AICPA Exam CPA-Financial Topic 1 Question 102 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 102
Topic #: 1

Goddard has used the FIFO method of inventory valuation since it began operations in 1987. Goddard decided to change to the weighted-average method for determining inventory costs at the beginning of 1990. The following schedule shows year-end inventory balances under the FIFO and weighted-average methods:

What amount, before income taxes, should be reported in the 1990 retained earnings statement as the cumulative effect of the change in accounting principle?

A$5,000 decrease.

B$3,000 decrease.

C$2,000 increase.

D$0.

Show Suggested Answer

Suggested Answer: B

Choice 'B' is correct. If comparative FS are issued, restate prior year's FS. If comparative FS are not issued, restate prior year-end's retained earnings account by 'adjusting' (net of tax) the opening balance of the current retained earnings statement.

by Gearldine at Oct 22, 2024, 11:12 PM

Limited Time Offer

25%

Off

Get Premium CPA-Financial Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Ressie

Wait, is this a trick question? What if the answer is actually D) $0, and the whole thing is just a ploy to see if we're paying attention?

upvoted 0 times

...

Tiera

6 days ago

Let's see, if Goddard changed from FIFO to weighted-average, that means their inventory value went down. So it's gotta be a decrease in retained earnings. I'll go with B.

upvoted 0 times

...

Tomas

9 days ago

Oh man, I hate these accounting questions. Why can't they just ask something simple, like 'What's the meaning of life?' That I could answer easily.

upvoted 0 times

...

Nina

11 days ago

Hmm, I'm pretty sure the answer is B) $3,000 decrease. The change in method would result in a lower inventory value, so it has to be a decrease in retained earnings.

upvoted 0 times

...