Which of the Following Statements Is CORRECT

question 46

Multiple Choice

Which of the following statements is CORRECT?

• A) The focal point of the income statement is the cash account, because that account cannot be manipulated by "accounting tricks."
• B) The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow generally accepted accounting principles (GAAP).
• C) The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission (SEC).
• D) If a firm follows generally accepted accounting principles (GAAP), then its reported net income will be identical to its reported cash flow.
• E) The income statement for a given year, say 2012, is designed to give us an idea of how much the firm earned during that year.

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Definitions:

Fair-Value Method

Fair-Value Method is an accounting approach where assets and liabilities are recorded at their current market value, reflecting potential changes over time.

Goodwill

Goodwill is an intangible asset that arises when a company acquires another company for a price higher than the fair value of its net identifiable assets and liabilities at the acquisition date.

Book Value

The net value of a company's assets found on its balance sheet, calculated as total assets minus intangible assets and liabilities.

Goodwill

An intangible asset that arises when a business is acquired for more than the fair value of its net assets, reflecting the value of the business's brand, customer relationships, and other unquantifiable assets.