Discuss AICPA CPA-Financial Exam Topic 2 Question 32

Is the cumulative effect of an inventory pricing change on prior years earnings reported on the financial statements for

AOption A

BOption B

COption C

DOption D

Suggested Answer: B

Choice 'b' is correct. The cumulative effect of a change in accounting principle is now reported as an adjustment to beginning retained earnings when it is considered practicable to calculate the cumulative effect. When making a change to LIFO, it is generally considered impracticable to calculate the cumulative effect of the change (in most cases, data on the historical LIFO layers in not available). In a change to LIFO, the beginning inventory dollar amount becomes the first LIFO layer. No cumulative effect adjustment is made. The change is accounted for prospectively.

A change from LIFO to weighted average, there is no such impracticability. The cumulative effect is computed and the change is handled retrospectively.

Choices 'a', 'c', and 'd' are incorrect, per the above Explanation: .

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9 comments · newest first

Filiberto 11 months ago

Totally agree, it impacts past earnings for sure!

Laquita 12 months ago

Wait, are we sure about that? Sounds off to me.

Garry 12 months ago

Definitely not, it affects prior years, not current.

Felix 12 months ago

I think it should be in the current year’s earnings, right?

Bulah 1 year ago

It's usually reflected in the retained earnings.

Rochell 1 year ago

Hmm, this is a tricky one. I'll need to think carefully about the potential data loss implications when changing a custom field type.

Derick 1 year ago

Intent, got it. That makes sense for connecting activities within the same app. I feel good about this one.

Renay 1 year ago

Okay, let me think this through. In a centralized structure, decision-making is slower since it has to go through the top. That's got to be one of the options.

Raylene 1 year ago

Hmm, I'm a bit confused by the different ratio movements. I'll need to make sure I understand what each ratio is measuring and how they're related to the financial statements.

AICPA CPA-Financial Exam - Topic 2 Question 32 Discussion