27. A Company showed a large restructuring charge on its income statement in 201

Question

27. A Company showed a large restructuring charge on its income statement in 2011 and has experienced a constantly rising earnings trend since that time. This would most nearly represent an example of a. big bath accounting. b. creative acquisition accounting. c. cookie jar reserves. d. using immaterial transactions to increase reported earnings to meet analysts expectations. 28. Which of the following is the SEC authorized by Congress to do? I. II. III. Monitor the standard-setting process of the FASB Set accounting standards Investigate and punish cases of deceptive financial reporting a. I, I, and I11 b. I and II c. I and III d. Only III Recording as an asset expenditures that have no future economic benefit is an example of a. change in methods or estimates with full disclosure b. strategic matching c. a fictitious transaction d. non-GAAP accounting Which of the following is true? a. 29. 30. Earnings under the accrual basis is superior to cash flow data in predicting short-term b. Earnings under the accrual basis is superior to cash flow data in predicting long-term c. Cash flow data is superior to earnings under the accrual basis in predicting both short- d. Cash flow data is superior to earnings under the accrual basis in predicting long-term performance of an entity performance of an entity. and long-term performance of an entity performance of an entity.

Explanation / Answer

27) This would most nearly represent an example of :

a.) big bath accounting.    This form of income manipulation can be thought of as part of income smoothing. What it usually does is effectively accelerate expenses and losses into a single year with already poor results so that future income looks better and smoother.

28) The SEC is authorised to : Monitor the standard-setting process of the FASB, Set accounting standards , and Investigate and punish cases of deceptive financial reporting. Thus the answer to this question is:

a. I, II and III

29) Recording as an asset expenditures that have no future economic benefit is an example of :

d. Non-GAAP accounting.

30) The following is true:

b. Earnings under the accrual basis is superior to cash flow data in predicting long-term per- formance of an entity.

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