CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Two software companies that report their financial statements under U.S. GAAP are identical except as to how soon they judge a project to be technologically feasible. One firm does so very early in the development cycle while the other usually waits until just before the project is released to manufacturing. Compared to the company that judges technological feasibility early, the one that waits until closer to manufacturing will most likely report lower ______.
A. financial leverage
B. total asset turnover
C. cash flow from operations
Explanation: U.S. GAAP requires that a company expense costs related to software development until product feasibility is established and capitalize any costs thereafter. The company that capitalizes these software development costs reports the expenditures in the investing activities section of the statement of cash flows; the company that expenses software development costs reports the expenditures in cash flow from operations.

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