After conducting a thorough review of the company’s fi nancial statements, Martinez concludes the following:Conclusion 1 Although Stellar’s fi nancial statements adhere to generally accepted accounting principles (GAAP), Stellar understates earnings in periods whenthe company is performing well and overstates earnings in periods whenthe company is struggling.Conclusion 2 Stellar most likely understated the value of amortizable intangibles whenrecording the acquisition of Solar, Inc. last year. No goodwill impairmentcharges have been taken since the acquisition.Conclusion 3 Over time, the accruals component of Stellar’s earnings is large relative tothe cash component.Conclusion 4 Stellar reported an unusually sharp decline in accounts receivable in thecurrent year, and an increase in long-term trade receivables.2 . Based on Conclusion 2, after the acquisition of Solar, Stellar’s earnings are most likely :A . understated.B . fairly stated.C . overstated
After conducting a thorough review of the company’s fi nancial statements, Martinez concludes the following:
Conclusion 1 Although Stellar’s fi nancial statements adhere to generally accepted accounting principles (GAAP), Stellar understates earnings in periods when
the company is performing well and overstates earnings in periods when
the company is struggling.
Conclusion 2 Stellar most likely understated the value of amortizable intangibles when
recording the acquisition of Solar, Inc. last year. No
charges have been taken since the acquisition.
Conclusion 3 Over time, the accruals component of Stellar’s earnings is large relative to
the cash component.
Conclusion 4 Stellar reported an unusually sharp decline in
current year, and an increase in long-term trade receivables.
2 . Based on Conclusion 2, after the acquisition of Solar, Stellar’s earnings are most likely :
A . understated.
B . fairly stated.
C . overstated
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