AICPA CPA-Financial Exam Dumps

Choice 'a' is correct. $5,000 decrease.

The cumulative effect of change in accounting principle is determined as of the beginning of the year of change if comparative financial statements are not presented. In this case, the year of change is 1990, so the cumulative effect is the difference in inventory as of the end of 1989. [Note that inventory is a balance sheet item, so the change is based on the balances at the end of the last year the prior method was used. Had this question shown annual income statement amounts of cost of goods sold, we would have had to look at all the past years in the aggregate.] This will allow us to arrive at the adjustment to obtain the amount of retained earnings that would have been reported at the beginning of the period of change if the new accounting principle had been used for all prior periods.

Rule: Actual and estimated expenditures benefiting all interim periods equally should be expensed ratably throughout the year.

Choice 'c' is correct. $72,500 total expense for the three months ended June 30, 1992.

Choice 'c' is correct. Comprehensive Income includes all items included in 'Net Income' plus 'Other Comprehensive Income' items. Since the $50,000 extraordinary gain is already included in Net Income, Comprehensive Income is:

Choice 'a' is correct. Unrealized loss on investments in marketable equity securities available for sale would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles.

Rule: FAC 5 defines 'earnings' for a period to exclude certain cumulative accounting adjustments and other non-owner changes in equity (such as changes in market value of marketable securities available for sale) that are included in comprehensive income for a period.

Choice 'a' is correct. The cash basis for financial reporting is not a generally accepted accounting basis of accounting (GAAP); therefore, it is an error. Correction of an error from a prior period is a reported as prior period adjustment to retained earnings.

Choice 'b' is incorrect. Cash basis reporting is not an accounting principle under accrual accounting principles. Thus, the change from cash basis is not reported as a change in accounting principle. In addition, changes in accounting principle are not prior period adjustments; instead, they are treated retrospectively.

Choices 'c' and 'd' are incorrect. Correction of prior period errors has no effect on the current year's income statement.