AICPA Exam CPA-Financial Topic 1 Question 99 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 99
Topic #: 1

An inventory loss from a market price decline occurred in the first quarter, and the decline was not expected to reverse during the fiscal year. However, in the third quarter the inventory's market price recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting, the dollar amount of net inventory should:

ADecrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.

BDecrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery.

CDecrease in the first quarter by the amount of the market price decline and not be affected in the third quarter.

DNot be affected in either the first quarter or the third quarter.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. $91,000 net income for the third quarter ended 9-30-90.

Rules: The entire amount of an 'extraordinary' item should be reported during the period incurred.

A 'cumulative effect' type accounting change is not included in the net income of the period of change; instead, the beginning of the year retained earnings is restated.

Expenses, which benefit more than one interim period, such as property taxes, are allocated among the periods benefited.

by Delmy at Sep 19, 2024, 12:32 AM

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22 days ago

I think the answer is B.

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