FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 9: Accounting Quality

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

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) C) and D)
F) A) and D)

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

During July 2012 Ralston Company decides to dispose of one of its subsidiaries which qualifies for accounting as a discontinued operation.At the July 2012 measurement date Ralston Company estimates that it will report net income of $200,000 dollars from the measurement date until the disposal date which is expected to be in April 2013.In addition,Ralston estimates that it will lose $300,000 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) ?

A) $200,000 gain
B) $0
C) $100,000 loss
D) $300,000 loss

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

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

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

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

The date on which a firm commits itself to a formal plan to dispose of a segment is the

The _________________________ is the date on which a firm commits itself to a formal plan to dispose of a business segment.

Mattel,Inc.designs,manufactures and markets various toy products worldwide through sales to retailers and directly to consumers.Among the company's many products are Barbie,GI Joe,and American Girls.Below is an income statement for Mattel for years 2002,2001 and 2000.Notes to the financial statements reveal the following information. 1.Discontinued Operations - In 1999 Mattel merged with Learning Company,with Mattel being the surviving company.The Learning Company,which produced consumer software,represented a separate line of business for Mattel.In 2000 Mattel's Board of Directors committed to dispose of the Learning Company and its consumer software operations.In 2000 the Learning Company was reported as a discontinued operation and the company was sold to Gores Technology on October 18,2000. In 2002 Mattel received a contractual payment from Gores Technology based on the sale of assets of Learning Company and other liquidation events. 2.Accounting Change - In 2001 Mattel changed the manner in which it accounted for derivative instruments consistent with the issuance of SFAS No.133 Accounting for Derivative Instruments and hedging Activities.The change resulted in Mattel recording a one-time adjustment of $12 million. 3.Accounting Change - In 2002 the FASB issued SFAS No.142 Goodwill and Other Intangible Assets.The standard requires that management estimate the value of its goodwill and,if necessary,record an impairment charge.Consistent with SFAS No.142 Mattel recorded a one-time adjustment of $252.2 million,net of tax,as the cumulative effect of the change in accounting principle. Required: a.Discuss whether or not you would adjust for each of the following items when using earnings to forecast the future profitability of Mattel:

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?

Under new accounting standards passed in 2006 firms must report changes in accounting principle in the current and prior years as if the new accounting principle had been applied all along.The rationale for this change was

Healy and Wahlen state that one type of earnings management occurs when managers use judgement in financial reporting to alter financial reports in order to mislead some stakeholder about the economic performance of the company.Earnings management is a consequence of a judgement by management which results in lower economic information content of the financial reports. Discuss four reasons that discourage managers from practicing earnings management.

When evaluating the quality of accounting information the user should consider the reasonableness of the ____________________ made in applying GAAP.

Motor Corporation's income statements for the years ended December 31,2012 and 2011 included the following information before adjustments: On January 1,2012,Motor Corporation agreed to sell the assets and product line of one of its operating divisions for $1,600,000.The sale was consummated on December 31,2012,and it resulted in a gain on disposition of $450,000.This division's pre-tax net losses were $320,000 in 2012 an $250,000 in 2011.The income tax rate for both years was 30%. Required: Starting with operating income (before tax),prepare revised comparative income statements for 2012 and 2011 showing appropriate details for gain (loss)from discontinued operations.

Penny Corp.manufactures telecommunication equipment and has been profitable each year for the past ten years.During 2010 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.has never previously restructured its operations and believes that it can return to profitability within two years based on its current research and development activity. Required: 1.Discuss whether or not you would eliminate the restructuring charge from the 2010 income statement of Penny Corp.when using earnings to forecast future profitability. 2.Penny Corp.'s restructuring charges cover a wide range of different cost categories,identify those that entail a cash payment and those that do not require a cash payment.For those charges not requiring a cash payment how would they be treated in the Statement of Cash Flows?

On September 1,2012,Ramos Inc.approved a plan to dispose of a segment of its business.Ramos expected that the sale would occur on March 31,2013,at an estimated gain of $350,000.The segment had actual and estimated operating profits (losses as follows): Assume a marginal tax rate of 30%. Required: In its 2012 income statement,what should Ramos report as profit or loss from discontinued operations (net of tax effects)?

On the income statement,income from discontinued operations is shown

First Bank 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 First Bank Corporation has an effective tax rate of 35%.First Bank paid the settlement immediately and recognized the tax benefit as a receivable to offset the current period's taxes. Instructions: a.Prepare the extraordinary item portion of First Bank Corporation's financial statement. b.Using the analytical framework discussed in the text and reprinted below show the effect of following event on First Bank Corporation's financial statements. Analytical Framework:

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

The _________________________ is the date of closing the sale,if the firm intends to sell the segment,or the date operations cease,if the firm intends to abandon the segment.

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.

The best measure of a firm's sustainable income is