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AICPA CPA-Financial Exam - Topic 3 Question 81 Discussion

Actual exam question for AICPA's CPA-Financial exam
Question #: 81
Topic #: 3
[All CPA-Financial Questions]

Kell Corp.'s $95,000 net income for the quarter ended September 30, 1990, included the following aftertax items:

* A $60,000 extraordinary gain, realized on April 30, 1990, was allocated equally to the second, third, and fourth quarters of 1990.

* A $16,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized on August 2, 1990.

In addition, Kell paid $48,000 on February 1, 1990, for 1990 calendar-year property taxes. Of this amount, $12,000 was allocated to the third quarter of 1990.

For the quarter ended September 30, 1990, Kell should report net income of:

Show Suggested Answer Hide Answer
Suggested Answer: A

Choice 'a' is correct. $91,000 net income for the third quarter ended 9-30-90.

Rules: The entire amount of an 'extraordinary' item should be reported during the period incurred.

A 'cumulative effect' type accounting change is not included in the net income of the period of change; instead, the beginning of the year retained earnings is restated.

Expenses, which benefit more than one interim period, such as property taxes, are allocated among the periods benefited.


by Cheryl at Feb 13, 2024, 09:13 PM

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Oretha
3 months ago
Don't forget about that $12,000 property tax for Q3!
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Jerry
3 months ago
Totally agree, the gain makes a big difference here!
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Marjory
4 months ago
Wait, how can they allocate that gain over three quarters? Seems off.
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Rutha
4 months ago
That extraordinary gain really boosts the numbers!
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Salome
4 months ago
Kell's net income was $95,000 for Q3 1990.
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Rosalind
4 months ago
I think the extraordinary gain is spread over the quarters, but I can't recall if we add or subtract it for the third quarter's net income.
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Sylvie
4 months ago
I feel like I might be overthinking the property tax allocation. Did we include that in our calculations for net income?
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Katie
4 months ago
This question seems similar to one we practiced where we had to adjust net income for extraordinary items. I think we need to subtract the cumulative-effect loss from the net income.
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Asha
5 months ago
I remember we talked about extraordinary gains and how they affect net income, but I'm not sure how to adjust for the cumulative-effect loss.
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Ligia
5 months ago
This seems tricky, but I'm going to take it step-by-step. I'm confident I can work through the adjustments and arrive at the correct net income for the quarter.
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My
5 months ago
Okay, I think I've got this. We need to adjust the $95,000 net income by adding the $20,000 extraordinary gain allocated to the third quarter, and subtracting the $16,000 cumulative-effect loss. Then we need to account for the $12,000 in property taxes allocated to the third quarter.
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Silva
5 months ago
Hmm, I'm a bit confused by the extraordinary gain and the cumulative-effect loss. Not sure how to properly account for those in the net income calculation.
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Cecil
5 months ago
This question looks pretty straightforward, just need to carefully work through the adjustments to the net income.
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Titus
5 months ago
Hmm, I'm not too familiar with Cisco ESA, so I'll have to think this through. The options seem to be related to attachment scanning, so I'll try to recall what I know about that feature.
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Geoffrey
5 months ago
I like the simplicity of option B with Identity-Aware Proxy. It should handle the authentication and access control without requiring too many changes to the existing application. That's probably the way I'll go.
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Stefany
5 months ago
From what I remember, if Cobb's AGI is over a certain amount, he might not be able to use the full $30,000 loss at all.
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Lavera
5 months ago
Okay, this looks like an Income Approach valuation problem. I'll calculate the net operating income and divide by the capitalization rate.
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Jess
2 years ago
So, considering the extraordinary gain and the property taxes allocation, I still think the answer is B) $103,000.
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Val
2 years ago
I believe the cumulative-effect loss is a one-time adjustment and should not affect the quarterly net income.
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Adelina
2 years ago
But what about the cumulative-effect loss from the change in inventory valuation method? Shouldn't that affect the net income as well?
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Jess
2 years ago
I agree with Val. The extraordinary gain should be allocated evenly to the second, third, and fourth quarters.
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Val
2 years ago
I think the answer is B) $103,000.
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