Question 1

Which of the following services offered by investment firms have some states declared to be incompatible with generating forecasts of company earnings?

Accepted Answer

A)  Only 3 
B)  Only 4 
C)  3 and 4 
D)  1,2,3,and 4 
A)  Only 3 
B)  Only 4 
C)  3 and 4 
D)  1,2,3,and 4 D

Question 2

Earnings management through strategic matching is best exemplified by

Accepted Answer

A)  changing the useful life of a depreciable asset. 
B)  timing transactions such that large one-time gains and losses occur in the same quarter. 
C)  changing the interest rate used in accounting for leases without describing the change in the notes to the financial statements. 
D)  capitalizing as assets expenditures that have no future economic benefit. 
A)  changing the useful life of a depreciable asset. 
B)  timing transactions such that large one-time gains and losses occur in the same quarter. 
C)  changing the interest rate used in accounting for leases without describing the change in the notes to the financial statements. 
D)  capitalizing as assets expenditures that have no future economic benefit. B

Question 3

Which of the following organizations has recommended that entities provide a reconciliation to GAAP net income whenever reporting proforma numbers?

Accepted Answer

A)  Auditing Standards Board 
B)  Financial Executives International 
C)  Financial Accounting Standards Board 
D)  Accounting Standards Executive Committee 
A)  Auditing Standards Board 
B)  Financial Executives International 
C)  Financial Accounting Standards Board 
D)  Accounting Standards Executive Committee B

Question 4

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 5

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 6

The cost of capital is defined as the

Accepted Answer

A)  simple average of the interest rates of all debt outstanding. 
B)  simple average of the cost of debt and equity. 
C)  weighted average of the interest rates of all debt outstanding. 
D)  weighted average of the cost of debt and equity. 
A)  simple average of the interest rates of all debt outstanding. 
B)  simple average of the cost of debt and equity. 
C)  weighted average of the interest rates of all debt outstanding. 
D)  weighted average of the cost of debt and equity.

Question 7

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 8

Trashbin is a waste disposal company.Explain the effect the following actions of the management of Trashbin Company might have in managing earnings:

Accepted Answer

The answer of Trashbin is a waste disposal company.Explain the...

Question 9

Which of the following accounts would NOT be affected if a company failed to report returns of merchandise sold?

Accepted Answer

A)  Sales returns 
B)  Sales allowances 
C)  Cost of goods sold 
D)  Inventory 
A)  Sales returns 
B)  Sales allowances 
C)  Cost of goods sold 
D)  Inventory

Question 10

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 11

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 12

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 13

Which of the following is the SEC authorized by Congress to do?

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 14

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 15

Most companies that engage in earnings management typically do NOT go beyond which of the following activities on the earnings management continuum?

Accepted Answer

A)  Strategic matching 
B)  Change in methods or estimates with full disclosure 
C)  Change in methods or estimates with little or no disclosure 
D)  Non-GAAP accounting 
A)  Strategic matching 
B)  Change in methods or estimates with full disclosure 
C)  Change in methods or estimates with little or no disclosure 
D)  Non-GAAP accounting

Question 16

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 17

Excessive earnings management typically begins as a result of

Accepted Answer

A)  a regulatory investigation. 
B)  pressure to meet the expectations of stakeholders. 
C)  a downturn in business. 
D)  a violation of generally accepted accounting principles. 
A)  a regulatory investigation. 
B)  pressure to meet the expectations of stakeholders. 
C)  a downturn in business. 
D)  a violation of generally accepted accounting principles.

Question 18

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 19

Which of the following is NOT a function of a financial analyst?

Accepted Answer

A)  Providing buy recommendations on a company's stock 
B)  Providing sell recommendations on a company's stock 
C)  Generating forecasts of company earnings 
D)  Serving as an investment banker for a company for which the analyst is providing research coverage 
A)  Providing buy recommendations on a company's stock 
B)  Providing sell recommendations on a company's stock 
C)  Generating forecasts of company earnings 
D)  Serving as an investment banker for a company for which the analyst is providing research coverage

Question 20

Managers of many companies frequently provide a pro forma earnings amount in conjunction with their annual or quarterly earnings calculated in accordance with GAAP.Managers claim that pro forma earnings numbers more fairly reflect a company's performance.
Required:

Accepted Answer

The answer of Managers of many companies frequently provide a...

Exam 6: Earnings Management

Which of the following services offered by investment firms have some states declared to be incompatible with generating forecasts of company earnings?

Earnings management through strategic matching is best exemplified by

Which of the following organizations has recommended that entities provide a reconciliation to GAAP net income whenever reporting proforma numbers?

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

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

The cost of capital is defined as the

Trashbin is a waste disposal company.Explain the effect the following actions of the management of Trashbin Company might have in managing earnings:

Which of the following accounts would NOT be affected if a company failed to report returns of merchandise sold?

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

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

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

Which of the following is the SEC authorized by Congress to do?

Most companies that engage in earnings management typically do NOT go beyond which of the following activities on the earnings management continuum?

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

Excessive earnings management typically begins as a result of

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

Which of the following is NOT a function of a financial analyst?

Managers of many companies frequently provide a pro forma earnings amount in conjunction with their annual or quarterly earnings calculated in accordance with GAAP.Managers claim that pro forma earnings numbers more fairly reflect a company's performance. Required:

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

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