AICPA CPA-Financial Exam - Topic 3 Question 17 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 17
Topic #: 3

An inventory loss from a permanent market decline of $360,000 occurred in May 1989. Cox Co. appropriately recorded this loss in May 1989 after its March 31, 1989 quarterly report was issued. What amount of inventory loss should be reported in Cox's quarterly income statement for the three months ended June 30, 1989?

A$0

B$90,000

C$180,000

D$360,000

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. $360,000 inventory loss reported for the quarter ended 6-30-89.

Rule: Inventory losses from 'permanent market declines' are recognized in the interim period, incurred and later, if they 'turn-around,' are recognized as gains in a subsequent interim period only to the extent of previously reported losses.

Rule: 'Temporary' market declines need not be recognized at interim when a 'turn-around' can reasonably be expected to occur before the end of the fiscal year.

Facts: This $360,000 inventory decline is permanent and the entire loss would be recognized in the quarter interim period incurred (6-30-89).

by Audra at May 06, 2022, 11:47 AM

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5 months ago

I'm a bit confused on this one. I know the different types of data, but I'm not sure which one would require the most storage. I'll have to carefully consider the differences between them.

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