 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. 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. Okay? 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, okay? So if anything, if anything, if anything, which is it's not even true here, current ratio should go up because we have more cash and we did not. 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 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 one. 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. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's going to help you with your CPA exam preparation, as well as your accounting courses. My CPA material is aligned with your CPA review course, such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses, broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today. No obligation, no credit card required. 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. So your debit to cash, let's assume $10,000 for the sake of illustration and your 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. Net income will be correct. 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, but the question is, can you determine current liability? 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. Bount Spable, do 2030. Well, from the date, do 2030, it will not be a current liability. Salary Spable, yes, Salary Spable are accrued liabilities. Those are current liabilities. Note Spable, do 2022. Well, let's take a look at the date. We're looking from December 31st, 2021. Count 12 month, is this due within 12 month? 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 liability.