AICPA CPA-Financial Exam - Topic 3 Question 65 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 65
Topic #: 3

[All CPA-Financial Questions]

Tanker Oil Co., a development stage enterprise, incurred the following costs during its first year of operations:

Tanker had no revenue during its first year of operation. What amount may Tanker capitalize as organizational costs?

A$115,000

B$95,000

C$55,000

D$0

Show Suggested Answer

Suggested Answer: B

Choice 'B' is correct. The equity method of accounting is applied retroactively when the investor has acquired 20% ownership. Prior to acquiring the ability to influence the investee, the cost method is proper. The retroactive restatement approach does not mean that this change is the correction of an error (which is now treated retroactively), a change in accounting principle (which is now treated retrospectively), or a change in accounting entity (which is now treated retrospectively). It just means that retroactive restatement is the proper treatment.

by Louisa at Feb 03, 2023, 02:21 PM

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Lura

8 months ago

$115,000 seems way too high for a startup!

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Sheron

8 months ago

I thought organizational costs were capped at $50,000.

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Kimberlie

9 months ago

Wait, can they really capitalize anything if there’s no revenue?

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Callie

9 months ago

Totally agree, it’s the only option that makes sense!

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Julianna

9 months ago

I think they can capitalize $55,000.

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Verdell

9 months ago

I believe the answer is $0 because they had no revenue, but I need to double-check the rules on capitalization for development stage companies.

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Jeannetta

9 months ago

I’m a bit confused about the total amount. I thought organizational costs could only include certain fees, but I can't recall the exact limits.

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Lonny

9 months ago

I think we practiced a similar question where we had to identify which costs could be capitalized. I feel like $95,000 might be the right answer.

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Kindra

9 months ago

I remember something about organizational costs being limited to specific expenses, but I'm not sure if all of these qualify.

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Donette

9 months ago

This looks like a straightforward security question. I think the key is to find the solution that provides the most protection with the least operational overhead.

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Terrilyn

9 months ago

I'm a bit confused on how to approach this. Can someone walk me through the calculation to determine the correct market value of the additional securities?

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Lindsey

9 months ago

I'm not completely sure, but I remember something about how customer needs change all the time. That might complicate things too.

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Gail

10 months ago

I thought we did a practice question on this; I think it was mentioned that both standards are indeed involved.

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Lawrence

1 year ago

Tanker Oil Co. needs to hold a bake sale or something to cover those costs. Maybe they can sell some cookies and use that to capitalize their organizational costs. Just a thought!

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Dana

1 year ago

You know, if I were Tanker Oil Co., I'd be looking for a new accountant. This is a mess! I'll go with B) $95,000 just to spice things up.

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Coletta

1 year ago

Yeah, it's definitely a tough situation for Tanker Oil Co.

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Brinda

1 year ago

I agree, that seems like the most reasonable option.

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Felix

1 year ago

I think Tanker should capitalize $95,000 as organizational costs.

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Devorah

1 year ago

Hold up, I'm a bit confused. Why would they capitalize anything when they had no revenue? I'm leaning towards D) $0.

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Elizabeth

1 year ago

So, the answer would be D) $0.

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Niesha

1 year ago

Yeah, I agree. It doesn't make sense to capitalize costs without any revenue.

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Marsha

1 year ago

So, the answer would be D) $0.

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Audry

1 year ago

I think they can't capitalize anything if they had no revenue.

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Jules

1 year ago

Yeah, I agree. It wouldn't make sense to capitalize anything without revenue.

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Chantell

1 year ago

I think they can't capitalize any costs if they had no revenue.

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Luisa

1 year ago

Wow, that's a lot of expenses! I'm not sure I'd capitalize any of it. Let's go with D) $0.

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Toshia

1 year ago

So, D) $0 would be the correct amount to capitalize in this case.

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Kathryn

1 year ago

Organizational costs are usually capitalized when there is revenue to offset them.

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Candra

1 year ago

I think we should go with D) $0 as well since Tanker had no revenue during its first year of operation.

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Tomas

1 year ago

I agree, it seems like a lot of expenses for a development stage enterprise.

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Pearlene

1 year ago

Exactly, it wouldn't make sense to capitalize any costs without revenue to offset them.

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William

1 year ago

So, D) $0 seems like the correct choice in this scenario.

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Charisse

1 year ago

Organizational costs are typically capitalized when there is revenue to offset them.

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Reena

1 year ago

I agree, since Tanker had no revenue, it makes sense to capitalize $0.

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Jeanice

1 year ago

This is a tricky one. Hmm, I think I'll go with C) $55,000. That seems like the most reasonable amount to capitalize as organizational costs.

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Shalon

1 year ago

I think D) $0 might be the correct answer since Tanker had no revenue during its first year of operation.

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Pansy

1 year ago

I agree with you, C) $55,000 seems like the right amount to capitalize as organizational costs.

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My

1 year ago

But Tanker had no revenue, so they can capitalize all the costs, which is $115,000.

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Buffy

1 year ago

I disagree, I believe the answer is B) $95,000.

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My

1 year ago

I think the answer is A) $115,000.

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