AICPA CPA-Financial Exam - Topic 1 Question 78 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 78
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 B represents the general accounting treatment required for these transactions. These treatments are:

* Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the accounting change or error correction in the 1993 financial statements, and do not restate the 1992 financial statements.

* Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust 1992 beginning retained earnings if the error or change affects a period prior to 1992.

* Prospective approach - Report 1993 and future financial statements on the new basis but do not restate 1992 financial statements.

Item to Be Answered

During 1993, Quo determined that an insurance premium paid and entirely expensed in 1992 was for the period January 1, 1992, through January 1, 1994.

List B (Select one)

ACumulative effect approach.

BRetroactive or retrospective restatement approach.

CProspective approach.

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 Delisa at Dec 12, 2023, 11:07 AM

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Kattie

3 months ago

Not sure if that’s the best choice, seems a bit off.

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Armando

3 months ago

Totally agree with the cumulative effect approach!

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Owen

3 months ago

Wait, how can they just ignore 1992's statements?

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Beula

4 months ago

I think they should use the retrospective restatement approach.

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Rex

4 months ago

Cumulative effect approach is the way to go here.

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Kattie

4 months ago

I feel like the cumulative effect approach is the right choice here, especially since it mentions not restating the 1992 financials.

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Devorah

4 months ago

I’m leaning towards the prospective approach because it seems like we’re just adjusting future statements without restating 1992. But I could be wrong!

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Lonna

4 months ago

I remember practicing a similar question where we had to decide between retrospective and prospective approaches. This feels like it could be retrospective since it affects a prior period.

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Michael

5 months ago

I think this might be a cumulative effect approach since the insurance premium was fully expensed in 1992, but I'm not entirely sure.

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Harris

5 months ago

Okay, I think I've got this. Since the insurance premium was entirely expensed in 1992 but should have been allocated over 1992 and 1994, the retroactive or retrospective restatement approach is the right choice here. I'll make sure to explain my reasoning in the exam.

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Laquanda

5 months ago

Hmm, I'm a little unsure about this one. The question provides a lot of background information, but I'm not totally clear on how to apply the different accounting approaches. I'll need to re-read it carefully and think through the specifics of the transaction.

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Jamie

5 months ago

This seems like a straightforward question about accounting policy changes and error corrections. I think the key is to carefully read the details and match the situation to the appropriate accounting treatment from the list.

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Brittani

5 months ago

This question seems pretty straightforward to me. The insurance premium was for a period spanning 1992 and 1994, so the 1992 financial statements need to be restated. The retroactive or retrospective restatement approach is the way to go.

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Eva

5 months ago

Nystatin is an antifungal agent, so that's the answer I'm going with. The question is asking which agent is antifungal, and that's the only one that fits.

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Jovita

5 months ago

Hmm, this seems like a tricky one. I'll need to think carefully about the requirements for an objective security audit.

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Carissa

5 months ago

I recall something about using JWT for stateless authentication, so option E might be correct, but I need to double-check if that's the only option for secure authentication.

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Leonardo

5 months ago

Hmm, I'm not totally sure about this one. I'll have to think it through carefully and consider the different options before making a decision.

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