Free AICPA CPA-Financial Exam Dumps May 2026

Choice 'a' is correct. Temporary market declines in inventory need not be recognized at interim when a turn-around can reasonably be expected to occur before the end of the fiscal year.

Choice 'a' is correct. A change in the composition of the elements of cost such as changing from the individual item approach to the aggregate approach in applying the lower of FIFO cost or market to inventories (LCM is covered in F4) is an example of a change in accounting principle. The cumulative effect of the change in accounting principle should now be shown on the retained earnings statement as an adjustment to the beginning balance of retained earnings, in what is called retrospective application.

Choices 'b', 'c', and 'd' are incorrect. The cumulative effect of a change in accounting principle is now reported on the retained earnings statement, not the income statement. Most of these types of changes (changes in accounting principle) used to be reported on the income statement. SFAS No. 154 changed that.

Choice 'd' is correct. $360,000 inventory loss reported for the quarter ended 6-30-89.

Rule: Inventory losses from 'permanent market declines' are recognized in the interim period, incurred and later, if they 'turn-around,' are recognized as gains in a subsequent interim period only to the extent of previously reported losses.

Rule: 'Temporary' market declines need not be recognized at interim when a 'turn-around' can reasonably be expected to occur before the end of the fiscal year.

Facts: This $360,000 inventory decline is permanent and the entire loss would be recognized in the quarter interim period incurred (6-30-89).

Choice 'c' is correct. No - Yes.

Comprehensive income may be shown on the face of a combined 'statement of income and comprehensive income' a separate section below net income, or in:

1. Separate 'statement of comprehensive income,' or as a

2. Component of the 'statement of changes of owners' equity.'

The income tax expense or benefit allocated to components must be disclosed, either on the face of the statement or in notes to the statement.

Choices 'a', 'b', and 'd' are incorrect, per the above rules.