Exam 6: Accounting Quality

Which of the following are characteristics of an extraordinary item?

During July 2013,Ralston Company decides to dispose of one of its subsidiaries,which qualifies for accounting as a discontinued operation.At the July 2013 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)?

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 of the conditions that must be met to recognize an estimated loss from a contingency is that the amount of loss can be estimated with ________________________________________.

All of the following are criteria that financial reporting requires before recognizing an obligation as a liability except:

A.Listed below are 12 accounting liabilities: 1.Insurance paid in advance 2.Interest payable 3.Unsettled lawsuits where a reasonable estimate of loss can be determined and the loss is probable 4.Accounts payable 5.Warranties payable 6.Bonds payable 7.Accrued liabilities 8.Taxes payable 9.Employment commitments 10.Notes payable 11.Purchase commitments 12.Salaries payable Place each of these accounting liabilities into one of the following six categories: a. Obligations with fixed payment dates and amounts b. Obligations with fixed payment amounts but estimated payment dates c. Obligations for which the firm must estimate both timing and amount of payment d. Obligations arising from advances from customers on unexecuted contracts and agreements e. Obligations under mutually executed contracts f. Contingent obligations B. In addition, determine which of the liabilities would be recognized on the balance sheet as liabilities and which would not be recognized. Suggestion: format your answer as follows (this is not a correct sample answer): a. $\text {\underline{ Obligations with fixed payment dates and amounts (not generally recognized): } }$ 1. Rent Payable

Income or loss from discontinued operations would best be regarded by an analyst as:

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?

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?

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? 

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

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

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

Many users of financial statements believe that the quality of accounting information for intangible assets is low because firms seldom report intangible asset resources on the balance sheet.However,from the perspective of accounting quality what are arguments in favor of expensing most intangibles and not recording them on the balance sheet?

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

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?

In bankruptcy prediction analysis,a type ____________________ error is classifying a firm as nonbankrupt when it ultimately goes bankrupt.

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

Some firms attempt to maximize the amount of restructuring charge in a particular year; analysts refer to this as the _________________________ approach.