Discuss AICPA CPA-Financial Exam Topic 3 Question 53

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 changed from FIFO to average cost to account for its raw materials and work in process inventories.

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: A

Choice 'a' is correct. Change in inventory pricing method from FIFO to average cost is a change in accounting principle.

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13 comments · newest first

Sanjuana 11 months ago

I think it could also be seen as a change in estimate, but I lean towards principle.

Monroe 11 months ago

This is textbook change in accounting principle, no doubt.

Bong 12 months ago

Wait, are we sure this is a principle change? Seems a bit off.

Curtis 12 months ago

Agreed, switching from FIFO to average cost is a big deal!

Brianne 12 months ago

Definitely a change in accounting principle.

Lisha 1 year ago

Based on what I studied, this should be a change in accounting principle. It’s a fundamental change in how they value inventory, not just an estimate or error.

Susana 1 year ago

I'm a bit uncertain about this one. Could it also be considered a change in estimate? I feel like I need to review that section again.

Jaclyn 1 year ago

I remember practicing a similar question, and I think changing inventory methods definitely qualifies as a change in accounting principle.

Alex 1 year ago

I think this is a change in accounting principle since they switched from FIFO to average cost. That sounds right, but I'm not completely sure.

Shanice 1 year ago

I'm a little confused by the wording of this question. I want to make sure I really understand what they're asking before I select an answer.

Wilda 1 year ago

This question seems straightforward, but I want to double-check my understanding. I'll go through the options one by one and make sure I'm selecting the right answer.

Cherri 1 year ago

Okay, I remember learning about this in class. The two main categories are Operational Activities and Marketing and Sales Activities. I'm feeling good about that.

Cherry 1 year ago

I'm not too sure about this one. The question seems a bit vague, and I'm not familiar with the CURWB networks. I'll have to think this through carefully.

AICPA CPA-Financial Exam - Topic 3 Question 53 Discussion