AICPA CPA-Financial Exam - Topic 2 Question 114 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 114
Topic #: 2

Conn Co. reported a retained earnings balance of $400,000 at December 31, 1991. In August 1992, Conn determined that insurance premiums of $60,000 for the three-year period beginning January 1, 1991, had been paid and fully expensed in 1991. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its 1992 statement of retained earnings?

A$420,000

B$428,000

C$440,000

D$442,000

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. $428,000 net of tax.

by Avery at Jul 12, 2025, 10:46 AM

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Shaunna

7 months ago

Wait, how do we know they actually over-expensed?

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Yong

7 months ago

I think it should be $442,000 after adjustments.

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Edna

7 months ago

Don't forget the tax effect on that $60k!

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Sue

7 months ago

The original retained earnings were $400,000.

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Rocco

7 months ago

Totally with you on that $442k figure!

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Kerry

8 months ago

I feel like the answer should be around $440,000 after adjustments, but I’m not completely confident in my calculations.

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Talia

8 months ago

This reminds me of a practice question where we had to adjust for expenses. I think the tax effect is crucial, but I’m a bit confused about the final number.

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Barb

8 months ago

I think we need to add back the $60,000 and then adjust for taxes, but I can't recall the exact calculation.

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Wade

8 months ago

I remember something about adjusting retained earnings for prior period errors, but I'm not sure how the tax impact works here.

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Leatha

8 months ago

The key here is to remember that the insurance premiums were expensed in 1991, but they were for a 3-year period. So we need to adjust the 1991 balance and then factor in the tax impact.

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Johana

9 months ago

I'm a bit confused by the wording of the question. Can someone clarify what exactly we need to do to get the adjusted beginning retained earnings for 1992?

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Sylvia

9 months ago

I'm feeling pretty confident about this one. The key is to adjust the retained earnings balance for the insurance premium error and then calculate the tax impact.

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Bette

9 months ago

Okay, let's break this down step-by-step. We have the original retained earnings balance, an adjustment for insurance premiums, and a tax rate. I think I can work through this systematically.

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Ruthann

9 months ago

This question seems straightforward, but I want to make sure I understand the details correctly before attempting to solve it.

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Delpha

10 months ago

Okay, let me get this straight - they overpaid their premiums, and now they need to adjust their retained earnings? What a headache. I'll go with B, $428,000. Sounds about right to me.

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Maile

10 months ago

Ha, leave it to Conn Co. to mess up their insurance payments. I'm going with C, $440,000. Feels like the safest bet here.

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Ricki

10 months ago

Hmm, this is tricky. Gotta account for that tax rate too. I'm thinking D, $442,000. Seems like the right way to calculate the adjusted retained earnings.

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Jesus

9 months ago

I see your point about the tax rate. But what about the income adjustment?

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Asuncion

9 months ago

Exactly! If we calculate the tax effect, D makes sense.

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Dyan

10 months ago

I still have my doubts. Maybe it's C instead? It's a close call!

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Barb

10 months ago

I think we need to do some math here. It's not just about the premium.

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Carolann

11 months ago

I agree with Giuseppe, C) $440,000 makes sense considering the tax rate.

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Giuseppe

11 months ago

I'm leaning towards C) $440,000 because of the tax rate adjustment.

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Franchesca

12 months ago

Wait, so they overpaid their insurance premiums? That's a weird accounting mistake. I'd go with option B, $428,000. Seems like the most straightforward adjustment.

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