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AICPA Exam CPA-Financial Topic 1 Question 83 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 83
Topic #: 1

[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 James at Mar 21, 2024, 06:01 PM

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Lashawn

4 months ago

It's interesting to hear different perspectives on how deficits should be handled in the accounting process.

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Lai

5 months ago

I see your point, but I still think reporting them as organization costs upfront is the most straightforward approach.

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Denna

5 months ago

That's a valid point. Capitalizing and amortizing over a longer period could provide a more accurate representation of the costs incurred.

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Gearldine

5 months ago

But what about capitalizing and amortizing them over a five year period? Wouldn't that spread out the impact on financial statements?

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Lashawn

5 months ago

I agree with that, it makes sense to treat them as costs incurred during the development phase.

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Lai

5 months ago

I think deficits accumulated during the development stage of a company should be reported as organization costs.

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Dick

5 months ago

I would go with option D, capitalizing and amortizing deficits over a five year period.

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Magdalene

5 months ago

I believe capitalizing and writing off deficits in the first year of principal operations is more appropriate.

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Corrie

5 months ago

But what about option B, reporting deficits as a part of stockholders' equity?

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Rodolfo

6 months ago

I agree with Fletcher, it makes sense to report them as organization costs.

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Fletcher

7 months ago

I think deficits accumulated during development should be reported as organization costs.

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