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LOS d: Discuss earnings quality, explain simple measures of earnings quality, and compare and contrast the earnings quality of peer companies.
Q1. In measuring earnings quality, which of the following statements is most appropriate?
A) Accruals can be measured as the change in net operating assets (NOA) over a period of time.
B) The higher the accruals ratio, the higher the earnings quality.
C) Accruals can be measured as net income less cash flows from operations (CFO) less cash flows from financing (CFF).
Q2. Jeremy Jennings is explaining the concept of earnings quality to his new colleagues. Which of the following measures is most
indicative of a higher quality of earnings when attempting to forecast future earnings?
A) Higher degree of conservatism of earnings.
B) Higher degree of persistence of earnings.
C) Higher level of earnings.
Q3. The following information pertains to Morley Inc. (Morley) and Crowell Inc. (Crowell) for 2007 and 2008:
|
Accrual Ratio |
2008 |
2007 |
|
Morley |
16.1% |
14.7% |
|
Crowell |
6.9% |
8.5% |
Based on the information provided, which of the following conclusions about the two companies is most appropriate?
A) Morley’s earnings quality is higher than Crowell’s.
B) Crowell’s earnings quality is higher than Morley’s.
C) Crowell’s earnings quality is deteriorating compared to Morley’s.
Q4. Costiuk Inc. (Costiuk) saw a large increase in its net operating assets (NOA) over the year. During the year, it also reported a
number of nonoperating revenues and deferred revenues. Which of the following statements regarding Costiuk’s increase in
NOA and the most likely item to self-correct is most accurate?
Increase in NOA Most likely item to self-correct
A) suggests lower earning quality deferred revenues
B) suggests lower earning quality nonoperating revenues
C) suggests higher earning quality nonoperating revenues
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发表于 2009-3-3 09:30
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