Reading 45: Residual Income Valuation-LOS l 习题精选 2011, accounting, center, likely, class

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Session 12: Equity Investments: Valuation Models
Reading 45: Residual Income Valuation

LOS l: Discuss accounting issues in applying residual income models.

 

 

Reported accounting data are most likely to bias an estimate of residual income when:

A) the clean surplus relation holds.

B) standards allow charges directly to stockholders' equity that are also reflected on the income statement.

C) standards allow charges directly to stockholders' equity while bypassing the income statement.

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Bias is likely when standards allow charges directly to stockholders’ equity while bypassing the income statement. Both remaining responses are consistent with the use of data that will not introduce a bias.

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In general, firms making aggressive accounting decisions will report future earnings that are:

A) lower.

B) higher.

C) inflation-adjusted.

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In general, firms making aggressive (conservative) accounting decisions will report higher (lower) book values and lower (higher) future earnings.
Firms may adopt aggressive accounting practices that overstate the value of earnings by, for example, accelerating revenues to the current period or deferring expenses to a later period. Current earnings will be higher, but future earnings will be lower.

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In general, firms making aggressive accounting decisions will report book values that are:

A) consistent with fair market value.

B) lower.

C) higher.

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In general, firms making aggressive (conservative) accounting decisions will report higher (lower) book values and lower (higher) future earnings.