Question 1

Which of the following earnings management techniques is frequently associated with start-up companies?

Accepted Answer

A) Recording immaterial adjustments that cause earnings to meet analysts' expectations. 
B) Recording extremely high warranty expense when earnings are high. 
C) Recognizing revenue when a contract is signed and before goods are delivered or services are provided. 
D) Expensing purchased in-process research and development. 
A) Recording immaterial adjustments that cause earnings to meet analysts' expectations. 
B) Recording extremely high warranty expense when earnings are high. 
C) Recognizing revenue when a contract is signed and before goods are delivered or services are provided. 
D) Expensing purchased in-process research and development.

Question 2

The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next is called

Accepted Answer

A) revenue recognition. 
B) income smoothing. 
C) restructuring. 
D) accrual-basis accounting. 
A) revenue recognition. 
B) income smoothing. 
C) restructuring. 
D) accrual-basis accounting.

Question 3

Which of the following is typically associated with cookie jar reserves?

Accepted Answer

A) Purchased in-process research and development 
B) Recognizing very high bad debt expense when earnings are high 
C) Recognizing revenue when a contract is signed prior to delivery of goods or performance of services 
D) Proforma earnings 
A) Purchased in-process research and development 
B) Recognizing very high bad debt expense when earnings are high 
C) Recognizing revenue when a contract is signed prior to delivery of goods or performance of services 
D) Proforma earnings

Question 4

Several catastrophic accounting failures have occurred over the last few years.Although the details of each failure is different,each case stems from attempts to manage earnings and thus all of these failures have common elements.
One of the elements identified in these earnings management meltdowns is the auditor's calculated risk.
Explain what is meant by the term "the auditor's calculated risk".

Accepted Answer

The financial statements of an enterpris

Question 5

Which of the following is the SEC authorized by Congress to do?
I.Monitor the standard-setting process of the FASB
II.Set accounting standards
III.Investigate and punish cases of deceptive financial reporting

Accepted Answer

A) Only III 
B) I and III 
C) I and II 
D) I, II, and III 
A) Only III 
B) I and III 
C) I and II 
D) I, II, and III

Question 6

Research has shown that numerous companies manage their earnings.A variety of earnings management techniques are available ranging from income smoothing to outright fraud.
Define income smoothing and explain how it is implemented.

Accepted Answer

Income smoothing is the careful timing o

Question 7

A Company showed a large restructuring charge on its income statement in 2014 and has experienced a constantly rising earnings trend since that time.This would most nearly represent an example of

Accepted Answer

A) cookie jar reserves. 
B) big bath accounting. 
C) creative acquisition accounting. 
D) using immaterial transactions to increase reported earnings to meet analysts' expectations. 
A) cookie jar reserves. 
B) big bath accounting. 
C) creative acquisition accounting. 
D) using immaterial transactions to increase reported earnings to meet analysts' expectations.

Question 8

Deferring the recognition of revenue for which the earnings process is complete is an example of

Accepted Answer

A) "big bath" accounting. 
B) a "cookie jar" reserve. 
C) a change in an accounting estimate. 
D) strategic matching. 
A) "big bath" accounting. 
B) a "cookie jar" reserve. 
C) a change in an accounting estimate. 
D) strategic matching.

Question 9

Which of the following is true about a pro forma earnings number?

Accepted Answer

A) A pro forma earnings number is in total conformity with GAAP. 
B) A pro forma earnings number is a forecast of earnings in future periods. 
C) Reporting pro forma earnings by companies subject to SEC regulation is illegal. 
D) A pro forma earnings number is regular GAAP earnings with certain exclusions. 
A) A pro forma earnings number is in total conformity with GAAP. 
B) A pro forma earnings number is a forecast of earnings in future periods. 
C) Reporting pro forma earnings by companies subject to SEC regulation is illegal. 
D) A pro forma earnings number is regular GAAP earnings with certain exclusions.

Question 10

Which of the following is true?

Accepted Answer

A) Companies can raise common equity only by issuing new shares of common stock. 
B) There is no opportunity cost associated with use of retained earnings as a source of common equity. 
C) Most large mature firms issue new shares of common stock on a regular basis. 
D) Companies can raise common equity by issuing new shares of common stock and through retained earnings. 
A) Companies can raise common equity only by issuing new shares of common stock. 
B) There is no opportunity cost associated with use of retained earnings as a source of common equity. 
C) Most large mature firms issue new shares of common stock on a regular basis. 
D) Companies can raise common equity by issuing new shares of common stock and through retained earnings.

Question 11

The following summarized information is available for Eastern Valley Company at December 31 of the current year:
   
The debt of Eastern Valley has a before-tax cost rate of 11.5%,preferred stock has a cost of 12.1%,and common equity has a cost of 14.2%.The tax rate for Eastern Valley is 34%.
Calculate the weighted average cost of capital for Eastern Valley at December 31 of the current year.

Accepted Answer

The answer of The following summarized information is available for...

Question 12

The following summarized information is available for Saunders Company at December 31 of the current year:
   
The debt of Saunders has a before-tax cost rate of 12%,preferred stock has a cost of 12.3%,and common equity has a cost of 14.6%.The tax rate for Saunders is 34%.
Calculate the weighted average cost of capital for Saunders at December 31 of the current year.

Accepted Answer

The answer of The following summarized information is available for...

Question 13

Earnings management can range from methods that suggest astute management to outright fraud.
Required:
1.Identify and discuss the activities on the earnings management continuum.
2.Express your opinion as to where on the earnings management continuum most companies likely fall.

Accepted Answer

1.The activities on the earnings managem

Question 14

The Securities and Exchange Commission (SEC)has the right granted to it by Congress to issue accounting standards.The Commission has exercised this right on a relatively infrequent basis.The SEC is not a passive observer to the financial accounting standard setting process,however.
Explain the general mission of the SEC and how the SEC fulfills its mission as regards financial reporting specifically.

Accepted Answer

The primary mission of the SEC is to pro

Question 15

Which of the following is true regarding the weighted-average cost of capital?

Accepted Answer

A) The book value of the components of capital should always be used to calculate the weighted-average cost of capital. 
B) A company may have two weighted-average costs of capital if the firm's capital structure is so large that new common stock must be sold. 
C) The cost of common equity is lower than the cost of retained earnings. 
D) The cost of preferred stock is adjusted for the tax deduction associated with preferred dividends. 
A) The book value of the components of capital should always be used to calculate the weighted-average cost of capital. 
B) A company may have two weighted-average costs of capital if the firm's capital structure is so large that new common stock must be sold. 
C) The cost of common equity is lower than the cost of retained earnings. 
D) The cost of preferred stock is adjusted for the tax deduction associated with preferred dividends.

Question 16

The term "earnings quality" refers to the ability of reported earnings to predict an entity's future earnings.To enhance predictability,financial analysts attempt to distinguish between a company's transitory earnings (transactions or events not likely to occur in the future)and its permanent earnings.
It is tempting to assume that transitory earnings are represented primarily by discontinued operations and extraordinary items.All items of revenue and expense included in operating income may not be permanent,however.Restructuring costs often are included in determining operating income,yet may or may not continue in the future.
Required:
Do you think restructuring costs represent transitory earnings or permanent earnings? Explain.

Accepted Answer

Restructuring costs might represent eith

Question 17

"Purchased in-process research and development" is typically associated with

Accepted Answer

A) creative acquisition accounting. 
B) cookie jar reserves. 
C) proforma earnings amounts. 
D) big bath accounting. 
A) creative acquisition accounting. 
B) cookie jar reserves. 
C) proforma earnings amounts. 
D) big bath accounting.

Question 18

Which of the following items of the earnings management continuum is in the correct order?

Accepted Answer

A) Strategic matching, change in methods or estimates with full disclosure, non-GAAP accounting 
B) Change in methods or estimates with little or no disclosure, non-GAAP accounting, fictitious transactions 
C) Strategic matching, change in methods or estimates with little of no disclosure, fictitious transactions 
D) Change in methods or estimates with full disclosure, non-GAAP accounting, fictitious transactions 
A) Strategic matching, change in methods or estimates with full disclosure, non-GAAP accounting 
B) Change in methods or estimates with little or no disclosure, non-GAAP accounting, fictitious transactions 
C) Strategic matching, change in methods or estimates with little of no disclosure, fictitious transactions 
D) Change in methods or estimates with full disclosure, non-GAAP accounting, fictitious transactions

Question 19

The existence of earnings management techniques does not justify their use.Some would say that any form of earnings management is unethical.Others would say that some amount of earnings management within certain bounds is necessary to survival in the modern world.
Required:
Is earnings management ethical?

Accepted Answer

Universal agreement exists that creating

Question 20

Excluding some revenues,expenses,gains,losses from the earnings figure calculated using generally accepted accounting principles is an example of

Accepted Answer

A) income smoothing. 
B) "big bath" accounting. 
C) a "cookie jar" reserve. 
D) proforma earnings. 
A) income smoothing. 
B) "big bath" accounting. 
C) a "cookie jar" reserve. 
D) proforma earnings.

Which of the following earnings management techniques is frequently associated with start-up companies?

The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next is called

Which of the following is typically associated with cookie jar reserves?

Which of the following is the SEC authorized by Congress to do? I.Monitor the standard-setting process of the FASB II.Set accounting standards III.Investigate and punish cases of deceptive financial reporting

Research has shown that numerous companies manage their earnings.A variety of earnings management techniques are available ranging from income smoothing to outright fraud. Define income smoothing and explain how it is implemented.

A Company showed a large restructuring charge on its income statement in 2014 and has experienced a constantly rising earnings trend since that time.This would most nearly represent an example of

Deferring the recognition of revenue for which the earnings process is complete is an example of

Which of the following is true about a pro forma earnings number?

Which of the following is true?

Earnings management can range from methods that suggest astute management to outright fraud. Required: 1.Identify and discuss the activities on the earnings management continuum. 2.Express your opinion as to where on the earnings management continuum most companies likely fall.

Which of the following is true regarding the weighted-average cost of capital?

"Purchased in-process research and development" is typically associated with

Which of the following items of the earnings management continuum is in the correct order?

Excluding some revenues,expenses,gains,losses from the earnings figure calculated using generally accepted accounting principles is an example of

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll,pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters

Exam 6: Earnings Management

Which of the following earnings management techniques is frequently associated with start-up companies?

The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next is called

Which of the following is typically associated with cookie jar reserves?

Which of the following is the SEC authorized by Congress to do? I.Monitor the standard-setting process of the FASB II.Set accounting standards III.Investigate and punish cases of deceptive financial reporting

Research has shown that numerous companies manage their earnings.A variety of earnings management techniques are available ranging from income smoothing to outright fraud. Define income smoothing and explain how it is implemented.

A Company showed a large restructuring charge on its income statement in 2014 and has experienced a constantly rising earnings trend since that time.This would most nearly represent an example of

Deferring the recognition of revenue for which the earnings process is complete is an example of

Which of the following is true about a pro forma earnings number?

Which of the following is true?

Earnings management can range from methods that suggest astute management to outright fraud. Required: 1.Identify and discuss the activities on the earnings management continuum. 2.Express your opinion as to where on the earnings management continuum most companies likely fall.

Which of the following is true regarding the weighted-average cost of capital?

"Purchased in-process research and development" is typically associated with

Which of the following items of the earnings management continuum is in the correct order?

Excluding some revenues,expenses,gains,losses from the earnings figure calculated using generally accepted accounting principles is an example of

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll,pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters