AICPA CPA-Financial Exam Dumps

Choice 'a' is correct. The cumulative effect of a change in accounting principle is shown as an adjustment to beginning retained earnings.

Choice 'b' is incorrect. The cumulative effect of a change in accounting principle is now presented as a separate category on the retained earnings statement and is not a component of net income.

Choice 'c' is incorrect. Extraordinary items are unusual and infrequent in nature. Extraordinary items have nothing to do with changes in accounting principle.

Choice 'd' is incorrect. A change in accounting principle affects retained earnings, not the income statement, under SFAS No. 154.

Choice 'a' is correct. Information presented in notes to the financial statements have the purpose of providing disclosures required by generally accepted accounting principles. SFAC 5 para. 7

Choice 'd' is correct. Income tax-basis financial statements recognize events when taxable income or deductible expenses are recognized on the entity's tax return. Non-taxable income and non-deductible expenses are shown on the financial statement and included in the determination of income (and become M-1 adjustments to arrive at taxable income).

Please Note: This question appeared in the releases for 1999 in FARE; however, it may also apply to OCBOA financial statements discussed in the Auditing textbook. The question did not apply well to any FARE CSO line item, so we included it here so that you could read the Explanation: and learn from it.

Choice 'b' is correct. Ace's loss on discontinued operations should not exclude operating losses from the date the decision to dispose of the segment was made until the end of 1992. All 1992 operating losses should be included.

Choice 'a' is incorrect. Employee relocation costs associated with the decision to dispose should be included in the loss from discontinued operations.

Choice 'c' is incorrect. Additional pension costs associated with the decision to dispose should be included in the loss from discontinued operations.

Choice 'd' is incorrect. Ace's loss on discontinued operations should include operating losses of the current period up to the date the decision to dispose of the segment was made and also after that date.

All 1992 operating losses should be included.

Choice 'b' is correct. Prior period adjustments consist of: corrections of errors in the financial statements of prior periods, retroactive restatements required by new GAAP pronouncements, and changes from a non-GAAP method of accounting to a GAAP method of accounting (which are corrections of errors).

Choice 'a' is incorrect. This change is a change in accounting estimate.

Choice 'c' is incorrect. This change is a change for one GAAP method of depreciation to another GAAP method of depreciation. Under SFAS No. 154, it is treated as a change in accounting estimate effected by a change in accounting principle and is handled prospectively, and not as a prior-period adjustment.

Choice 'd' is incorrect. This is a business activity ordinary in nature.