AICPA CPA-Financial Exam - Topic 1 Question 102 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 102
Topic #: 1

Goddard has used the FIFO method of inventory valuation since it began operations in 1987. Goddard decided to change to the weighted-average method for determining inventory costs at the beginning of 1990. The following schedule shows year-end inventory balances under the FIFO and weighted-average methods:

What amount, before income taxes, should be reported in the 1990 retained earnings statement as the cumulative effect of the change in accounting principle?

A$5,000 decrease.

B$3,000 decrease.

C$2,000 increase.

D$0.

Show Suggested Answer

Suggested Answer: B

Choice 'B' is correct. If comparative FS are issued, restate prior year's FS. If comparative FS are not issued, restate prior year-end's retained earnings account by 'adjusting' (net of tax) the opening balance of the current retained earnings statement.

by Gearldine at Oct 22, 2024, 11:12 PM

Limited Time Offer

25%

Off

Get Premium CPA-Financial Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Antonio

3 months ago

I agree, $3,000 makes the most sense here!

upvoted 0 times

...

Tamar

3 months ago

Definitely not $0, that seems off.

upvoted 0 times

...

Deandrea

3 months ago

Wait, how does changing methods affect retained earnings?

upvoted 0 times

...

Jovita

4 months ago

I think the decrease should be $3,000.

upvoted 0 times

...

Micaela

4 months ago

FIFO was used for 3 years before the switch.

upvoted 0 times

...

Lacey

4 months ago

I think I might have seen a similar question where the cumulative effect was zero, but I can't remember the specifics. It’s tricky!

upvoted 0 times

...

Xuan

4 months ago

I feel like the cumulative effect should reflect the difference in inventory values, but I can't recall if it should be an increase or decrease.

upvoted 0 times

...

Nohemi

4 months ago

This question reminds me of a practice problem where we had to determine the impact of switching from FIFO to weighted-average. I think it was about understanding the differences in inventory valuation.

upvoted 0 times

...

Sylvie

5 months ago

I remember we discussed how changes in accounting principles affect retained earnings, but I'm not sure how to calculate the cumulative effect here.

upvoted 0 times

...

Doug

5 months ago

I've got this! The key is to focus on the difference between the FIFO and weighted-average methods. The question is asking for the amount to report in the 1990 retained earnings statement, so I just need to find that difference.

upvoted 0 times

...

Maryann

5 months ago

I'm a bit confused about how to determine the cumulative effect. Should I just look at the difference in the year-end balances, or is there more to it?

upvoted 0 times

...

Ling

5 months ago

Okay, let me think this through step-by-step. I need to calculate the difference between the FIFO and weighted-average inventory values and report that as the cumulative effect.

upvoted 0 times

...

Lucia

5 months ago

This question seems straightforward, but I want to make sure I understand the FIFO and weighted-average methods before answering.

upvoted 0 times

...

Ressie

10 months ago

Wait, is this a trick question? What if the answer is actually D) $0, and the whole thing is just a ploy to see if we're paying attention?

upvoted 0 times

Julene

9 months ago

User 3: I'm not sure, but I think it might be D) $0.

upvoted 0 times

...

Dierdre

9 months ago

User 2: No, I believe it's A) $5,000 decrease.

upvoted 0 times

...

Tenesha

9 months ago

User 1: I think the answer is C) $2,000 increase.

upvoted 0 times

...

Tiera

10 months ago

Let's see, if Goddard changed from FIFO to weighted-average, that means their inventory value went down. So it's gotta be a decrease in retained earnings. I'll go with B.

upvoted 0 times

An

9 months ago

Jeffrey: I'm leaning towards option B, a $3,000 decrease.

upvoted 0 times

...

Honey

9 months ago

User 3: So, which option do you think is the correct amount for the cumulative effect of the change?

upvoted 0 times

...

Jeffrey

9 months ago

User 2: Yeah, I agree. The inventory value went down, so it makes sense that retained earnings would decrease.

upvoted 0 times

...

Miss

9 months ago

User 1: I think the change in accounting principle will result in a decrease in retained earnings.

upvoted 0 times

...

Tomas

10 months ago

Oh man, I hate these accounting questions. Why can't they just ask something simple, like 'What's the meaning of life?' That I could answer easily.

upvoted 0 times

Shaniqua

9 months ago

User 2: I agree, I wish they were more straightforward like that.

upvoted 0 times

...

Thurman

9 months ago

User 1: I know right, accounting questions can be so confusing.

upvoted 0 times

...

Nina

10 months ago

Hmm, I'm pretty sure the answer is B) $3,000 decrease. The change in method would result in a lower inventory value, so it has to be a decrease in retained earnings.

upvoted 0 times

...