Which of the Following Statements Is CORRECT

question 63

Multiple Choice

Which of the following statements is CORRECT?

• A) The income statement for a given year is designed to give us an idea of how much the firm earned during that year.
• B) The focal point of the income statement is the cash account,because that account cannot be manipulated by "accounting tricks."
• C) The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow Generally Accepted Accounting Principles (GAAP).
• D) 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).
• E) If a firm follows Generally Accepted Accounting Principles (GAAP),then its reported net income will be identical to its reported net cash flow.

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Definitions:

Natural Hedge

A risk management technique where a business reduces its exposure to fluctuations, typically in currency or interest rates, through its normal operations.

Trade Accounts Receivables

Amounts owed to a business by its customers from the sale of goods or services on credit.

Danish Krones

The currency of Denmark, used as the primary means of exchange within the country.

Hedge Accounting

A method of accounting where entries for the ownership of a security and the opposing hedge are treated as one. It aims to reduce the volatility seen in financial statements.