[jeff]

@h0wdyus

Incorrect

The answer is B. Comparable sales.

“The use of comparable sales is not an income approach to valuation of a business, it is a market approach. Under the comparable sales approach, the value of a business is determined by comparing it to other entities with comparable characteristics for which the value is more readily determinable.”

This was a tricky one

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Retaking BEC on Aug 28, which gives me close to 6 weeks. My plan is to study 4 days per chapter: 2 days to rewatch lectures/take notes/review notes, and 2 days to do the chapter questions. This should give me around 10 days for a final review of all the material.

Would anybody do anything differently if they were in my shoes?

The biggest debate I had in my mind was whether or not I wanted to rewatch the lectures and take notes again, or simply review the notes/flashcards I have already made. I decided to rewatch the lectures, because even if it helps a couple percentage points, it could make all the difference (I got a 73 my first time around).

Again, would you do anything differently if you were in my shoes? Thanks in advance for your insight.

[CPA squared]

I just took BEC this week and was curious if the difficulty of the WC changes on performance like testlets do. Anyone know?

BEC... 68
FAR... 74,66,85
AUD... Q4 2015

[GoVPI]

For the above question, you can also think it through somewhat logically.

We're being charged 6% interest, but we also have to maintain a compensating balance with a low, 2% rate. This will serve to increase the effective rate above 6%, so C's out.

The compensating balance is $25,000 on top of what we normally keep in the account. 15000 (interest due at end of year) / 225000 (net proceeds) = 6.66%. However, since we earn 2% interest on the balance, the effective interest rate will be just a little less than that, meaning the answer must be A.

Do you get the 225,000 by doing this:

250000(loan)-50,000 (they must keep per the bank)= 200,000 +25,000 they always keep in? =225,000?

BEC 8/14/14 - Passed
Graduated from college 12/13/14
AUD 8/31/15 - 74. Retake - Passed
REG
FAR

[JamesBJames]

@CPAin14, yes, that's a good way to think about it. I did $250,000 (loan) – $25,000 (the additional amount they have to keep in the bank that they wouldn't normally have to), but they both get to the same answer.

FAR: May 1st, 2014 - 91
AUD: May 29th, 2014 - 97!
BEC: July 16th, 2014 - 91
REG: August 29th, 2014 - 88

Licensed December 2015

Feel free to add me on LinkedIn by clicking my username!

[GoVPI]

If a firm purchases raw materials from its supplier on a 2/10, net 40, cash discount basis, the equivalent annual interest rate (using a 360-day year) of forgoing the cash discount and making payment on the 40th day is

2%

18.36%

24.49%

36.72%

BEC 8/14/14 - Passed
Graduated from college 12/13/14
AUD 8/31/15 - 74. Retake - Passed
REG
FAR

[M.O.D.]

Answer:

2%/98% x 360/30 = 24.49%

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[M.O.D.]

Trick question: (gets me every time)

A company that produces 10,000 units has fixed costs of $300,000, variable costs of $50 per unit, and a sales price of $85 per unit. After learning that its variable costs will increase by 20%, the company is considering an increase in production to 12,000 units. Which of the following statements is correct regarding the company’s next steps?

A. If production remains at 10,000 units, profits will decrease by $100,000.

B. If production remains at 10,000 units, profits will decrease by $50,000.

C. If production is increased to 12,000 units, profits will increase by $50,000.

D. If production is increased to 12,000 units, profits will increase by $100,000.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[JamesBJames]

I somehow got it the first time and then got tricked by it on every subsequent attempt. It's tricky. I'll let someone else go for it.

FAR: May 1st, 2014 - 91
AUD: May 29th, 2014 - 97!
BEC: July 16th, 2014 - 91
REG: August 29th, 2014 - 88

Licensed December 2015

Feel free to add me on LinkedIn by clicking my username!

[stoleway]

question…

Give me two factors that increases the threat of entry into an industry

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[M.O.D.]

Low barriers to entry: low capital costs (entrants have an easy entry)

No substitutes, lots of differentiation (means entrants can make a profit)

weak buyer's bargaining power (customers do not hassle the entrant)

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[stoleway]

Mod….Gleim says its high barrier to entry and low exit barrier.

Also I thought the availability of substitutes will rather be a threat? Differentiation is favorable to firms because it creates less competition.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[M.O.D.]

Well, Gleim has a lot of writing on this some of which is not clear.

For an incumbent, high barrier to entry is good because it acts like a moat around a castle.

So lowering that barrier increases the threat of other companies entering the industry.

Gleim does say this: “low entry barriers … new firms can enter the industry”

I am reading FAR and can see why some CPA candidates have a hard time with BEC. There are no regulations to guide you. Questions require you figure out the best solution for a business, where there is multiple valid answers.

Are you quoting an MCQ? I remember one that was poorly worded.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[stoleway]

Yeah, see the question below

Which factor increases the threat of entry into an industry?

A. Capital requirements are high.

B. Economies of scale are significant.

C. Exit barriers are low.

Answer (C) is correct.

The most favorable condition for the attractiveness of an industry is the existence of high entry barriers and low exit barriers. When the threat of new entrants is minimal and exit is not difficult, returns are high, and risk is reduced in the event of poor performance. Low entry barriers keep long-term profitability low because new firms can enter the industry, increasing competition and lowering prices and the market shares of existing firms. Exit barriers are reasons for a firm to remain in an industry despite poor (or negative) profits.

D. An industry leader may retaliate against a new entrant.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[M.O.D.]

Well, the question can be rephrased: what is good for entrants?

Capital requirements are bad for entrants because they have to make the investment.

Economies of scale depend on whether they can generate sufficient volume

Exit barriers are low are good for everyone.

A leader may retaliate against a new entrant is bad for the entrant

So I agree with the answer, but not with the explanation. High entry barriers are good for the incumbents but not for the entrants and the question asks about the entrants.

Try flagging it with Gleim. I did not bother because it seems an obvious misstatement to me.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[stoleway]

@M.O.D

I agree! If entry is high, how will new industries enter in the first place? I will send an email to Gleim to correct this

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[Author]

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