 Hello and welcome to the session in which we would look at CPA questions that cover topics that could be asked about the balance sheet. The balance sheet is an important topic on the CPA exam, as well as accounting classes if you're taking intermediate accounting. So it's very important to understand the component of the balance sheet and how these components interact with each others. But before I start, I would like to let you know if you are a CPA candidate or an accounting students to visit my website, farhatlectures.com. No, I don't replace your CPA review course. You can keep your CPA review course if you are studying for your CPA. I can be a useful addition. I can add to your CPA exam score 10 to 15 points by explaining the material differently, by showing you how to approach the problem, by expanding your knowledge, this way you will gain more confidence on the exam day and be able to use your CPA review course much, much more efficiently. You risk with me at one month of subscription. Try me. If you don't like it, you cancel. If you keep it, your potential gain is passed in the exam. Many people have used it and they succeed. I hope you do. And my courses are mirror image of your CPA review course, so you can follow very easily between your course and my course. And if not for anything, take a look at my website to find out how well your university is doing on the CPA exam or actually not doing on the CPA exam. I do have also resources for other accounting courses, especially intermediate accounting, if you're studying for your intermediate accounting. Connect with me on LinkedIn if you haven't done so. And on LinkedIn, you can view some of the people that used my system, used my resources to succeed on the CPA exam. Please like this recording, share it with other connect with me on Instagram and Facebook. So let's take a look at the first question. When a company sells land for cash and recognizes a gain of 25,000, what would happen? So we are giving four answer choices. My strategy on the CPA exam, you should be able, for the majority of questions, you should be able to eliminate two choices immediately. In a sense, if you have a basic understanding of the information, you should be able to eliminate two choices. So let's see what can we eliminate here immediately. If we have a decent understanding of the material, you can only do so if you really understand the basics. If you understand the basics, and I'm going to show you what I mean in a moment, I'm going to illustrate this. Hopefully, I will illustrate this in every exercise or every question. So this way, you will get the idea, what do I mean by basics? A, its asset test ratio will decrease. B, its current ratio will decrease. Now, if you know anything about those two ratios, in a sense, they're very similar to each other. What does that mean? If something happened to the current ratio and the current ratio goes down, most likely the asset test ratio will go down. So if A is a possible answer, B should be a possible answer. If B is a possible answer, A should be a possible answer. We know that we sold it for cash. We know for a fact that cash went up also another way to look at it. Cash went up. Cash is a current asset. Well, if cash is a current asset and nothing happened to our liabilities. So if anything, if anything, if anything, which it's not even true here, current ratio should go up because we have more cash. And if our current liabilities stay the same, it should increase. So immediately, as long as you know this information and you can process it real quick, I'm done. I'm done with A and B. I'm down to 50-50. Now 50-50 is C at that to equity ratio decrease or D, it cannot be determined from the given information. So simply put, can you find out from this information whether you can, whether, although you have to find out now whether that to equity ratio will decrease. Okay? And I would look into C and why would I look into C? Because I have a gain. Again, remember the gain will increase your income, which in turn increase your equity. So there's some logic to this C answer, but what you should do quickly when you are giving those, what happened to these ratios? If this happened or if that happened, immediately put down some numbers. Let's assume that to equity ratio, that was 100,000 and equity was 100,000 before this transaction. We know after this transaction what happened is that was not affected. We are not told anything about that. That's that. And we know that the 25,000 was added to equity. Did that to equity ratio goes down? Yes, it did. Because why we have more less in the numerator than the denominator? So the answer will, you know, it's going to go down. So if this was 100 divided by 100 equal to a 1, 100,000 divided by 125,000, it's going to be less than 1. It did go down. I will go with C. But again, I'm going over these information very, you know, very, very quickly. But on the exam, it should take you, I would say, 20 seconds to eliminate A and B. And you're down to 50-50, whether it's C or D, you can try to find out whether it's C or D. Okay? Let's take a look at this question. What would Adam report as total shareholders' equity? So they're asking about, the reason I ask the question first, because you are giving a lot of numbers. When you are giving a lot of numbers, you could be asked many questions. So read the question first. So we're looking for Adam's shareholders' equity. Listed below our year-end account balances. So Adam heard his name and he's joining me now. Listed below our year-end account balances taken from the records of Adam's stores. What would be the Adam's total shareholders' equity? Simply put, in these questions, we are trying to find out what is the equity. And here, they could be giving you these questions in many different scenarios, but here they're giving you the account with their balances. So you have to know which one are the equity accounts. So basically, we can go through the list and hopefully you know that paid and capital is equity. Retained earning is equity. So I'm just picking the equity accounts. You have to know this. You have to basically know which one are the equity accounts. And let's see what else. What else? What else? Dividend payable. Common stock. Common stock is equity. And I don't see more than those three accounts. So if we take 485 plus 15 plus 308, and that's going to give us 808, and the answer will be B. So the answer is B. Let's take a look at this question. If a company records cash received for services to be provided in the future with a debit to cash and a credit to service revenue. How will this error affect their income for the current period? Well, what does that mean? It means you receive cash for services to be provided in the future. You have a debit to cash. Let's assume $10,000 for the sake of illustration. And you credited service revenue. $10,000. What would happen? Well, under those circumstances, I have more revenue. I have more revenue because the correct answer would have been debit cash credit unearned service revenue. Therefore, is it not possible? Yes, it is possible. Net income. So it's affecting net income. So we have net income in all three answers. If it will not be correct, it will be either too high or too low. And hopefully you would know if you have more revenues, your net income will be too high. Therefore, the answer is C. Let's take a look at this question. Aram Corporation Trial Balance included the following account balances at December 31st, 2021. So you have to be careful about the date here. And they're asking us here to determine the, I did not put the question here. The question is, can you determine current liabilities? So which of these we have a bunch of liabilities and we want to know which one are the current liabilities? Account Spable. Is Account Spable current liability? Hopefully we know this. Account Spable is current liabilities. $25,200. Bonds payable do $20,30. Well, from the date, do $20,30, it will not be a current liability. Salary Spable. Yes. Salary Spable are accrued liabilities. Those are current liabilities. Note Spable do $20,22. Well, let's take a look at the date. We're looking from December 31st, 2021. Count 12 months. Is this do within 12 months? Yes. It will be another $20,100. Therefore, if we add those up, so we are looking at $400. And the answer with $400 is D. So this is how I do it once I know that's the answer. So the answer is D. So current liabilities is $61,400. Now you could be asked about what are the long-term liabilities. Make sure you know the difference between current liabilities and non-current or long-term liabilities. Let's take a look at this question. Recent financial statement data for Adam Company is shown below. What is Adam's debt to equity ratio? Now we're asking about what is that to equity? That's the question. So we have to find out what is the debt to equity. So we have to find out that we are giving total debt here. So we are giving that $575. And we are giving equity. We are giving equity $498. Now this question is pretty straightforward. And although it's straightforward, you have to understand that you don't have to memorize, for example, a ratio like debt to equity. Debt to equity is debt divided by equity. Just look at the ratio. Now you want to make sure you understand what does it mean. Is $1.15. Now although this is the answer, I can ask you for this question, what is return on asset? Return on asset. Can you answer that question? I can ask you this question, what's return on equity? What is return on asset? Generally speaking, return is net income divided by asset. Good. We have net income here. And guess what? We don't have asset. Can we find asset? Of course we can. If we have debt and equity, assets equal to debt plus equity. The reason I went this problem to show you that from this information, you can find assets. And once you find assets, you could be asked so many different questions about this data. But if they told you what is return on asset, you'll be saying, I don't have my assets here. How can I find assets? You can find assets. If you're giving debt and equity, remember assets equal to debt plus equity, which is liabilities plus equity. And based on this question, I can ask you five, we'll say five to 10 different ratios to answer. Anyhow, again, as I end every time, I want you to take a look at my website, farhatlectures.com. Again, I don't replace your CPA review course. I can help you get better at preparing for the exam. Your risk is $30 a month. Try it. If you don't like it, cancel. If you like it, keep it. I helped many people in the past. I can help you. Good luck. Study hard. And of course, stay safe.