AICPA Exam CPA-Financial Topic 2 Question 94 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 94
Topic #: 2

[All CPA-Financial Questions]

In which of the following situations should a company report a prior-period adjustment?

AA change in the estimated useful lives of fixed assets purchased in prior years.

BThe correction of a mathematical error in the calculation of prior years' depreciation.

CA switch from the straight-line to double-declining balance method of depreciation.

DThe scrapping of an asset prior to the end of its expected useful life.

Show Suggested Answer

Suggested Answer: B

Choice 'B' is correct. Changes in accounting principle are handled 'retrospectively.' Beginning retained earnings of the earliest year presented is adjusted for the cumulative effect of the change and all prior year financial statements are restated.

by Marcos at Aug 08, 2024, 03:15 PM

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Gabriele

24 days ago

Ah, the joys of corporate bookkeeping. Where even the smallest rounding error can send the accountants into a tizzy. At least they'll never run out of ways to keep themselves busy!

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Nichelle

26 days ago

D is tempting, but I think B is the way to go. Scrapping an asset early is more of an operational issue, not a prior-period adjustment. Unless you accidentally bought a dud, that is.

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Matthew

3 days ago

D is tempting, but I think B is the way to go. Scrapping an asset early is more of an operational issue, not a prior-period adjustment. Unless you accidentally bought a dud, that is.

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Leonora

16 days ago

B) The correction of a mathematical error in the calculation of prior years' depreciation.

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Mindy

1 months ago

I'll go with B too. If you messed up the math, you gotta fix it, no matter how embarrassing that might be. At least it's better than fudging the numbers, right?

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Vonda

13 days ago

B) The correction of a mathematical error in the calculation of prior years' depreciation.

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Ena

26 days ago

A) A change in the estimated useful lives of fixed assets purchased in prior years.

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Bonita

2 months ago

Hmm, I was considering A as well, but I guess B is the better choice here. Adjusting for a mistake in the numbers seems like the right call for a prior-period adjustment.

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Bok

21 days ago

User 2: I agree, but I think B is a better option. Correcting a mathematical error makes sense.

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Rhea

1 months ago

User 1: I think A is a good choice for a prior-period adjustment.

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Laurel

2 months ago

But what about the switch from straight-line to double-declining balance method of depreciation? Shouldn't that also be reported as a prior-period adjustment?

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Roxane

2 months ago

I agree with Cyndy. It's important to reflect the correct information in the financial statements.

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Cyndy

2 months ago

I think a company should report a prior-period adjustment when there's a change in the estimated useful lives of fixed assets purchased in prior years.

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Izetta

2 months ago

I think the correct answer is B. The correction of a mathematical error in the calculation of prior years' depreciation is a clear-cut case of a prior-period adjustment.

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