AICPA Exam CPA-Financial Topic 2 Question 94 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 94
Topic #: 2

[All CPA-Financial Questions]

In which of the following situations should a company report a prior-period adjustment?

AA change in the estimated useful lives of fixed assets purchased in prior years.

BThe correction of a mathematical error in the calculation of prior years' depreciation.

CA switch from the straight-line to double-declining balance method of depreciation.

DThe scrapping of an asset prior to the end of its expected useful life.

Show Suggested Answer

Suggested Answer: B

Choice 'B' is correct. Changes in accounting principle are handled 'retrospectively.' Beginning retained earnings of the earliest year presented is adjusted for the cumulative effect of the change and all prior year financial statements are restated.

by Marcos at Aug 08, 2024, 03:15 PM

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Bonita

9 days ago

Hmm, I was considering A as well, but I guess B is the better choice here. Adjusting for a mistake in the numbers seems like the right call for a prior-period adjustment.

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Laurel

10 days ago

But what about the switch from straight-line to double-declining balance method of depreciation? Shouldn't that also be reported as a prior-period adjustment?

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Roxane

12 days ago

I agree with Cyndy. It's important to reflect the correct information in the financial statements.

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Cyndy

13 days ago

I think a company should report a prior-period adjustment when there's a change in the estimated useful lives of fixed assets purchased in prior years.

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Izetta

17 days ago

I think the correct answer is B. The correction of a mathematical error in the calculation of prior years' depreciation is a clear-cut case of a prior-period adjustment.

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