AICPA Exam CPA-Financial Topic 3 Question 96 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 96
Topic #: 3

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

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 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. Expensing insurance premiums when paid (rather than allocating them to the periods benefited) is a correction of an error in previously presented financial statements.

by Laura at Sep 12, 2024, 05:28 AM

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Donte

9 months ago

Haha, accounting changes and estimates, the bane of every finance student's existence! But in this case, I'm pretty sure the answer is B. Change in accounting estimate.

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Tequila

8 months ago

Yeah, it's all about those details in accounting. Good job on picking the right answer.

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Emerson

8 months ago

It's tricky, but I think you're right. It's definitely not a change in accounting principle.

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Helga

8 months ago

I agree with you, the answer is B. Change in accounting estimate.

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Mi

9 months ago

I'm not sure, but I think it could also be A) Change in accounting principal.

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Carli

10 months ago

I agree with Yun, it seems like a correction of an error from 1992.

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Lashaunda

10 months ago

B. Change in accounting estimate. That's the only option that really fits this scenario. Gotta love these tricky accounting questions!

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Kenia

9 months ago

C) Correction of an error in previously presented financial statements.

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Kimberlie

9 months ago

B) Change in accounting estimate.

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Craig

9 months ago

A) Change in accounting principal.

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Yun

10 months ago

I think the answer is C) Correction of an error in previously presented financial statements.

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Goldie

10 months ago

I'm going with D. Neither an accounting change nor an error. The insurance premium was expensed in the correct year, even if it covers a different period. This doesn't seem like a change or an error to me.

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Ronald

9 months ago

I'm sticking with D. It doesn't seem like an accounting change or error to me.

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Joanne

9 months ago

I would go with B. Change in accounting estimate, since the period covered by the premium changed.

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Terry

9 months ago

I agree with C. It seems like the premium was expensed incorrectly in 1992.

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Irma

10 months ago

I think it's C. Correction of an error in previously presented financial statements.

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Louisa

10 months ago

Definitely B. The insurance premium was paid in one year but covers two years, so it's clearly a change in estimate rather than a principle or an error.

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Karan

10 months ago

I think the correct answer is B. Change in accounting estimate. The insurance premium covers a period that spans two years, so it makes sense to account for it as an estimate rather than a change in principle or an error.

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Elvera

10 months ago

Yes, I think so too. It makes sense given the situation with the insurance premium.

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Rozella

10 months ago

I agree, it seems like a change in accounting estimate would be the most appropriate option.

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