Management is considering the need to record a number of transactions on its financial statements. Which of the following items is least likely to involve the use of subjective measurement estimates by management? A) Use of criteria to determine treatment as an extraordinary item. B) Use of FIFO (first in-first out) to cost inventories. C) Use of straight-line depreciation method to depreciate tangible assets.
B - If FIFO is used to cost inventories, you are left with the more recent items, and thus more current costs.
The SEC due diligence team is not necessarily searching for evidence of fraud, but possible manipulation of accounting standards for the purpose of misleading shareholders and other interested parties. Initial review of Hatfield’s financial statements indicates that at a minimum, certain practices have resulted in low quality earnings. Labor officials believe that the management of Hatfield is attempting to understate its net income in order to avoid making any concessions in the labor negotiations. Which of the following actions by management will most likely result in low quality earnings? A) Lengthening the life of a depreciable asset in order to lower the depreciation expense. B) Lowering the discount rate used in the valuation of the company’s pension obligations. C) The recognition of revenue at the time of delivery rather than when payment is received
The SEC due diligence team is searching for the reason behind Hatfield’s inventory build-up relative to its sales growth. One way to identify a deliberate manipulation of financial results by Hatfield is to search for: A) a decline in inventory turnover. B) receivables that are growing faster than sales. C) a delay in the recognition of expenses.
Professor Paula King teaches accounting at South Central Coastal Idaho Polytechnic. In her lecture this morning, she passes out sheets containing facts about Consolidated Industries. From those fact sheets, she identifies four signs that could indicate financial fraud: Executives have personally guaranteed some of the firm’s debt. The company’s organizational chart is complex. The company’s monopoly status allows it to charge any price it desires. Turnover is high in the information-technology department. After presenting those observations, King concludes that because of the four characteristics, executives at Consolidated have a greater opportunity than most to commit fraud. Student Mukesh Ghari believes one of King’s examples does not help her argument. Which of the four facts is least compelling in support of King’s argument? A) Executives have personally guaranteed some of the firm’s debt. B) The company’s monopoly status allows it to charge any price it desires. C) Turnover is high in the information-technology department.
Please ignore - I think all these are S*IT QUESTIONS from 2008. My test score from QBank is 55% because of crapolas like these…
willispierre Wrote: ------------------------------------------------------- > B - If FIFO is used to cost inventories, you are > left with the more recent items, and thus more > current costs. The Ans is A. I chose B too.
What are the answers? B B A A
Your answer: B was incorrect. The correct answer was A) Use of criteria to determine treatment as an extraordinary item. The use of criteria to determine treatment as an extraordinary item (i.e. Is the item within management’s discretion? Is the event likely to recur in the foreseeable future?) does not involve numerical and subjective estimates per se. It is more a test of qualitative factors to determine the proper classification. Contrast this to FIFO, which is clearly a numerical estimate since an alternative of using LIFO (last in-first out) is possible and this will result in a different reported amount than FIFO. The same argument can be made for the use of the straight-line method since an alternative of using the declining-balance method is possible to depreciate tangible assets. Your answer: B was incorrect. The correct answer was A) Lengthening the life of a depreciable asset in order to lower the depreciation expense. Certain GAAP rules can be exploited by companies in order to achieve specific goals, while still remaining within the letter of the law. Aggressive assumptions, such as lengthening the depreciable life of an asset, that are utilized to boost earnings results in a lower quality of earnings. (Study Session 7, LOS 26.d) Your answer: B was incorrect. The correct answer was A) a decline in inventory turnover. A warning sign of accounting manipulation is abnormal inventory growth as compared to sales growth. By overstating inventory, the cost of goods sold is lower, leading to higher profitability. (Study Session 7, LOS 26.g) Your answer: B was incorrect. The correct answer was A) Executives have personally guaranteed some of the firm’s debt. Executive guarantees of debt represent an incentive to commit fraud, but not necessarily an enhanced opportunity to do so. Both remaining examples are each legitimate risk factors related to opportunities that can lead to fraudulent accounting. Computers are important to financial reporting, and high turnover in that department could be sign of disorganization or dissatisfaction with technical systems. Outdated or badly designed computer systems make it easier to commit fraud. In addition, the company’s pricing power would make it much easier to conduct transactions that are not at arm’s length.
wow i hate q bank. i would think that executive debt guarantees outweigh an outdated computer system - the execs are personally on the hook for the debt… also, no way a school could be called south central coastal idaho polytechnic - idaho is land locked.
WTF, sometimes I hate qbank too
I did these questions last night. I think I got like 50%
Yeps - I did 55% on these. lol