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At Kaplan we build futures one success story at a time!
May 3, 2007
Kaplan CPA Review
www.kaplancpareview.com
Email Lesson
From: Teresa Anderson in Dallas, Texas
Hi, everyone!! Can you believe its May already? Spring is half over, and I
havent even planted my petunias! Half of this testing window is over now as
well. If you have already completed your part(s) for this
window
.Congratulations! I hope you have allowed a break for yourself after
each and every part you take. If you are testing during May, focus on your
goal, only smell the flowers on your days off from studying (as posted in your
Kaplan Activity Planner) and once your scheduled exam is behind you, you can
luxuriate in the spring weather and activities
. and plant those petunias!!
Im so sorry to have been away for too long. Im getting back on a better
schedule for sending out these lessons. I miss you when I dont communicate!
But I do have some exciting news to share: we have been very busy working on
the impending release of our 2007/2008 Kaplan CPA Learning Systems! All of our
materials have been reviewed, edited, and enhanced to incorporate the most
up-to-date information for your preparation for the CPA Exam. Our new Study
Manuals have been expanded with additional content; videos have been updated;
T/F and M-C software has been enhanced; Testlets have been updated; Simulations
have been added. Look for our release in mid-May!
SUBJECT: COMMUNICATING WITH THE AICPA
In April, all CPA Review Course providers met with the AICPA for a day to hear
whatever information they could reveal to us. This, as you might guess, is not
much. But, we meet several times a year and they update us on issues and
expected changes.
Unfortunately, no, they did not give us a copy of the next Exam, nor did they
tell us the answers for it. Only in our dreams would that happen! But, there
are some things that you might be interested to hear.
As promised earlier, they still maintain that the new audit Risk Assessment
standards will be tested beginning in July. We have included material on that
topic in our new books. We are also posting an update to our web site for
those of you who are using the 2006/2007 edition of the books.
Now, there was another tidbit of information they announced, and this came as a
surprise to all of us. When simulations are scored, only ONE sim is scored for
WRITING SKILLS. So, when you are taking your exam, it is so critically
important that you budget your time to include working both of the sims on your
exam. Do not leave one blank. You might just be submitting a blank page for
the only sim that is graded for writing skills. Only the AICPA knows which sim
is graded for writing; answer each and every one to the best of your ability.
Let me reiterate this: we are talking about the Communication tab of the sims,
where you write a letter, memo, report, etc. It is just this one tab, which is
where they score your writing skills, that is affected by what I just stated.
All other tabs of ALL sims ARE scored, including the Research tabs.
So what does this mean for you on Exam Day? You need to very carefully manage
your time
..and you should practice with sims numerous times in advance.
Practice with the free sims on the CPA Exam website (www.cpa-exam.org). If you
are a Kaplan student, use our simulation software. Respond to the writing
skills (Communication tab) questions to the very best of your ability. Only
one of them will actually result in a score, so you must do your best on both
of them. (If you purchase only our new Study Manuals you will have a link to
some free sims.)
On the Exam, there will be a timer built into the software. It counts
backwards so you know how much time is remaining. Plan in advance how much
time should be allocated to the multiple choice testlets and the sim testlets
(on all but BEC.) If you are taking FAR, as an example, there will be three
testlets of multiple choice and 2 of sims. The total time is 4 hours. The
AICPA recommends spending 30-50 minutes on each sim. Lets say you spend 45
minutes on each sim; that adds up to 1.5 hours. That means you have 2.5 hours
to spend on 3 testlets of 24-30 multiple choice questions. If you allocate
that time equally, each multiple choice testlet would take approximately 50
minutes.
Bottom line, were I taking FAR I would try to complete each testlet in 45
minutes, normally starting with the multiple choice testlets first. That would
consume 3.75 hours, leaving 15 minutes for wiggle room. If you go over a
little bit on one testlet, you wont totally blow your time budget.
While we are on simulations, we have our Essay Writing chapter in our study
manuals. Be sure to read that, do the practice exercises, and view the
online video about writing. (Anyone can access the free online video on writing
skills.) As with a lot of things in life, you can learn the AICPAs style of
writing and then practice, practice, practice! Put in the time and the focus
and you will get those points for writing skills. Ten points of your exam
score will be based on your writing skills in a sim. And, as we learned from
the AICPA, that represents only one of your two written communications being
graded. You must do well on both of them, because you dont know which one the
AICPA will choose to score.
SUBJECT: AND WE ARE DOING THIS BECAUSE
.
The other day, someone asked me why do people want to pass the CPA Exam
anyway? I thought that was an easy question
we all want to put that Exam
behind us so we can get on with the rest of our lives. We know that becoming a
CPA is just the next step after we finish our degrees. Graduation is
definitely NOT the end of our studying and learning. I often hear people say
do I really need to become a CPA
I dont plan to become an auditor.
Well, lets just pause a moment in our very busy schedules and reflect on that.
Why do you want to become a CPA anyway? If you truthfully and completely
answer that question, you will have a renewed sense of motivation and
determination. Its sometimes hard to keep studying when you view the CPA Exam
as just another test, another thing to drain your personal time, another
difficulty that you wish you could avoid! But, when you think more long-term,
you see the huge benefits of the certification, and you realize that in
cost/benefit terms, the benefits do hugely and greatly outweigh the costs.
I have taught accounting for more than 30 years. My students have been of
varying ages, varying careers, varying degrees of academic ability
.all across
the board. But, there is not a one of them who has ever said boy, I wish I
hadnt wasted my time on becoming certified. Most of us, myself included, had
opportunities open up to us that never would have been there without the CPA
credential. Life is a journey, and this world is huge and dynamic, so its
next to impossible to sit down today and really anticipate everything that will
cross your professional path in your working years. Being certified will boost
your career possibilities, enhance your professional stature, improve the
quality of your personal discipline, and add to your life-long learning.
(Dont forget there are those CPE
continuing professional education
.courses
after you are certified!!!)
This Exam may be one of the most challenging things youve done in a long time;
but it will surely add a ton of value to your life as well. Think about this
when you are studying, not about the TV show or ball game or other distraction
that you are temporarily putting on hold until you pass that Exam.
Your commitment to this goal will play a huge role in helping you stay focused
and determined when you are studying. (Make a sign for your wall: Your Name,
CPA
and look at it every day.)
SUBJECT: AUDITING & ATTESTATION
One of our content experts in auditing has prepared a list of tips for studying
for the AUD exam. As you will see, though, these tips apply to all four parts
when it comes to multiple choice questions. Here they are:
FIVE STEP SOLUTION APPROACH TO SUCCESS
HOW TO STUDY AUDITING: A GUIDE FOR TAKING THE CPA EXAM
All candidates should complete the tutorial and example questions on the
AICPAs website (www.cpa-exam.org) to obtain experience with the computer-based
testing.
Step 1. Carefully read the entire question before looking at the answers.
Do not jump to the conclusion that you know the answer before you have read the
entire question. Such action could actually result in your misreading the
question and answering incorrectly.
Step 2. Determine the concept being addressed in each question.
This will allow you to narrow your focus on one key topic area and will make
the question much easier to answer.
Step 3. Identify the pertinent information in the question.
Be careful, there are many times when some of the information provided in the
question is not relevant to the present situation. You must determine what
information to use and what information should be ignored.
Step 4. Anticipate the answer before looking at the answer choices.
If you have already formulated an answer before reading the answer choices, it
will be much easier to recognize the correct answer.
Step 5. Read all of the answers and select the best alternative.
This is especially important, because sometimes your final choice answer may be
all of the above, none of the above or combinations such as b and c only.
And, sometimes more than one answer will be at least partially correct.
Always choose the BEST answer.
Note: All multiple choice questions are graded based upon the number correct,
weighted by a difficulty rating. There is no penalty for guessing; therefore,
you should answer ALL the multiple choice questions. In most cases, there are
at least two obvious incorrect choices; eliminate these first, then review once
again the concept being addressed and make your best educated guess between
the two remaining choices.
SUBJECT: SIMULATING EXAM CONDITIONS AT HOME
Those of us who study in our spare time (after work, family, eating,
sleeping, etc.) may be studying in smaller chunks of time, say 30 minutes here
and there. Our Kaplan CPA Review materials are set up to make it easy to do
that. We know that when you have busy lives, this is just about the only way
to do it. How many of us have hours of uninterrupted time several days per
week to reserve for studying?
Learning that way is quite efficient. But, you also need to practice the
physical drain of sitting in that chair for the length of the exam and focusing
intently on the topic at hand. So, try to set up a few trial runs at home (or
in the office, any place you can study) where you take 3 multiple-choice
testlets and work a couple of sims under true exam conditions. Block out the
distractions and turn off the phones, and try this with a time clock nearby.
See how you do. Dont let the actual exam day be the first time you take a
timed exam. And, when you take our testlets (online, for each part of the
Exam) you are answering questions that are in no particular order. This is
good practice as well. While studying, you probably worked on one topic at a
time. The actual exam will have many different topics with just one or a few
multiple choice questions. This requires a different mindset. So, once
again, practice, practice, practice. Do this until you are sure you
know how it feels and that you can get through in the required amount of time.
(AUD = 4.5 hours; FAR = 4 hours; REG = 3 hours; BEC = 2.5 hours)
One of the future plans mentioned in the AICPA meeting in April is to develop a
process whereby candidates can actually visit a Prometric center to experience
what the real exam conditions and procedures will be. Once this feature is
available, we will let you know. There is no firm date for this right now.
SUBJECT: SOME SAMPLE EXAM QUESTIONS
Since the CPA Exam became non-disclosed a few years ago, we are not allowed
to get the entire Exam. However, they do occasionally release some actual Exam
questions to CPA Review Course providers. Ive included some below from FAR
and REG, just to give you a flavor of the actual Exam. Next time, Ill include
some others.
FAR Questions
1. Which of the following should be disclosed in a summary of significant
accounting policies?
A. Basis of profit recognition on long-term construction contracts.
B. Future minimum lease payments in the aggregate and for each of the five
succeeding fiscal years.
C. Depreciation expense.
D. Composition of sales by segment.
Answer = A.
This question is often missed, because candidates look at the answers, take a
too-quick look at the question, and then actually answer the wrong question.
(Dont make up your own questions; the AICPA does that for you!!) The key
point is they are asking for disclosures in SUMMARY OF ACCOUNTING POLICIES.
All of these answers may be disclosed, but not all are ACCOUNTING POLICIES.
Answer A is the only one that satisfies that requirement.
2. Cart Co. purchased an office building and the land on which it is located
for $750,000 cash and an existing $250,000 mortgage. For realty tax purposes,
the property is assessed at $960,000, 60% of which is allocated to the
building. At what amount should Cart record the building?
A. $500,000
B. $576,000
C. $600,000
D. $960,000
Answer = C.
The total amount paid for the asset is the $750,000 cash plus a liability of
$250,000, for a total of $1 million. The tax assessment is not recorded on the
books, but it is used as the basis for allocating the purchase price over the
two assets acquired. This is often referred to as a basket purchase, or
multiple assets purchased for one lump sum price. We need a basis for
allocating the single amount paid. We can use the 60% to say that 60% of the
total value was related to the building. 60% of the $1 million yields the
$600,000 for the building.
3. Arpco, Inc., a for-profit provider of healthcare services, recently
purchased two smaller companies and is researching accounting issues arising
from the two business combinations. Which of the following accounting
pronouncements are the most authoritative?
A. AICPA Statements of Position.
B. AICPA Industry and Audit Guides.
C. FASB Statements of Financial Accounting Concepts.
D. FASB Statements of Financial Accounting Standards.
Answer = D.
Do you remember the GAAP Hierarchy from every intermediate textbook in the
world? Ive included it below. You may be thinking, do I need to memorize
that whole list? Probably not, but become familiar with it so that you can
remember a few key points as tested in this multiple choice question.
Immediately, you can rule out answers A and B. The AICPA ARBs (Accounting
Research Bulletins) are the only AICPA documents that are in the most
authoritative category. (Category A). That leaves C. and D., and the
Standards are definitely more authoritative than Concepts. I think you would
answer this correctly even if you didnt memorize the whole list.
Category A
a. FASB Statements of Financial Accounting Standards (SFAS)
b. FASB Interpretations
c. Accounting Principles Board (APB) Opinions
d. AICPA Accounting Research Bulletins (ARB)
Category B
a. FASB Technical Bulletins
b. AICPA Industry Audit and Accounting Guides cleared by the FASB
c. AICPA Statements of Position cleared by the FASB
Category C
a. AICPA Accounting Standards Executive Committee (AcSEC) Practice Bulletins
cleared by the FASB
b. Consensus positions of the FASB Emerging Issues Task Force
Category D
a. AICPA accounting interpretations
b. Implementation guides published by the FASB staff
c. Practices that are widely recognized and prevalent either generally or in a
specific industry
d. The higher category is usually predominant over the lower category in case
of any conflict in the interpretation for the treatment of a particular
transaction
4. According to the FASB conceptual framework, the quality of information that
helps users increase the likelihood of correctly forecasting the outcome of
past or present events is called
A. Feedback value.
B. Predictive value.
C. Representational faithfulness.
D. Reliability.
Answer = B
Here is another concepts question. Remember the qualitative characteristics of
accounting information? When you read this question, it asks for a quality
that helps you forecast the outcome of events. What does forecasting mean? It
means predicting the future. Which of the answer choices relates to the
future? Predictive value is the most likely choice, even if you did not know
the definitions of all these. Predictive
predict the future
see how that works?
Here are the qualitative characteristics:
The primary qualitative characteristics are:
Relevance, consisting of predictive value, feedback value and timeliness. Note
that all of these have something to do with time: predictive value (future
time); feedback value (past time); and timeliness (prepare the information on
time.)
and
Reliability, consisting of verifiability, representation faithfulness, and
neutrality.
The secondary qualitative characteristics are: consistency and comparability.
5. Payne Co. prepares its statement of cash flows using the indirect method.
Payne's unamortized bond discount account decreased by $25,000 during the year.
How should Payne report the change in unamortized bond discount in its
statement of cash flows?
A. As a financing cash inflow.
B. As a financing cash outflow.
C. As an addition to net income in the operating activities section.
D. As a subtraction from net income in the operating activities section.
Answer = C
Follow this logic: Bond discount is a debit balance account, offsetting the
Bond Liability account credit balance. When the debit balance in unamortized
discount declines, it is credited. The debit in that journal entry is to
interest expense. So, you are recording non-cash interest expense. What do
you do with non-cash expenses on the statement of cash flows? You add them
back to net income in the operating activities section. Interest is not a
financing section item, even though the payments/receipts from Bonds are in the
financing section.
6. Which of the following is a research and development cost?
A. Development or improvement of techniques and processes.
B. Offshore oil exploration that is the primary activity of a company.
C. Research and development performed under contract for others.
D. Market research related to a major product for the company.
Answer = A
Answer A is the classic definition of R&D. You might be distracted by C. and
D., because they contain the word research. But, answer C. is work performed
for others, so it is not R&D for the company performing the contract R&D.
Market research is not considered R&D, and is usually performed after a product
reaches market. When answering these questions, focus on the
development/improvement of new products and processes. Often, there is the
term commercial production in such a question. If the company is engaged in
commercial production, they are past the R&D phase, and costs of commercial
production are not R&D.
These FAR multiple choice questions are not terribly difficult. In fact, not
many individual questions are all that difficult. But, the fact that so many
different topics are tested makes the Exam challenging. Remember what we
always say, the CPA Exam is a wide river but a shallow river. The breadth is
large, but the depth of the testing is shallow.
REG Questions
Here are a few REG questions for the taxation area.
1. Porter was unemployed for part of the year. Porter received $35,000 of
wages, $4,000 from a state unemployment compensation plan, and $2,000 from his
former employer's company-paid supplemental unemployment benefit plan. What is
the amount of Porter's gross income?
A. $35,000
B. $37,000
C. $39,000
D. $41,000
Answer = D.
All of these items are included in gross income. Unemployment compensation is
not tax exempt.
2. A partnership had four partners. Each partner contributed $100,000 cash.
The partnership reported income for the year of $80,000 and distributed $10,000
to each partner. What was each partner's basis in the partnership at the end of
the current year?
A. $170,000
B. $120,000
C. $117,500
D. $110,000
Answer = D
$100,000 contribution of cash plus $20,000 (one-fourth of reported income) less
$10,000 (distribution) = $110,000.
3. Which of the following items should be included on the Schedule M-1,
Reconciliation of Income (Loss) per Books With Income per Return, of Form 1120,
U.S. Corporation Income Tax Return to reconcile book income to taxable income?
A. Cash distributions to shareholders.
B. Premiums paid on key-person life insurance policy.
C. Corporate bond interest.
D. Ending balance of retained earnings.
Answer = B
Premiums paid on key-person life insurance are expenses on the GAAP-based
financial statements but are not deductible for tax purposes. Therefore, this
is a reconciling item.
4. Which one of the following will result in an accruable expense for an
accrual-basis taxpayer?
A. An invoice dated prior to year end but the repair completed after year
end.
B. A repair completed prior to year end but not invoiced.
C. A repair completed prior to year end and paid upon completion.
D. A signed contract for repair work to be done and the work is to be
completed at a later date.
Answer = B
Answer A is incorrect because the work has not been completed. Answer C is
incorrect because the payment has been made; there is no need for an accrual.
Answer D is incorrect because the work has not been started. Answer B is
correct; the work is complete and no payment has been made.
5. Which of the following types of entities is entitled to the net operating
loss deduction?
A. Partnerships.
B. S corporations.
C. Trusts and estates.
D. Not-for-profit organizations.
Answer = C
Answers A. and B. are pass-through entities. Answer D is a tax exempt
organization.
6. Tanas divorce decree requires Tana to make the following transfers to
Tanas former spouse during the current year:
Alimony payments of $3,000.
Child support of $2,000.
Property division of stock with a basis of $4,000 and a fair market
value of $6,500.
What is the amount of Tanas alimony deduction?
A. $ 3,000
B. $ 7,000
C. $ 9,500
D. $11,500
Answer = A
Alimony payments are tax deductible. Child support and property settlements
are not tax deductible.
I hope you enjoyed those questions!
Well, continue to study and if you are using Kaplan CPA Review materials,
follow that Kaplan Activity Planner. It guides your study, breaks it down into
manageable chunks, and best of all, tells you when its time to take a day off!
You CAN and WILL pass this exam with dedication, focus and preparation. Its
not a difficult feat, just a big one!! Keep on your schedule, put in the time,
and you will be able to hang that CPA Certificate on your wall. Best of
success to you!
SUBJECT: THE RULES
You can use any of this information that you find to be helpful. You can pass
it along to your friends. In fact, we hope that you will pass it along so that
we can help everyone. However, the use of any of this information for monetary
gain is strictly prohibited. (Its free stuff, and we want it to remain free.)
We know this process can get long and difficult. It is easy to become
discouraged. Just remember that one day you are going to feel that jubilation
that comes from taking on a very difficult challenge, putting in the work, and
eventually scoring success.
You are going to become a CPA, and have lots of time to plant your petunias!!
You are going to do it, and we here at Kaplan are going to help you make it.
Teresa
Teresa Anderson
Kaplan CPA Review
www.kaplancpareview.com
1905 Palace Street
La Crosse, WI 54603
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