QUESTION: 13

Which of the following is true regarding the comparison of managerial to financial accounting?

Managerial accounting is generally more precise.
Managerial accounting has a past focus and financial accounting has a future focus.
The emphasis on managerial accounting is relevance and the emphasis on financial accounting is timeliness.
Managerial accounting need not follow generally accepted accounting principles (GAAP) while financial accounting must follow them.

Answer(s): D

Explanation:

Choice "d" is correct. Public companies must follow GAAP for (external) financial reporting purposes. GAAP need not be followed for (internal) managerial accounting purposes. Choice "a" is incorrect. Financial accounting is generally more precise. Choice "b" is incorrect. Managerial accounting has a future focus, while financial accounting focuses on reporting past results.
Choice "c" is incorrect. The emphasis of financial accounting is providing useful information to financial statement users (including the characteristic of relevance), while the emphasis of managerial accounting is providing timely information to management decision makers.

Reveal Solution Next Question

QUESTION: 14

Which of the following is a generally accepted accounting principle that illustrates the practice of conservatism during a particular reporting period?

Capitalization of research and development costs.
Accrual of a contingency deemed to be reasonably possible.
Reporting investments with appreciated market values at market value.
Reporting inventory at the lower of cost or market value.

Answer(s): D

Explanation:

Choice "d" is correct. The rule of conservatism states that revenues and gains should be recognized when the earnings process is complete, but that expenses and losses should be expensed immediately.
Reporting inventory at the lower of cost or market requires the recording of a loss on inventory when market is lower than cost in the period the loss is sustained, rather than when the inventory is sold, consistent with the rule of conservatism.
Choice "a" is incorrect. Because the future benefits of R&D costs are questionable, these cost should be expensed immediately, consistent with the rule of conservatism and the matching principle. Choice "b" is incorrect. The rule of conservatism only requires the accrual of "probable" losses. The accrual of a reasonably possible loss is not required and the accrual of any contingent gain, whether probable, reasonably possible, or remote, is prohibited. Choice "c" is incorrect. The reporting of marketable securities with appreciated values at market value requires the recording of a gain on the asset before the gain is realized. This contradicts the rule of conservatism, but is allowed because fair value is a more relevant measure of the value of marketable securities.

Reveal Solution Next Question

QUESTION: 15

Arpco, Inc., a for-profit provider of healthcare services, recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative?

AICA Statements of Position.
AICPA Industry and Audit Guides.
FASB Statements of Financial Accounting Concepts.
FASB Statements of Financial Accounting Standards.

Answer(s): D

Explanation:

Choice "d" is correct. Since Arpco is a for-profit provider of healthcare services, it is covered under normal GAAP. Thus, the most authoritative pronouncements are the FASB Statements of Financial Accounting Standards (SFAS).
Choice "a" is incorrect. AICPA Statements of Position are not the most authoritative pronouncement for almost anything (other than for some issues that only they cover). They are normally "merely" the opinion of the AICPA.
Choice "b" is incorrect. AICPA Industry and Audit Guides are not the most authoritative pronouncement for almost anything (other than for some issues that only they cover). Choice "c" is incorrect. FASB Statements of Financial Accounting Concepts are not authoritative pronouncements except where they have been incorporated by reference into an SFAS. They are the basis on which SFAS can be constructed.

Reveal Solution Next Question

QUESTION: 16

According to the FASB conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called:

Feedback value.
Predictive value.
Representational faithfulness.
Reliability.

Answer(s): B

Explanation:

Choice "b" is correct. The quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called predictive value. Forecasting is predicting. Choice "a" is incorrect. The quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called predictive value, not feedback value. Feedback value enables decision makers to confirm prior expectations or to adjust or correct the decisions made previously.
Choice "c" is incorrect. The quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called predictive value, not representational faithfulness. Representational faithfulness is the agreement between financial reporting and the
resources or events represented.
Choice "d" is incorrect. The quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called predictive value, not reliability. Reliability is the combination of neutrality, representational faithfulness, and verifiability.

Reveal Solution Next Question

Free CPA-Financial Exam Braindumps (page: 4)

QUESTION: 13

Explanation:

QUESTION: 14

Explanation:

QUESTION: 15

Explanation:

QUESTION: 16

Explanation: