Exam 6: Quality of Accounting Information and Adjustments to Reported Financial Statement Data

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?

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

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

Earnings that are high quality would

An extraordinary gain or loss is unusual in nature, _____________________________________________, and material in amount.

Accounting information should be a fair and complete representation of the firm's economic ____________________, ____________________, and ____________________.

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?

Cannon Corp., a textile manufacturer, reported net income of $258,000 in 2007. During 2007 Cannon 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 Cannon has an effective tax rate of 35% calculate Cannon's adjusted net income. Show all of your calculations for credit. In addition, discuss why analysts might make an adjustment of this type.

Bank5 recognized an extraordinary loss from the settlement of a lawsuit with Fifth Street Bank that it had impeded on a processing patent. The extraordinary loss was in the amount of $3,250,000 and Bank5 Corporation has an effective tax rate of 35%. Bank5 paid the settlement immediately and recognized the tax benefit as a receivable to offset the current period's taxes. Instructions:

____________________ represents the concept of being able to compare financial statement data across years for any particular firm.

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

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