AICPA Exam CPA-Financial Topic 3 Question 89 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 89
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 Margret at Jun 01, 2024, 04:30 PM

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Glory

5 months ago

I'm going with option B - change in accounting estimate. Quo realized they made a mistake in their initial accounting, and they're fixing it. Simple as that.

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Cyril

4 months ago

I also think it's option C. Quo is rectifying an error in their accounting, not just adjusting an estimate.

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Noah

4 months ago

I agree with option C. Quo is correcting a mistake from the previous financial statements, not just making an estimate change.

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Mammie

5 months ago

I think it's option C - correction of an error in previously presented financial statements. They realized the insurance premium was expensed incorrectly in 1992.

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Louisa

5 months ago

I agree with Lou. Quo realized the insurance premium was expensed incorrectly in 1992, so it's a correction of an error.

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Arleen

5 months ago

Haha, this is like when I accidentally paid for a whole year's gym membership upfront, but then realized I only needed it for 6 months. What a mess!

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Lou

5 months ago

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

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Tiera

5 months ago

Definitely a correction of an error. Quo should have recognized the insurance premium as an asset and amortized it over the correct period, not just expensed it all in 1992.

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Chantay

5 months ago

I think this is a change in accounting estimate. The insurance premium was paid and expensed in 1992, but Quo determined that it was for a longer period, so they need to adjust the accounting for that.

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