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

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Penny Corp. manufactures telecommunication equipment and has been profitable each year for the past ten years. During 2014 the company saw its core market decline sharply when a competitor introduced a significant new product technology. In response to the decline in business Penny Corp. announced a major restructuring of its operations. The restructuring plan which would be implemented in 2010 would involve the following changes (all of the charges are material): Penny Corp. manufactures telecommunication equipment and has been profitable each year for the past ten years. During 2014 the company saw its core market decline sharply when a competitor introduced a significant new product technology. In response to the decline in business Penny Corp. announced a major restructuring of its operations. The restructuring plan which would be implemented in 2010 would involve the following changes (all of the charges are material): Penny Corp. manufactures telecommunication equipment and has been profitable each year for the past ten years. During 2014 the company saw its core market decline sharply when a competitor introduced a significant new product technology. In response to the decline in business Penny Corp. announced a major restructuring of its operations. The restructuring plan which would be implemented in 2010 would involve the following changes (all of the charges are material):

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A(n) ____________________ of operations differs from a discontinuation of operations because the firm continues to operate in the business segment.

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The assessment of earnings quality is best accomplished through the use of which one of the following?


A) Balance sheet and cash flow statement.
B) Single-step financial statements.
C) Single-step income statement, balance sheet, and cash flow statement.
D) Multi-step income statement, balance sheet, and cash flow statement.

E) All of the above
F) B) and C)

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Which of the following does not describe an extraordinary gain or loss?


A) infrequent in occurrence
B) peripheral to the company's core business
C) unusual in nature
D) material in amount

E) A) and D)
F) B) and C)

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Accounting information should provide a fair and complete representation about a number of a firm's characteristics. Which of the following is not one of those characteristics?


A) risk
B) position
C) performance
D) conservatism

E) All of the above
F) A) and D)

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Warranties payable and Notes payable are considered which of the following?


A)  Accounting Liabilities
B)  Assets
C)  Stockholders' Equity
D)  Other Financial Assets

E) None of the above
F) C) and D)

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Firm's choices and estimates within U.S. GAAP should be determined by:


A) how the industry operates.
B) the firm's underlying economic circumstances.
C) SEC interpretations regarding specific choices.
D) the firm's auditor.

E) A) and B)
F) All of the above

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


A) The firm recognizes an unexpected gain
B) The firm recognizes a fair value gain on a financial asset as a result of a favorable move in interest rates.
C) The firm recognizes additional expenses this period due to pre-opening costs associated with new stores.
D) The firm experiences a large jump in sales and earnings as a result of successful research and development of new products.

E) A) and B)
F) A) and C)

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Firms' choices and estimates within U.S. GAAP or IFRS should be determined by all of the following except :


A) firms' underlying economic circumstances.
B) conditions in the company's industry.
C) the company's competitive strategy.
D) accelerated management efforts to meet earnings projections.

E) None of the above
F) All of the above

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The Orbus Company has a 30,000 unrealized gain and a 10,000 unrealized loss. Where would Orbus Company report these transactions?


A) Only in non-current assets and liabilities
B) In stockholders' equity
C) Other comprehensive income
D) On the balance sheet as a current asset

E) A) and B)
F) B) and D)

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The best measure of a firm's sustainable income is:


A) net income.
B) income from continuing operations.
C) income before extraordinary items.
D) income before extraordinary item and change in accounting principle.

E) None of the above
F) All of the above

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In bankruptcy prediction analysis, a type ____________________ error is classifying a firm as bankrupt and it ultimately survives.

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All of the following are the general principles underlying the valuation of liabilities except :


A) Liabilities requiring future cash payments appear at the present value of the required future cash flows discounted at an interest rate that reflects the uncertainty that the firm will be able to make the cash payments.
B) The fair value of a liability cannot differ from the amount appearing on the balance sheet, particularly for long-term debt.
C) Liabilities representing cash advances from customers appear at the amount of the cash advance.
D) Liabilities requiring the future delivery of goods or services appear at the estimated cost of those goods and services.

E) All of the above
F) A) and B)

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All of the following are true regarding a high quality balance sheet except :


A) It should portray the economic resources that can be reasonably expected to generate future economic benefits.
B) It should provide a complete and fair portrayal of all of the firm's obligations at a point in time, including the present value of long-term liabilities for future payments.
C) It should minimize measurement error and bias.
D) It should be optimistic in terms of accounting numbers.

E) None of the above
F) B) and C)

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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?


A) A company signs a new contract with a customer.
B) A delivery company incurs a loss from disposition of used delivery trucks.
C) A company changes the useful life of its equipment from 5 years to 8 years.
D) A company incurs a charge related restructuring its operations.

E) None of the above
F) A) and C)

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


A) A g ain from corporate restructuring.
B) A l oss from debt retirement.
C) A settlement paid by the company for a class action suit.
D) Earnings from repeat customers.

E) B) and D)
F) A) and D)

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Banks Corp. reported net income of $595,000 in 2012. During 2012 Banks reported a loss of $87,435 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.

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The analyst may decide to adjust incom...

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

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infrequent...

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

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