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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 manufactures heavy equipment to customer specifications on a contract basis. On the basis that it is preferable, accounting for these long-term contracts was switched from the completed-contract method to the percentage-of-completion method.
List A (Select one)
Suggested Answer: D
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Choice 'd' is correct. The concept of reliability in financial reporting includes; neutrality, representational faithfulness and verifiability.
Choices 'a', 'b', and 'c' are incorrect, per the above.
33 comments · newest first
LO
Loise
11 months ago
This is a classic case of changing accounting methods!
DU
Dusti
11 months ago
Seems pretty clear it's a principle change.
LU
Luis
12 months ago
Wait, are we sure it’s not just an estimate change?
LI
Linwood
12 months ago
I agree, it’s a principle change for sure!
KA
Karol
12 months ago
Definitely a change in accounting principle.
BE
Beula
1 year ago
I’m confused; I thought changes in estimates were more about projections, but this seems like a fundamental shift in how they report revenue.
DA
Dacia
1 year ago
This feels like a correction of an error, but I guess it’s more about changing how they account for contracts, so maybe it’s a principle change?
DO
Dortha
1 year ago
I'm not entirely sure, but I remember something about the percentage-of-completion method being a different approach, so it might be a change in accounting principle too.
DE
Dean
1 year ago
I think this is a change in accounting principle since they're switching methods for recognizing revenue.
RO
Roy
1 year ago
Option D seems like the way to go here. Using a StackSet to deploy the VPC template across all 50 accounts would be a lot more efficient than manually creating stacks in each account or writing a custom script. The ability to update the VPCs centrally is a big plus too.
AL
Alton
1 year ago
This seems straightforward - WWPN zoning and VLAN are the two technologies that enable the customer to accomplish this task.
RE
Remona
1 year ago
Okay, let me think this through. We're creating a vector of 5 A objects, then adding one more. Then we're printing them all out. I'm guessing the output has something to do with how the A objects are being initialized and stored.
AN
Andrew
1 year ago
Hmm, I'm a bit unsure about this one. I know Availability Zones and geo-replication are common disaster recovery strategies, but I'm not sure which one is best for a PaaS solution. I'll have to think this through carefully.
GO
Goldie
1 year ago
I agree with the others, A) Change in accounting principle is the correct answer here. Quo made a specific decision to change their accounting method, so it fits the description of a change in principle rather than an estimate or error correction.
GE
German
1 year ago
Agreed, A) Change in accounting principle is the most appropriate option for this transaction.
AD
Adell
1 year ago
Yes, I agree. It's definitely not an error correction or just an estimate adjustment.
JE
Jennie
1 year ago
I think A) Change in accounting principle makes sense. Quo made a deliberate choice to switch methods.
WI
Willetta
1 year ago
Haha, this is a classic accounting trick question. They're trying to get you to overthink it, but the answer is clear - it's a change in accounting principle. Quo made a conscious decision to change their method, so A) is the way to go.
CA
Carma
1 year ago
So, we're all going with A) then?
LI
Lilli
1 year ago
Definitely, it's not an error or estimate change.
EL
Eloisa
1 year ago
Yeah, I agree. Quo switched methods on purpose.
DE
Devorah
1 year ago
I think it's a change in accounting principle.
TR
Troy
1 year ago
Definitely A). It's all about the method change, nothing to do with errors or estimates.
ST
Stefanie
1 year ago
I'm leaning towards A) as well. It makes sense that changing from completed-contract to percentage-of-completion method is a change in accounting principle.
FI
Fidelia
1 year ago
Yeah, I agree. Quo made a deliberate decision to switch methods, so it's definitely not an error. A) it is.
LA
Lamonica
1 year ago
I think it's a change in accounting principle too. A) seems like the right choice.
MA
Malika
1 year ago
But the switch from completed-contract method to percentage-of-completion method seems more like a change in accounting principle to me.
RE
Regenia
1 year ago
I'm not sure about this one. At first, I thought it might be a change in accounting estimate, but the question states that Quo 'switched' the method, which implies a deliberate change in policy rather than an update to an estimate. I'll go with A) Change in accounting principle.
TO
Toshia
1 year ago
I agree, it seems like they deliberately switched methods.
KA
Kate
1 year ago
I think it's a change in accounting principle.
ET
Ettie
1 year ago
I disagree, I believe the correct answer is B) Change in accounting estimate.
DE
Deane
1 year ago
I think the correct answer is A) Change in accounting principle. Switching from the completed-contract method to the percentage-of-completion method for long-term contracts is a change in the fundamental way Quo accounts for these transactions, which fits the definition of a change in accounting principle.
MA
Malika
1 year ago
I think the answer is A) Change in accounting principal.