Exam 6: Accounting Quality

When evaluating the quality of accounting information the user should consider the ____________________ of the firm's disclosures.

A company may try to paint a favorable picture of itself by accelerating the timing of revenues or estimating the collectible amounts too aggressively.In these cases the quality of accounting information declines because it does not represent the company's true economic condition and may not be sustainable.List four conditions which might suggest that a company is recognizing revenues too early?

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?

Which of the following is not considered a motive to manage earnings?

The Orbus company has a 30,000 unrealized gain and a 10,000 unrealized loss.Where would Orbus company report these transactions?

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. 

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

Which of the following items is consistent with earnings being informative about current performance and informing the analyst that level of current earnings are not sustainable?

Many times a financial analyst may decide to make adjustments to the financial statements in order to make the statements more useful.Which of the following would not require an adjustment to the financial statement?

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

Which of the following items is consistent with earnings being informative about current performance and informing the analyst that level of current earnings is sustainable?

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

On July 15,2009 Time Services decided to sell its agricultural business and focus on its landscape equipment business.The sale of the agricultural business qualifies for discontinued operations accounting treatment.On November 11,2009 Time Services signs a firm contract to sell the agricultural business to Acme Inc.on March 10,2010.For each of the situations listed discuss how Time Services would report the discontinued operations in its December 31,2009 income statement.(You may disregard tax issues with respect to the sale.) Situation 1: For the period January 1,2009 to July 15,2009 Time Services reports that the agricultural business lost $3.2M.From July 16,2009 to November 11,2009 Time Services reports that the agricultural business loses an addition $1.4 million dollars.At the end of the 2009 Time estimates that it will lose an additional $800,000 on the sale of the agricultural business when it is finally completed in 2010. Situation 2: For the period January 1,2009 to July 15,2009 Time Services reports that the agricultural business had a profit of $1.5M.From July 16,2009 to November 11th,2009 Time Services reports that the net income from the agricultural business was $600,000 dollars.At the end of the 2009 Time estimates that the sale of the agricultural business will result in a gain of $1.7 million dollars when it is finally completed in 2010. Situation 3: For the period January 1,2009 to July 15,2009 Time Services reports that the agricultural business lost $3.2M.From July 16,2009 to November 11th,2009 Time Services reports that the agricultural business loses an addition $1 million dollars.However,at the end of the 2009 Time estimates that the sale of the agricultural business will result in a gain of $1.3 million dollars when it is finally completed in 2010.

Under current GAAP unrealized gains and losses from four balance sheet items are reported in ___________________________________________________________________________.

During July2013 Ralston Company decides to dispose of one of its subsidiaries which qualifies for accounting as a discontinued operation.At the July2013 measurement date Ralston Company estimates that it will report net income of $300,0000 dollars from the measurement date until the disposal date which is expected to be in April 2014 In addition,Ralston estimates that it will lose 100,000 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)?

Healy and Wahlen state that one type of earnings management occurs when managers use judgement in financial reporting to alter financial reports in order to mislead some stakeholder about the economic performance of the company.Earnings management is a consequence of a judgement by management which results in lower economic information content of the financial reports. Discuss four reasons that discourage managers from practicing earnings management.

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

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

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)?

All of the following are true regarding a high quality balance sheet except: