 Hello, and welcome to the session. This is Professor Farhad. In this session, we would look at previously used CPA questions that were recently released by the AICPA. Those questions are the real deal. Those questions were used on the actual CPA exam in the past. They may or may not appear again in the future, but the concepts in different format will be tested. So it's very important if you're studying for the exam to be able to read those questions, approach them, and answer them. As always, I would like to remind you to connect with me on LinkedIn. If you haven't done so. YouTube is where I house my 1,500 plus accounting, auditing, tax, and finance lectures. This is a list of all the courses that I cover, including the number of lectures for each course. On my website, you will have access to additional information such as PowerPoint slides, note, multiple choice, true, false, 2,000 plus CPA questions, and I will be posting these questions, the AICPA released questions on my website as well. Let's take a look at the first question. And for starting the session, what I'm gonna be doing for every question, I'm gonna tell you where can you find the related topic on my YouTube, or if you wanna go to my website for additional information. For example, this question is from my intermediate accounting course, chapter 11. So chapter 11 will cover this topic. The next session will be chapter 17, so on and so forth. So you would need to know what this means. Basically, if you need to go and learn about the topic, this is where you would go on my website, okay? So this is what this is for. Let's go ahead and get started. I'm gonna try to read all the questions, all the questions, so people who are listening, they can follow with us as well. First thing, just FYI, this question is application. Application means you might have to do some, take in some concepts and apply the concept. So let's take a look at this application problem. Hull purchased a machine on January 1st at a cost of 140. Cost is 140. The machine had an estimated useful life of eight years, a salvage value of 60,000. Hull chooses to depreciate the asset using the double declining balance method. What is the carrying amount of the machine and Hull's balance sheet at the end of the second year of operation? Well, first we are using the double declining balance. Immediately, once you know it's the double declining balance, it's eight years, you'll take one divided by eight and immediately you would need to know one divided by eight is 12.5. The straight rate is 12.5, multiply by two. The double declining rate is 25%. So simply put on the exam that you don't wanna waste your time going through one divided by eight on the calculator. One divided by eight is 12.5. One divided by five is 20%. One divided by 10 is 10%. You wanna memorize those so you can save some time on the exam. So this is what I call the double declining rate, okay? Now, what are they asking us? They're asking us for the book value, the carrying value as of year two. What does that mean? It means we have to find two years of depreciation, deduct those two years from the cost and this will be our answer. Okay, let's start with year one. Year one, what we do is we'll take 140,000 which is the beginning of the period book value because there's no accumulated depreciation times 25%. Now, you can do this real quick. I can do it 140 times 0.25. Year one depreciation equal to 35,000. Now we go to year two. Year two is 140, the cost minus prior depreciation 35 which is the book value times 25%. So let's do that. So 140,000 minus 35,000 which would give me the new book value 105 times 0.25. That's 26,250. 26,250. Now immediately I wanna look at an answer that ends with 750 because I'm gonna take 140, the cost minus this and minus this, prior year minus the accumulated depreciation. And the answer was 750 is 78,750. So if you don't have time, C is the answer. How did I know C is the answer? Because 26,250, if I deduct, this is triple zeros, this is 250. So if I deduct those numbers from 140, the answer should be 750 and C is the only answer and C indeed is the answer. If you take 140 minus, you can do the math if you want to minus 35, minus 26,250. This answer here must be 750, okay? And that's the only one that's 750. All right, so this is if you are strapped on time. All right, let's take a look at this question. This is chapter 17 in my, covered chapter 17 in my intermediate accounting, the topic is covered there. Dodds, debt investments at December 31st including, included available for sale security. So it's a debt investments available for sale with the cost basis of 24 and a fair value of 30. So simply put the value went up $6,000. The value went up, they have an unrealized gain of $6,000. Dodds income tax rate is 20%. Okay, that's fine. What's the question? What amount of unrealized gain or loss should Dodd recognize in its income statement? This is a 10 second question, 10 seconds, that's it. All what you need to know, available for sale goes on for debt securities, goes into OCI. So what amount goes on the income statement? Nada, nothing, immediately nothing. This is a tricky question. This question is tested on your knowledge. Do you know that debt securities available for sale, unrealized gain or loss goes on the income statement or other comprehensive income? Other comprehensive income, the answer is B. So although it says application, I would say this is more like understanding and memorizing because if you really understand the question, it will take you literally 10 seconds to answer this question. Let's take a look at this question, which is also covering from my chapter 17, chapter 17 intermediate accounting, okay. Gold company has a 25% interest in the common stock of rows and 18% interest in the common stock of JAV, okay. Neither investment gives gold the ability to exercise significant influence over either companies operating or financial policies. Okay, which of the two investments should gold account using the equity method? Well, to use the equity method, you have to have significant influence and they tell you right here, neither gives you significant influence. The trick here is to remember, to have significant influence, it has to be between 20 to 25, okay, up to 50. So 25 could be included, but they told you here, neither give the ability to exercise significant influence. Definitely rows is out because rows is 18, it's below 20. The tricky part is 25. Although it's 25, if they tell you, you don't exercise significant influence, maybe the other shareholders, maybe there's one shareholders that control 75, which gives you no saying here. Go guess what? If neither have significant influence, you cannot use the equity method, therefore the answer is D. Again, this is remembering and understanding, but here you have to be very careful because a lot of people, they see the 25% and they would say automatic significant influence. If they did not say, if the question reads, they don't say anything about significant influence. They tell you 25%, I would say there is a significant influence, but they clearly stated, you cannot exercise significant, you don't have significant influence over either company. Therefore, you cannot use the equity method, you have to use the cost method or fair value method, okay? Let's take a look at this question. This is covered in my intermediate accounting chapter 12. They incurred legal fees and defending its patent. These legal fees should be capitalized when the outcome is what? So simply put they're asking you, when do you capitalize your legal fees? Again, this should be a 10 second questions. When do you capitalize your fees when you win that legal case? When you are successful, if you are unsuccessful, you cannot capitalize it. So successful is A and B, but unsuccessful, it says one yes and A says one yes, and unsuccessful yes, it cannot be. If you are successful, yes, unsuccessful, you cannot. So the answer is B. Again, this is a 10 second question. This is remembering and understanding. And this is where you save time on other application and analysis problem and critical thinking problems. Let's take a look at this question which is covered in my chapter 12 as well. Corbett Company purchases a copyright near the beginning of the current year from an author for $20,000. That's their cost, 20,000. The legal life of the copyright is equivalent to the life of the author plus 50 years. Corbett expect to sell the book for five years. So we have a useful life and we have a legal life. The legal life is 50, the useful life is five. What amount should Corbett report amortization expense related to the copyright at the end of the current year? Simply put, you have this $20,000. How are you gonna amortize this expense? Are you gonna amortize it over 50? Are you gonna amortize it over five? The useful life or the legal life? And the rule is the shorter of the two. Although it says here application, once you know it's the shorter of the two, the shorter of the two is five. Therefore it's gonna give us $4,000 as an answer. I'm sorry, four. Yes, it's gonna give us $4,000 as an answer. It's five years, not 50 years. You would depreciate it over the shorter of, useful or legal, useful or shorter. The answer is 4,000. In the next session, I will keep on working additional CPA questions from far. Once again, I encourage you to visit my website and I strongly encourage you to subscribe as it's an investment in your career. You're gonna have to study for your CPA once, so do it right. Don't, it's a lifetime investment. Don't short change yourself. Good luck and study hard.