AICPA CPA-Financial Exam - Topic 1 Question 109 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 109
Topic #: 1

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)

AChange in accounting principal.

BChange in accounting estimate.

CCorrection of an error in previously presented financial statements.

DNeither an accounting change nor an accounting error.

Show Suggested 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

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Lennie

1 month ago

I feel like this is definitely a change in accounting principle, but I hope I’m not mixing it up with something else we practiced.

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Justine

2 months ago

I wonder if this could be seen as a correction of an error, but it seems more like a deliberate change in how they recognize income.

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Noel

2 months ago

I'm not entirely sure, but I remember something about changes in accounting estimates being related to future projections. This feels more like a principle change to me.

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Aron

2 months ago

I think this might be a change in accounting principle since they're switching from cash to accrual for recognizing income.

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Sylvie

2 months ago

I’m surprised they didn’t catch this sooner.

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Amie

2 months ago

Nope, it’s a principle change for sure!

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Barney

2 months ago

Wait, are we sure it’s not just an estimate change?

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Jamal

3 months ago

Totally agree, it's about how they recognize income now.

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Miesha

3 months ago

This is definitely a change in accounting principle.

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William

3 months ago

I think I've got it - the change from cash to accrual method for service contract revenue is a change in accounting principle. The key is that it's a voluntary change in the method used, not a correction of an error. Feeling confident about this one!

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Sabine

3 months ago

This is a good example of why it's important to really understand the distinctions between accounting changes and errors. I'm going to carefully review the details and definitions before answering.

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Angella

4 months ago

Okay, let me think this through step-by-step. Quo changed from the cash method to the accrual method for recognizing income from service contracts. That sounds like a change in accounting principle to me, but I'll double-check the definitions just to be sure.

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Malcom

4 months ago

Hmm, I'm a little unsure about this one. The wording is a bit tricky, and I want to make sure I understand the differences between the accounting change options before selecting an answer.

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Burma

4 months ago

This seems like a straightforward question about accounting changes. I'm pretty confident I can identify the correct treatment here.

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Kathryn

4 months ago

Okay, I've got this. Quo is changing their revenue recognition method for service contracts, moving from cash to accrual. That's definitely a change in accounting principle, not just an estimate or error correction. I feel confident about selecting that option.

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Tanja

4 months ago

Hmm, I'm not totally sure on this one. It seems like it could be a correction of an error if Quo was previously recognizing the service contract revenue incorrectly. But the fact that they're changing the method makes me think it's more of an accounting principle change. I'll have to review the differences between those options.

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Angelica

5 months ago

I'm a little unsure about this one. It could be a change in accounting estimate if Quo is just adjusting how they recognize revenue over time, but the wording about changing from cash to accrual makes me think it's more of a change in principle. I'll have to think it through carefully.

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Claudia

5 months ago

This seems like a straightforward change in accounting principle to me. Quo is moving from the cash method to the accrual method for recognizing income from service contracts, which is a change in how they account for these transactions.

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Carey

10 months ago

I agree with Jess, the change in method of recognizing income is a change in principle.

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Terrilyn

10 months 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.

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Melvin

9 months ago

B) Change in accounting estimate.

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Carey

10 months ago

A) Change in accounting principle.

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Jess

11 months ago

But the change from cash to accrual method seems like a change in principle to me.

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Aleisha

11 months 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.

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Misty

9 months ago

User 4: B) Change in accounting estimate.

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Carissa

10 months ago

User 3: A) Change in accounting principal.

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Coral

10 months ago

User 2: B) Change in accounting estimate.

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Shenika

10 months ago

User 1: A) Change in accounting principal.

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Madelyn

11 months ago

I disagree, I believe it is B) Change in accounting estimate.

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Willow

11 months 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.

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Rebecka

11 months 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.

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