Exam 9: Accounting Quality

____________________ represents the concept of being able to compare financial statement data across years for any particular firm.

Firms' choices and estimates within U.S. GAAP or IFRS should be determined by all of the following except:

Many times an analyst will have to make judgments as to whether to include unrealized gains and losses when assessing earnings persistence and predicting future profitability. Discuss the case for and the case against including unrealized gains and losses as part of sustainable earnings when examining earnings persistence and future profitability.

Accounting information should provide relevant information to forecast the firm's expected future earnings and _________________________.

Firm's choices and estimates within U.S. GAAP should be determined by

Which of the following items is consistent with earnings not being informative about current performance but are informative about future earnings?

Motor Corporation's income statements for the years ended December 31, 2012 and 2011 included the following information before adjustments: 2012 2011 Operating income \ 900,000 \ 600,000 Gain on sale of division 450,000 --0-- \ 1,350,000 \ 600,000 Provision for income taxes (405,000) (180,000) Net income \ 945,000 \ 420,000 On January 1, 2012, Motor Corporation agreed to sell the assets and product line of one of its operating divisions for $1,600,000. The sale was consummated on December 31, 2012, and it resulted in a gain on disposition of $450,000. This division's pre-tax net losses were $320,000 in 2012 an $250,000 in 2011. The income tax rate for both years was 30%. Required: Starting with operating income (before tax), prepare revised comparative income statements for 2012 and 2011 showing appropriate details for gain (loss) from discontinued operations.

During July 2012 Ralston Company decides to dispose of one of its subsidiaries which qualifies for accounting as a discontinued operation. At the July 2012 measurement date Ralston Company estimates that it will report net losses of $1,500,000 dollars from the measurement date until the disposal date which is expected to be in April 2013. In addition, Ralston estimates that it will lose $300,000 on the sale of the segment. How much gain or loss on discontinued operations will Ralston report in its 2012 income statement (net of income taxes)?

The assessment of earnings quality is best accomplished through the use of which one of the following?

One definition of earnings management is that it occurs when managers use

Which of the following is not a characteristic of an extraordinary item?

Gains and losses that appear in Other Comprehensive Income are the result of value changes

Users of financial statements should consider which of the following when evaluating the quality of accounting information?

When evaluating the quality of accounting information the user should consider the ____________________ of the measurements made.

Gains and losses differ from revenues and expenses in that they are produced by ____________________ activities.

Accounting information should provide a fair and complete representation about a number of a firm's characteristics. Which of the following is not one of those characteristics?

U.S. GAAP requires that changes in estimates be accounted for by recognizing the effect ________________________________________ period(s).

The date on which a firm commits itself to a formal plan to dispose of a segment is the

On the income statement, income from discontinued operations is shown

On November 15, 2012, Jacobs Co. sold a segment of its business for $2,750,000. The net book value of the segment at the time of its disposal was $3,000,000. Jacobs had pretax operating income of $1,750,000 for 2012 which included $380,000 earned by the discontinued segment prior to its disposal. Assume Jacobs' tax rate is 30%. Required: Prepare a partial income statement for Jacobs Co. beginning with pretax income from continuing operations.