Justin Bleeber has prepared the following list of statements about managerial accounting, financial accounting, and the functions of management.

Identify each statement as true or false.

1.		Financial accounting focuses on providing information to internal users.		True False
2.		Staff positions are directly involved in the company’s primary revenue-generating activities.		True False
3.		Preparation of budgets is part of financial accounting.		True False
4.		Managerial accounting applies only to merchandising and manufacturing companies.		True False
5.		Both managerial accounting and financial accounting deal with many of the same economic events.		True False
6.		Managerial accounting reports are prepared only quarterly and annually.		True False
7.		Financial accounting reports are general-purpose reports.		True False
8.		Managerial accounting reports pertain to subunits of the business.		True False
9.		Managerial accounting reports must comply with generally accepted accounting principles.		True False
10.		The company treasurer reports directly to the vice president of operations.		True False

Complete the following comparison table between managerial and financial accounting.

Complete the following comparison table between managerial and financial accounting.

		Financial Accounting		Managerial Accounting
Primary users of reports		No Independent Audits Relevance to Decisions Internal Users As Frequently as Needed Financial Statements Special-Purpose Information for Specific Decisions Generally Accepted Accounting Principles Internal Reports Annual Audit by Certified Public Accountant External Users General-Purpose Quarterly and Annually		Quarterly and Annually No Independent Audits External Users Financial Statements Annual Audit by Certified Public Accountant As Frequently as Needed Generally Accepted Accounting Principles General-Purpose Internal Users Internal Reports Special-Purpose Information for Specific Decisions Relevance to Decisions
Types of reports		Quarterly and Annually Generally Accepted Accounting Principles General-Purpose Annual Audit by Certified Public Accountant Internal Users Relevance to Decisions External Users Internal Reports As Frequently as Needed Financial Statements Special-Purpose Information for Specific Decisions No Independent Audits		Internal Users General-Purpose Generally Accepted Accounting Principles Annual Audit by Certified Public Accountant Quarterly and Annually External Users As Frequently as Needed Financial Statements Internal Reports Special-Purpose Information for Specific Decisions Relevance to Decisions No Independent Audits
Frequency of reports		Internal Users External Users Internal Reports Annual Audit by Certified Public Accountant Generally Accepted Accounting Principles No Independent Audits As Frequently as Needed Financial Statements Quarterly and Annually General-Purpose Special-Purpose Information for Specific Decisions Relevance to Decisions		External Users Internal Reports Special-Purpose Information for Specific Decisions Annual Audit by Certified Public Accountant General-Purpose Internal Users Relevance to Decisions As Frequently as Needed No Independent Audits Financial Statements Quarterly and Annually Generally Accepted Accounting Principles
Purpose of reports		Annual Audit by Certified Public Accountant General-Purpose Relevance to Decisions Financial Statements As Frequently as Needed No Independent Audits Special-Purpose Information for Specific Decisions Internal Users Internal Reports External Users Quarterly and Annually Generally Accepted Accounting Principles		Internal Reports External Users Special-Purpose Information for Specific Decisions As Frequently as Needed Annual Audit by Certified Public Accountant Internal Users Financial Statements Quarterly and Annually General-Purpose No Independent Audits Generally Accepted Accounting Principles Relevance to Decisions
Content of reports		Generally Accepted Accounting Principles Quarterly and Annually External Users Relevance to Decisions Annual Audit by Certified Public Accountant Internal Users General-Purpose Internal Reports No Independent Audits As Frequently as Needed Financial Statements Special-Purpose Information for Specific Decisions		Generally Accepted Accounting Principles General-Purpose Quarterly and Annually External Users Annual Audit by Certified Public Accountant Internal Users No Independent Audits Financial Statements Internal Reports Relevance to Decisions As Frequently as Needed Special-Purpose Information for Specific Decisions
Verification process		Financial Statements Generally Accepted Accounting Principles External Users Annual Audit by Certified Public Accountant Relevance to Decisions As Frequently as Needed No Independent Audits Quarterly and Annually General-Purpose Internal Reports Special-Purpose Information for Specific Decisions Internal Users		No Independent Audits External Users Financial Statements General-Purpose Quarterly and Annually Generally Accepted Accounting Principles Relevance to Decisions Internal Reports Annual Audit by Certified Public Accountant Internal Users As Frequently as Needed Special-Purpose Information for Specific Decisions

Indicate whether the following statements are true or false.

1.		Managerial accounting reports focus on manufacturing and nonmanufacturing costs, but are also used in the budget process.		False True
2.		Financial accounting reports pertain to subunits of the business and are very detailed.		False True
3.		Managerial accounting reports must follow GAAP and are audited by CPAs.		False True
4.		Managers’ activities and responsibilities can be classified into three broad functions: planning, directing, and controlling.		False True

Identify the accounting assumption or principle that is described below.

Identify the accounting assumption or principle that is described below.

(a)		Historical cost principle. Economic entity assumption. Going concern assumption. Full disclosure principle Monetary unit assumption. Periodicity assumption		Is the rationale for why plant assets are not reported at liquidation value. (Note: Do not use the historical cost principle.)
(b)		Monetary unit assumption. Periodicity assumption Historical cost principle. Economic entity assumption. Going concern assumption. Full disclosure principle		Indicates that personal and business record-keeping should be separately maintained.
(c)		Going concern assumption. Monetary unit assumption. Economic entity assumption. Historical cost principle. Periodicity assumption Full disclosure principle		Assumes that the dollar is the “measuring stick” used to report on financial performance.
(d)		Periodicity assumption. Going concern assumption. Historical cost principle. Full disclosure principle. Monetary unit assumption. Economic entity assumption.		Separates financial information into time periods for reporting purposes.
(e)		Full disclosure principle. Historical cost principle. Going concern assumption. Economic entity assumption. Monetary unit assumption. Periodicity assumption.		Measurement basis used when a reliable estimate of fair value is not available.
(f)		Going concern assumption. Monetary unit assumption. Periodicity assumption. Historical cost principle. Full disclosure principle Economic entity assumption.		Dictates that companies should disclose all circumstances and events that make a difference to financial statement users.

If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month's financial statements?

If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month's financial statements?

Expenses will be overstated and net income and stockholders’ equity will be understated.

Assets will be overstated and net income and stockholders’ equity will be understated.

Assets will be overstated and net income and stockholders’ equity will be overstated.

Failure to make an adjustment does not affect the financial statements.

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

False

True

Management can justify a new method of accounting if the financial information is more meaningful.A company can change to a new method of accounting if management

Management can justify a new method of accounting if the financial information is more meaningful.

A company can change to a new method of accounting if management can justify that the new method results in terms of

less likelihood of clerical errors.

more meaningful financial information.

a higher net income.

a lower net income for tax purposes.

The historical cost principle requires that if a company buys a building for $2,000,000 in 2012 that increases in value to $2,900,000 in 2014, the company will have to report the building at $2,000,000 in the balance sheet for 2014.

True

False

An amount such as $7,200 is likely an account balance, which can be used to calculate a ratio. However, it is not a way to express a ratio. Ratios can be stated in the form of a percentage (such as 50%), a rate (such as 1.5 times greater than a reference), or a simple proportion (like 1:2).

Which of the following does not properly reflect a financial ratio?

$7,200

$0.60 per dollar

18.4%

7:1