New CPA Exam TBS: Document Review Simulations | Roger CPA Review

New CPA Exam TBS: Document Review Simulations

New CPA Exam TBS: Document Review Simulations

The AICPA recently announced the introduction of a new type of Task-based Simulation on the CPA Exam, called Document Review Simulations (DRS). These simulations will appear on the CPA Exam beginning July 1, 2016.

Roger Philipp, CPA, CGMA presents:
NEW CPA EXAM TBS: DOCUMENT REVIEW SIMULATIONS

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Hello and welcome, welcome. I'm Roger Philipp of Roger CPA Review. Today we're gonna talk about the new Task Based Simulation called the DRS, or a Document Review Simulation, that will be introduced to the CPA exam in July of 2016, which is this year.

Now, let's back up a step and say, "Hold, first of all, what is a TBS? "What's a Task Based Simulation?" Basically, it's a case study that allows candidates to demonstrate their knowledge and skills by generating responses to questions, rather than simply selecting an answer.

So, for example, with the multiple choice, your just selecting an answer. Is it one, two, three, four, in a sense? Which choice is it? In a TBS, they're actually requiring you to use your knowledge and skills in order to figure out which response is correct.

Sometimes they'll give you a choice. Sometimes it's blank and you've got to fill in the dollar amount. Typically, this requires candidates to use things like spreadsheets. So you might have a spreadsheet, where you're working through calculations. You could be doing a statement of cash flows, operating, investing, or financing section. Also, one of the TBS is generally a research question, where you're researching authoritative literature provided in the exam.

Now they're presenting this new kind of TBS as I said called a DRS, Document Review Simulation. Why are they doing this? Well, it basically highlights certain words, or phrases, or sentences, or paragraphs, that may or may not be correct. It requires the candidate to actually select the appropriate edits based on their relevant sources.

Or they're gonna give you things like exhibits, where they'll have several different exhibits, like a letter from the CEO or a depreciation schedule or some other documentation that tells you kind of what happened during the year.

They'll also give you the materials and documents to review, as well. Why are they doing this? Because it's kind of what I used to do when I worked at Deloitte in the real world. So it's kind of a case of saying, "Hey, what we're trying to do, is we're trying to say, look, what is it that a second year CPA does?"

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So they're looking at someone who's done two years of accounting practice. And, you know, you're not just answering A,B,C,D questions in the real world. But you got all these documents supporting schedules, and so on, where you've got to track through and follow.

So you'll see in the questions, for example, it says, "The accounting assistant came up with this document. Please review it." So it's gonna be the stuff that they expect you in the first two years of public accounting, for example, to actually see come across your desk in the real world.

Now when are these DRS gonna launch? Initially we thought they were gonna launch with all the changes and the higher order skills in 2017. Instead, in the exposure draft that came out and they said, "You know what? We're gonna launch these in July of 2016." So this is gonna hit July of '16, for Audit, REG, and Financial Accounting, FAR. It won't hit BEC until the 2017 exam, where you could expect some DRS then. But for '16, it's Audit, FAR and REG, that's where we expect to see it.

Now in the past, and currently, they're testing remembering and understanding, and analysis. These are great examples of kind of application. So this is an example of an application. In 2017, when the higher order skill testing starts, that's when they're adding analysis and evaluation.

So let me say that again. Currently we're doing remembering, understanding and application. So remembering and understanding. Is it a lease, is it operating, a capital lease, for example. What are the requirements? And then let's go ahead and apply it. Application, come up with the numbers. These DRS are another step of application. And in the future we can expect them to include things like analysis, and also evaluation. But again, that's not until the second window, January, February, March, April, of 2017.

What are some DRS examples? Things like analyzing Financial Statement Earnings statements. You're looking at different statements to see if the numbers that the accounting assistant came up with are correct. If the percentage changes are reasonable. If they make sense. And I'll show you some examples of that later.

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Preparing an Audit Request List. So, last year we did an audit. This year the staff assistant has a list of all the things we're requesting from the client. And you're having to review it, to see if the list is reasonable, correct, complete. And as I said, you'll click on one of the options, and it gives you five or six different choices to either replace it with, or no adjustment, or delete it. And we'll work through that as well.

It could have things like phone conversation transcripts, legal letters, authoritative literature, as exhibits that you're looking through. It could have an account receivable confirmation file, financial statement footnote disclosure information. Is it correct or incorrect or how are the changes that are required? Tax computation and depreciation schedules. Those are all some of the different things that we're gonna be seeing.

And again, the reason they're making the changes to the entire exam in '16 and, more specifically, in '17, as well, is because of the, it increases the authenticity of what a new hire, second year person, is going to do in the real world.

So we're testing things like real life task, that are performed by CPAs. As I said, when I worked at Deloitte, in downtown Los Angeles, those are the kinds of things. So it wasn't just answering simple questions, but it's actually going to the next step, which is looking at supporting documents, looking at exhibits and so on.

Now you're asking yourself, "Why do I need to be familiar with the DRS format?" Well, you wanna make sure that when you walk into the exam, and again, our job is to teach you accounting, make sure it makes sense, put it all together for you. Your job's to make sure that you're understanding the functionality of it. So when it comes to exam day, you're not wasting valuable time trying to navigate this new question format. So it's important that you spend some time.

You'll see examples on the AICPA website, AICPA.org. You'll also see it when you join our course. We'll give you task based, or a type simulation problems in our software, that include TBS and the new DRS format, as well. Because it's important that you're understanding the look, the feel, the format.

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So what we're gonna do now, is take a look at one of the sample DRS, from the AICPA sample exam. We're gonna look specifically first at regulation. And then we'll walk through a couple of the others, as well.

Okay, as I promised, we're now going to look at a regulation exam sample. And this is right off the AICPA.org website, where it talks about how to do the actual DRS Document Review Simulations. Now you'll notice here at the very bottom of the page, it has testlet. And this is testlet two of two. Testlet one, are your first set of multiple choice. Second set, third set. Testlet two are your five, in this case, TBS type questions. Although in the future, in 2017, we can expect eight or nine in Audit, REG and FAR, and four or five in BEC.

Now as we look at these, you'll see here at the bottom, number five is your DRS, your Document Review Simulation. At the top of the page, you'll see where it says time remaining. And the time remaining has changed. It's a new thing they started in January of 2016. It used to look different. Now it has your minutes there. And then with just a couple of minutes left, I believe at about three minutes, it shows minutes. At two minutes it shows minutes and seconds. And under one minute it'll just show seconds left. I believe it changes colors to red, as well.

You'll see just like every other TBS, un-split, horizontal split. Here's a vertical split in case you want to do that. Spreadsheet. And then also a calculator function, which we'll be using in just a moment. So all of these are consistent across the board. Especially when you're looking at any of the TBS.

Now, one of the differences here with the DRS, you'll still see the document review with the pencil icon. That means that has questions in it that will be graded. So as we scroll down, these are the new types of DRS type questions. When you click on the blue, for example, in this case, it says, "In accordance with IRC 1041, the new property is correctly recorded for tax purposes at $72,563." So we click on that, and it opens up alternative choices.

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So, for example, original text is the one that's listed. If I wanna keep it, I just click it. And then I can push "accept." If instead, I wanna click any of these other ones, that's also an option. But in order to really, thoroughly answer this question, I'm gonna need more information. Because, first of all, it says here original text 1041, 1033, IRC 1033, 1041, 41, 33. I may not even know what 41 versus 33 is.

Luckily you'll see here I've got Authoritative Literature. So I can type in here, and start to do a search. And especially since it's, IRC Internal Revenue Code, I can do some search here.

You'll notice here the Tax Depreciation Worksheet. So this is one of the supporting documents that they now give us. You'll see here it has the asset description. The dates, the method, the life. Is it MACRS, Modified Accelerated Cost Recovery System? How many years? Three, five, seven, 39? Beginning balance, current year editions, disposals, ending balance across the top. You'll see that here.

Then it has your depreciation. So here's a listing of accumulated tax depreciation. So that is what we call a Tax Depreciation Schedule. Then we go to exhibits. Now notice this is new. You've got, one, two, three, four, five exhibits here. We've got a letter from the government. We've got a HUD statement. We've got an invoice for the purchase of a color copier. We have an invoice for the purchase of manufacturing equipment. And an invoice for the delivery of a van.

So all of these documents, these are the Document Review Simulation. See, these are the documents I'm gonna have to review in order to help answer the question that's found here under exhibits.

Help. Remember, that's The Beatles. Here it says, "Hey, in case you don't know how to do it. You click on this." Then it gives you choices. And it'll walk you through it and tell you how to go through.

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When you pick a thing you can accept or cancel. You can also push "reset." So let's say I've already picked a number, or a choice, but I don't remember what it was. I can always reset it. So let's say for example I say, "Well this, or this." And it does say the original text, so you know what it was. But if I pick this instead, and I go, "Mm," I accepted it. So then I go through, it has a check mark saying I accepted that choice. If I go back to it, and I say, "Mm, let's reset it." Confirm reset. It goes back to how it was.

So click on this, it means I haven't answered it. Once I've chosen something, I accept it, it has a check there. If I wanna go back and change it, you can just click it. If I want to reset it back to the original condition, original position, boom, it goes back.

Now in this particular question, you'll see one, two, three, four different questions. The first one is about property. The second one looks like a color copier. The next one is manufacturing equipment. The last one is a delivery van.

If you recall up here from the exhibits, the first one is a letter. The second one is a HUD settlement statement about property. This is color copier. This is manufacturing equipment. And invoice for delivery van purchase. So you can see that each of these exhibits, or documents relates to some of the questions here in the document review. Again, at the top, you'll see all these selections.

As far as splitting the screen, if it makes it easier to keep that. Here it's a horizontal split. And then the bottom differently. Or you could do a vertical split and so on. I'm gonna go back to un-split.

And let's look at the question. So here it says document review. Now with document review we go back to the original question. And here it is. "Smith and Company, CPAs has been engaged to prepare form 1120 U.S. Corporate "Income Tax Return for Lilac Corp." Now, this is an 1120 corporation, a C corporation, and we'll learn about that in the tax class.

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"As part of the engagement, the year nine purchases of property, plant and equipment were reviewed to determine whether the tax basis of each fixed asset acquired in year nine is accurately reflected on the tax depreciation worksheet shown in the Tax Depreciation Worksheet tab."

So that's your tax depreciation worksheet, that's your tab right there. "Documentation of the purchases can be found in the Exhibits tab." Those are the Exhibits tab that we looked at already for the different items purchased.

"After initial review of the documentation, a staff associate prepared a draft letter to Lilac's controller." So that staff associate is basically you, right? We've had two years of CPA training. We're on the job. We're preparing this draft.

"John Park, the partner in charge of the Lilac engagement has asked you to review the documentation and revise the letter, correcting any errors. To revise the document, click on each segment of the underlined text below, and select the needed correction, if any, from the list provided."

So there are situations where you may not need to correct it. There are situations where their correction is wrong and none of the others are correct, so you just cross it through. So you'll see that a little later. "If the underlined text is already correct in the context of the document, select 'original text' from the list."

All right. So here we go. Smith and Cos, CPAs. February 19th, year ten. So we're in year ten and recall here, these are dealing with year nine.

"Dear Michael, we have completed our review of the year nine property, plant and equipment purchases as detailed in the tax depreciation worksheet that you provided and have the following comments. Parcel of land at Wayside Street, Greensburg. The tax basis of the land located on Wayside Street is recorded on the tax depreciation schedule at $72,563. We have reviewed the eminent domain letter from the Township of Greensburg's purchase of the Parkway Avenue property and the HUD-1 settlement statement for the purchase of the new property on Wayside Street."

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So it sounds like they did, eminent domain is where the government steps in and says, "Hey, we're taking your property." So this is considered an involuntary conversion. And we talk about that in tax, in the property section. That's when your property was involuntarily converted into another asset, or involuntarily converted into cash.

Now, in this particular case, involuntary conversion means the government used eminent domain. And they decided, "Hey, we're gonna take your property."

Now it says, "In accordance with IRC section 1041, the new property is correctly recorded for tax purposes at $72,563." So, this is kind of like a like-kind exchange, in a sense. Because, they're gonna be getting rid of a property and they're giving me a new property, in this particular case.

Now when I see this, some of the choices are, "In accordance with 1041." IRC is Internal Revenue Code. "The new property is correctly recorded at this." 1033, same amount. 1033, $71,800. Four, 1041, $70,000. 1041, $63,763 and 1033. So, that's what's happening to start with.

Let me start up here and let's look at the tax depreciation schedule. Now notice, the tax basis of Wayside Street. So let's look at our tax depreciation schedule. And let's slide over and see. Here we have land Beachside. That looks like hasn't really been affected. Here's Parkway Avenue. Looks like we got rid of it. And it looks like our cost was $63,000. Then we go to the land at Wayside Street, which is $72,563.

And obviously remembering from class, land is not depreciated, because land lives forever, for accounting purposes. Where as furniture, equipment, manufacturing equipment, delivery. And so for the van, all of those do have some sort of accumulated depreciation, which is the using up of the assets. So it's looks like we got rid of Parkway, and they gave us Wayside. But let's look at the exhibits and see if it tells us anything.

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So the letter from Greensburg government says, "Property location Parkway Avenue. Dear Lilac Corp, As you know, it is necessary for the Township of Greensburg to construct a highway that requires the purchase of the property referred to above. In as much as negotiations to purchase this property which started in April first, year eight. Remember we're now in year ten. And this happened in year nine. Have not been successful to date.”

“A final offer is hereby submitted to you, according to the authorization by Greensburg Transportation Commission, a total sum of $71,800 is offered for the required property rights. Subject to the clear title being delivered. Any compensation that may be due to you from this Department's Relocation Assistance Program is not included in this offer because such funds are paid to eligible persons separately. If you choose to accept this offer, please contact Carmen North." Blah, blah, blah.

"If the offer is not accepted within 14 days, it will be considered having rejected We enclose," okay. Then it says here, "We decided to accept this offer from the Township of Greensburg for the vacant property located at 462 Parkway. Replacement of vacant property was located on Wayside Street, New Jersey. Please note that we elected to capitalize the real estate taxes for this purpose. We have attached the HUD-1 settlement statement showing the purchase of the Wayside Street land."

So what this sounds like is we're converting one property to another. The government gives us a certain amount of time for tax purposes in order to replace that property. Now you'll notice here is the HUD settlement statement. And here it talks about name of buyer, name of seller, property location.

And you'll see here that the summary of the transaction. It looks like that we have $72,563. So we've got a sales price, $70,000. Taxes, $72,563. And in this case, that is the new property that we're acquiring. $72,563.

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Now, as we learn in class, we also learn that with a involuntary conversion, if boot, which is cash is received, then a portion of it may be taxable. If you reacquire a new property, then we reinvest it all. We can defer that gain until the property is actually sold.

So in this particular case, you'll see here that in the letter from Greensburg, $71,800 was offered. You'll notice here in the settlement we acquired a piece of property for $72,563. $72,563 versus $71,800. Let's use our calculator and see what we come up with.

So, we've got 72, 72,563 minus the 71,800. 71,800 of cash that they're giving us. Means that we had to kick in an extra $763 in order to acquire this property. So that's boot, or cash, that we didn't receive, but we're gonna pay out.

Now, as we look over, and as we look at our tax depreciation worksheet, you'll see here that the old property's book value was $63,000. They added the $72,563. Which is the $72,563 was the new property. But really, we're replacing one property with another.

So what we have to look at in this case, is it looks like that the difference between the $71,800 and the $72,563 is $763. So if we were to take 763 plus the old book value. And you'll see here that book value of disposal was $63,000. That equals 63,763. I believe that's what our property should be at.

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So let's come back here. And it says here $72,563, well that was the value of the new property, what we paid. Here's $71,800, that's the cash they're giving us. The $70,000, not sure where that came from. Oh, here's $63,763, I like that. But notice, it's in accordance with IRC 1041 or 1033.

Now, I have not memorized all of these, per se. So what I think I should do is go to Authoritative Literature. And let's type in here involuntary conversion. And let's try what that first choice was, which is 1041.

Now, they'll give us some choices, and this is under IRC, Internal Revenue Code 1041. So you'll see here 1041. Now, as I look at this, it gives me a couple of choices. If I click on this one, it says "involuntary conversion," "involuntary conversion" okay, but that's not giving me 1041.

Let's see the next one. So go back. Here's this. Here's 1041, let me click on that. Now what does it say? It says, "1041 Transfer of property between a spouse or incident to divorce." Well, this is a corporation's assets, not between a spouse, or divorce. Right? I'm not divorcing myself from my corporation.

So let's try 1033, which is the other one that they gave us. And let's see what choices. Here it mentions conversion, conversion, 'cause again it's popping up. "Involuntary conversion. If property, as a result of it's destruction in whole or in part, theft, seizure, requisition, or condemnation. When the company or the government condemns it, or threat of imminence, is compulsory or involuntarily converted." Ah, this looks more like it.

Now if I needed more information, like if they gave me a question about recognition of gain, non-recognition of gain, how to pick up the assets value, and so on. A lot of this we're covering in class, so I should know off the top of my head. But if I didn't remember it, I could also scroll through here where I could search within and look for more detail.

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So it sounds like, in this first particular case, it sounds like it's going to be a 1033 not a 1041 for $63,763. I'm gonna click that, and I'm gonna accept that. So notice that's how we're going through and doing the problem.

Let's try another one. A "color copier purchased on April 15th, is properly reflected in tax depreciation worksheet as five year property. However," so they're telling you it's correct, "However, the asset is incorrectly recorded on the basis of $11,000. The tax basis should be $19,000."

So notice the choices. 19, 24, 32, 35, or "There should not be any amount reflected as tax basis subject to depreciation until the copier's been paid for in full."

Hm. Let's look at our exhibits. Now here's an invoice for the color copier. Looks like it was $32,000. Sales tax, you'd add that to the basis. Total billed $35,000. We paid a deposit of $11,000, and we're paying off the rest.

Now, "John, We decided to finance the purchase of the color copier over a two year period with a promotional loan offered by the company. We paid an initial deposit of $11,000 and began making monthly payments." Well, guess what? You still get to capitalize the entire amount that we're paying. Therefore, we should hit it for $35,000.

This other choice that says, "Well you can't depreciate it until you've paid it in full." That is incorrect, because, as far as I know, I'm writing off tax, let's say property tax on my home, even though the bank still owns it. But I'm making payments. So let's accept that one.

As we go to the next one. Here it says, "The manufacturing equipment that you purchased on June 15th, year nine, is properly reflected on the tax depreciation worksheet as seven year property." Three five seven. "The tax basis of $180,000, however, is incorrect. The amount to be capitalized for manufacturing equipment should be $209,100."

So you'll see here other choices. And I like to skim through them. So they're saying here it's gonna be 209, 205, 202, and so on. Now, this deals with what? This deals with manufacturing equipment. So let me just see here manufacturing equipment. Here we go. Looks like they put it in for $180,000.

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Now, the question we have to see is, is that correct? So let's look at the exhibits. Let's look at manufacturing equipment. Looks here like $180,000 is what we paid. Installment charge for machinery.

Well, remember, we learned in class that getting assets ready for their intended use are capitalized. Well, installing it is intended use. Shipping it, that's getting it to my location. That's intended use. Insurance on the way, intended use. Extended two year warranty.

Wait a second. As far as I know, the warranty you're going to amortize over those two years as a separate item. That's not gonna be capitalized as part of the cost of acquiring the asset for its intended use. That's $200,000. Sales tax of $9,000 is $209,100. So they capitalized it for $180,000. Looks like it should be $209,100 minus this $3,500.

So let's take my calculator again. We'll clear it all. Clear tape. And we've got 209,100. That's two, zero, nine, 100. And I'm gonna subtract from there the 3,500. Now, as I subtract the 3,500, notice you can either click it or you can type it in, as well. That equals 205,600. Let's see if that's one of our choices. Two oh, here it is. Boom. The amount that should be capitalized for manufacture, I accept that. That looks great. So you'll notice as we're saying we accept it, it has a check there. A check here, a check here. Everything looks wonderful so far.

Here we've got, "On August 1st, you traded in a year five model delivery van for a new delivery van paying cash of $23,300. As indicated on the invoice from Beachside Car and Truck Sales, the year nine delivery van tax basis reflected in the tax depreciation worksheet is $23,300. The tax basis is correct."

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Now, this is definitely trading in. And we're trading in an asset for an asset. So this looks like a van for a van. Now what we're gonna do is, is if boot is received then we may have to pay some tax. If not, then we may adjust the basis accordingly.

So here it says the tax basis is correct. What are our choices? The tax basis is correct, original text. And, again, they tell you that. It should have a basis of 39, 32, 31, 30, or 25,388. These are all the different choices. Now, reading it here, I can't tell. So let's go back to the exhibits and see what it gives us.

It tells us here invoice for delivery of van purchase. "This is a purchase agreement between Beachside," dah, dah, dah. "Cost of delivery van $30,400. Cost includes all accessories, destination, less trade-in for five year delivery van."

So we got rid of, that sounds like a like-kind exchange. Getting rid of the old van, which was $9,000 is how much we got. But we're gonna have to take that out of our books. So we got $9,000 cash, which they deducted from the new asset. Then we have sales tax, so our total is $23,300.

What they accountant did, or the staff assistant, is he capitalized $23,000. It says, "Payment received August 1st, year nine, Lilac Corp., check number" blah, blah, blah. So $23,300 is what they have. And over here you'll see that $23,300 I believe is what they said that they capitalized. $23,300.

What we need to do is, let's look back at our tax depreciation worksheet for the delivery van. And it looks like, year five delivery van, this is the one we got rid of. And this one looks like it was a carrying, or a cost, originally of $18,125. It had accumulated depreciation of $14,993. And then we added more, which was $16,037 at the time.

So as of the point of when we got rid of this asset, we had accumulated depreciation of $16,037. We ended up paying cash of $23,300. We've gotta figure out what the new asset is.

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So let's set up a spreadsheet and kind of figure it out. So here's gonna be the new asset. Here is going to be any kind of accumulated depreciation. And notice you can make these columns bigger just by, just like a regular Excel spreadsheet. This is not Excel, but they're expecting by 2018 this to be Excel. This will be the cash paid. And this is the cash that we paid out. And then this is going to be the old van.

Now the old van, and let's move this over slightly, let's see here, the old van, had an original cost of $18,125. Let's set that up. 18,125. The cash paid was $23,300. That's how much we paid for the new van. The accumulated depreciation we'll get here is $16,037.

And that gives us a difference, well, let's pull out our calculator here. Let's clear the tape. And let's see. We've got, boom, clear. So let's start with our 23,300. Plus 18,125. Minus 16,037. Equals 25,338. So this would be a debit to new asset of $25,388. $25,388.

So that's kind of the journal entry I would go through. Let's go back and see the choices. And I'll see here,$25,388. Boom, let's take that. I think I'll take that. Accept.

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So as you look through this problem, one, two, three, there's four problems here. These are difficult. Some were easy. This wasn't too bad. This wasn't too bad. This is a little trickier. This one was probably the most difficult. But you can see the support information. I didn't know the difference between a 1033 asset and a 1041. But I used authoritative literature to look it up.

The tax depreciation worksheet, that was there and helpful as needed. We have the exhibits. Notice all the support exhibits that are here. You'll see those in detail. And then of course the help in case you don't remember how to do this.

As far as clicking on the items and getting the choices. You have the split, vertical and horizontal, which you can use as well, as needed. So, as we're done, boom, accept it. Looks good. Then you would just go back and go to all the other TBS, TBS, TBS, TBS.

Here's another one. This is a research TBS. But number five in this case, that is the new type of what? DRS or Document Review Simulation. I hope that makes sense as far as how it is applied. And you can see the detail and how it's important to practice with the functionality of the DRS.

As far as the content, that is our job. We will summarize, simplify, and make the information available, so that you understand how to apply it. Let's briefly look at the DRS examples from some other sections.

Here's an example of an Audit Document Review Simulation. Notice that this is question number five, in looking at the TBS choices. Again, at the top of the page, you have the time remaining, split, un-split, horizontal, vertical split, spreadsheet, calculator, submit test.

This is two of two. One of two represents the multiple choice questions. Two of two represents the task based simulations. Here's Document Review, Authoritative Literature, where we can go through and do searches.

Here's our Exhibits, we have four exhibits. Comparative Trial Balance, Email From CFO, AR Memorandum, and the Board of Directors' Minutes of Special Meeting. Here's help in case you forget what to do with the choices.

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Document Review. So, just to summarize, this is basically a document review that we have to do of an Audit Staff Checklist. It says that we are the audit senior, and we need to see if the items make sense. So you can read that.

As we go down, here's their checklist from last year that we're gonna use for this year. As you go through you'll see, oh, here's a blue thing. We've got one choice. We've got, let me just cancel. We've got one choice, two choice, three choice, four choice, five, six, seven choices. Oh, eight choices in this question. So we have eight different options in this question.

Now, you'll see here, Edgewater industrial estate sale contract. What are the choices from the sale contract? It says, "Original text, Edgewater industrial estate. Delete it. Edgewater industrial estate lease agreement. Edgewater industrial estate property tax expense. Edgewater industrial estate purchase contract." Or "proof of Edgewater industrial estate property insurance."

So we're looking at Edgewater industrial. As we click up here you'll see Document Review, Authoritative Literature. Here are the exhibits, one, two, three and four. And then help. Now going back to the exhibits, let's see what it talks about, again here with, I already forgot, Edgewater industrial estate.

So let's look at the exhibits. We have a Trial Balance. And here we look down. You've got your bank accounts. Here's your cash. Here's work in process. Oh, here's office equipment. Here's fixture, furniture and fixtures, vehicles, and so on.

Going here, Email From CFO. "Controller, we have agreed on the terms for the purchase of our office at Edgewater industrial estate, with a closing date of August 31st, year six. We're purchasing the property from our current lessor, and therefore, this will end our leasing agreement, reducing our rent expense by $5,000 a month. The agreed purchase price is $2,287,000. I also want to inform you that the year five investment valuation is complete. No impairment has been identified. Management does not plan on selling this investment or buying additional."

(00:34:04)
Okay, so it sounds like Edgewater, no longer leasing, we now are purchasing. This is AR, this is Minutes. So let us look for a moment over at the Comparative Trial Balance. Now, we'll see here, that chances are, we're acquiring this asset, here's the buildings, we acquired it for $2,287,000. So, therefore, we wanna make sure the acquisition was done correctly.

So it sounds like Edgewater industrial estate, we didn't sell it. Edgewater industrial estate purchase contract, yes. Edgewater lease agreement, is over. Estate property tax. And, yeah, so it sounds like Edgewater industrial estate purchase contract. I'm going to accept that one.

Let's do one more. Furniture and fixture purchase documentation. It says here, "Original text, furniture and fixture. Here furniture and fixture sale. Office equipment purchase documentation. Office equipment sale."

So the choices are furniture and fixture, and office equipment. Let's go back to our exhibits. Let's go back to our balance sheet. So we're looking here at our office equipment. We had some, we still have some. Furniture and fixtures, we had some, we still have some.

So it looks like, quite frankly, we didn't do anything. We didn't purchase, we didn't sell. It's all there. Let's delete that. So that's a perfect example of where you're gonna delete something that doesn't relate to the problem.

Let's now look at Financial Accounting Reporting, or FAR. Again, this is testlet two of two. This is the time remaining. And then same tabs at the top as we had in the other TBS or DRS, Document Review Simulations. Here's again Document Review. Authoritative Literature, if needed. Financial Statements. It looks like we've got our Financial Statements, which include our Consolidated Statement of Operations. It includes our balance sheet. It includes our Statement of Cash Flows. And then our footnotes going down the page.

(00:36:03)
So that is the support document. And here's some notes. Accounts receivable, legal proceedings, and so on. So let's go back to the top, boom. Let's now look at our Document Review. And it goes through in detail. You can read this on your own, but let me just show you how to approach it.

Here it says, "Graystack Corp. Reports Second Quarter Year Nine Results. Newtown, New York. Graystack Corp. today reported financial results for its second quarter and six months ended. Amounts are expressed in thousands, except per share amounts. Net revenues for the second quarter of year nine decreased by $1,331, which is 8.5% to $18,254."

So net revenues for the second quarter. Notice the choices here. We have this choice, one, two, three, four, five different questions being asked.

So in this first question, it says, "Second quarter decreased by $1,331 to $18,254." Notice here it says, "Original text." Here it says, "Net revenues decreased for the second quarter 13 to 32, to 18, to 32, to 18, to 32." And here's it's all, 1,331 looks consistent. The percentages, well, here it's a little different. To 18,254 versus, 32,000, and so on.

So what we need to notice is, they're looking for the net change in revenues for year nine. And a decrease by 1,331, which looks, oh here it's decreased, here it's increased. So that's a difference. So that'll help narrow it down to three.

And then we've gotta see which amounts. So let us see what happened. Let's try to go to our financials. This looks like revenues, so let's look at our Statement of Operations. And we will look in class at Income Statements, balance sheets, cash flows, Statement of Changes in Equity, and so on. So we'll look at all of those. So we'll look at all those in detail in class.

(00:37:54)
So as we look at this one, you'll see here net revenues. And are they asking about three months or six months? I believe, let's see. I believe it was three months. Second quarter, second quarter would be three months. So three months. Here's three months.

So they're asking about the second quarter. So it looks like it went from $16,923 to $18,254. That looks like it's gonna be an increase. So as we click it here, the first few are decreases, and these are increases. So at least I went from six choices down to three choices.

Let's pull out our trusty calculator. And we change from, let's see, 16,923. 16,923. And went to 18,254. 18,254. Equals 1,331. So we have 1,331. Now, and I did it backwards, but it doesn't matter the number's still the same, 1,331. Let's divide.

Now what do we do? When your doing percentages, you do what? You do 1,331. 1,331. And remember, we've seen 1,331 in all the choices here. 1,331 divided by the old, 16,923. So when you're trying to look at a percentage change, it's the change over the old. Divided by 16,923. How am I gonna know that? 'Cause we cover it in class. Equals .078. So that's .078, .079 percent.

So let's see if any of these choices match. Let's un-split it. Let's go back to the review. Let's move this out of the way. And it says here, eight and a half, eight and a half, seven nine, I like seven nine. And it says, "Revenues increased $1,331 or 7.9% to $32,000." No, 32, if I recall, was the six months. 18 is the three months, or the quarter, therefore, I'm gonna go with, "Net revenue 7.9%." Boom, accept.

(00:40:06)
All right, so I hope you enjoyed some of those DRS Document Review Simulation type problems. Now, just to remind you, these will be added in the July 2016 exam for Audit, for Regulation, and for FAR. And then they'll be added to BEC, when all the big changes occur, which is in April, or second quarter of 2017.

You can see that practice with the mechanics of the new DRS is really important. Again, if you practice with that, you will be fine. Our job is to teach you the concepts, and the application and analysis of those concepts. Which, in our review course, will cover all that you need. Your job is to get familiar with the mechanics.

Again, our software will walk you through it. It will teach you and help test you on the information that we've taught you. But that's our job. Our job is to go through and teach you all the information you need for Financial, for REG, for Audit, and for BEC, as well. And we'll go through and teach you the mechanics of what you need to know in order to pass the exam.

Again, I want to thank you so much for your time. And hope that it was helpful in understanding the new

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