Exam 9: Accounting Quality

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

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

As transitory components become a more important part of a firm's reported earnings,the reported earnings

Banks Corp.reported net income of $390,000 in 2012.During 2012 Banks reported a loss of $72,000 from a peripheral activity.The loss was included as part of income from continuing operations.Assuming that the loss is a one-time event and that Banks has an effective tax rate of 35% calculate Banks' adjusted net income.Show all of your calculations for credit. In addition,discuss why analysts might make an adjustment of this type.

Earnings that are high quality would

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

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?

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

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?

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.

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

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

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

Which one of the following is an example of sustainable earnings?

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

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.

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

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

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.

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