AICPA Exam CPA-Financial Topic 3 Question 27 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 27
Topic #: 3

In single period statements, which of the following should not be reflected as an adjustment to the opening balance of retained earnings?

AEffect of a failure to provide for uncollectible accounts in the previous period.

BEffect of a decrease in the estimated useful life of depreciable equipment.

CCumulative effect of a change from the percentage of completion to the completed contract method of accounting for long-term construction projects.

DCumulative effect of a change from LIFO to FIFO in valuing merchandise inventory.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. A change in the estimated useful life of a depreciable asset is a change in estimate handled prospectively. No adjustment to retained earnings is necessary.

Choice 'a' is incorrect. The correction of a failure to provide for uncollectible accounts is considered to be a correction of an error. The opening balance of retained earnings would be adjusted to correct the error.

Choice 'c' is incorrect. This change is a change in accounting principle and is handled retrospectively.

With retrospective application, the opening balance of retained earnings would be adjusted to reflect the cumulative effect of the changes.

Choice 'd' is incorrect. This change is a change in accounting principle and is handled retrospectively.

With retrospective application, the opening balance of retained earnings would be adjusted to reflect the cumulative effect of the changes.

by Yoko at May 08, 2022, 12:55 AM

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