Deal of The Day! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Welcome to Pass4Success

- Free Preparation Discussions
Mail Us support@pass4success.com
Location US
Mob_nav_barsMENU

AICPA Exam CPA-Financial Topic 1 Question 109 Discussion

Actual exam question for AICPA's CPA-Financial exam
Question #: 109
Topic #: 1
[All CPA-Financial Questions]

On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.

Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.

This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.

Item to Be Answered

Quo sells extended service contracts on its products. Because related services are performed over several years, in 1993 Quo changed from the cash method to the accrual method of recognizing income from these service contracts.

List A (Select one)

Show Suggested Answer Hide Answer
Suggested Answer: C

Choice 'c' is correct. Change from the cash method to the accrual method is a correction of an error in previously presented financial statements.


by Matthew at Mar 20, 2025, 03:14 PM

Limited Time Offer

25%

Off

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

Contribute your Thoughts:

Submit Cancel
Carey
3 days ago
I agree with Jess, the change in method of recognizing income is a change in principle.
upvoted 0 times
...
Terrilyn
4 days ago
A) Change in accounting principle, no doubt. Though I have to wonder - who thought cash accounting for multi-year service contracts was a good idea in the first place? Maybe Quo should consider hiring some competent controllers going forward.
upvoted 0 times
...
Jess
6 days ago
But the change from cash to accrual method seems like a change in principle to me.
upvoted 0 times
...
Aleisha
8 days ago
Hmm, I'm not convinced. What if they just realized the cash method wasn't giving an accurate picture and decided to switch to accrual? That could be seen as a change in estimate, no? Either way, I bet the auditors will have a field day with this one.
upvoted 0 times
...
Madelyn
10 days ago
I disagree, I believe it is B) Change in accounting estimate.
upvoted 0 times
...
Willow
13 days ago
This seems like a straightforward case of a change in accounting principle to me. The company is altering its core accounting policies, not just correcting an error or making an estimate adjustment.
upvoted 0 times
...
Rebecka
19 days ago
I think the correct answer is A) Change in accounting principle. Switching from cash to accrual method for recognizing service contract revenue is a change in the fundamental way the company accounts for these transactions.
upvoted 0 times
Tresa
3 days ago
I agree, the change from cash to accrual method is definitely a change in accounting principle.
upvoted 0 times
...
...
Jess
24 days ago
I think the answer is A) Change in accounting principal.
upvoted 0 times
...

Save Cancel