Reading 40: Financial Reporting Quality LOSg习题精选 2010, accounting, statements, companies

honeycfa

LOS g: Describe the accounting warning signs related to the Sunbeam accounting scandal.

Both Enron and Sunbeam issued false financial statements. Which companies used which kind of transactions:

Barter

Bill and hold

A) Enron Sunbeam

B) Sunbeam Enron

C) Enron Sunbeam and Enron

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Sunbeam used bill and hold transactions, through which revenue was recognized before goods were shipped. Enron used barter transactions, in some cases booking revenue from those transactions when no revenue should have been booked.

[此贴子已经被作者于2010-4-20 14:54:59编辑过]

honeycfa

Sunbeam reported its highest revenue in the fourth quarter. This revenue distribution was suspect because:

A) receivables increased even faster than sales.

B) operating cash flow was negative.

C) Sunbeam’s products are not seasonal.

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Sunbeam’s products were indeed not seasonal, and a seasonal distribution of revenue in a nonseasonal company is always suspect. Both remaining answers are incorrect for two reasons. First, we don’t know about operating cash flow or receivables for the quarter, only for the full year. But more importantly, even if we assume the statements are correct, they are not related to the disproportionate share of revenue recognized in the fourth quarter.

honeycfa

Sunbeam came up with some creative twists on the most common technique for earnings manipulation, which is:

A) delaying recognition of expenses.

B) improper revenue recognition.

C) creating “cookie jar” reserves.

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The most common form of earnings manipulation is recognizing revenue too soon. Sunbeam found a number of ways to do that. Sunbeam created "cookie jar" reserves, but this is not the most common form of earnings manipulation.

honeycfa

The source of Sunbeam’s negative operating cash flow could have been determined by calculating which ratios?

A) Interest coverage.

B) Turnover.

C) ROE, ROI, and ROA.

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Sunbeam’s negative cash flow was caused mostly by sharp increases in inventories and receivables. Turnover analysis could have identified those trends.