AICPA Exam CPA-Financial Topic 3 Question 104 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 104
Topic #: 3

On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.

Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.

This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.

Item to Be Answered

During 1993, Quo determined that an insurance premium paid and entirely expensed in 1992 was for the period January 1, 1992, through January 1, 1994.

List A (Select one)

AChange in accounting principal.

BChange in accounting estimate.

CCorrection of an error in previously presented financial statements.

DNeither an accounting change nor an accounting error.

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. Expensing insurance premiums when paid (rather than allocating them to the periods benefited) is a correction of an error in previously presented financial statements.

by Noah at Dec 05, 2024, 01:15 PM

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Glenn

9 days ago

I'd say this is a premium problem, not a change in principle. Better to go with B) Change in accounting estimate, don't you think?

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Harris

10 days ago

I bet the right answer is E) All of the above, just to mess with us. Accountants love tricky questions like this!

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Karl

11 days ago

Ugh, accounting questions are the worst. I'm just going to guess C) Correction of an error in previously presented financial statements and hope for the best.

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1 months ago

Hmm, this seems like a tricky one. I'm leaning towards B) Change in accounting estimate, since the insurance premium was initially expensed in the wrong period.

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Lucy

18 days ago

I agree, it does seem like a correction of an error rather than a change in accounting estimate.

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Fanny

26 days ago

I think it could also be C) Correction of an error in previously presented financial statements.

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Dante

1 months ago

I'm not sure, but I think it could also be considered a change in accounting estimate since the period covered by the premium was different than originally thought.

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Azalee

2 months ago

I agree with Tuyet. The insurance premium was expensed incorrectly in 1992, so it's a correction of an error.

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Tuyet

2 months ago

I think the answer is C) Correction of an error in previously presented financial statements.

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