 Hello, and welcome to the session. This is Professor Fahad. In this session, we would look at previously used CPA questions. Those questions are the real deal. Those questions appeared on the CPA exam in the past and those questions are released by the AI CPA, the source of all CPA questions. So those questions will be covering the FAR. Please remember that those questions may or may not appear on the exam again, but the concept will be tested differently. So although you may not see the question word for word, it's good to know if you can solve them because they will tell you at a level of difficulty you'll be facing on the exam. As always, I would like to remind you to connect with me on LinkedIn. YouTube is where I park my 1,500 plus accounting, auditing, finance, and tax lectures. This is a list of all the courses that I cover, including the number of lectures and many CPA questions. On my website, you have access to additional information such as notes, PowerPoint slides, multiple choice through false 2000 plus CPA questions. So if you're studying for your CPA, I strongly suggest you visit my website. So we're gonna start with the first question. Notice I hide the key and the reason I hide the key because I want you to post this video and see if you can answer the question first. If you can answer the questions, that's great. Then look at the solution. See how I approach this question. So always pause the video, see if you can answer the question, okay? Then see how I approached it. The first thing I'm gonna tell you this question is remembering and understanding. Once you see it's remembering and understanding, it means it should be fairly easy in a sense that you either memorize the concept or you have to really, if you understand the concept, you should be able to answer the question in a moment. So the first question read, the primary purpose of not for profit organization statement of activities is to provide relevant information to it's what. So simply put, the statement of activities is the income statement of not for profit. Who are they providing information to? Now you should know this like literally, you read this question, this is a five second answer. Who are we providing answers to? We're providing answers to whoever finance us, whoever gives us resources and those are the resource providers, not managers, the income, the statement of activities is not designed to give relevant information to the managers, it's designed to give relevant information about maybe about the managers, but not to them, to the beneficiaries. We don't call them beneficiaries, really not for profit, they don't have beneficiaries, they do have beneficiaries, but the beneficiaries are the people that receive the benefit from them. That's not who we target. We target the people that gives us the money, the resource providers. So that's out. State regulatory body, no, state regulatory bodies, they might look at this information, but they might require other information, but that the statement of activities. The statement of activities goes to the people that gives us money, why? Because the people that gives us money as nonprofit, they want to know how are we spending the money? When someone gives you money, because they believe in your cause, if they believe in your cause, you wanna let them know how are you spending your money? How are you spending your money? How much of your money is being spent on administrative? How much of the money is being spent on actually helping people? How much of the money is being spent on maintenance? So on and so forth. So the answer is A as an apple. Again, it takes, I go over the answer, just kind of to explain the concept as well. Okay, let's take a look at this question. Again, this question is remembering and understanding. So it should take you very quickly to answer questions like this. Financial statements prepared for voluntary health and welfare organization for not for profit must report expenses by the following classification. Do they report their expenses by functional, natural or both? And the answer is, you should memorize this because this is the remembering. Remembering means you gotta know it. I'm gonna explain it to you why, to your understanding, you gotta remember it. It covers both functional and natural. So the answer is A as an apple, yes. Now what is functional expenses? Functional expenses is basically you break down the expenses by program. By program, by, for example, you could have break down the expenses by program. You could break down the expenses by management and general. You could break down the expenses by fundraising as a function, as an activity. Or you could break down the expenses and natural classification, which is what is natural classification? It basically supporting, sorting and reporting the expenses by the nature of the expenses. Simply put, for example, you would have salaries and wages. This will be salaries, salaries and wages. For example, you could have supplies. You could have utilities, okay? This is reporting the expenses by natural. So the answer is both. The voluntary health and welfare organization, they report the expenses functional and natural. Second, third question. Z, a non-governmental not-for-profit organization. It seems this session talks about not-for-profit and governmental, uses the indirect method to prepare its a statement of cash flow and determining the net cash provided by operating activity. So we're looking at the operating activity. S must add back, which of the following to the change in net assets? So what do we add back? So we're adding something back. A, do we add back purchase of equipment? No, if we purchase an equipment, it's an outflow of resources. If we paid cash and that's not operating, so that's out. Payment or long-term debt, we're paying that's not really operating. Do we add back depreciation? And the answer is yes. Depreciation is a non-cash expense. Depreciation is a non-cash expense. Therefore depreciation is added back. Decrease in accounts payable? Well, if accounts payable, if liability goes down, our cash goes down as well. Our cash goes down, but we don't add it back. The question is add back, add back. To change, we add back the depreciation. If we have any depreciation, we add it back. Now, when we pay the liabilities, we don't add it back. Actually, it's an outflow of money, outflow of cash. So when decrease in liabilities, it's an outflow of cash. Again, this question is remembering and understanding. You need to know you add back depreciation to the cash flow statement, to the operating section of the cash flow statement, whether it's governmental or for-profit. So you need to know this. And by the way, governmental and non-for-profit, I have a whole course about governmental and not-for-profit accounting. Check out my YouTube if you have any doubts about these topics. Number nine, when there's a lot of numbers, read the question first. What amount should be reported in net cash provided by financing activities in box statement of cash flow? So simply put, we have a list of transaction and they want us to know which one is financing. What is financing? Well, you need to know, before you even look at the questions, immediately in your mind, you should be thinking, own stocks, own debt. So when you're dealing with your own stocks and your own debt, okay, let's see. Proceeds from the sale of investments. Well, that's investments. It has nothing to do with your own stocks. It has nothing to do with your own debt. That's out. Purchase of property, plant and equipment. That's out. That's investing. Proceeds from long-term debt. Oh, hold on. You received money from long-term debt. That's financing. Remember your own debt. Loss on sale of an investment? Nope. So the answer is 100,000. The answer is the as in David. Okay, let's take a look at this question. This question is application. Application means it's a little bit more involved, a little bit more than remembering and understanding. So the question reads, net income for the year was for, no, the question reads, what should we reporting as earnings per share, EPS? The first thing you have to have the, they have to have the formula memorized. EPS is net income minus preferred dividend, if you have any preferred dividend, divided by a number of shares outstanding for the year, like basically the weighted average number of shares outstanding. So first year I know this much. Okay, so let's see what we have. Tea company had 120,000 common stock outstanding on January 1st. On April 1st, something happened. It issued 40,000 additional shares. Okay, outstanding all year were 10,000 non-convertible preferred, of which $5 per share was declared during the year. Okay, so we had 120,000 shares up until April 1st. So those were outstanding 312 of the year. Then starting, starting in April, we had 160,000 shares. Why? Because we added, we issued 40,000. So we had 160 and those 160 were outstanding 912 of the year. So first we have to find the denominator. Okay, let's find the denominator. Let's find the denominator. So we have 312 times 120. 312 times 120 equal to 30,000. I'm just gonna write this number down and let's clear this. 912, 912 times 160, that's 120. So those equal to, whoops. Those equal to 30,000. Those equal to 150, what was it? 120 I believe. 120, not 150, 120. Let's go back there. Equal to 120. So the denominator is 150,000. So the denominator here, with the weighted average number of shares outstanding is 150,000. Now, if you don't know what I'm doing here, I'm computing the weighted average number of shares outstanding. You wanna go back to my chapter 16 in intermediate accounting. In case you have any issues with this, okay? Now I need to know the numerator. Numerator net income is giving 480,000 minus preferred dividend. Sometime you may or may not have preferred dividend and you have to be very careful if preferred dividend is giving. Outstanding all year were 10,000 shares of non-convertible preferred stock on which $5 per dividend was declared. Guess what? If it's declared, I have to deduct it. So I have 10,000 shares. I'm gonna have to pay them $5. So 50,000 out of my profit goes to the preferred shareholders. Now all I have to do is take 480 minus 50. 480 minus 50 equal to 430. 430 divided by 150. And let's see what do we get for that? If we take 430,000, which is net income minus the preferred dividend, minus 150, equal to, oops, 430 divided by 150, oops. 430 or 430,000 divided by 150,000, 2.86 and that's 2.866, it's just 2.87. And that's the answer. Now we have to be careful in this problem. They told us the dividend was declared. Since the dividend is declared, we deduct it. We have to be careful whether the dividend is declared or not. And whether the dividend is cumulative or not. If it's accumulative, you always deduct it. If it's not cumulative, you have to wait to determine whether it's declared or not. There's little bit more involved in this. I cannot give you the full picture. Go to my intermediate accounting chapter 16 if you have any issues about this topic. This is an important topic. This is only computing basic earning per share. You might have to compute the diluted earnings per share, which is a little bit more involved. So notice this question is application. Application means you have to take a topic and apply it. So what I'm trying to tell you is, you want to save the time for questions like this, for question like this, okay? In the next session, obviously, I'm gonna be working more questions about the real deal previously used, previously used CPA questions that's recently released by the AI CPA. As always, go to my website for additional resources. If you're studying for your CPA exam, subscribe, invest in your career. You study one time for the CPA, so make it good and pass the exam.