- Which of the following statements is incorrect? A) A large decrease in deferred revenue is a warning sign of low-quality revenue. B) An unexpectedly large reduction in the unearned revenue account is a sign that the company accelerated revenue recognition. C) Sales revenue growing at a faster rate than property, plan, and equipment is a warning sign that a company may be deferring expenses. 2) Which of the following statements is incorrect? A) High earnings quality is most likely to improve the ability to predict future earnings. B) Justification for using cash-based accounting is that it limits management’s discretion in reporting financial results. C) Stock-based acquisitions will occasionally flow through the cash flow statement.
A) and A)?
C and C
C C
- C, deferring expense can be achieved by capitalizing maintenance cost to PP&E, PP&E should grow faster 2. C, A and B seems correct
- C 2) C
jogging, why would a stock-based compensation flow through the SCF? Sure, it might show up below the SCF as a material non-cash transaction (and certainly in the footnotes), but will not actually flow through the SCF.
JensensalphaMale Wrote: ------------------------------------------------------- > jogging, why would a stock-based compensation flow > through the SCF? Sure, it might show up below the > SCF as a material non-cash transaction (and > certainly in the footnotes), but will not actually > flow through the SCF. Sorry to mislead you. My ans is C, because I think A and B are correct statements. I agree with you.
jogging Wrote: ------------------------------------------------------- > JensensalphaMale Wrote: > -------------------------------------------------- > ----- > > jogging, why would a stock-based compensation > flow > > through the SCF? Sure, it might show up below > the > > SCF as a material non-cash transaction (and > > certainly in the footnotes), but will not > actually > > flow through the SCF. > > > Sorry to mislead you. My ans is C, because I think > A and B are correct statements. I agree with you. Oh, okay. I misread. For what it’s worth, you’re right.
Correct answers C C These type of questions always baffles me! Can someone please explain each statement? I usually can’t seem to put two and two together when it comes to questions like these ones!
- A) A large decrease in deferred revenue is a warning sign of low-quality revenue. Explanation: This is a correct statement. Because, deferred (unearned) revenue is cash you have received but you can not put in the Income Statement as Revenues. If suddenly you put most of this cash in I/S as earned revenue, this could be a warning signal to an analyst, as you may have aggressively recognized revenues too soon. B) An unexpectedly large reduction in the unearned revenue account is a sign that the company accelerated revenue recognition. Explanation: Same as above. Deferred and Unearned revenue is the same thing. C) Sales revenue growing at a faster rate than property, plan, and equipment is a warning sign that a company may be deferring expenses. This statement is incorrect and hence is the correct choice as an answer. Explanation: Sales revenue growing faster than PP&E, only means you are using your current PP&E more efficiently. It is not a warning sign as such. Your depreciation expenses are being realized on a pre-scheduled depreciation principle. If there was a change in that Principle, so as to reduce dep expenses, then it could have been a warning sign. 2) Which of the following statements is incorrect? A) High earnings quality is most likely to improve the ability to predict future earnings. This is a correct statement. Explanation: High earning quality is synonymous with sustainability. And sustained earnings are always more predictable. B) Justification for using cash-based accounting is that it limits management’s discretion in reporting financial results. This is a correct statment. I dont think explanation is required for this. C) Stock-based acquisitions will occasionally flow through the cash flow statement. This look like the incorrect statement. Explanation: Though i dont exactly know stock-based aquisition accounting, but what i know is that when acquisition is done using giving out stocks, cash is not involved. So, it should not affect our cash flow statement. Hope it helps.