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Which of the following is true regarding the comparison of managerial to financial accounting?
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.
An extraordinary gain should be reported as a direct increase to which of the following?
Choice 'a' is correct. Extraordinary items are reported as a component of net income, after income from continuing operations and discontinued operations.
Choice 'b' is incorrect. An extraordinary gain (or loss) only indirectly affects comprehensive income as a component of net income.
Choice 'c' is incorrect. Extraordinary items are reported net of tax after income from continuing operations and discontinued operations.
Choice 'd' is incorrect. Extraordinary items are reported net of tax after income from continuing operations and discontinued operations.
Income Statement
What is the purpose of information presented in notes to the financial statements?
Choice 'a' is correct. Information presented in notes to the financial statements have the purpose of providing disclosures required by generally accepted accounting principles. SFAC 5 para. 7
Coffey Corp.'s trial balance of Income Statement Accounts for the year ended December 31, 1988 as follows:
Coffey's income tax rate is 30%. The gain on debt extinguishment is considered a usual and recurring part of Coffey's operations. The hurricane is considered an unusual and infrequent event. Coffey prepares a multiple-step income statement for 1988.
Net income is:
Choice 'a' is correct. $140,000.
Net income is the 'bottom line' amount after all has been considered on the income statement. Without showing all the line items as required for the income statement, the 'bottom line' amount of $140,000 is derived as follows:
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 B represents the general accounting treatment required for these transactions. These treatments are:
* Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the accounting change or error correction in the 1993 financial statements, and do not restate the 1992 financial statements.
* Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust 1992 beginning retained earnings if the error or change affects a period prior to 1992.
* Prospective approach - Report 1993 and future financial statements on the new basis but do not restate 1992 financial statements.
Item to Be Answered
During 1993, Quo determined that an insurance premium paid and entirely expensed in 1992 was for the period January 1, 1992, through January 1, 1994.
List B (Select one)
Choice 'B' is correct. If comparative FS are issued, restate prior year's FS. If comparative FS are not issued, restate prior year-end's retained earnings account by 'adjusting' (net of tax) the opening balance of the current retained earnings statement.
