Exam 6: Accounting Quality

Quality accounting information should be informative as to both the __________________________________________________ of the current period's earnings and the long-run sustainability of profits.

On the income statement,income from discontinued operations is shown 

When a company makes a change in an estimate that it has used in its financial statements,it should account for the change by

On the income statement the disposal of a segment of a business should be shown _________ .

Earnings that are high quality would

Under new accounting standards passed in 2006 firms must report changes in accounting principle in the current and prior years as if the new accounting principle had been applied all along.The rationale for this change was

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

Earnings are informative if they signal the portion of current period's due to a new product and the additional earnings in the future as a result of the ____________________ of this new earnings stream.

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

In a restructuring it is possible that managers may use the opportunity to write down assets that do not even relate directly to the restructuring action.Why might a manager decide to write down an asset that is not included in the restructuring action?

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.

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

Which of the following does not describe an extraordinary gain or loss?

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

When evaluating the quality of accounting information,an analyst should consider all of the following except:

Quality accounting information seeks to maximize relevance and economic faithfulness,subject to the constraints of the ____________________ of the measurements.

How is a disposal of a segment of the business reported?

Creighton Corp.,a textile manufacturer,reported net income of $258,000 in 2012.During 2012 Creighton reported a gain of $29,800 from the sale of three used delivery trucks.The gain was included as part of income from continuing operations.Assuming that the gain is a one-time event and that Creighton has an effective tax rate of 35% calculate Creighton's adjusted net income.Show all of your calculations for credit. In addition,discuss why analysts might make an adjustment of this type.

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

Penny Corp.manufactures telecommunication equipment and has been profitable each year for the past ten years.During 2014 the company saw its core market decline sharply when a competitor introduced a significant new product technology.In response to the decline in business Penny Corp.announced a major restructuring of its operations.The restructuring plan which would be implemented in 2010 would involve the following changes (all of the charges are material): a. Severance payments to reduce work force \ 9 million b. Write-down of inventory \ 13 million c. Penalty payment for termination of lease on manufacturing facility \ 6 million d. Write-down of equipment associated with manufacturing facility \ 12 million Total 2010 restructuring charge \ 40 million Penny Corp.has never previously restructured its operations and believes that it can return to profitability within two years based on its current research and development activity. Required: 1.Discuss whether or not you would eliminate the restructuring charge from the 2010 income statement of Penny Corp.when using earnings to forecast future profitability. 2.Penny Corp.'s restructuring charges cover a wide range of different cost categories,identify those that entail a cash payment and those that do not require a cash payment.For those charges not requiring a cash payment how would they be treated in the Statement of Cash Flows?