Discuss AICPA CPA-Financial Exam Topic 3 Question 116

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.

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.

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23 comments · newest first

Aaron 9 months ago

Seems like a classic case of an error to me!

Talia 9 months ago

I think it's more of a change in accounting estimate, actually.

Hillary 10 months ago

Wait, how did they miss that for so long?

Eugene 10 months ago

I agree, it sounds like they misclassified the expense.

Taryn 11 months ago

This is definitely a correction of an error.

Alesia 11 months ago

I’m a bit confused. Could it also be considered neither an accounting change nor an error? I feel like there are nuances here.

Carin 11 months ago

This seems like a classic case of correcting an error. The premium should have been amortized over the correct period, right?

Belen 11 months ago

I'm not entirely sure, but I remember something about changes in estimates being related to future periods. Could this be a change in accounting estimate?

Carin 12 months ago

I think this might be a correction of an error since the insurance premium was expensed in the wrong period.

Isadora 12 months ago

This is a good test of my understanding of accounting principles. I'm feeling confident I can analyze the situation and select the appropriate option.

Brunilda 12 months ago

Okay, I think I've got this. The key is determining whether the insurance premium issue represents a change in accounting principle, a change in estimate, a correction of an error, or neither. I'll walk through the details methodically.

Ryan 1 year ago

Hmm, I'm a bit unsure about this one. The wording is a bit tricky, and I want to make sure I understand the implications of each option before choosing.

Lettie 1 year ago

This seems like a straightforward accounting question. I'll carefully review the details and think through the options before selecting my answer.

Carey 1 year ago

I'm not sure, but I think it could also be A) Change in accounting principal since they are changing the period covered by the insurance premium.

Chau 1 year ago

Hmm, I'm not so sure. The question states that Quo 'corrected several errors dating from 1992 and before', so it seems like this could be a correction of an error in previously presented financial statements. I'll go with option C.

Whitley 9 months ago

↳ replying to Chau

But what if it's a change in accounting estimate?

Marla 10 months ago

↳ replying to Chau

I agree, the previous statements need correction.

Lauryn 10 months ago

↳ replying to Chau

I think you're right about option C. It fits the context well.

Terrilyn 10 months ago

↳ replying to Chau

I still lean towards option C as well.

Johnetta 1 year ago

I agree with Paris, it seems like the insurance premium was expensed incorrectly in 1992.

Ilda 1 year ago

This seems like a classic case of a change in accounting estimate. The insurance premium was originally expensed in 1992, but it was later determined that it should have been spread over the period from 1992 to 1994. I think option B is the correct answer.

Naomi 1 year ago

↳ replying to Ilda

I think option B is correct. It does sound like a change in accounting estimate.

Paris 1 year ago

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

AICPA CPA-Financial Exam - Topic 3 Question 116 Discussion