NINJA CPA REVIEW®

NINJA Notes 2016 Business Environment & Concepts - DEMO

   

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Table of Contents The N.I.N.J.A. Framework I. Economics 8 II. Information Technology 22 III. Cost Accounting 40 IV. Capital Budgeting 50 V. Financial Management 57 VI. Corporate Governance 66 VII. Performance Measures 78 VIII. Risk Management 81 IX. Financial Planning & Analysis 85

   

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The N.I.N.J.A. Framework NAIL THE VIDEOS Watch your CPA Review videos first – before working any assigned homework questions. The CPA Review industry says to watch a section of CPA Review video and then work the accompanying MCQs. This perspective stems from the old-school approach to the paper and pencil exam where you had to sit in a live classroom and learn from an instructor on weekends. Today, there is a smarter way to study. You don’t have to go to a weekend live course. You can fire up the laptop on a Tuesday morning and knock out two hours of material before you even brush your teeth. If you work MCQs in week one over your week one topic, guess what? You will work them again in week 5 or 6 when you review because you will forget what you learned. If you watch a video in week one and score an 85 on the corresponding MCQs, will you be able to score an 85 four weeks later? Not likely. You will need to work them again anyway and it’s not a smart use of study time. Instead, let the N.I.N.J.A. Framework guide you. INTENSE NOTES Repeat after me: “PUT THE HIGHLIGHTER DOWN.” Which method do you think will help you learn the material better – painting printed words in a book with pretty florescent colors or writing them down on a legal pad and thinking about the information?

   

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Grab a stack of legal pads, put the highlighter down, and start writing. Many people have said that instead of taking their own notes, they just re-write the material inside of this study guide, which is fine too. NON-STOP MCQS Now is the time to start working NINJA MCQ and do them with a focused frenzy. Do so many MCQs that you’re absolutely sick of them. As you encounter little “fact nuggets” that you didn’t know or are prone to forget, write it down and add it to your voluminous stack of notes. JUST RE-WRITE IT This is where it gets tedious. This is also where the payoff happens. You may be familiar with the fact that if you had a choice between $3 Million and 1¢ doubled daily for 31 days, the penny doubled for 31 days ends up tripling the $3 Million. The payoff, however, doesn’t happen until the 31st day. The road is long, but ends up being worth it in the end. The same goes for re-writing your study notes. The thought of grabbing that stack of legal pads and going to town re-writing what you’ve already written may sound like a ridiculous suggestion at first, but I am a firm believer in its impact. Merely writing down your notes and then reviewing them before your exam doesn’t have near the impact as taking your furious scribbles and converting them into re-packaged, easily-digestible “fact nuggets.” Not only will your notes mean more when you’ve whittled away the non-essentials, but you are actually learning the

   

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material twice. Re-processing the material by re-writing your notes is like letting the information marinade in your mind. Just like a well-prepared steak, you will taste the payoff of this extra step. Don’t like taking notes? No problem. Re-write these NINJA Notes instead. You will absorb the material better vs. reading only. Plan wisely because this will likely take a week to complete. “I have found this to be unbelievably helpful! This is now my second section that I have followed this piece of advice and, once again, I am amazed at how much the material "clicks" as I review and write the notes a second time. Sure, it's time-consuming, but for me, it is worth it. No questions asked. Not only does it help with processing and understanding the material, but it also results in a better, more organized set of study notes to use for review up until exam date.” – Sandy ALL COMES TOGETHER You have watched the videos. You’ve taken ridiculous notes and have done hundreds (thousands?) of multiple-choice questions. You’ve re-written your notes. Now, study that stack of review Gold in your hands multiple times, aim for a NINJA MCQ Trending Score of 85% heading into exam day, study your notes even more, and then go in and PASS the CPA Exam.

   

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How to use NINJA Notes READING You've invested in the NINJA Notes, now let it go to battle for you. You should read the them as many times as possible. Carry it with you wherever you go. Do you have an iPhone®, iPad®, or similar device(s)? Simply load the PDF onto the device and if you have 5 minutes of downtime, you have 5 minutes of study time. It is recommended that you read the NINJA Notes at least five times leading up to your final two weeks of exam prep. If you have 6 weeks to study, then you need to complete this in 4 weeks. 5 weeks to study, then complete it in 3. 4 weeks = 2 weeks. You get the picture. The point is: plan, plan, plan and budget, budget, budget, budget because exam day is looming. 6-Week Plan: Approx. 90 pages x 5 reads /4 weeks / 7 days per week = Approx. 16 pages per day 5-Week Plan: Approx. 90 pages x 5 reads /3 weeks / 7 days per week = Approx. 21 pages per day 4-Week Plan: Approx. 90 pages x 5 reads /2 weeks / 7 days per week = Approx. 32 pages per day 3-Week Plan: Approx. 90 pages x 5 reads /1 weeks / 7 days per week = Approx. 64 pages per day

   

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RE-WRITING This step is optional, but it won over a lot of skeptics with its results. This is not mainstream advice. This is the NINJA way. The mainstream way of studying for the CPA Exam is old-fashion and outdated. Forget the old way. You are a NINJA now.

Now is the time to either 1. Re-write your own CPA Exam notes or 2. Re-Write the NINJA Notes. Plan on investing a week doing this and you should expect to get through 15 pages a day (Approx. 103 pages / 7) in order to stay on track.

   

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III. Cost Accounting INTRODUCTION

Ø Cost Accounting is a component of GAAP that

records Ending Inventory on the Balance Sheet for

o Direct Materials

o Direct Labor

o Work in Process

o Finished Goods

Ø Cost Accounting also records for the Income Statement

Ø Cost Accounting vs. Managerial Accounting

• External  Focus    • GAAP  Cost  Accounting  

• Internal  Focus  • Not  GAAP  Managerial  Accounting  

   

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MANUFACTURING COSTS

Ø Product Costs (aka Inventory Costs)

o Prime Costs

§ Direct Materials Used

§ Have become part of product

§ Had a direct impact on product

§ Direct Labor Used

§ Employees who worked on product and had direct impact

o Conversion Costs

§ Direct Labor Used

§ Factory Overhead Applied

o Exam Trick

§ Direct Labor Used: Prime AND

Conversion Cost

Ø Factory Overhead

o Includes all factory costs except for DM and DL used in production, including Spoilage

§ Exception: Abnormal spoilage, which is a period cost and not included in Overhead

   

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o Fixed Factory Overhead

§ (Estimated Costs / Normal Capacity)

§ Uses Normal Activity

§ Examples of Fixed Factory OH

§ Depreciation (Straight Line)

§ Utilities & Taxes

§ Under/Over Applied Fixed OH to COGS

o Variable Overhead

§ (Estimated Activity / Actual Activity)

§ Uses Actual activity

§ Examples of Variable Factory OH

§ Depreciation (Units of Prod.)

§ Indirect Materials

§ Supplies

§ Insignificant items

§ Indirect Labor

§ Factory Foreman

§ Janitors

§ Machine Maintenance

   

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§ Under/Over Applied Variable OH

§ Immaterial – Goes to COGS

§ Material – Goes to WIP, Finished Goods, or COGS, based on their Ending Balance

Factory Overhead Actual Factory OH Applied Factory OH

(Goes to WIP) à Dr. Balance = Under Applied OH Cr. Balance = Over Applied OH (If Fixed - Under goes to COGS) (If Fixed - Over goes to COGS) If Variable OH, Under goes to COGS if Immaterial. If Material, allocated to WIP, FG, or COGS Under Applied (Dr Balance)? Credit Factory OH for the amount and Debit WIP, FG, COGS based on their ending balances (similar to a weighted average). WIP xxx FG xxx COGS xxx V. FOH Under Applied xxx

If Variable OH, Over goes to COGS if Immaterial. If Material, allocated to WIP, FG, or COGS Over Applied (Cr Balance)? Debit Factory OH for the amount and Credit WIP, FG, COGS based on their ending balances (similar to a weighted average). V. FOH Over-Applied xxx WIP xxx FG xxx COGS xxx

   

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MEMORIZE These T Accounts & Solve for any Variable:

Direct Materials Beginning Balance Net Purchases (+Freight-In) Direct Materials Used à = Ending Balance (To B/S)

Factory OH Applied: On the exam, they will give you a rate like 80% to be applied to something like DL. Just take the rate x DL and plug it into the WIP calc. If you are given an amount of Indirect Materials put into production and also given an amount for Manufacturing OH, ignore the Indirect Materials amount because it is included in the Manufacturing OH number – it is there to trick you into giving a wrong answer Memory Trick: Both WIP and Finished Goods have a COG credit – one is COGM and one is COGS. You SELL Finished Goods, so it gets Cost of Goods SOLD (COGS).

Work in Process (WIP) Beginning Balance (End Bal of Previous WIP)

à Direct Materials Used Direct Labor Used COGM à à Factory OH Applied = Ending Balance (To B/S)

   

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Finished Goods Beginning Balance

à COGM

= COGAS

COGS (To I/S) = Ending Balance (To B/S)

JOB-ORDER COSTING

Ø Used when costs are easily connected to a specific

product or product line

Ø Can also be applied to services

• Always  goes  to  COGS  Fixed  OH  Under/Over  Applied    

•  Immaterial?  COGS  • Material?  Allocate  based  on  WIP,  FG,  COGS  Ending  Balances  

Variable  OH  Under/Over  Applied  

• Inventory  (Product)  Cost  • Part  of  DM  Purchases  Freight  In  • Selling  (Period)  Cost  • Not  part  of  Inventory  Freight  Out  

   

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Ø Calculation is the same as normal cost accounting – just use your T Accounts

o DM to WIP to FG to COGS

o You’re likely going to be solving for the last

job in the queue

Ø Allocating Service Department Costs

o Direct Method § No services allocated between service

departments, even if they serve each other. Only allocate to product(s)

o Step Method § Services can be allocated to both other

service departments and the product(s)

Ø Process Costing

o AKA Equivalent Units of Production

o 2 Methods: FIFO and Weighted Avg.

   

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1. How many Units were shipped? Beginning Inventory

+ Units Started -Ending Inventory No. Units Shipped

2. How many Equivalent Finished Units (EFU)?

Weighted Average Method Direct Materials Conversion Costs Units Shipped Units Shipped Units Shipped + Ending Inv. EI x % Comp DM EI x % Comp CC =EFU (Wt. Avg) =EFU (Wt. Avg) =EFU (Wt. Avg) -Beg Inv -Beg Inv x %

Complete -Beg Inv x % Complete

=EFU (FIFO) =EFU (FIFO) =EFU (FIFO) Note: EFU FIFO will always be LESS than EFU Weighted Avg (unless Beginning Inventory is Zero)

3. What is the Cost per EFU?

Weighted Average Method Direct Materials Conversion Costs (Beg. Inv + Current Costs) EFU WA

(Beg. Inv + Current Costs) EFU WA

FIFO Method

Direct Materials Conversion Costs (Current Costs) / EFU FIFO (Current Costs) / EFU FIFO Note: FIFO Method uses Current Period costs only and ignores Beg Inv.

4. Calculate WIP

Beg. Balance (DM, DL, OH) Current Costs (DM, DL, OH) COGM (Goes to FG) [(DM EFUs from Step 2 x Cost per DM EFU from Step 3) + (CC EFUs from Step 2 x Cost per CC EFU from Step 3) = Ending WIP

   

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Ø Income: Period vs. Product Costs

Ø Total Quality Management (TQM)

o Activity-Based Costing (ABC) § Focuses on eliminating non-value-added

activities for poor quality and inventory and things customers don’t want or don’t care about

§ Inventory is expensive to store and storing something is not a value-added expenditure

§ Uses Cost Pools

§ Different departments can have

different OH rates

§ Uses Several OH rates based on Activity

§ (Cost Pool/Cost Driver)

Net  Sales  

<Product  Costs>  

=Gross  Margin  

<Period  Costs>  

=Operating  Income  

   

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§ Cost Pools and Allocations increase

compared to a traditional costing system

§ Can be used with both Process Costing and

Job Costing

o Just-in-Time Production (JIT) § Part of ABC

o Backflush Costing

§ Connected to Just-in-Time Production,

which is part of Activity-Based Costing and Total Quality Management (TQM)

§ Works backward to “flush out” COGS

§ ‘Mostly’ GAAP

o By-Products § Usually immaterial and common costs

aren’t allocated to them

§ Low Market Value

§ Can be valued at NRV

§ Can be treated as a contra expense and netted against COGS

§ Can be treated as a contra sale and netted

against Sales

   

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§ Recognition rules are very flexible with valuing and classifying by-products

o Cost Functions

§ Measure how costs change relative to activity levels

§ High-Low Method

∆Cost (High-Low pts) ∆Activity (High-Low pts)

WARNING: This BEC Demo only covers 12.1% of the material. The other 87.9% could very well be the difference between a 74 and a 75 on Score Release Day. ü Breaks BEC into easily-digestible “Fact Nuggets” ü Builds Exam Day Confidence ü Reduces Study Stress and Anxiety ü Successfully used on over 40,000 Exams

(yes, this number still shocks us too) ü Pass and Get Your LIFE Back

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