[jeff]

Welcome to the Q2 2016 CPA Exam Study Group for BEC.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

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

[lonestar]

@Joe C

I finished half an hour earlier. It took me two hours to finish the MC and half an hour to write these three memorandums.

[Moonlight]

Lonestar did you follow a certain way in writing the three memos, If you did please explain how ?

[Moonlight]

Historically, Pine Hill Wood had no significant bad debt experience with its customers. Cash sales has accounted for %10 of total sales , and payment for credit sales have been received as follows:
40% of credit sales in the month o sale
30% of credit sales in the 1st subsequent month
25% of credit sales in the 2nd subsequent month
5% of credit sales in the 3rd subsequent month
forecast for both cash and credit sales is as follows:
Month……………Sales
___________________
January……….$95,000
February………$65,000
March………….$70,000
April…………….$80,000
May…………….$$85,000
Due to deteriorating economic conditions, Pine Hill Wood Products has now decided that's its cash forecast should include a bad debt adjustment of 2% of credit sales , beginning with sales for the month of April. The 5% collection in the fourth month should be reduced to reflect a bad debt. Because of this policy change, the total expected cash inflow in April related to sales made in April will:
A. Be unchanged.
B. Decrease by $1,260.
C. Decrease by $1,440.
D. Decrease by $1,530.

The answer is C but can any one explain?

[Moonlight]

Sorry, As for the previous post the answer is A. I just missed it with other question. that post was meant to be this way:

Historically, Pine Hill Wood had no significant bad debt experience with its customers. Cash sales has accounted for %10 of total sales , and payment for credit sales have been received as follows:
40% of credit sales in the month o sale
30% of credit sales in the 1st subsequent month
25% of credit sales in the 2nd subsequent month
5% of credit sales in the 3rd subsequent month
forecast for both cash and credit sales is as follows:
Month……………Sales
___________________
January……….$95,000
February………$65,000
March………….$70,000
April…………….$80,000
May…………….$$85,000
Due to deteriorating economic conditions, Pine Hill Wood Products has now decided that's its cash forecast should include a bad debt adjustment of 2% of credit sales , beginning with sales for the month of April. The total expected cash inflow in April related to sales made in April will:
A. Be unchanged.
B. Decrease by $1,260.
C. Decrease by $1,440.
D. Decrease by $1,530.

The answer is C but can any one explain?

[lonestar]

@Moonlight

Umh, I'm not sure what you mean by a certain way. I used Wiley testbank and noticed that most of those example memorandums are almost the same from the structure. So I guess contents and professionalism are more important than the form. Contents would be the first place; professionalism embodied in those subtle difference and specific terms when tackling a specific problems. To be simple, I just wrote my understanding over the topic. But a good reminder is to consider your readers, while I am typing this post. If you address to board of directors, you want less accounting terms. If you address to a CFO, then terms won't be a problem.

[Moonlight]

@Lonestar, thanks for the info. I am just a bit confused with the WC as I am non-native English speaker. I use Becker prep course and I have completed reading and done all the MCQS just waiting for my papers to get ready to sit for the exam. I find BEC is somehow complicated because its all about concepts and they can be tricky sometimes as they require a large amount of judgement, I hope this is not the case with the real exam. Anyway I wish you the best of luck mate.

[lonestar]

@Moonlight

You are right about concepts-weighted BEC exam, as far as my experience is concerned. My suggestion is to read through COSO and COBIT-5 before exam again before the exam day. I actually found that professonal judgement is more involved in AUD than in BEC. So be familiar with the review materials and you should be fine. Thanks for the good wishes by the way.

[MaLoTu]

If Financial Leverage increases does risk decrease? I think I have the concept backwards and I went back to my notes and cannot find the relationships. I chose D thinking that more equity investments increase leverage, but the answer is C debt increases leverage. Can anyone clarify?

Sylvan Corporation has the following capital structure.

Debenture bonds $10,000,000
Preferred equity 1,000,000
Common equity 39,000,000

The financial leverage of Sylvan Corporation would increase as a result of:

A. issuing common stock and using the proceeds to retire preferred stock.

B. issuing common stock and using the proceeds to retire debenture bonds.

C. financing its future investments with a higher percentage of bonds.

D. financing its future investments with a higher percentage of equity funds.

**ETA – according to NINJA leverage is how much debt so the only way to affect leverage is through bonds? I am guessing…

[Moonlight]

@Lonestar, I will make sure I do that thanks again for the advice. I studied the audit and I think that I did great with practice questions, I feel more comfortable with it than BEC. Anyway I would like to have you on my Facebook or other social media if you don't mind, my profile on Facebook is: https://www.facebook.com/sunshinyman.

[Moonlight]

[Moonlight]

@MaLoTu, Yes the answer is C because the Financial leverage is positively correlated to the increase of the resulting fix payments of interest from the bond. the higher the financial leverage the higher the risk. The reason why the risk is high when you have fixed interest payments is that in case you were not able to generate enough profit you would still have to pay the fixed amount of interest and in this case the risk increases as you use more fixed payments in your operations. when the financial leverage is high then a small change in the denominator (EBIT) will have a greater effect on the numerator (EPS). In case of high DOF (Which means high reliance on Debt and fixed interest payments) then a small decrease in EBIT will have a very large decrease in EPS and that is the risk resulting from the use of debt. the use of equity doesn't result in any kind of fixed payments and by using it will result a lower level of DOF.

[MaLoTu]

Thank, moonlight. I remember that from the lecture and I have no idea why I didn't write it down. I wrote a few notes based on what you explained. Hopefully the questions will be basic.

[Anonymous]

COSO It's for Canadian firms but nice summary:

https://www.kpmg.com/Ca/en/services/Audit/InternalControl/Documents/2750-New-COSO-2013-Framework-WHITEPAPER-V4.pdf

[Anonymous]

The thing about formulas is though they may not be on the exam they help with the concepts. It helps me to remember the FOL denominator (well in at least one way of calculating it) is EBIT/(EBIT – Interest) so I can figure out if the interest is less then the denominator is higher and the ratio is lower. Or that it has something to do with interest.

I hope that's right, if not lemme know!

[quamikazee]

Got done with my Becker Final Tests –

81% on the first one
72% on the second one

Feeling pretty confident for my test on Tuesday, but still nervous and feeling like I need to study more

How much time do you guys usually spending after taking the final tests?

REG - 81 - 2/3/16
BEC - 87 - 4/5/16
AUD - 87 - 6/10/16
FAR - 8/29/16

Becker Self Study only

[Author]

Replies