 Hello and welcome to this session. This is Professor Farhat and this session would look at previously used CPA questions by the AI CPA that were recently released. This is the real deal. Those are questions were actually tested on the exam specifically on the far section. As always, I would like to remind you to connect with me on LinkedIn. If you haven't done so, YouTube is where you would need to subscribe. I have 1500 plus accounting, auditing, tax and finance lectures. This is a list of all the courses that I covered, including CPA questions. I do apologize. I'm a little bit sick. So my voice is not at its best on my website. You will find additional resources such as notes, PowerPoint slides, additional true false multiple choice, 2000 plus CPA questions and hundreds of exercises that be considered quasi CPA simulation. Let's go ahead and take a look at the first question. The first question reads a cruel accounting involves accruals and deferrals. Absolutely. Which of the following best described accruals and deferrals? So this question test your remembering and understanding per the AI CPA. What does that mean? It means this question you just have to read. You should remember the answer. Okay. You should memorize what deferral in a cruel or if you don't, it's better that you understand it, but it's both. It's understanding remembering and understanding. Questions such as remembering and understanding. They should take you less than 45 seconds to answer. Okay. And simply put, let me tell you something. If you're in my class and you're taking my intermediate accounting course and you failed this term, you don't know what a cruel accounting is. Well, guess what? You're not ready to pass my course on the CPA exam. You failed the term accrual accounting, which is an important concept, but it's a cruel accounting. I don't think you're going to pass your exam. The point that I'm trying to make is you have to know the basics 100% when you sit for the exam. So questions like this, those are easy, peasy, like free, easy questions. So let's take a look at the first and see if we can answer those questions. Hey, accruals are concerned with expected future cash receipts and payments. Is this true? Yes. Remember, we have accrued revenues and we have accrued expenses. Those are the accrual accrued expenses. And when we have accrued revenues and accrued expenses, when we have accrued revenue, we debit account receivable credit revenue. And that deals with future cash receipts. For the accrued expenses, we debit, we debit an expense and we credit a payable. Well, that deals with cash payment. So it seems accrual. This fits the definition, but you should, you should know this before the exam. So far, so good. While deferrals are concerned with past cash receipts and payment. Is this true? Yes. We have two type of deferrals. We have deferred expenses or prepaid expenses. And we have deferred revenue or unearned revenue. And yes, both of those, they deal with past cash receipt and payment prepaid expenses. Or deferred expenses. You paid the money in the past. So in the past, you debited the prepaid and you credited cash and you created the deferred expense. And for unearned revenue, you debited cash and you credited unearned revenue. So simply put, A looks like a good, good answer for me. I will go with A. Now on the exam day, when you read A, you should know that what deferral and revenue is. Now, if you have any doubts about this topic, go to my chapter three. Intermediate Accounting Course. Okay. Intermediate Accounting and I go over accruals, accrual accounting very much in detail. Okay. But let's take a look at the other answers. Let's start from the bottom. It says both accrual and deferrals are concerned with past cash receipts and cash payment. Guess what? If you answer C or D, like both accrual and deferral are concerned with expected future cash flow, you're saying there is no difference between the two. Immediately, you should eliminate those two. And if you select any of these answers, good chance you are not going to pass the CPA exam. Because if you don't know what accrual is, once again, you're in trouble. But what I'm trying to say is, if you could eliminate C and D, you're down to 50-50. Now here, accrual are concerned with past cash receipts and payment. No, accruals are concerned with future. So this will be eliminated. A is the answer. Okay. Let's take a look at number two. It should not take you that long on the exam, obviously, but I'm trying to kind of walk you through how you should be approaching each question. During the current year, Coley Company has an unrealized gain of 100,000 on that investments classified as available for sale. Simply put, they have a bond and that bond has an unrealized gain of 100,000. Coley's corporate income tax rate is 25%. What amount of the gain should be included in net income and other comprehensive income and at year end? Okay. And this question is application. I would say this question is most likely remembering and understanding in my book. If you ask me. So simply put, if you know it's a debt investment, it really should be the one. Debt investment, it's a bond. It's available for sale. Guess what? It goes into OCI. OCI. Now we have 100,000 of it. We're going to pay 25% in taxes. What we're left with is 75,000. So if I know it's going to go into OCI, okay, immediately that investments available for sale goes OCI. I eliminate this and this. I'm left with those to 75 and 75. So A is out, B is out. Now between C and D, what should I put? Well, guess what? OCI is reported net of tax. Simply put, the tax is reported. It's net of tax. Therefore, the whole thing goes into OCI. So it's 75,000 in OCI. Again, in my book, you get a question like this. This is considered an easy, although it's an application question. It's still an easy question. You have to remember debt investments and they told you it's available for sale. Available for sale, debt investments, OCI. We're done with this. During the year, the company purchased 200 of its ATRA bonds at power value and 50,000 of US Treasury bills. V classified the bonds as available for sale. So we have bonds and the bonds are AFS and the Treasury bills. Those are the 200,000 and the Treasury and the Treasury bills are 50,000 and they are cash equivalent. Okay. And V statement of cash flow. What amount should be reported as net cash used and investing activity? So do you understand the statement of cash flow? And do you understand what investing activity is? This is cash flow is very important statement of cash flow. Well, let's start with zero. So for simply put, before we start with zero, a full talk in bonds. Bonds is an investing activity. So definitely the 200,000 will be included. Treasury bill. Treasury bill here, they are considered cash equivalent. Cash equivalent is not investments. Cash equivalent will be counted with cash. So it's included with cash. Therefore, cash, the 50,000 cannot be included. Therefore, it cannot be 250 because I'm not adding the 200 plus the 250. So it cannot be D. The bond is available for sale. That's a form of investment. A is out and I'm not going to, there's no reason to subtract the two. There are two different investments. So B is out. So I'm left with C. C is, it's an investing activity bond. When you buy bonds of other companies, it's an investing activities. Now this topic is important. It's in my intermediate accounting course, chapter five, as well as chapter 23. So I have the statement of cash flow heavily, heavily covered in my courses because it's very important on the CPA exam. And this is an application. I would say this is also should be an easy question. Easy question. Another application question. Ace company issued 1,000 shares of its $10 par value common stock. For $15 per share in cash. Okay. How should this transaction be reported in the statement of cash flow? So again, we are back to the statement of cash flow. So when the company issues stocks of its own company, so the company sold stocks and they received cash, they received cash. What type of activity is this? Well, you need to know this is a financing activity. The company is selling their own stock. They issued 1,000 of its own stock. It's a financing activity and it's an outflow or info. It's an info. So it's an inflow of financing. Let's look 15,000 cash inflow from financing. That's the answer. If you don't have time, move on. Okay. Again, this question like this 30 seconds in my book. You read the question. She should not take you more than 30 seconds to find the answer. Issuing your own stock is a financing activity. You don't answer this question correctly on the exam. There's a good chance you will not pass because think about it. The AICPA, they don't want somebody who does not know that issuing your own stock is a financing activity. That's my point. Let's look at C. C looks tempting. 15,000 cash flow from investing activity. This is when you sell stocks of other companies. When you sell stock of other companies, when you sell stocks of other companies, when you sell stocks of other companies, then it's an investing activity, but not, not, not in this situation. Okay. You're selling your own stocks. Ace company selling Ace company stocks. B and C cannot be the answer because they separate the 10,000 and the 5,000. Okay. Let's take a look at this question. It's remembering and understanding. It means you should be able to answer it very quickly. S company has a payable to its parent. Okay. So we have a sub and we have a parent and S company has a payable dash parent. You should not be writing those. You should not be writing those, but in your mind, you just want, I want you to understand that you have a payable to the parent and which of the following balance sheet should this payable be reported. So if they have a payable, the parent will have a receivable. Okay. Receivable sub, the people will have receivable sub. We can write this down. So the sub simply put the sub will have a payable dash parent and the parent will have a receivable dash sub will have receivable from the sub. So they're asking for the payable. Where would the payable appear? Would it appear on the struts balance sheet? Would it appear on subs balance sheet? Of course it does because they have a payable and will appear. So C and D immediately out. Okay. We're left with A and B. You're down to 50-50. Plains consolidated balance sheet. Consolidated. So when we consolidated the sub with the parent, when we consolidated those two, they're going to give us a third financial statement to consolidate it. Would this payable appear on the consolidated? And the answer is no. It doesn't because what happened, we are going to cancel. We're going to do, we're going to credit the receivable and debit the payable when we consolidate. The payable is gone. The receivable is gone. None of it will appear on the consolidated. Therefore, the answer is no and the answer is B as in boy. In the next session, we would look at additional previously used CPA questions. As always, I would like to remind you to go to my website, check it out. And if you're interested, subscribe. It's an additional tool. It's an additional resource. If you're studying for your CPA exam, study hard, stay motivated, and I'm always here to help you. If you need any help, good luck.