AICPA CPA-Financial Exam - Topic 3 Question 9 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 9
Topic #: 3

[All CPA-Financial Questions]

Deficits accumulated during the development stage of a company should be:

AReported as organization costs.

BReported as a part of stockholders' equity.

CCapitalized and written off in the first year of principal operations.

DCapitalized and amortized over a five year period beginning when principal operations commence.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. Deficits accumulated during the development stage of a company should be reported as a part of stockholders' equity.

Rule: Development stage enterprises should present FS in accordance with GAAP and make additional disclosures such as: cumulative net losses, cumulative deficit (as part of equity), cumulative sales & expenses (part of I/S), cumulative statement of cash flows and supplementary 'shareholders equity.'

Choices 'a', 'c', and 'd' are incorrect, per the rule above.

by Loren at May 06, 2022, 10:17 PM

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