AICPA Exam CPA-Financial Topic 3 Question 81 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 81
Topic #: 3

Kell Corp.'s $95,000 net income for the quarter ended September 30, 1990, included the following aftertax items:

* A $60,000 extraordinary gain, realized on April 30, 1990, was allocated equally to the second, third, and fourth quarters of 1990.

* A $16,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized on August 2, 1990.

In addition, Kell paid $48,000 on February 1, 1990, for 1990 calendar-year property taxes. Of this amount, $12,000 was allocated to the third quarter of 1990.

For the quarter ended September 30, 1990, Kell should report net income of:

A$91,000

B$103,000

C$111,000

D$115,000

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 Cheryl at Feb 13, 2024, 09:13 PM

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7 months ago

I think the answer is B) $103,000.

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