question first and then watch the video. I spent some real time making these videos and I did this just to help you (not the guy beside you but you) add points and pass the CPA Exam in August of 2014.

Our Partner, Fast Forward Academy, Provides Amazing CPA Review!

While many places offer you a practice exam tool, or a study bank, or books, our partner, Fast Forward Academy for CPA Review, offers an entire powerful and intelligent platform - everything you need to study, learn, and pass your exam on the very first try. We have tools and features that no one else has, creating an educational experience like no other.

Time for some practice.

FAR

I thought I would start with a question on determining earnings per share. The question is not easy but it is one that follows a very set pattern that you can come to understand very quickly with some practice.

The Smolich Co. is publicly held and has 20,000 shares of preferred stock outstanding and 100,000 shares of common. Preferred pays a $4.00 per share dividend while common pays $.60 per share. Net income is $600,000; the effective tax rate is 40 percent. Each preferred share can be converted into 2.5 shares of common. What is basic earnings per share and diluted EPS?

A. $4.60 and $3.60

B. $5.00 and $4.20

C. $5.20 and $4.00

D. $5.68 and $3.79

What’s the correct answer? The goal here is not to learn to work this one question. The goal here is to learn how to work problems dealing with the computation of earnings per share. That is what you want to know.

Once you work the problem and get your answer, go here and watch my explanation. I think this video will help you to be able to work this kind of question in the future.

Auditing

I thought that a question on analytical procedures might be a good one to study here today. My guess is that is a topic that the examiners want you to know very well.

The firm of Willard and Jones CPAs is performing an audit of the North Central Corporation. The company reports accounts receivable of $700,000. The auditors are interested in assessing the risk that this figure contains a material misstatement and begin to carry out analytical procedures. Which of the following would the auditors be most likely to perform initially?

A. Compare bad debt expense reported for this year to the amount written off last year.

B. Measure the average age of accounts receivable this year versus the average age in the previous year.

C. Create a flowchart of the internal controls for accounts receivable to compare with the controls used in the previous year.

D. Determine the expected amount of accounts receivable at the present time.

After you have read the question carefully and considered the four answers, make your selection. Then watch my video as I analyze each answer until I eliminate three of the possibilities and wind up with the correct answer.

Regulation

Now, let’s work a question now dealing with partnership income taxes. Most candidates have a decent knowledge of individual and corporate taxes. Partnership income taxes get less coverage at a lot of schools and that can make the questions tougher. Here, I wanted to show you a very fundamental question on partnership income taxes.

Read the question and see if you can get the answer.
Don’t guess – that can be provide incorrect information about what you know and don’t know.

The partnership of Shelstad and Evans had the following balances for its latest tax year: revenues - $300,000, cost of goods sold - $200,000, rent expense - $20,000, charitable contributions - $10,000, and guaranteed payments to Evans for work done - $30,000. Shelstad and Evans are both 50 percent owners. What will be the increase in Shelstad’s adjusted gross income on his individual income tax return?

A. $20,000

B. $25,000

C. $40,000

D. $50,000

If you have worked in the taxation area for a while or had a great taxation course in college, this is probably a fairly easy question. Otherwise, this is a question that might be challenging. Once again, watch the video and learn how this type of question is taken apart so that the answer can be determined.

BEC

And, finally, here is a question from the BEC section. The BEC section covers so much territory that it is hard to pick one area but I thought a cost-volume-profit question on finding the breakeven point might be helpful. This is the kind of computation that I could see a CPA helping a company to make.

The Towson Corporation produces a product that it sells for $200 per unit. Last year, it sold 200 units per month with a variable cost of $120 each. Fixed cost were $5,000 per month. This year, the company sells the same item but for $240 to help pay for an increase in fixed costs to $6,000 per month. Variable cost is not affected. How is the annual break-even point for this product affected?

A. Increases by 100 units

B. Increases by 150 units

C. Decreases by 150 units

D. Decreases by 100 units

Notice here that two things change. The sales price goes from $200 to $240 per unit while the fixed cost rises from $5,000 per month to $6,000 per month. How does that impact the break-even point? After you work the question, watch my video to see how I go about attacking this question.

Have fun – these can be interesting, challenging questions. Don’t let the study process always seem so dreary. You want to stay in a good mood. Working questions can (and should be) fun.

We here at CPAreviewforFREE.com want to help you pass the CPA Exam and do it now. It really does not have to cost thousands of dollars. Our questions are waiting for you right now for FREE.

And, if you want to see how our site works and everything we have to offer, here is one final video just to give you the guided tour:

Have a great day. Keep answering questions and adding points. Now go toCPAreviewforFREE and work more questions.

Joe Hoyle

President CPAreviewforFREE

Five C's to Success on the CPA Exam; Free New Questions

noreply@blogger.com (Go Figure) — Tue, 12 Aug 2014 16:15:00 +0000

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July 8, 2014

Lesson 154

From: Joe

Scores Recently Released--Did You Pass?

Thanks to everyone who writes in to tell us about your passing scores on the CPA Exam. We clearly didn’t get into this business to make money (“FREE” is a tough pricing strategy if making money is your goal). We got into this business to help people become successful and pass. So, thanks for all the kind messages. You make our days better.

The Five "C's"

The July-August CPA Exam testing window is now open!!! That means that candidates from all over the world are getting ready to go to an exam site to seek those essential 75 points.

I was recently on vacation in Prague and one of my favorite college students from last semester sent me an email. She said that she had been studying diligently for her first part of the CPA Exam but was getting a bit nervous. She wanted to know if I had any last minute advice.

I told her that for decades I have suggested that candidates who are getting ready to take the CPA Exam should focus on the “five C’s.” I am a big believer that anyone who puts in a sufficient amount of study time probably has enough knowledge in their head to pass. Thus, the key to success during the exam is making sure that this knowledge gets out of the head and onto the test. The five C’s can help that to happen. They can assist you in maximizing your points. And, that is really what you want – to be able to earn all of the points that you deserve.

If you are taking the CPA Exam during the July-August testing window, here are five C’s that I would like for you to think about as the day gets closer. More...

Did You Know We Support ProjectHOPE?

That's right. Project HOPE is probably best known for their hospital ships that respond to disasters. Through our community forum, we support the initatives of ProjectHOPE. If you have it in your heart to help, it would certainly help those in need. Your tax-deductible donation today not only offers a tangible way for you to give back for the help you receive through CPAreviewforFREE, it helps provides lifesaving health education and humanitarian assistance around the world.

Facebook and Ten Favorite Quotes to Keep You On Track

If you follow us on our Facebook page, you know that we post a “success” quote most days that come from my book “Don’t Just Dream About Success: Stack the Odds in Your Favor” (available for $8.99 on Amazon – both paperback and Kindle). I went back recently and looked through all the quotes for the past few months and here are ten of my very favorites:

--“Success comes to the person who makes the best use of today.”

--“Mediocrity is a disease that is easy to catch.”

--“Successful people examine their failures – not to feel guilty or assign blame – but in search of improvement.”

--“No one experiences an extraordinary life through procrastination.”

--“Avoid settling for short cuts and easy answers. We all have unlimited possibilities, but they are only available to those who are willing to push through self-imposed boundaries.”

--“Most successful people have a few Level-3 goals that light up their days and nights and push them forward, often at blinding speed.”

--“Too often, we settle for dreams that merely scratch the surface of our abilities and then wonder why we are dissatisfied with the results.”

--“The desire for success burning within the heart has to be hot enough to push the person to do the difficult work that is necessary.”

--“Some people linger in the past while others long for the future. Success always dwells in the current moment.”

--“Success always starts with a dream. The bolder the dream, the bolder the success can be.”

Attack the Day!

We were in Vienna recently as part of our vacation. We had a wonderful tour guide who met us each morning and led us through the museums, cathedrals, art galleries, and restaurants. She set a tone for us every day that provided the energy necessary to get out and experience the life of that city.

Every morning, as we gathered in the hotel (often with sleep in our eyes), our tour guide would rouse our spirits with her daily battle cry: “Let’s go out there and attack the day.”

“Attack the day” – what a great mantra for starting each day. It is very easy to be passive, to sit on a chair and hope that we don’t miss too much of life. In other words, it is very easy to be lazy.

But lazy is no way to have a life that means something. Lazy is no way to make a difference in this world. Lazy is no way to become successful. We really need to be more aggressive in our actions. We need to move forward with a more ambitious attitude. “Attack the day.”

When we get up each morning, we have the possibility of creating something great, something wonderful, something worth remembering. Every day holds that possibility. But lazy is never going to make it happen. You have to be willing to attack the day. Whether it is the CPA Exam or your job or school or some other goal that you have in mind, success only comes if you get up and make it happen.

Yes, do go out there and attack the day.

Time for some practice.

Let’s see if we can add a few points to your CPA Exam scores. You can do it.

Auditing

Which of the following is an auditor allowed to do using computer-assisted auditing techniques (CAAT)?

I. Select accounts receivable to confirm with customers based on variables such as the size and age of the balance.

II. Uncover inventory quantities for extra testing because the balances seem excessively high in comparison to the sales volume.

A. I only

B. II only

C. Both I and II

D. Neither I nor II

FAR

At the start of Year One, Vivian Knox begins to work for the Fort Louis Corporation. By the end of Year One, Knox has earned 3 vacation days and 2 sick days. She is normally paid $200 per day. Knox did not have time to take the vacation in Year One but is expected to do so in Year Two. Knox had not been sick in Year One but realizes that she might well be sick and be forced to miss work in Year Two. When she eventually quits, she cannot demand payment for unused vacation pay or sick pay. At the end of Year One, what liability (if any) does the Fort Louis Corporation have to recognize for its obligation to Know?

A. Zero

B. $400

C. $600

D. $1,000

Regulation

The Williamton Corporation is a large and successful organization that files a corporate income tax return every year using a December 31 year-end. On March 8, Year Two, the company donated cash of $12,000 to the American Heart Fund. Because of the high level of taxable income in Year One, the corporation wants to include this charitable contribution in filing its income taxes for Year One. How is that possible?

A. It is not possible. It must be reported as a charitable contribution in Year Two.

B. All contributions made before March 15 of one year can be deducted in the prior year.

C. It can only be included in Year One if the company’s board of directors authorized the contribution during Year One

D. The contribution cannot be deducted in Year One because it is a gift of cash and not a long-term capital gain property.

BEC

A company needs to raise a lot of money in a hurry. Which of the following is not an advantage of debt-financing over equity-financing?

A. Interest payments are tax deductible but dividend payments are not.

B. Payouts are usually fixed for debt but not for equity financing

C. Creditors do not automatically gain any control in a company which does happen in equity financing.

D. Bankruptcy is less likely as a result of debt financing than it is as a result of equity financing.

Answers

Auditing

Answer is C

Both of these tasks are basically mechanical and a computer can do mechanical tasks much faster and more efficiently than a human. Software can be created that allows the auditor access to the client’s digital records. The software can be programmed to make selections based on predetermined criteria such as size and age. As computers and programming become more sophisticated, the number of tasks that can be carried out using computer-assisted auditing techniques will continue to grow.

FAR

Answer is C

A compensated absence for vacation pay must be recognized if earned and will probably be taken at a later point in time and the amount can be estimated. The $600 (3 days at $200 per day) meets the criteria. However, sick pay is not accrued here because it is dependent on a future event – Knox has to get sick. She cannot otherwise demand payment. Because a future event must occur for the sick pay to be necessary, there is no liability until she actually gets sick and misses work. There is no obligation at the present time.

Regulation

Answer is C

If a contribution is authorized by a company’s board of directors in one year and the gift is made prior to March 15 (for a corporation filing with a December 31, year-end) of the following year, the gift can be deducted in the initial year of authorization. Many companies do not know the amount of their income until late in the year and, therefore, are not in position to know the precise amount of their giving until the beginning of the following year. This time extension allows them to assess the amount that they can afford to contribute.

BEC

Answer is D.

There are many advantages of debt financing. Interest payments can be deducted as expense but dividend payments are not deductible. Payments of interest and principal are usually set which is good for financial planning purposes. With equity, dividend payments might have to rise if the company becomes especially profitable. And, unless treasury stock is reacquired, eliminating equity is unlikely. When stock is issued, new stockholders are likely to be drawn in who can possibly want to be involved in the management. Creditors rarely have that opportunity unless the company has trouble making repayments. Unless that happens, the creditors are properly not involved with running the company. However, bankruptcy is always more likely in connection with debt financing because the creditors can force the company into bankruptcy if scheduled payments cannot be made as they come due.

Keep adding those points...Go to CPAreviewforFREE now and work more questions.

Joe Hoyle

President CPAreviewforFREE

Work New Practice Questions; How to Be a Champion

noreply@blogger.com (Go Figure) — Tue, 12 Aug 2014 16:13:00 +0000

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June 18, 2014

Lesson 153

From: Joe

Thank You!

Thanks to everyone who has written us notes recently about your CPA Exam success stories. We are always delighted to get such good news. Our one and only goal is to help everyone pass the CPA Exam and be able to move on with their lives and careers. Don’t let the outrageous cost of some CPA Exam Review programs hold you back from the success that you need and deserve.

And, also, thanks to everyone who has passed along information about our program to others. We have over 2,500 of the best questions you ever studied and they are all available for free. However, we simply cannot afford to advertise. One of the challenges of “free” is that there is never enough money available for marketing purposes. We depend on you to spread the word.

All those other courses charge a fortune but, consequently, they have money available to advertise. So, if you spend money for a bad program, you are helping them prosper and entice other people to follow them.

Be a smart shopper. Try us first before you give away any of your hard-earned money. People just like you pass the CPA Exam every day using our materials. Don’t throw your money away. Try us first. Here’s a video that shows how our program works.

How to Become a Champion

It is an interesting time in sports. The Los Angeles Kings just won the National Hockey League championship and the San Antonio Spurs recently became the champions of the National Basketball Association. And, of course, soccer’s World Cup competition is being played in Brazil.

I have always been fascinated by teams who manage to take on the best competition and win. This year, the Kings in ice hockey and the Spurs in basketball were quite simply the best. They just played better. And, at the end, they won and got to celebrate like a bunch of kids. You couldn’t help but be excited for them.

Okay, if someone came up to you and asked the question: How do you become a champion? How would you answer? What would you say? How would you respond to the question, "How do you become a champion?"

It really isn’t a mystery. I think we all have a pretty good idea of what it takes.

After some thought, here is my answer (or at least some parts of my answer). More...

Good luck—you can do it!!!

Thanks for buying our book!

And, while I am at it, thanks to everyone who has bought my book: Don’t Just Dream About Success: Stack the Odds in Your Favor. It is less than $9.00. Just to help you get a notion of what it covers, here are two reviews from Amazon (and, truthfully, I have no clue who wrote either of these reviews):

Review One: Initially hesitant to read a "self help" book, I was pleasantly surprised to find that this is not what this is. Instead of pointing out a path to success, Hoyle instead forces you to think about what you deem success, your goals, and how to make these goals come to fruition. As he states in so many ways, there is no magic bullet, and the goal has to be worth the associated sacrifices otherwise you will never achieve it. This book is best in the questions it asks you (yes YOU!) the reader to think about, and has my mind working over what my own goals and successes are.

Review Two: I love this book. It is the best motivational book not only for those who are studying for the CPA exam, but also for every kid who wants to be a successful in his or her life. As Mr. Hoyle says, "You have to have the intestinal fortitude to sit down and do the work today (now)".

Championship teams seem to have a way of playing their very best game at the crucial time. When it comes time for the most important game, they are able to deliver their best effort. That is exactly what I want from you. When you walk in to take the CPA Exam, I want you to be at the very top of your game. Feel strong and confident. Make that the best test you ever took.

Practice, practice, practice

Let’s do some practice questions. The first problem below (both the question and the answer) comes from our friends over at Fast Forward Academy. If you are looking for a complete program, check them out and get a 10% discount by giving them the discount code: CPAREVIEWFORFREE

Auditing and Attestation

An auditor’s report would be designated a special report when it is issued in connection with:

A. Interim financial information of a publicly held company that is subject to a limited review.

B. Compliance with aspects of regulatory requirements related to audited financial statements.

C. Application of accounting principles to specified transactions.

D. Limited use prospective financial statements such as a financial projection.

FAR

The Grazino Corporation bought several other companies a few years ago and recognized a large amount of goodwill. In preparing financial statements for the current year, one of the reporting units in this business combination has a significant portion of that goodwill. At the end of the current year, officials have looked at a variety of qualitative factors and believe that there is a 59 percent chance that this particular reporting unit has a fair value that is larger than its current carrying value. What is the impact of this determination?

A. There is no impact based on this determination

B. The reporting unit must now perform tests to determine if the goodwill balance has been impaired.

C. No further testing is needed this year for this reporting unit as far as goodwill impairment is concerned.

D. Goodwill is impaired according to this information and must be written down and a loss recognized.

Regulation

What is a prospectus?

A. It is a different term for the MD & A (Management’s Discussion and Analysis) which appears with financial statements.

B. A document filed with the Securities and Exchange Commission to provide details about an investment that is offered for sale to the public.

C. A legal account registered by an approved investment advisor.

D. A contract maintained by an agent to show the authority that has been conveyed.

BEC

During the current year, the price of widgets went up 10 percent. During the same period, suppliers increased the quantity of widgets supplied by 15 percent. Which of the following is true based on that set of information?

A. The supply is said to be elastic.

B. The demand is said to be elastic.

C. The supply is said to be inelastic.

D. The demand is said to be inelastic.

ANSWERS

Auditing and Attestation

Answer is B

Special reports are issued in connection with various types of statements including: (1) financial statements which are prepared in conformity with another comprehensive basis of accounting other than US GAAP such as the cash basis; (2) specified elements, accounts, or items found in a financial statement (such as a report on just the amount of sales made during a period of time); (3) compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements; and (4) financial information presented in prescribed forms or schedules that require a prescribed form for the auditor’s reports.

Based on that list, the answer has to be B. The client apparently needs a report on its compliance with aspects of regulatory requirements related to information in its audited financial statements. According to the rules, a report resulting from that type engagement is identified as a special report and, therefore, must follow the requirements for special reports.

What about the other three possible answers? Why are they not considered special reports?

Answer A is incorrect because audits and reviews of historical financial statements fall under basic auditing and review rules and are not identified by a separate classification system. You might say that they are normal reports and not special reports.

Answer C is incorrect because this type of request is often referred to as “opinion shopping.” A company’s auditors have probably refused to provide an unqualified or unmodified opinion because of the handling of a certain transaction. The reporting company has gone to a different auditing firm to see if that group might be more willing to accept the proposed accounting. The idea being that the company will switch auditors if the new group will accept the desired method of reporting. As you can imagine, this tactic is frowned on in the auditing profession. Consequently, there are only a few rules that guide this type of response. The practice is not justified by inclusion as an official type of special report.

Answer D is incorrect. Normally engagements dealing with future events such as projections are classified as attestation engagements. Because reporting problems are different when looking at the impact of future events, a separate classification system has been set up.

FAR

Answer is C

According to a FASB Update in 2011: “The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in (US GAAP). The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.” And, then, “If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.” In other words, because the qualitative factors show that there is greater than a 50 percent that the reporting unit is worth more than its current fair value, no further testing is required because the goodwill is not impaired. Conversely, if the chances are not greater than 50 percent, then the company must carry out the full testing procedures to determine if goodwill has been impaired.

Regulation

Answer is B

A prospectus is a formal legal document required by and filed with the Securities and Exchange Commission. It provides a range of information and details about an investment offering for sale to the public. A prospectus is intended to contain the facts that a potential investor needs to know in order to make informed investment decisions.

BEC

Answer is A

The price of widgets rose causing the supply of widgets on the market to rise as manufacturers hope to make more profits. They supply more so the answer here has to be A or C. The answer here has to be either A or C because the question is asking about the impact of the price change on the supply of the items. The ratio of the increase in supply over the price change is 15%/10% or 1.5. Because that figure is greater than 1.0, supply is said to be elastic, it expands more quickly than the price change. Had this figure been less than 1.0, supply would have been said to be inelastic.

Thanks for being with us. Study hard and add points.

Joe Hoyle

CoFounder

President

CPAreviewforFREE.com

New Questions and Contest; Essential Content Chapter for Free-Answers

noreply@blogger.com (Go Figure) — Wed, 28 May 2014 13:31:00 +0000

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May 27, 2014

Lesson 152

From: Joe

Keeping Things Fresh

I wanted to do something entirely different in today’s email lesson. Obviously, we have over 2,500 free questions and answers to help you pass the CPA Exam as quickly as possible. In addition, we sell a product that we call “The Essentials” to help you gain the information you need to get those 75 points. We charge a small amount for The Essentials, money that goes to help support our CPAreviewforFREE website.

We get a lot of questions about The Essentials so I wanted to use today’s email lesson to provide an example of how The Essentials can help you gain the knowledge you need. Remember, the exam is a mile wide and an inch deep.

I have been doing work over the last few days making updates in the coverage included in The Essentials for FAR. We pride ourselves in keeping our website up to date. In that one part of the CPA Exam, we have 20 different topics including earnings per share, leases, bonds payable, and the like. If you have already passed FAR, forward this newsletter to one of your friends or colleagues who are still working on passing FAR.

Below is one of those 20 topics: stockholders’ equity. I just copied it out of The Essentials and pasted the content below. We try to provide all the information you need to pass. We want to provide information in a clear and understandable fashion.

Special Offer

Here is my special offer. Read our Essential Content below and then you will find four questions like you might see on the CPA Exam about stockholders’ equity. I’ll try not to make them too easy or too hard. Just normal questions.

For the first two people who send me correct answers to all four of these questions atjhoyle@cpareviewforfree.com, I will mail you an autographed copy of my book Don’t Just Dream About Success: Stack the Odds in Your Favor. It is available on Amazon for $8.99. Everyone else will get a consolation prize. But the first two people with all four answers correct will receive an autographed copy of the book.

Okay, read the Essential Content below and send me your answers to the four questions at the end of this lesson to jhoyle@cpareviewforfree.com.

FROM “THE ESSENTIALS” SOLD BY CPAreviewforFREE (Only $15/month or $30/3 months; Printable $39*) FOR THE FAR PORTION OF THE CPA EXAM:

STOCKHOLDERS’ EQUITY

The stockholders’ equity section of a balance sheet is equal to the reported assets minus liabilities (i.e., net assets). Basically, it shows the source of an entity’s net assets. Stockholders’ equity consists of two major categories: contributed capital (the amount of the net assets that were put into the business by owners) and retained earnings (the amount of the net assets generated by operations – all net income since operations began minus all dividends).

Businesses also report accumulated other comprehensive income to record gains and losses that are not reported on the entity’s income statement (such as gains and losses in the value of investments in available-for-sale securities). A fourth section within stockholders’ equity (treasury stock) is a negative to indicate that net assets have been used to repurchase shares of the business but those shares have not, as of yet, been retired.

Most companies report a statement of changes in stockholders’ equity within their financial statements which reports the change in each element of stockholders’ equity.

Common Stock

In the incorporation process, a business indicates the number of authorized ownership shares (the total number of shares that it wants to have the right to issue—this is often a huge number so that limitations are unlikely to be encountered in the future). The "shares issued" are the shares that have been provided to outside parties. The "shares outstanding" are the shares that are currently held by outside parties. The difference in issued shares and outstanding shares occurs because of treasury stock—issued shares that have been bought back by the business but not retired.

Ownership shares can be common stock or preferred stock. All companies have common stock while a few also issue preferred stock. The holders of common stock gain the rights specified by the state of incorporation. Those rights normally allow the owners to vote for the members of the board of directors that oversees the running of the company. Those rights also provide that each owner gets to share proportionally in any dividends that are distributed.

In most states, a corporation is required to indicate the par value of its common stock and preferred stock. With common stock, the legal purpose of par value has faded over the years. It basically means that anyone who buys the stock directly from the corporation for less than par value might eventually be held liable for this discount if the company ever goes bankrupt. Today, most corporations set the par value of their common stock at such a low amount (often a penny or a nickel) that no one ever buys the stock from the company for less than that amount.

Assume, for example, that a company issues one share of $1 par value common stock for $35 in cash. The journal entry is as follows. Note that the common stock is recorded at the par value (a traditional approach in accounting) with the excess shown in an account such as “additional paid-in capital” or “contributed capital in excess of par.” Together, these equity accounts indicate the total amount of contributed capital—the amount paid in by owners directly to the company.

Cash 35

Common stock 1

Additional paid-in capital

—common stock 34

If stock is issued to pay for an asset or expense, the recording is based on the fair value of the stock. Only if the value of the stock is not known is the value of the asset or expense used. However, assets should never be recorded at a figure that is above its own fair value.

Assume that $1 par value common stock is selling for $35 per share and 1,000 shares are issued for land that has a fair value of $36,000. The recording entry is as follows based on the $35,000 value of the shares issued.

Land 35,000

Common stock

($1 par value X 1,000 shares) 1,000

Additional paid-in capital

—common stock 34,000

In a few states, no-par stock is allowed. All of the proceeds from the issuance of no-par stock is credited to “common stock.”

Costs of registering and issuing common stock are generally netted against the proceeds so that a smaller amount is reported in the Additional Paid-in Capital account.

Preferred Stock

The holders of preferred stock have only the rights specified in the stock certificate. In effect, the common shareholders are giving up a preference to these specified rights in exchange for the cash or other assets being put into the business. Most commonly, the holders of preferred stock are given the right to receive a set amount of dividends. The amount of the dividend payout is specified as a dollar amount or as a set percentage of the par value of the preferred stock.

Additional possible features stated in a preferred stock certificate:

1. Participating—preferred stockholders share with common stockholders in any dividend distributions that occur after both preferred and common stockholders receive a specified level of the dividend payment. Thus, preferred stockholders benefit by any exceptional large dividend payments.

2. Cumulative—preferred dividends not paid in a prior year (known as “dividends in arrears”) that must be paid before any distributions can be made to common stockholders. Dividends in arrears are not reported as a liability until declared by the board of directors. However, they should be disclosed.

3. Convertible—preferred stockholders have an option of exchanging their stock for common stock at a specified ratio

4. Callable—the corporation has the option to repurchase the preferred stock at a specified price. In stock transactions, no gain or loss is ever recognized on the income statement. Instead, gains are recorded as increases in additional paid-in capital (or an account with a similar title). Losses are a bit more of a reporting problem. If a comparable additional paid-in capital balance exists, it can be reduced to record any loss from a stock transaction. As an alternative, or if no additional paid-in capital balance exists, retained earnings is reduced. Thus, under certain circumstances, retained earnings can be reduced by a stock transaction but can never be increased.

Mandatorily redeemable preferred stock is classified as a liability on the balance sheet (rather than as stockholders’ equity) because payment must be made in the future.

More on Treasury Stock Transactions, Retirement of Stock, Dividends, Stock Splits, Share Based Payments, Quasi Reorganization, and Ratios…

PRACTICE QUESTIONS

Okay, the first two people who send the correct answers (just include the question number and the letter of the correct answer in your email) to all four of the following questions will receive an autographed copy of my book Don’t Just Dream About Success: Stack the Odds in Your Favorwhich can be bought on Amazon for $8.99 (kindle or paperback).

Send your answers with the subject line "Answers" directly to me at Jhoyle@cpareviewforfree.com. Remember if you are not one of the first two people to answer all four questions correctly, there is a consolation prize. Everybody wins with correct answers.

ONE – On January 1, Year One, the VanHuss Corporation issues 1,000 shares of its preferred stock for its par value of $100 per share. The stock pays a 6 percent ($6) cumulative cash dividend every December 31. Both the company and the investor stipulate in the stock contract that these shares will be reacquired by VanHuss in exactly 8 years for par value plus any dividends that are unpaid at that time. On December 31, Year One, the first dividend payment is properly made. When the company then produces a balance sheet, how is this stock reported?

A – As a part of stockholders’ equity

B – As a liability

C – As a footnote disclosure

D – Between the liability section and the stockholders’ equity section.

TWO – The Hough Company issues 100,000 shares of $10 par value common stock for $12 per share. Two years later, the company reacquires 10,000 of these shares for $13 per share. The company is going to report this treasury stock by the cost method. However, at the last minute, company officials decide to report these shares by use of the par value method. How does that decision affect the total stockholders’ equity reported by Hough?

A. Total stockholders’ equity will be $10,000 lower because of the decision to use the par value method.

B. Total stockholders’ equity will be $20,000 lower because of the decision to use the par value method.

C. Total stockholders’ equity will be $30,000 lower because of the decision to use the par value method.

D. Total stockholders’ equity will not be impacted because of the decision to use the par value method.

THREE – The Lawson Company has 100,000 shares of common stock outstanding with a par value of $10 per share. The stock was originally issued for $14 per share. Currently, the stock has a fair value of $17 per share. The company issues 22,000 new shares of this common stock to its stockholders as a stock dividend. Retained earnings should be reduced because of this dividend by which of the following amounts?

A. $220,000 (22,000 shares at $10 per share)

B. $308,000 (22,000 shares at $14 per share)

C. $374,000 (22,000 shares at $17 per share)

D. The company can reduce retained earnings by either $220,000 or $374,000

FOUR – On January 1, Year One, the Smith Company issues 1,000 stock options to its president. The president must work for four years and then has three additional years in which to buy the stock at a price of $30 per share. The price of the stock on that day is $28 per share but it goes up in price by $3 per year thereafter. The conveyance qualifies as a compensatory stock option plan. According to a computer pricing model (Black-Scholes), one of these options is worth $5 on January 1, Year One but $8 on December 31, Year One, and $10 on December 31, Year Two. How much expense should this company recognize in Year Two?

A. No expense is recognized in Year Two.

B. $1,250

C. $2,000

D. $3,000

Okay, all of these questions can be answered from the material in The Essentials provided above. Send your four answers with the subject line "Answers" to jhoyle@cpareviewforfree.com. First two correct responses get a free autographed book. Everyone else gets a consolation prize AND the answers.

Go for it.

Joe Hoyle

*As of May 27, 2014. Prices subject to change.

How to Turn Desire into Results

noreply@blogger.com (Go Figure) — Fri, 23 May 2014 13:50:00 +0000

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May 21, 2014

Lesson 151

From: Joe

How do you turn that intense desire into results?

We all want to be winners. We all want to be the champion. We all want to pass the CPA Exam (although that can be an especially difficult goal). Wanting to succeed is human nature.

How do you turn that intense desire into results? How do you become a winner? How do you attain a championship?

I watched a pro basketball game on television recently. The playoffs are now being played. Only four teams remain and they are all vying to become the champions.

That particular game was very close and the coach for one of the teams called time out to rally his players for a final push toward victory. During this game, the coach was wearing a microphone so the fans could listen in to what he had to say to his team. He looked at each player and said “When this is all over, don’t let anyone be able to say that the other team played smarter or played harder than you did.”

What great advice!!!

My guess is that many of you are preparing to take the CPA Exam in the near future—possibly this summer. The pass rate on each part of the exam is roughly 50 percent so it is not an easy exam. Success is tough to attain. Nevertheless, when you walk away from that testing site, never let anyone be able to say that the other candidates studied smarter or studied harder than you did.

If the rest of the candidates managed to study smarter or if they studied harder than you did, then they have more right to pass than you do. That’s only fair.

So, how do you study smarter? How do you study harder? Let me give you four quick recommendations based on my 35 years in this business. More...

Daily Motivation on Facebook to Pass the CPA Exam

As many of you probably know, we have a Facebook page and send out notes on success virtually every day. We like to provide a bit of encouragement each day. It’s just a nice way to start a day. Here’s one that I sent out a day or two ago:

“In the next 24 hours, how will you be different? Answering that question positively is the first step toward success.“Words from Joe Hoyle, author of Don’t Just Dream About Success: Stack the Odds in Your Favor of CPA Review for FREE. Available on Amazon —either Kindle version or paperback. Only $8.99.”

In my mind, one of the real keys to success is learning how to focus your attention on the current moment. Many people dwell in the past or become obsessed by the future. But if you are going to accomplish something meaningful in this life (like adding points toward passing the CPA Exam), it is only the current moment that really counts.

Make sure you have a set plan for each day and then have the self-discipline to make it happen. Even if you simply start each morning with a list of three or four things you want to achieve, that does provide a plan. That gives you direction.

If you are planning to take the CPA exam this summer, don’t worry so much about what you will get done in four weeks or how well you did last Tuesday. Your first question should always be: What do I need to get done today? The follow up question is: When am I going to make that work happen today?

That is why I wrote that particular Facebook post. We have nearly 3,500 followers. I wanted to challenge each of them to focus on the upcoming 24 hours. What can you do in that period of time that will make you different, make you better?

So, before you read another paragraph, take my challenge. What are you (yes, YOU) going to do in the next 24 hours (from right now) that will make you different? Don’t just answer this question idly. Find a piece of paper and write down 3-4 things that you pledge to do over the next day that will make a difference. For the CPA Exam, what can you accomplish in those 24 hours? You can worry about the following 24 hours when you get there. For the moment, focus on the next 24 hours.

In Chapter Nine of my book on Success, I tell a very short little story that I think exemplifies how people make the move toward success:

“John Ruskin, an influential art critic in England during the 19th century, kept a stone on his desk with one word scratched into its surface:

“Today

“Although the sentiment appeals to me, I would have selected an even more immediate admonition:

“Now”

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Being Productive

A friend of mine on the faculty of the University of Richmond brought me a cartoon the other day that he thought I would enjoy. It is titled “How My Week Went.” It shows a pie chart divided into two pieces.

One piece makes up about 20 percent of the pie and is labelled “Amount of time I spent being productive.”

The other piece makes up the remaining 80 percent of the pie and is labelled “Amount of time I spent doing things I thought would make me more productive.”

Isn’t that the truth?

We spend so much time getting ready to work that we don’t have any time left to actually get real work accomplished. In truth, work is hard. Preparing to work is kind of fun. It feels productive without requiring much work. We clean off our desk and take out the trash and pay the bills and sharpen the pencils. That provides a sense of accomplishment without really adding any points to our score.

When I used to teach live CPA Review courses, I was always amazed by how many people would say that they really planned to study as soon as they got a few necessary preliminary actions finished up. “If I can just get the bills paid and mow the grass, then I can study without being distracted.”

But the number of things that get in the way can just be amazing. For that reason, I constantly told the candidates: “Always study first. Get that done. The bills will eventually get paid. The grass will manage to get cut. The trash will be taken out some time. But if you wait until everything else is done before you start to study, then you might never get around to the important stuff. The study time has to be your priority. Do it first.”

I believed that statement then. I believe it now. The very biggest part of your daily pie chart has to show: “Amount of time I spent being truly productive and adding points.”

Speaking of adding points

Let’s do some practice.

FAR

According to US GAAP, the liquidation basis of accounting must be used in reporting a company when liquidation becomes imminent. Which of the following is most likely to meet the definition of the term “imminent” as established in US GAAP?

A. The company fails to pay debts as they come due.

B. The company files for bankruptcy under Chapter 7 rules.

C. The court grants an order for relief following the petition for bankruptcy.

D. The court approves a plan for liquidating the company.

Auditing

A client has asked a CPA firm to help with its XBRL implementation. To what does XBRL implementation refer?

A. The creation of adequate financial accounting controls to meet standards established by the AICPA.

B. The tagging of data reported to the SEC so that it can be more easily analyzed and compared.

C. The transition of specified financial data from reporting according to US GAAP to reporting according to IFRS.

D. The reporting of information in the management’s discussion and analysis so that it more closely conforms to standards of the PCAOB.

Regulation

Susan Aritand is filing her latest federal income tax return. During the tax year, she received $12,300 in ordinary income from a trust fund established by her mother before the mother’s death. The income is taxable. On what schedule of the form 1040 is this income most likely to be reported?

A. Schedule B

B. Schedule C

C. Schedule D

D. Schedule E

BEC

The United States measures its gross national product. It also measures its gross domestic product. What is the difference?

A. There is no difference. The terms are interchangeable.

B. Gross national product only measures manufacturing. Gross domestic product also measures the value of some specified services.

C. Gross national product measures the value of products and services produced by the citizens of the country. Gross domestic product measures the value of products and services produced within the country.

D Gross national product measures the value of products and services produced within the boundaries of the US. Gross domestic product is the gross national product adjusted for inflationary factors.

Answers

FAR

Answer is D

According to US GAAP, liquidation is said to be imminent when a plan of liquidation has been approved by the court, or by the people who have such authority (likely the board of directors if the company is not in bankruptcy), and the chance that this plan will be blocked or that the entity will return from liquidation is remote. In other words, the liquidation basis is used for reporting once liquidation of the company becomes virtually assured.

Auditing

Answer is B

XBRL is an information format for reporting used by the SEC. The data formatted by a reporting entity using XBRL can be downloaded so that the users can compare information between companies and in many other ways. Tagging the data in this way simplifies the analysis of reported information.

Regulation

Answer is D

Schedule B is for the reporting of interest and ordinary dividends. Schedule C is for the reporting of profit and loss from a sole proprietorship. Schedule D is for the reporting of capital gains and losses. Schedule E is for the reporting of supplemental income and loss. Part III of the Schedule E is specifically for the reporting of income and loss from estates and trusts.

BEC

Answer is C

Gross national product (GNP) is a measurement of the total market value of all final goods produced by the citizens of a country. GNP is tied to people. Gross domestic product (GDP) is a measurement of the total market value of all final goods produced within a country. GDP is tied to geography.

Practice, practice, practice!

Joe Hoyle

Is Being Good, Good Enough to Pass the CPA Exam?

noreply@blogger.com (Go Figure) — Wed, 23 Apr 2014 18:34:00 +0000

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April 22, 2014

Lesson 150

From: Joe

Being Good is Good Enough

If you truly want to pass the CPA Exam, you don’t ever have to be great on any day. That is simply not necessary. Great is not required. But you do need to be good and you do need to be strong almost every day. Great is not needed but good is necessary as is being consistently strong. And, everyone has the ability to do that. There is absolutely nothing preventing you from passing the CPA Exam, sooner rather than later. Be good and be consistently strong most days and you will make it.

To be successful on the CPA Exam, no one needs to be a super person. You don’t have to be a genius. You don’t have to be brilliant. You don’t have to leap tall buildings with a single bound.

But you do have to be good and you do have to be strong almost every day.

It is that consistent effort that is so important to get the 75 points you need in order to pass the CPA Exam. Too many people start out on their studies like they are going to conquer the world. They study night and day for a few days. But then they burn out. That is not the way to pass the CPA Exam. “Methodical” is a good word to keep in mind.

--Set a goal. How many hours do you want to study this week? Make it reasonable. That is your target.

--Set a goal. How many days do you want to study this week? Not necessarily 6 or 7 but maybe four or five.

--Now that you know how many days you want to study this week – determine which ones it will be. If you don’t specify the days, you’ll find excuses each day to avoid studying. Look in a mirror and ask yourself which days you are going to study and then hold yourself to that.

--Take your target hours for the week and divide it by the number of days you are going to study during that week. That’s your immediate goal. That number is what you need to accomplish over the next 24 hours.

--Always know the number of hours you need to study each day and when you are going to make time to do those hours.

If you are going to join the choir of people who have passed the CPA Exam, you have to make the challenge a real priority and do so at this very moment. Anything that puts the process off into the distant future will work against you. You need an urgency to be successful. Remember you don’t have to be great but you do need to be good and you need to be strong. And you need them now.

Go to CPAreviewforFREE and start working problems. Do a problem and read the answer. Do a problem and read the answer. Get into the habit.

Be good – don’t worry about trying to be great.

Need a How To Video to Get Started on CPAreviewforFREE?

As I have mentioned before in these lessons, we have a short video available to help you make good use of the 2,500 free questions that we have on our site.

https://www.youtube.com/watch?v=qxs814aZP0k

Also, don't forget to check out our discussion forum to talk to others facing the CPA exam just like yourself. You are not alone. You have us at CPAreviewforFREE to keep you motivated through these newsletters, the forum, and our CPA exam tips articles.

If you are looking for a CPA review program with all the technology whistles that integrate mobile, book, online with your busy life AND is very reasonably priced, look no further than our CPA review partner Fast Forward Academy.

How I Passed The CPA Exam

Two weeks ago, I included a couple of excerpts from my book Don’t Just Dream About Success: Stack the Odds in Your Favor (available for $8.99 on Amazon—paperback or Kindle). The response was absolutely amazing. Even I was shocked by how many people were intrigued by the guidance that was included.

So, I am going to include a bit more from the book in today’s lesson. More specifically, I want to share information from Chapter Seven on how I went about studying for and passing the CPA Exam. It wasn’t easy for me but I made up my mind that I was going to pass and then set out to make it happen. You can do it too!

Excerpt One (from Don’t Just Dream About Success: Stack the Odds in Your Favor)

(My) encounter (with the CPA Exam) took place during the spring of 1970, and culminated on May 6-8 of that year. Long decades have now passed, but the experience still influences how I face each of life’s new challenges. Hitting the wall and successfully pushing through the challenge has been one of the most positive experiences of my life. I discovered the power of personal evolution. I learned to manage my time effectively and gained confidence in myself. If you (yes, YOU) plan to stack the odds for success in your favor, such lessons are essential.

Having majored in accounting during college, I took the CPA examination in a hotel ballroom in Charlotte, North Carolina, on May 6, 7, and 8 of 1970. At that time, this comprehensive set of tests was 19 ½ hours long and was only given each May and November. Then, and now, a candidate had to pass all four of the individual sections as one of the requirements for admission into the accounting profession. At that time, the pass rate on each separate test was roughly 33 percent. That percentage is eye-catching because it reflects the true intensity of the challenge. The percentage of candidates who pass is now somewhat higher but, in those years, two of every three candidates walked out of each of the four tests with a failing grade. Not surprisingly, the pressure was mind numbing. Failure meant an additional six months of study before the next set of exams was given with their own 33 percent pass rate. Given the odds, many bright, hard-working accountants took the CPA exam for years without ever achieving success. Most faced the challenge with a genuine sense of dread.

I returned to college after my Christmas vacation in January 1970, a senior accounting major with decent grades earned at a good school. A job waited for me following graduation. I had a fiancée and wedding plans. I was ready (at least I believed) for adult life. But, the CPA examination stood in my path – very much like a giant wall.

Excerpt Two:

Passing was important to me. I wanted to get on with life. I was ready to be an adult and stop having to sit in little desks, listen to lectures, and take tests. Moreover, I had a burning desire to pass all four parts on my first attempt. In college, my grades were fairly good, but far from stellar. For many reasons, the elevated level of ambition that I felt so intensely in high school had disappeared. I missed the feeling. An essential part of me had gotten misplaced during those four years. The CPA exam offered the chance to recapture the internal drive that had pushed me to succeed. I was not aware at the time, but completion of this examination became a genuine Level-3 goal for me.

Excerpt Three:

Success on the CPA exam offered a chance for redemption. I wanted to pass all four sections immediately to reignite the element of my personality that I had allowed college to dampen down: my passion for success. (Not coincidentally, I later became a teacher, in part, because I wanted future college students to have a better educational experience than my own.) To ready myself for the battle, more on Joe's success story.

Okay, let’s do some practice.

Remember, you don’t have to be great but you do need to be good and you do need to be consistently strong.

FAR

Good Company filed a $900,000 law suit against Bad Company during Year One. At the end of Year One, both companies think that Good will probably win $200,000 but that a win of $370,000 is reasonably possible. In Year Two, the suit is settled with Bad paying $170,000 in cash to Good. What does each company recognize on its income statement for Year Two?

a. Good recognizes a gain or $170,000 and Bad recognizes a recovery (gain) of $30,000.

b. Good recognizes a loss of $30,000 and Bad recognizes a recovery (gain) of $30,000.

c. Good recognizes a gain of $170,000 and Bad recognizes a loss of $170,000.

d. Good recognizes a loss of $30,000 and Bad recognizes a loss of $170,000.

Regulation

Ajax is eager to sell its former headquarters, a commercial building valued at $1,650,000. Ajax has received an offer from Johns in the amount of $1,800,000. The offer stated, among other things, “all fixtures and furnishings now in the building shall remain and be conveyed with the sale.” The furniture was of inconsequential value, but, for sentimental reasons the president of Ajax did not want to convey an old “Ajax Corporation” sign which still hung in the lobby. Which of the following is correct?

a. The board of directors of Ajax must authorize the sale for any contract to be valid.

b. An acceptance by Ajax which does not convey the “Ajax Corporation” sign will cancel the offer from Johns.

c. The offer from Johns must be notarized since the contract involves real estate.

d. Ajax’s advertisement to sell its building, since it specified the price, is a valid offer.

Auditing

An investor is looking at audit reports for two different companies and finds the same sentence in both: “Our responsibility is to express an opinion on these financial statements based on our audit.” In the first case, that sentence is at the end of the first paragraph. In the second case, that sentence is at the beginning of the third paragraph. Which of the following is most likely?

a. The first report is for a public entity and the second report is for a nonpublic entity.

b. The first report is for a nonpublic entity and the second report is for a public entity.

c. The first case is correct but the second case is not.

d. The second case is correct but the first case is not.

BEC

An investor recently bought a large amount of gold as an investment after selling a portfolio of corporate bonds. Which of the following is the most likely reason for those actions?

a. Inflation rates are expected to remain the same over the near future.

b. Interest rates are expected to fall in the near future.

c. Corporate dividend levels are expected to rise in the near future.

d. Inflation rates are expected to rise in the near future.

Answers

FAR

Answer is A

For a contingent loss, balances are recognized when they are probable. Bad would recognize a probable loss of $200,000 in Year One but would then reduce that to $170,000 because of the settlement. The reduction creates a $30,000 recovery (gain). Contingent gains are not recognized until finalized because accounting is conservative. The entire $170,000 is recognized by Good in Year Two.

Regulation

Answer is B

Any “acceptance” which varies from the terms of an offer constitutes a counter-offer which cancels the original offer.

Auditing

Answer is A

The Public Company Accounting Oversight Board sets the standards for public companies and has maintained the traditional audit report where the auditor’s responsibility is stated at the end of the first paragraph. The Auditing Standards Board sets standards for nonpublic companies and has created a new standard report where the auditor’s responsibilities are spelled out at the beginning of the third paragraph.

BEC

Answer is D

Since the investor is switching from bonds to gold, corporate dividend levels are not relevant. A rise in dividend rates would be a reason for switching to equity investments but not into gold. Because the portfolio of bond investments has already been bought, their interest rates will not be impacted by a drop in interest rates but their values will climb because high interest rates have been locked in. If inflation rates do not change, they have no real impact on the future value of either the bonds or the gold. However, if inflation rates are expected to rise, the set bond interest rate will not be able to rise with inflation and the value of the bonds will drop. But the value of gold will rise in recognition of the reduced value of the dollar (caused by the increase in the rate of inflation).

Go for it!

Joe Hoyle

President

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www.CPAreviewforFREE.com

Am I Really Focused on Passing the CPA Exam? New Questions

noreply@blogger.com (Go Figure) — Thu, 10 Apr 2014 18:39:00 +0000

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April 9, 2014

Lesson 149

From: Joe

The Best Use of CPAreviewforFREE

The question we get, by far, more than any others is: “How is the best way to make use of CPAreviewforFREE to pass the CPA Exam?” Candidates have heard from friends and coworkers about how much help our site can be. They have heard other candidates talk about passing all four parts without spending a fortune. They are appropriately curious.

Whether you are using our site for the first time or have been working our questions many time and to make sure no one gets confused, we created a video that explains how our website functions to help you maximize the best use of your time. If you are planning to take the CPA Exam within the next 6-18 months, take a few moments right now to watch the video and start adding points today without having to pull out your credit card and go into massive debt.

https://www.youtube.com/watch?v=qxs814aZP0k

If you know anyone who is thinking about taking the CPA Exam, please pass along this YouTube video so they can also learn how to get those 75 points without spending thousands of dollars. Be a friend. Pass the message along.

Do YOU Have What It Takes To Reach Your Goal of Passing the CPA Exam

I took time off on Monday and watched some of the NCAA men’s college basketball championship game. I watched a bit of the women’s championship. I am always so impressed by people who work incredibly hard to achieve a goal they really want. Those players have been working and sacrificing for months and months often without much of a break. We are talking about hundreds and even thousands of hours of practice. Win or lose, at least they gave it their best effort. I think we should all set challenging goals for ourselves and then do our best to make them happen. The world would be a better place if everyone established goals that pushed them forward at record speed.

That is one of the things that I have always loved about the CPA Exam. It is a goal that is truly challenging but still worth all of the required time and effort.

In my book, Don’t Just Dream About Success: Stack the Odds in Your Favor (available on Amazon), Chapter Four is all about setting goals.

Here are two excerpts from that chapter. They have been edited a bit to fit the space.

Excerpt of Levels 1-3 Goals

Former ice hockey superstar Wayne Gretzky is often quoted as saying, “You miss 100% of the shots you don't take.” Any discussion of success needs to consider this phenomenon: A goal is set, but no action is ever taken. Do people just become paralyzed? The odds of success obviously fall to zero unless some valid attempt is made at doing the necessary work. I suspect that every person has at least one goal that they think about often but, to quote my mother, “They won’t even lift a finger to make it happen.” This is not failure. Failure requires the investment of effort. This is an inability to even start.

Why do people sabotage their chance of success in this way? What holds us all back? The path to success is almost never totally hidden. Everyone knows that practice is necessary to become a tennis player or chess master. Diet and exercise lead to weight loss. A good grade in school requires hours of study. If people have identified goals and understand what is required to shift the odds in their favor, why do so many fail to make any legitimate effort?

Too often people come to view themselves as failures for not achieving stated goals when, in truth, those goals were no more than fantasies. A lack of self-awareness about the reality of our desires can lead to personal frustration and a loss of self-esteem. Invariably, early each semester, a few students march into my office to inform me (often in breathless tones) that they want to succeed in my class. To start that dialogue, I casually ask if their wish for success in my class is a Level-1 goal or a Level-2 goal or a Level-3 goal. They shake their heads in puzzlement. To them, my query seems like some type of strange trick question.

A Level-1 goal is a daydream, a fantasy. It might feel real, but it is not. “I plan to play centerfield for the New York Yankees” is a typical example. Others could include: “I want to be the first explorer to land on Mars,” “I want to discover a cure for the common cold,” “I want to write plays that are equal to Hamlet and King Lear.” Some students would love an A in my class but only if it came as a gift requiring no work. A Level-1 goal is fun to contemplate, especially when stuck in the mundane existence of daily life, but it is unlikely to become a serious quest. People love to revel in their Level-1 dreams. Unfortunately, no matter how hard we protest, serious effort on our part is unlikely to occur.

A Level-2 goal is a desire to be roughly at the average (or maybe within one standard deviation of the average). The person is not obsessed with success but certainly does not want to fail. Any outcome above that is a bonus, a reason for rejoicing. The hope is that sufficient interest, work, and energy will be dredged up so that the results are passable and rise to the perceived average range.

Finally, most successful people have a few Level-3 goals that light up their days and nights and push them forward, often at blinding speed. For me, Level-3 goals are an aspect of the human mind that makes existence truly exciting. Without them, daily life begins to feel disappointing and dull. If you feel lost and adrift, you probably need a Level-3 goal.

The presence of two essential characteristics identifies a goal as Level 3.

---First, the degree of difficulty ensures that success is not easy to attain. The challenge must require a personal stretch. People want to be pushed to excel, but need a reason to do the work. Without a worthy goal, no one has sufficient incentive to exert the necessary effort. A great description of this human need is expressed in the movie A League of Their Own by the manager (Tom Hanks). In telling one of his players why she should stay with the team and continue to play baseball, Hanks says in no uncertain terms: “It's supposed to be hard. If it wasn't hard, everyone would do it. The hard is what makes it great.”

“If it wasn’t hard, everyone would do it. The hard is what makes it great.” Now that sounds like a true Level-3 goal.

--Second, the desire for success burning within the heart has to be hot enough to push the person to do the difficult work that is necessary. “I want to be strong, but I am not going to exercise” simply means that the goal is not a real priority. It is a dream. A Level-3 goal verges on obsession. You can taste the desire when you wake in the morning. You carry it with you through your day and to bed every night. The desire to succeed prods you constantly to use your time well. If you profess the deepest longing to accomplish a specific objective but do not follow up with the needed work, then, by definition, the desire is a Level-1 fantasy and not a Level-3 goal.

Why do people not achieve more success? One of my theories is that we sap our creative energies by mentally dallying too long with Level-1 fantasies. They feel good. They do not demand pain or sacrifice. They are custom-built for procrastination. Consequently, we lack the motivation to seek and develop sufficient Level-3 goals. Level-1 fantasies expand over time and crowd out Level-3 goals. Without the desire inherent in Level 3, no work is done and genuine success becomes nearly impossible to achieve. Ask yourself this pointed question:

What difficult challenge do I want to accomplish right now with such intensity that I will begin taking action within the next 24 hours and regularly thereafter?

Excerpt Number Two

A few years ago, I came upon the best description of a Level-3 experience that I had ever seen, both extremely challenging and personally exciting. My family was vacationing on the Outer Banks of North Carolina. One day we drove to Kitty Hawk to tour the Wright Brothers National Memorial where they first flew their airplane. A major part of the facility was housed in a wonderfully designed exhibition building. Displayed on the inner walls were a number of pertinent quotes from the Wright brothers describing various experiences during their arduous journey to achieve flight. These ruminations were all interesting but one just stunned me. The words rang like they were originating inside my own head. I read and then reread the plaque for several minutes until each word was locked in memory.

“I got more thrill out of flying before I had ever been in the air at all – while lying in bed thinking how exciting it would be to fly.” Orville Wright

Although nothing I have ever done is comparable to building a flying machine by hand, those feelings are still perfectly understandable to me. Often as I chase after a new Level-3 goal, I find myself lying in bed each evening thinking about the thrill of success. Again and again, I picture the moment of achievement. I am not interested in some faraway dream. I want a goal that has immediacy. Work is required right then. And I am willing to do it. In fact, I cannot wait to get started. That, indeed, is a Level-3 goal. The anticipation of success provides the fuel necessary to get the work done.

Feel that excitement as much as possible. I have always believed Level-3 clubs should be formed in towns, schools, churches, and other organizations to enable people to share and discuss their goals and the actions being taken to make them come true. The thrill of sharing these dreams aloud with such a supportive group would help to make everyone’s success more likely.

In conclusion, ask yourself: Is passing the CPA Exam a Level-1 fantasy for you or a true Level-3 goal? Does the desire to pass burn hot enough so that you are willing to do all that necessary work starting today? There is an excitement about taking on a true challenge and then working your very best to become a winner. That is one of the wonderful feelings that comes from taking on and passing the CPA Exam.

Go get it!

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Practice, Practice, Practice

Let’s get to work. Let’s start adding some points and let’s do it right now.

FAR

The McAdoo Corporation spent $2 million this year on research costs in hopes of developing a new patent and then another $1 million on development. The company produces a set of financial statements according to US GAAP and then creates a second set based on IFRS. Based on the normal handling of research and development costs, which of the following is mostly likely to be true for the current year?

a. The US GAAP statements will report a lower expense total than the IFRS statements.

b. The IFRS statements will report a lower asset total than the US GAAP statements.

c. The IFRS statements will report a higher net income that the US GAAP statements.

d. The US GAAP statements will report a higher retained earnings total than the IFRS statements.

FAR (Number Two) In my last email lesson, I wrote a problem that contained an obvious typing error. Although the error was easy to spot, I wanted to provide a correct version of that question.

On January 1, Year One, the Hogan Company issues a four year $100,000 term bond that pays an annual 6 percent cash interest. Interest is paid every 12/31 with the face value to be paid four years from the issuance date. The bond is issued to earn an actual annual rate of 10 percent. The present value of an ordinary annuity of $1 for four time periods at a 10 percent rate is 3.16. The present value of a single amount of $1 in four time periods at a 10 percent rate is .68. What interest expense should Hogan report on its Year Two income statement?

a. $6,000

b. $6,800

c. $8,966

d. $10,000

Auditing

A company starts Year Four with inventory of $200,000. During the year, purchases of $700,000 are made and the ending inventory is $300,000. During Year Five another $700,000 in inventory is bought and the ending inventory is $500,000. Based on calculating the inventory turnover, which of the following is most likely to be true for Year Five?

a. Inventory on hand is more likely to be older and therefore subject to age problems

b. The profit margin has decreased during the year.

c. The profit margin has increased during the year.

d. Inventory on hand is more likely to be younger and therefore less likely to be damaged.

Regulation

Which of the following is not a deduction that an individual taxpayer can take in arriving at adjusted gross income in filing a federal income tax return?

a. Student loan interest

b. Alimony paid

c. Union dues

d. Penalty for early withdrawal of money from a savings account

BEC

June Wysocki was recently appointed as an outside member of the board of directors of the Kantalone Company. Which of the following is the best identification of an outside director?

a. One who is not directly related to the chief executive officer either personally or financially.

b. One who has sold all of his or her stock in the company to avoid the possibility of a conflict of interest.

c. One who used to work for the company but has since quit or retired.

d. One who is not otherwise employed by the company and does not represent any particular group of stakeholders.

Answers

FAR

Answer is C

Under US GAAP, both research and development costs are expensed as incurred. Thus, expenses are high causing net income to be low. Because the costs are expensed and not capitalized, total assets are low. Because the costs are expensed, retained earnings is low. Under IFRS, research costs are expensed but most development costs are capitalized. Expenses are lower and net income is higher. That causes a high retained earnings as well as a higher balance for total assets. Net income is higher under IFRS than under US GAAP.

2nd FAR Question

Answer is C

The future cash flows are $6,000 per year ($100,000 times 6 percent) for four years and then $100,000. The present value of those cash flows is $6,000 times 3.16 or $18,960 plus $100,000 times .68 or $68,000. The price of the bond is the total present value of $86,960 ($18,960 plus $68,000). Interest for Year One is that $86,960 times 10 percent or $8,696. Because only $6,000 is paid, the other $2,696 is compounded. The bond was sold at a discount so the compounding is added to bring the principal up to $89,656 ($86,960 + $2,696) at the end of Year One. In Year Two, this new $89,656 balance is multiplied by 10 percent to get interest of $8,966, the answer for this question.

Auditing

Answer is A

Inventory turnover can be computed in a couple of ways but is most likely to be cost of goods sold divided by the average inventory. In Year Four, cost of goods sold is $200,000 + $700,000 - $300,000 or $600,000. Average inventory is ($200,000 + $300,000)/2 or $250,000. Inventory turnover is $600,000/$250,000 or 2.4 times during the year. That is a measure of how quickly inventory is sold. In Year Five, cost of goods sold is $300,000 + $700,000 - $500,000 or $500,000. Average inventory is ($300,000 + $500,000)/2 or $400,000. Inventory turnover is $500,000/$400,000 or 1.25 times during the year. Inventory is selling at a much slower pace in Year Five which indicates to the auditor that problems might be caused by the age of the inventory on hand. It is more likely to be broken or unsalable. None of the information given here talks about sales so profit margin cannot be determined.

Regulation

Answer is C

According to current tax laws, student loan interest, alimony payments, and any penalty charged for the early withdrawal of money from a savings account are deductions that can be taken (in whole or part) in arriving at adjusted gross income. Union dues, on the other hand, are job expenses that can only be taken as an itemized deduction.

BEC

Answer is D

Wikipedia provides the following definition of an outside director. “An outside director is a member of the board who is not otherwise employed by or engaged with the organization, and does not represent any of its stakeholders. A typical example is a director who is president of a firm in a different industry. Outside directors bring outside experience and perspective to the board. They keep a watchful eye on the inside directors and on the way the organization is run.”

Get to work. Invest the time and add the points and get the CPA Exam passed and out of your way so you can go about enjoying your life.

Joe Hoyle

President

CPA Review for FREE

www.CPAreviewforFREE.com

Video on How To Prepare for CPA Exam; New Practice Questions

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March 4, 2014

Lesson 148

From: Joe

How to Get Started Using CPAreviewforFREE

We here at CPAreviewforFREE have been working quite hard recently to make our website (and our 2,500 free questions, answers and explanations) easier to access and, therefore, easier for every candidate to use. Consequently, a few days ago, I produced a short video to help you and everyone else make the very best use of all the information that our website has to offer. Watch the video (or please pass it along to someone else who might need assistance in passing the CPA Exam). I think this guidance can help you make effective use of our resources in order to get the 75 points needed to pass the CPA exam.

Free Videos on Bonds and Leases

And, while I was making this video, I made a couple more to help candidates who are preparing to take the FAR portion of the CPA Exam. I find that a lot of people struggle with bonds and leases and can always use a little extra help. I created a short problem on computing the exchange price of a bond and the recording of its interest expense for two years. This is not an easy problem so I carefully walk you through the sequential steps to get the right answer. If you (or, again, a friend) are planning on taking FAR any time soon, these videos can help you get tough areas under control.

Then, I created a lease problem that looks at the accounting by the lessor and then the accounting by the lessee. Please feel free to share. We are out to help EVERY candidate pass without spending a fortune.

Bond problem:

Capital lease problem:

Create A Sense of Urgency

As many of you know, I recently wrote a book titled “Don’t Just Dream About Success: Stack the Odds in Your Favor” which is available on Amazon.com in both the paperback and the Kindle version with the proceeds going to support the mission of CPAreviewforFREE.

Although sales have been great so far, we have a lot of people ask the obvious question:

“What is the book about and how could it possibly help me?”

Fair question. So, I wanted to provide an answer. The book is nearly 150 pages long but here are a couple of pages that I believe can help anyone who is looking to become more successful (but especially more successful on the CPA Exam). This is an excerpt from “Don’t Just Dream About Success: Stack the Odds in Your Favor” specifically for you (yes, YOU).

“Because they are human beings, college students have a strong tendency to procrastinate. Whether scheduled to write a paper, take a test, or create a presentation, most prefer to find other activities to occupy their hours and days until the last possible minute. As a student told me recently, ‘If a requirement is not on fire, I’ve got more interesting things to do with my time.’ Not surprisingly, when the deadline finally looms large, they are often forced to rush through the process so that results suffer. Every teacher knows that students are likely to upgrade their work if a touch of urgency is added to the daily routine.

‘This information will probably show up on your test.’

‘I am thinking about handing out a pop quiz sometime next week.’

‘You will be expected to explain the material in the third chapter of the textbook.’

“In classrooms almost every day, teachers rely on such warnings and 10,000 more like them to motivate students to action. The learning process improves whenever urgency is introduced. Students work harder and are more focused. The message is clear: Read the message and more.

Let’s do some practice

Every question that you work makes you a better student and gets you ever closer to those 75 points you need to pass the CPA Exam.

FAR

a. $6,000

b. $6,800

c. $7,070

d. $10,000

Auditing

The CPA firm of Hay and Worth is auditing the financial statements of LaBrend Corporation. LaBrend has used a special purpose financial reporting framework. Which of the following statements is true?

a. The cash basis qualifies as a special purpose financial reporting framework but the tax basis does not.

b. The report should have an emphasis-of-a-matter paragraph to indicate that the basis being used was not consistent with US GAAP.

c. The tax basis qualifies as a special purpose financial reporting framework but the cash basis does not.

d. A balance sheet and income statement must be included in the financial statements.

Regulation

The Hyldina Corporation has an account receivable for $10,000 from Prosgko Corporation that is outstanding at the end of Year One. The debt was incurred as a result of normal business tranactions. Prosgko is a relatively new customer from a neighboring town. Hyldina believes that there is an 8 percent chance of collecting this receivable. Hyldina is an accrual basis taxpayer. What can be deducted by Hyldina on the company’s Year One income tax return?

a. Zero

b. $800

c. $4,000

d. $10,000

BEC

At the end of Year One, the Glacken Company has accounts receivable of $435,000. During that year, the company made credit sales of $2.6 million. At the end of the year, what is the average age of the reported accounts receivable balance? (rounded)

a. 46 days

b. 53 days

c. 59 days

d. 61 days

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ANSWERS

FAR

Answer is C

The future cash flows are $6,000 per year ($100,000 times 6 percent) for four years and then $100,000. The present value of those cash flows is $6,000 times 3.16 or $18,960 plus $100,000 times .68 or $68,000. The price of the bond is the total present value of $86,960 ($18,960 plus $68,000). Interest for Year One is that $86,960 times 10 percent or $8,696. Because only $6,000 is paid, the other $2,696 is compounded. The bond was sold at a discount so the compounding is added to bring the principal up to $70,696 ($68,000 + $2,696) at the end of Year One. In Year Two, the new $70,696 balance is multiplied by 10 percent to get interest of $7,070, the answer for this question.

Auditing

Answer is B

The auditor wants to make certain that any reader of the statements is adequately warned that US GAAP has not been followed. Thus, an emphasis-of-a-matter paragraph should be added after the opinion paragraph to explain this distinction. In addition, the statements are normally given different titles (such as the statement of assets and liabilities arising from cash transactions rather than balance sheet) to draw more attention to the difference in the method being used. Special purpose financial reporting frameworks include the cash basis, the tax basis, the contractual basis, and that regulatory basis.

Regulation

Answer is A

For tax purposes, accounts receivable must be completely worthless before they can be deducted as an expense. This receivable is not completely worthless.

BEC

Answer is D

The company is making credit sales of $7,123 per day ($2,600,000/365). Thus, the average account receivable balance is 61 days old ($435,000/$7,123).

Joe Hoyle

President

CPA Review for FREE

Nuts and Bolts for Passing the CPA Exam

noreply@blogger.com (Go Figure) — Wed, 19 Feb 2014 18:11:00 +0000

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February 19, 2014

Lesson 147

From: Joe

Welcome!

If this is the first newsletter you've received, we welcome you to CPAreviewforFREE! We appreciate you using our site to help you prepare for the CPA exam. We not only have the 2500 free questions, but many exam tips and articles to keep you motivated and help with your specific situation. Of course, we always appreciate a good word about us to your friends, family and colleagues.

For those of you who know and love CPAreviewforFREE, thanks for your continued support! Focus on your goal of passing the exam--one part at a time. You can do it! Go for it!

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Nuts and Bolts of Preparing for the CPA Exam

The question that I get most often (and I get a lot of questions) is: “I want to pass the CPA Exam in a reasonable period of time and I don’t want to spend any money. I am out of work and really don’t have money to spend on fancy courses. I am not shooting for 100. All I want is to get 75 points on each of the four exams and pass and then get on with my life. I realize that the pass rate is about 50 percent on each part but I am willing to work hard. If that is my goal, how would you recommend that I prepare for the CPA Exam?”

I think that is a very reasonable goal and one that CPAreviewforFREE can help you accomplish. I have long held that too many people who really need to pass the exam (so they can get a job and start a career) never even take the exam because of the high cost of review materials. I think that is terribly sad. I think that is bad for the country and bad for the profession. Professions should not just be open to the wealthy.

So, here are my steps to success on the CPA Exam without spending money (or spending almost no money). Please feel free to pass this along to anyone you know who might be looking to take the CPA Exam (especially those folks who are short of cash).

a. Make sure that you qualify to take the CPA Exam in the state of your choice. Go toThisWayToCPA for a list of the states and a brief overview of the requirements to sit in that state. If you click on the state name, more specific information is given as well as state board contact information. This site is great for U.S. or international candidates.

b. Start learning about the CPA Exam itself. The enemy here is big. You want to understand the process as completely as you can. Go to the AICPA's website and you’ll find a massive amount of information. You don’t have to look at it all but try to get as comfortable with the process as you can.

On the opening page, you’ll see the following links that you should follow and read:

For the rest of the items...See c through u here

I’ve probably left out a few things but this is not a bad path at all to get the exam done without spending thousands of dollars. A few companies have tried to convince everyone on the planet that thousands must be spent to pass the CPA Exam. No, if you have the self-discipline to do the work, you have a great chance of passing the exam while leaving all of that money in your own pocket so that you can buy things you really want.

Practice Questions

Okay, enough about the exam, let’s do some practice and add some points. Here are four questions – four potential points. Let’s make good use of them.

FAR

On January 1, Year One, Wherton Corporation buys an oil well in the Gulf of Mexico for $20 million. It is expected to pump out 1 million barrels of oil over five years and then be dismantled. Legally, Wherton is required to remove all signs of the oil well when the oil has been removed. The fair value of that obligation as measured in Year One is $3 million. Wherton pumped out 300,000 barrels of oil in Year One and sold them for $83 per barrel. What was the reported gross profit for that year?

a. $8,400,000

b. $12,800,000

c. $15,200,000

d. $18,000,000

Regulation

Jack and Diane are both 28 years old and have income this year of $50,000. During this tax year, they paid $2,300 in interest on qualified student loans. How does that impact their federal income tax return?

a. There is no deduction because of the income.

b. There is a $2,300 deduction to arrive at adjusted gross income.

c. There is a $2,300 itemized deduction for interest expense.

d. There is a $2,300 itemized deduction as a miscellaneous deduction.

Auditing

An auditor with the CPA firm of Winston and Churchill is working to understand a client’s inventory procurement system. In hopes of assessing the control risk present in this system, the auditor is reviewing a flowchart created by company employees. One symbol has a diamond shape. What does that symbol represent?

a. A document within the system

b. A decision made within the system

c. A process carried out within the system

d. The input of information within the system

BEC

At the beginning of the current year, $1 would buy .8 Euros. At the end of the current year, $1 would buy only .6 Euros. Which of the following is most likely to be true?

a. US exports to Europe should decrease

b. US citizens are more likely to become tourists in Europe

c. European citizens are less likely to become tourists in the US

d. European exports to the US should decrease

Need additional help to pass the CPA exam? Look no further than our partner, Fast Forward Academy for CPA review! Obtain a 10% discount by mentioning CPAreviewforFREE! The advantages of using Fast Forward Academy include excellent tools that no one else has such as: planner, study notifications, practice exam, your strengths and weaknesses by subject, Fast Play (interactive games) and more.

ANSWERS

FAR

Answer is D

The fair value of the cleanup operation that is legally required is capitalized to the cost of the oil well making the total $23 million. Because 1 million barrels of oil are expected, depletion is $23 per barrel. The oil is sold for $83 per barrel for a gross profit of $60 per barrel. The company pumped out and sold 300,000 barrels for a total gross profit of $18 million. Because the remains of the oil well must be removed, there is apparently no residual value.

Regulation

Answer is B

Here, both the amount of interest and the amount of income are below threshold levels so the interest paid on those qualified student loans is deducted as a deduction to arrive at Jack and Diane’s adjusted gross income.

Auditing

Answer is B

On a flowchart, a diamond represents a decision that must be made. Normally, the operations process out of one point of the diamond if the answer to the decision is Yes and out of another point on the diamond if the answer is No.

BEC

Answer is D

The dollar can buy a certain amount of Euros at first and then later the dollar can buy a smaller amount of Euros. The dollar is losing value and the Euro is gaining value. People holding dollars have less comparative wealth and people holding Euros have more comparative wealth because of the relative change in currency values. Answer a is wrong because Europeans are likely to buy more now from the US rather than less. Answer b is wrong because US citizens are more likely to stay home now because they have less value to spend. Answer c is wrong because Europeans have more comparative wealth now and are more likely to travel rather than stay at home. The answer is D because US citizens have less comparative wealth now and, therefore, are inclined to spend less.

Joe Hoyle

President

CPA Review for FREE

Make a New Years Resolution to Pass the CPA Exam

noreply@blogger.com (Go Figure) — Wed, 29 Jan 2014 18:05:00 +0000

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December 31, 2013

Lesson 145

From: Joe Hoyle

New Year’s Eve – Time to Make a Resolution that YOU Will Be More Successful in 2014!!!

You can do it and CPAreviewforFREE.com is here to help.

Less than two weeks ago, my new book (Don’t Just Dream about Success: Stack the Odds in Your Favor) was released on Amazon in both the Kindle and the paperback versions. The book is available for less than $9.00.

Proceeds from the sale of this Success book will enable CPA Review for FREE to continue to offer our 2,400+ free questions and answers to CPA Exam candidates and college accounting students around the world. Our website receives 500,000 hits per year and you (yes, YOU) can provide the financial assistance needed to keep making these questions available. Buy a book. With the discount, it is practically free. YOUR SUPPORT CAN MAKE THE DIFFERENCE. Buy a book, read it, become more successful. Now, there is a genuine win-win situation.

And, if you like my Success book, please leave a positive reader review on the Amazon site. That is a great marketing help for us. (Also, do us a favor and forward this message along to anyone who might enjoy a book on achieving success.)

If you are a follower on our Facebook page, you know that I have been posting daily quotes from Don’t Just Dream about Success: Stack the Odds in Your Favor. Here are a few of my favorites. Although the book is 142 pages of advice, stories, and assignments, these quotes will give you a good idea of the message that I want to convey. I believe everyone benefits from receiving positive feedback on how to achieve success more of the time. That was the reason that I wrote this book. It is for YOU.

Motivational quotes on our Facebook page from: Don’t Just Dream about Success: Stack the Odds in Your Favor.

“Success should become like breathing, something we do every moment as a natural part of life.”

“We should all latch on to dreams that push us toward greatness. You (yes, YOU) can do that. The ability to make a mark on this world is only limited by your ability to dream.”

“I am convinced that people can take specific steps to improve their chances for success whenever they encounter the opportunities that life provides. Success is not random. It is not the product of luck. Successful people have learned how to succeed. That can be you. That should be you. With thought and work, you can achieve success a much higher percentage of the time. Start today to nudge the odds upward. Do that and evolve into a winner as you begin to succeed more often.”

“Time is the most important weapon you have in your quest to succeed. Time is more valuable than talent, brains, and strength. Time is like gold: You should hoard and make careful use of it.”

“The desire for success burning within the heart has to be hot enough to push the person to do the difficult work that is necessary.”

“The distance between success and failure is often smaller than you might imagine. If your efforts are focused on continuously getting better, success is rarely too far away.”

“A lot more goes into a winning performance than mere talent and physical repetition. Do not be naïve. Nothing is ever that simple. Players must be mentally ready to succeed if they hope to hit the winning shot. Although hours of practice on the court are essential, the mind also has to be properly trained.”

“You have to be a successful person every day if you are going to be a successful person any day.”

You CAN Pass the CPA Exam--Keep It Simple

One quote that I discuss in my new Success book (but that comes from another person) was said by the legendary football coach Vince Lombardi. In that particular chapter of the Success book, I write about the fact that we often try to make things in life too complicated and that attitude holds us back. Keeping things as simple as possible is usually the best strategy.

Coach Lombardi said: “Some people try to find things in this game that don't exist but football is only two things—blocking and tackling.”

So, in today’s lesson, as you look forward to a brand new year, I want you to think about success on the CPA Exam (or whatever you seek to accomplish during 2014) and try to narrow that success down to just two words. Let’s keep things truly simple. I want passing the CPA Exam to become a simpler task for you. I want success to become simpler. I think that focusing the whole process on just two words might help you to get more comfortable with the preparation that you need to do if you are going to succeed.

What would your two words be if I asked you to describe “Success on the CPA Exam” in just two words?

I have spent a lot of time thinking about this question and here are some of the words that I considered. They are all extremely important but I didn’t think they were the MOST important. More...

Practice, Practice, Practice

Okay, let’s do some practice problems and start adding points to your CPA exam score as you move into 2014.

FAR

A company buys an available for sale security as an investment at the beginning of Year One. It goes up in value by $9,000 in Year One and by another $7,000 in Year Two. On the last day of Year Two, the company sells this investment for $16,000 more than its original cost. The company then reports net income of $80,000 in Year One and $90,000 in Year Two. What amount should the company report as its comprehensive income in each of these two years?

a. $80,000 in Year One and $106,000 in Year Two

b. $89,000 in Year One and $81,000 in Year Two

c. $89,000 in Year One and $97,000 in Year Two

d. $80,000 in Year One and $99,000 in Year Two

Auditing

Under certain circumstances an independent auditor must communicate information directly to those who are charged with the ultimate governance of the reporting entity (often the board of directors). The auditor can communicate any information that is deemed important but certain matters are required to be discussed with those in charge of governance. Which of the following is most likely to be communicated in this manner?

a. An event occurring after the end of the year provided important audit evidence about a reported balance.

b. The auditor had to assess control risk in determining the amount of substantive testing that was required.

c. Management consulted with another public accounting firm about the financial reporting of a large transaction near the end of the year.

d. The accounting department of the reporting organization has not experienced significant turnover in a number of years.

Regulation

An independent CPA serving as a tax return preparer for the Unicorn Company recklessly disclosed information about the company that was discovered while preparing the tax return. Which of the following is true?

a. Although considered a bad practice, no penalty can be assessed for such behavior.

b. A monetary penalty can be assessed against the tax return preparer.

c. A penalty can only be assessed if the disclosed information was financial in nature.

d. A penalty can only be assessed if the disclosed information specifically included the names of individuals who had not agreed to be so named.

BEC

Which of the following is an example of collusive pricing?

a. Company A decides to take a loss in order to gain market share by pricing its output significantly below that of Company B, its major competitor.

b. Company A prices its products higher than that of Company B, its major competitor, but hopes to continue selling at normal levels by an increase in its marketing budget.

c. Company A forms a secret agreement with Company B, its major competitor, to keep prices higher than they would be in a purely competitive environment.

d. Company A simply waits for Company B, its major competitor, to set a price and it automatically sets the price at a 5 percent discount from that amount.

Have a great start to your 2014. You can be successful this year. Make it happen!!!

Answers

FAR

Answer is B

Because the investment is classified as an available for sale security, no gain or loss is recognized in computing net income in Year One but the entire $16,000 is included in Year Two when the investment is sold. In reality, the investment did not go up by $16,000 in Year Two but rather by $9,000 in Year One and by $7,000 in Year Two. To arrive at comprehensive income, the zero net income effect in Year One is increased to $9,000 which increases the reported income from $80,000 to $89,000. To get to comprehensive income, the $16,000 net income increase in year Two is reduced to $7,000 which decreases reported income by $9,000 from $90,000 to $81,000.

Auditing

Answer is C

An independent auditor is most likely to talk with the people in charge of governance when something occurs which might indicate the possible existence of a material misstatement. Answers a, b, and d are all common events that take place often in audits or within audit clients. Nothing out of the ordinary is apparent in these answers. However, whenever the entity’s management talks with another public accounting firm (other than its own), the question arises as to whether the management is looking to manipulate the reporting for its own benefit. Such consultation is not forbidden and may well not be a problem. But, the people in charge of governance need to be aware that this has happened and, perhaps, talk with management about the need for such consultation.

Regulation

Answer is B

Knowingly or recklessly disclosing or using any tax return information other than to prepare or assist in preparing a tax return can lead to the assessment of a monetary penalty.

BEC

Answer is C

Collusive pricing occurs when companies within an industry form a secret pact to increase all profits by setting prices at an artificially high amount. In effect, competition is eliminated so that customers are negatively impacted.

Joe Hoyle

President

CPA Review for FREE

Professor Joe Hoyle's New Book Released--Don't Just Dream About Success: Stack the Odds in Your Favor

noreply@blogger.com (Go Figure) — Thu, 19 Dec 2013 18:01:00 +0000

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December 19,

2013

Lesson 144

From: Joe

Joe's New Book on Sale Now

My newest book is on sale on Amazon...just in time for the holidays.

Don’t Just Dream About Success: Stack the Odds in Your Favor

Read the first portion of the book for FREE. To buy the book, the introductory cost is only $8.99. The Kindle version is available now. The print version should be ready in a day or so. Stay tuned!

Proceeds from the sale of this book will go to support work at CPA Review for FREE.

Would You Do Us Two Favors?

First, we have no marketing budget. If this book is going to be successful, we need help in spreading the word.

Please forward this email to anyone and everyone you think would benefit from this book..

I would greatly appreciate that. If we don’t get that type of support, nothing else we can do is ever going to work. You can make a real difference.

Second, one of the most important things in marketing a book these days is “Amazon reader reviews.”

Please write a review on the book.

Everyone who buys on Amazon reads those and they make a huge difference as to whether someone buys or moves to the next book. If you read the book and like it, please leave a review. If you’ve never done this before, it is easy. You’ll need to sign up and pick out a reviewer name (I’m not going to tell you my weird reviewer name—most people pick something unique). And, then, write all about what you liked (or didn’t like). Obviously the more reviews written, the better.

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Proceeds of the Book to Support CPAreviewforFREE

Proceeds from the sale of Don’t Just Dream About Success: Stack the Odds in Your Favor will be used to support CPA Review for FREE. Since 2008, we have provided 2,400 free questions and answers for candidates taking the CPA exam who could not afford the outrageous cost of review materials (often up to $3,000). We believe the accounting profession should be open to all—not just those rich enough to buy good preparatory materials. Over the years, we have averaged 400,000 visits to the site with the average person staying on the site for over 20 minutes. That is a huge amount of added points on a very difficult exam.

Sales of this book will help us continue to provide you quality, well written material and questions. A student successful in passing the CPA exam commented that we shoul have a fundraiser similar to Wikipedia's to help raise money for our service. By buying this book, you are essentially donating money for the site AND you receive a book that can change your life in return.

I hope you will consider buying a copy both for

(1) the benefit of reading an interesting book about success and

(2) as support of a worthy cause. Everyone can be successful. Everyone should be successful. I truly believe that. It is not a course of study taught in college, but there are many ways to truly stack the odds of success in your favor.

A Parting Note from the Amazon Abstract

"Success is not the province of a chosen few. Success is available to every person willing to plan, think, and work.

Award-winning college professor Joe Hoyle has spent 43 years in the classroom seeking to guide and motivate thousands of students to succeed. He shares those same practical ideas here as he introduces innovative concepts such as Level-3 goals, the Derek Jeter Rule, Joe’s Theorem for Success, and the Ebenezer Scrooge Question.

As Joe states in the final chapter, “Success should become like breathing, something we do every moment as a natural part of life.” Written in a readable conversational style that is part storytelling and part autobiography, the book begins with the amazing tale of a student who sets out to be the youngest person in the world to climb the “7 Sisters,” the highest peak on each of the seven continents. Fourteen chapters later, Professor Hoyle ends with the four words most essential to us as we seek to stack the odds of success in our favor. In-between, he describes numerous techniques such as the use of mental visualization and the choice of a personality model that readers can use to create an overall success philosophy that will help them achieve those goals that matter most to them."

Thanks!!!

Happy Holidays!!!

Joe Hoyle

President

CPA Review for FREE

Get Out of Your Rut

noreply@blogger.com (Go Figure) — Mon, 18 Nov 2013 15:05:00 +0000

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November 18, 2013

Lesson 142

From: Joe

IMPORTANT ANNOUNCEMENT

We have been looking for a way to fundCPAreviewforFREE.com so that we can continue to offer candidates 2,400 free questions and answers forever. We believe that everyone needs access to affordable materials so they can pass the CPA Exam. The CPA profession should be open to all people, even if you cannot afford expensive review materials.

So, over the last couple of months, I have been writing an entire book on Achieving Success. I am thrilled with the way it has turned out – even better than I had hoped. We will publish the book in January or February for under $10 (with proceeds going to supportCPAreviewforFREE).

We will have more information for you very soon but I wanted to get this book on your radar. It is intended as a guide for anyone who wants to become more successful: more successful on the CPA Exam, more successful in school, more successful at work, and just more successful in life. You can never be successful 100 percent of the time but you can certainly increase the odds for success by adopting logical (and reasonable) strategies. Success does not happen by accident.

That is the purpose of my new book – to help you (yes, YOU) become a more successful person at all of those goals that really do matter to you.

Help us continue to provide 2,400 free questions and answers to CPA Exam candidates whether rich or poor. And, help yourself (or a friend or loved one) to think more carefully about the path to success. You can help CPAreviewforFREE by buying a book. You can also help by telling others. Don’t be shy – spread the word.

WHAT MAKES SOMEONE SUCCESSFUL?

I was in San Francisco a few days ago on business and had some time to waste. So, I wandered around the city and played one of my favorite games. In this game, I assume that I am a rich business owner who has an unlimited number of jobs to fill. I need one of everything: bus driver, plumber, dish washer, etc. As I walk from place to place and go in and out of buildings, I ask myself which people I would hire. Who catches my attention for doing a particularly good job? And, just as importantly, what did they do that caught my attention? I am trying to figure out what makes someone particularly good at a job. I am obviously interested in success and this is one way that I can better see what leads to success. Focusing on the essential nature of success helps you become more successful.

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In life, a few people are absolutely terrible at their vocations and a great majority are just average. Luckily, the remaining folks (a relatively small number) are absolutely excellent. What makes them so very good? Why would you hire Mr. A rather than Mr. B? What can we learn from these people?

For example, while I was in San Francisco, I had to go across town in a taxicab and then back to work in a hurry and the driver was wonderful. He stayed calm in heavy traffic and was quite friendly and helpful. I would have hired him for my company. I liked his attitude. I liked his efficiency. If I drove a cab, I would like to be like him.

I went to a deli (a large chain) one afternoon and ordered a sandwich. Four employees stood in a line making sandwiches. Three of these people never looked at me even once, never smiled, never seemed to care if I lived or died. The third person in the line looked up with a kind smile and asked how she could be of help. She listened to my request and made the sandwich in the way that I had asked. She was quick and efficient. I would have hired her for my company. Her attitude made my day a bit brighter and she did her work with a certain sense of enthusiasm. If I made sandwiches for a living, I would like to be like her.

There are two ways to do things--More..

Get Out of Your Rut

On the airplane ride back from San Francisco, I was reading the magazine that is in the back of the seat pocket. It contained an interview with Malcolm Gladwell, a writer whom I really enjoy. He has a new book out titled David and Goliath talking about how underdogs can overcome the odds and manage to win. In this interview, Gladwell had one line that really caught my attention: “Don’t be passive and lose.”

I loved that. Too many people who get behind (for whatever reason), become discouraged and go down without a fight. They just give up. That’s nonsense. The only way to win if you are up against a difficult opponent (like the CPA Exam) is to put up a strong fight and then fight some more. If you don’t like how things are going at the moment, reassess your strategy and make changes and go back into the battle. Don’t be one of those people who just accepts “their fate” and lets failure wash up over them like the tide. Failure is almost never inevitable. Make changes. For instance...

Points to Pass™ for Financial Accounting & Reporting, one of four sections needed to pass the CPA exam, benefits users by working hundreds of new questions by question or by topic. A user can try the same question again (and again and again with different numbers) until sure they have mastered the concept. The best way to succeed is to practice, andPoints to Pass™ allows candidates to do that for as long as they feel is necessary.

Time for a little practice

Every time you figure out a new question, you have potentially added another point to your CPA Exam score. So, always be looking for new questions, especially for questions that you might struggle with. That’s where points can be added.

FAR

Little Company has 1,000,000 shares outstanding. Big Company pays $40 per share to acquire 800,000 of these shares. That price was considered reasonable for all of the outstanding shares of the company. Little had two assets: equipment with a net book value of $10 million and a fair value of $16 million and buildings with a net book value of $17 million and a fair value of $21 million. Little had no liabilities. On consolidated financial statements immediately after the acquisition, what is reported on the balance sheet as the noncontrolling interest?

A. -0-

B. $3 million

C. $5 million

D. $8 million

Auditing

CPAs for Englewood and Cliffs are auditing the financial statements of Veronica, Inc. The auditors are currently assessing the level of control risk. They have decided to test the operating efficiency of several specific controls in the accounts receivable system. Which of the following controls are they most likely to test the operating efficiency?

A. Controls where a significant deficiency exists

B. Controls that are suitably designed to prevent or detect a material misstatement

C. Controls that seem to be weaker than they were in the previous audit.

D. All controls relating to the audit must be tested.

Regulation

A company has a utility patent and a trademark. An author has a copyright. What are the valid lives of these rights?

A. Utility patent – 20 years, Trademark – indefinite, and Copyright – life of author plus 70 years

B. Utility patent – 20 years, Trademark – 24 years, and Copyright – life of author

C. Utility patent – 27 years, Trademark – indefinite, and Copyright – life of author

D. Utility patent – 27 years, Trademark – 24 years, and Copyright – life of author plus 70 years

BEC

What is meant by nominal GDP (gross domestic product)?

A. The price of all goods and services produced by a domestic economy for a year at current prices.

B. The price of all goods and services produced by a domestic economy at price-level adjusted prices.

C. The maximum amount of production that could take place in an economy without putting pressure on the general level of prices.

D. The price of all goods and services produced by labor and property supplied by the nation’s residents minus depreciation.

ANSWERS

FAR

Answer is D

Little Company is apparently worth a total of $40 million. That is 1 million shares outstanding times $40 per share (a price considered reasonable for all the shares, even those not acquired by Big). Of the total, the parent company acquired 80 percent or 800,000 shares. Another (outside) party continues to hold the remaining 200,000 shares. At the time of acquisition, they are worth $40 per share or $8 million in total. That is reported on the balance sheet to indicate that assets are being consolidated at full value even though the parent only has an 80 percent ownership. Some other party or parties continues to hold the remaining 20 percent of the $40 million subsidiary. The balance sheet will balance because of the inclusion of this 20 percent non-controlling interest.

Auditing

Answer is B

A CPA has no need to tests the operating efficiency of an internal control unless it is well designed. Based on this preliminary assessment, the auditor wants to rely on the control so that control risk can be assessed at a lower level and the necessary amount of substantive testing is reduced. There is no potential benefit unless the control risk is well designed so only in that case will the auditor move on to do the testing for operating efficiency.

Regulation

Answer is A

Utility and plant patent last for 20 years but a design patent is only valid for 14 years. A trademark must be renewed periodically but that process can go on indefinitely. If owned by the author, a copyright is for the life of the author plus 70 years. A copyright owned by a publishing house has a 95 year life (from the publication date) or 120 years from the creation date whichever expires first.

BEC

Answer is A

Nominal GDP is the price of all goods and services produced by a domestic economy for a year at current prices. Real GDP is the price of all goods and services produced by a domestic economy at price-level adjusted prices. Potential GDP is the maximum amount of production that could take place in an economy without putting pressure on the general level of prices. Net domestic product is the price of all goods and services produced by labor and property supplied by the nation’s residents less depreciation.

Have a great week. The October-November window is heading toward its end. Remember that you can still sit for the exam until Dec 6. Put in the time and effort necessary to end the year on an upswing.

You can do it!!!

Joe Hoyle

President

CPA Review for FREE

Do You Have a Strong Personal Goal?

noreply@blogger.com (Go Figure) — Mon, 14 Oct 2013 16:51:00 +0000

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October 11, 2013

Lesson 141

From: Joe

Vote Every Day Until October 13, 2013

WE NEED YOUR HELP. Over the years, I have received thousands of emails from candidates saying “thanks for providing so many free questions and answers so that I was able to pass the CPA Exam. Please let me know if I can ever return the favor.”

Okay, here is how you (yes, YOU) can help. It is easy and simple. We are participating in a contest to get a free Super Bowl commercial (wow, that sounds really impressive). We have made it down to the final 250 contestants. They are going to trim down the number again soon. We need for you to go to the following website and vote for US once a day untilOctober 20.

When you're on the website working questions, click on the orange VOTE button in the right side of the page.

Please do it. Please. We would love to win. And, it takes so little of your time. Just once a day for a few seconds. You can help us keep this website free to all. Tell your friends and neighbors and enemies and strangers to vote also. Let’s show the world that a free CPA Exam review program can garner genuine love and affection from its “customers.”

We cannot do it but YOU can do it!!!!

We offer you 2,400 free questions and answers. We have done that now for years. Return the favor and vote once a day untilOctober 20.

THANKS!!

Strive for a Personal Strong Goal

I was recently on a 16-day tour of Portugal and Spain. We traveled constantly and walked 1-2 miles every day. On the trip was a 91 year old woman. Much to my surprise, she matched our hikes step for step, day after day. She was amazing.

One evening at dinner, I asked her where she had been in the world. Here was our conversation.

She: Oh, I have been pretty much everywhere in the world.

Me: Okay, have you been to Tanzania?

She: Sure, I was there in about 1987.

Me: Have you been to India?

She: I’ve been to both the north and the south of India.

Me: Have you been to Japan?

She: Lived there for a while.

Me: Have you ever been to Antarctica?

She: Actually, I have been there fairly recently on a tour.

I was stunned by her ability to see the world. So, I asked her the question that I really wanted to know: More...

Words, Actions or Both?

I am reading a book (published in 1997) titled A Regular Guy by Mona Simpson who is the half-sister of Steve Jobs. The “hero” of the book is a creative and unique individual who starts an innovative company and gets very rich and appears (obviously) to be patterned after Mr. Jobs. I am not at all certain what the relationship was between Simpson and Jobs but, in this book, the “hero” does a lot of interesting things – many of which seem just plain eccentric but some seem truly like a genius.

About halfway through the book, the daughter of the “hero” looks at him and makes a really tough assessment: “but what he said was better than he was.” I stopped and read that line several times and wondered how often it applied to me. We all talk about what we are going to do, how much we are going to accomplish in life. We tell people all about our hopes and aspirations. But is that just talk or is it something that seriously guides our lives and pushes us forward?

Suppose someone went along behind us each day and wrote day everything we had to say. Which would be better: the words on that page or the actions we take? We talk about accomplishments but are they just mere words or are we capable of matching our words by our works? More useful actions...

Let’s add some points. Let’s do some practice.

The answers are at the end of all quesitons.

FAR

Assets and liabilities occasionally have to be reported at fair value. Fair values can be determined in many different ways. To help accountants know which is the best method to use to determine fair value, FASB created a three-level fair value hierarchy. Which of the following is not true about that hierarchy?

a. An investment in Ford Motor Co. shares is valued at its stock price which is a Level 1 valuation.

b. A potential asset retirement obligation is valued at the present value of the estimated future cash flows which is a Level 1 valuation.

c. A building acquired in trade is valued based on the recent sales price of a nearby building that was similar which is a Level 2 valuation.

d. A donut franchise is valued based on the sales price of a similar pastry franchise a few miles away which is a Level 2 valuation.

Regulation

The Gemini Corporation has a production machine with a tax basis of $80,000 and a fair value of $91,000. It is traded for a newer model machine with a fair value of $100,000. Gemini also pays cash of $8,000. Which of the following is true?

a. No taxable gain and the tax basis of the new asset is $100,000

b. No taxable gain and the tax basis of the new asset is $88,000

c. $1,000 taxable gain and the tax basis of the new asset is $100,000

d. $1,000 taxable gain and the tax basis of the new asset is $88,000

Auditing

The Aragon Company has two bank accounts. A check for $20,000 is drawn on bank one late on December 31 and deposited into bank two on the same day. In preparing a year-end bank reconciliation for bank two, the check is listed as a deposit in transit. In preparing a year-end bank reconciliation for bank one, the check is not listed as outstanding. What is the client most likely doing here?

a. A wash transfer

b. Kiting

c. A reciprocal transaction

d. Realignment posting

BEC

A company holds $300,000 in cash in a bank account. The company views this balance as a speculative balance. Which of the following is most likely to be true?

a. The money is being held in case a litigation claim is lost

b. The money is being held in case a weather emergency arises

c. The money is being held in case unexpected repairs are required in an electric generator

d. The money is being held in case inventory prices from suppliers suddenly drops.

Answers:

FAR

Answer is B

According to FASB, Level 1 valuations are preferred because they are based on active market prices (such as the stock price for Ford shares). Level 2 comes next which is based on observable inputs such as the sales price of a nearby building or franchise. Those sales prices are real not assumptions. Level 3 valuations are the least desirable because they are based on unobservable inputs that are based on assumptions. Using the present value of future cash flows is only an estimate and cannot be observed until time passes. The asset retirement obligation is a Level 3 valuation rather than Level 1.

REG

Answer is B

This is a trade of like-kind property. No gain is recognized in such trades unless boot (cash) is received. Here, the cash is paid so the trade creates no taxable gain. Thus, the new asset is recorded at the tax basis of the property surrendered: previous machine with a tax basis of $80,000 and cash with a tax basis of $8,000. New asset has a total tax basis of $88,000.

Auditing

Answer is B

By adding the money as a deposit in transit while not recording the reduction as an outstanding check, the company appears to have more money than it actually does have. This inflation is known as kiting and is used to either make the company look better than it actually is or cover up for money that has been stolen.

BEC

Answer is D

Answers a, b, and c are viewed as precautionary balances. The money is being held to take care of unexpected difficulties that might arise. A speculative balance provides the flexibility to take advantage of unexpected income opportunities. The drop in the price of inventory would be one such opportunity. The available money would allow the company to buy inventory at especially low prices.

Have a great week and vote for CPAreviewforFREE

Go Go Go!!!!

Joe Hoyle

President

CPA Review for FREE

How to Answer SIMS and MCQs

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September 23, 2013

Lesson 140

From: Joe

Set a Goal To Pass One or Two Parts in 2013

We are edging closer to the October-November testing window for the CPA exam. Are you going to be ready to knock out one or more parts during those two months? Remember, our 2,400 free questions and answers are just waiting for you atCPAreviewforFREE. We occasionally get people who are skeptical; who believe nothing should be free. Well, work some yourself and see for yourself. What do you have to lose? Why in the world wouldn’t you try some free questions? Avoidance makes no sense.

If you were starving and I offered you a free hot dog, would you turn up your nose and respond “I’m sorry – I don’t trust free. I’ll just sit here starving until something a whole lot more expensive comes along.” That cannot be a smart plan.

I must admit that I am always surprised that every college accounting program in the world doesn’t have our URL posted on all of the blackboards or their course website. I am surprised that every CPA firm doesn’t have a big sign about our website above their doors. We are free. Who else in this world offers you 2,400 great questions and answers for FREE. Thousands of people use our site every day and never pay us a penny. Are you really in such a big hurry to throw away thousands of dollars? Are you related to Bill Gates or Warren Buffett so that wasting money is no big deal?

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Learn Through Practice

How are you going to get ready to make passing grades in October and November? Let me tell you about a trick that I learned around 1973 and that I still use today. Back then, I read a book titled Psycho-cybernetics by Maxwell Maltz. I won’t try to repeat the entire book but Maltz began with the obvious idea that we learn through practice. He used the example of learning to drive a car. We get behind the wheel, we step on the gas, we steer the car. We do it over and over and we learn to drive.

Unfortunately, in our busy lives, there is only a limited amount of time that we have for practice. And, whether you are learning to drive a car or to play golf or tennis, a considerable amount of time also goes into the preparation. Maltz argued that real benefit could be obtained by more..

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How to Answer TBSs and MCQs

On the FAR and Auditing portion of the CPA exam, you will face 90 multiple-choice questions. Of that total, 75 are graded with the remainder checked for possible use on future exams. On the Regulation and BEC portions of the exam, you will see 72 multiple-choice questions. Here, 60 are graded with the other 12 being tested to see if they can be added to later exams. On all parts of the exam other than BEC, 60 percent of the grade comes from the multiple-choice questions and 40 percent from task-based simulations (TBSs). FAR and Auditing have seven TBSs; six of these are graded and one is checked for future use. Regulation has six TBSs and, again, all but one are graded.

No one ever asks about the structure of multiple-choice questions. From experiences in school, virtually every candidate has had plenty of knowledge of multiple-choice questions. But, the task-based simulations seem to cause a bit of consternation. On www.cpa-exam.org, the official AICPA website, the TBSs are described as follows: “Task-based simulations are condensed case studies that test accounting knowledge and skills using real life, work-related situations. Each task-based simulation is expected to take approximately 8 – 15 minutes to complete.”

So, in FAR and auditing, you need to reserve 105 minutes if you can (15 times 7 TBSs) for the simulations and in Regulation, you should try to leave 90 minutes (15 times 6 TBSs). That can be difficult to do so you need to monitor your time usage very carefully.

BEC is different because 85 percent of the grade comes from the multiple-choice questions. The remaining 15 percent is from 3 written communication questions, two of which are graded with the other one being pre-tested.

Here is some advice on the answering the TBSs. More...

Okay, Time for Some Practice

Read through each question and see how you can do. If you get them right, then that is great. If you miss one, you have a golden opportunity to add some additional information to your head.

FAR

Little Company has net assets with a net carrying value of $500,000. An evaluation of the individual assets and liabilities is made and they have a net fair value of $600,000. Big Company buys a 90 percent ownership in Little Company and pays exactly $630,000. This price is considered to be a good representation of the total value of this business operation. Immediately thereafter Big Company prepares consolidated financial statements. What amount, if any, should be reported as the noncontrolling interest in Little?

a. Zero

b. $50,000

c. $60,000

d. $70,000

Auditing

In Year One, CPAs compute the inventory turnover for an audit client and find that it is 9.0. In Year Two, they repeat the calculation but the inventory turnover has dropped to 6.0. Which of the following has most likely occurred?

a. The company is taken a week longer to pay its invoices in Year Two than it did in Year One.

b. The company over counted its inventory at the end of Year One.

c. Sales fell off in Year Two but inventory levels have remained the same.

d. The company began to sell online during Year Two.

Regulation

Lolly and Pop are equal partners in a partnership. Lolly receives a guaranteed payment of $80,000 per year because of work performed at the business. For federal income taxes, which of the following is true about that payment?

a. Lolly’s tax basis in the partnership is reduced by $80,000

b. The partnership’s ordinary income is reduced by $80,000

c. Lolly has an increase in taxable income of $40,000

d. Lolly has an increase in long-term capital gains of $80,000

BEC

What is meant by the term “capital rationing?”

a. Allocating investments between those that produce taxable and nontaxable income

b. Limiting new investments often by assuming a higher cost of capital

c. Setting up an investment structure where different amounts of money are invested for several different periods of time.

d. Dividing long-term financing in a prearranged ratio between debt and equity.

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ANSWERS

FAR Answer is D

The $630,000 price paid for a 90 percent ownership is viewed as a representation of the total value of Little. Mathematically, that total value is $700,000 or $630,000/90 percent. Of that $700,000 value, 90 percent or $630,000 is owned by Big. The remaining 10 percent or $70,000 is held by other owners. This $70,000 must be reported as the noncontrolling interest in a portion of the company’s consolidated balance sheet.

Auditing Answer is C

Inventory turnover is determined as cost of goods sold divided by the average inventory for the period. Here, the ratio went down. One possibility for the drop that was seen is for cost of goods sold to be high in Year One or low in Year Two. A second possibility is that average inventory could have been low in Year One or high in Year Two. In both cases, the ratio goes down. Answer (a) does not affect inventory or cost of goods sold and cannot be the answer. Answer (d) could change many possible balances so a specific drop like this is just one of many possible outcomes of this decision. For example, it could also have caused inventory turnover to go up if average inventory levels declined. Answer (b) understates cost of goods sold in Year One and overstates average inventory. In Year Two, cost of goods sold is overstated. Those effects are all backwards to what has been seen. Answer (c) is correct because cost of goods sold will drop with reduced sales but inventory balances were not changed.

Regulation Answer is B

A guaranteed payment from a partnership to a partner for work done is handled much the same as a regular salary expense. The ordinary income is reduced by $80,000 and Lolly reports earned income of $80,000. Because Lolly only owns half of the business, the reduction in ordinary income only creates a $40,000 decrease in Lolly’s tax basis in the partnership.

BEC Answer is B

Companies sometimes have to limit new investments often to align with budget requirements. To assist in making those decisions, some type of cap or restriction has to be placed on new investments. One common way is to assume a higher cost of capital. In that way, when the net present value is determined, fewer investments qualify as appropriately profitable.

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Joe Hoyle

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