AICPA Exam CPA-Financial Topic 1 Question 109 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 109
Topic #: 1

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

Quo sells extended service contracts on its products. Because related services are performed over several years, in 1993 Quo changed from the cash method to the accrual method of recognizing income from these service contracts.

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. Change from the cash method to the accrual method is a correction of an error in previously presented financial statements.

by Matthew at Mar 20, 2025, 03:14 PM

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28 days ago

I think the correct answer is A) Change in accounting principle. Switching from cash to accrual method for recognizing service contract revenue is a change in the fundamental way the company accounts for these transactions.

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