AICPA CPA-Financial Exam - Topic 1 Question 99 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 99
Topic #: 1

An inventory loss from a market price decline occurred in the first quarter, and the decline was not expected to reverse during the fiscal year. However, in the third quarter the inventory's market price recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting, the dollar amount of net inventory should:

ADecrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.

BDecrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery.

CDecrease in the first quarter by the amount of the market price decline and not be affected in the third quarter.

DNot be affected in either the first quarter or the third quarter.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. $91,000 net income for the third quarter ended 9-30-90.

Rules: The entire amount of an 'extraordinary' item should be reported during the period incurred.

A 'cumulative effect' type accounting change is not included in the net income of the period of change; instead, the beginning of the year retained earnings is restated.

Expenses, which benefit more than one interim period, such as property taxes, are allocated among the periods benefited.

by Delmy at Sep 19, 2024, 12:32 AM

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Shawn

3 months ago

Not sure about this... how can we just overlook the market recovery?

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Catrice

3 months ago

Inventory should decrease in Q1 and increase in Q3.

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Antonette

3 months ago

Wait, so we just ignore the recovery? Sounds odd!

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Alayna

4 months ago

I disagree, C makes more sense to me.

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Amos

4 months ago

B is the right choice! Gotta reflect that recovery.

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Cherilyn

4 months ago

I think the answer is B because it makes sense to adjust for the recovery in the third quarter, but I could see how someone might choose A too.

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Tasia

4 months ago

I feel like option C could be right since the decline was not expected to reverse, but I'm not completely confident about how recoveries are treated.

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Nickole

4 months ago

This reminds me of a practice question where we had to determine how to report inventory losses and gains. I think the recovery should definitely impact the third quarter.

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Destiny

5 months ago

I remember we discussed how inventory should be adjusted based on market price changes, but I'm not sure if we account for recoveries in the same way.

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Eileen

5 months ago

This is a tricky one, but I think the key is that the recovery in the third quarter exceeded the initial decline. So the dollar amount should increase in the third quarter by the full amount of the recovery, not just back to the original level. I'm going with B.

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Nenita

5 months ago

Hmm, I'm a little confused. If the loss in the first quarter was not expected to reverse, then shouldn't the dollar amount just stay decreased in the third quarter? I'm not sure if B is the right choice after all.

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Cherelle

5 months ago

Okay, let me think this through. The inventory loss in the first quarter should decrease the dollar amount, and then the recovery in the third quarter should increase it back up. I'm pretty confident that B is the right answer here.

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Justine

5 months ago

This question seems straightforward, but I want to make sure I understand the key details. The inventory loss in the first quarter was not expected to reverse, but then it did recover in the third quarter. I think the answer is B, but I'll double-check the options to be sure.

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Justine

5 months ago

I see what the question is getting at now. The inventory loss in the first quarter should decrease the dollar amount, and then the recovery in the third quarter should increase it by the full amount, not just back to the original. B makes the most sense to me.

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Janna

10 months ago

I was leaning towards C, but Salena's explanation makes sense. Gotta love these tricky inventory accounting questions!

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Ettie

10 months ago

Haha, I bet the answer is not D. 'Not be affected in either the first quarter or the third quarter'? That would be too easy!

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Belen

8 months ago

B) Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery.

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Deane

8 months ago

I think you're right, it makes sense for the inventory to adjust based on the market price changes.

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Art

9 months ago

A) Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.

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Lavonna

10 months ago

I agree with Salena. The market price recovery in the third quarter should be reflected in the inventory value, not just the initial decline.

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Jamie

9 months ago

Yes, that's correct. It's important to consider both the decline and recovery in the inventory valuation.

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Leonora

9 months ago

So, the answer would be option B) Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery.

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Tamala

9 months ago

I agree, it makes sense to reflect the market price recovery in the inventory value.

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Dannie

10 months ago

I think the inventory should decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery.

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Salena

10 months ago

Option B is the correct answer. The inventory value should decrease in the first quarter by the amount of the market price decline, and then increase in the third quarter by the amount of the market price recovery.

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