Financial Information Does Not Demonstrate Comparability When

question 100

Multiple Choice

Financial information does not demonstrate comparability when:

• A)companies in the same industry use different accounting policies to account for the same type of transaction.
• B)one company changes its estimate of the residual value of a fixed asset while the other company does not change it.
• C)one company fails to adjust its financial statements for changes in the fair value of short term investments, while the other company makes the adjustment.
• D)both companies use different suppliers.

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Definitions:

Business Entities

Legal structures that are allowed to engage in business, such as corporations, partnerships, and sole proprietorships.

Liabilities

Financial obligations or debts owed by a business to creditors, which must be settled over time through the transfer of assets, provision of services, or other economic benefits.

Assets

Resources owned by a company that have future economic value that can be measured and can be used to generate income.

Equity

The value of an owner’s interest in a property or a company, after all debts and liabilities have been deducted.