EBK INVESTMENTS
EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 19, Problem 10PS
Summary Introduction

To choose an action by management of Hartfield Industries which will most likely result in low- Quality earnings.

Introduction:

Quality of earnings can be defined as the amount of earnings due to higher sales or less costs rather than artificial profits created by anomalies in the accounting statements or move used like inflation of stocks or change in depreciation.

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A company believes that it is subject to scrutiny by particular interest groups such as employee unions because it is earning expensive profits. Do you think that this might influence whether the company prefers to recognise revenue over time for its construction contracts, or whether it would prefer to defer profit recognition until the completion of the project? Using this case, discuss whether it be appropriate to recognise revenue at completion of production rather than at the point of sale?
1. Of the following, choose the one that describes a situation where liabilities and expenses are manipulated to make a company appear less profitable? A. Liabilities are capitalized to increase revenues. B. Failure to record insurance expense for the period. C. Failure to record employee payroll earned but not paid as of period end. D. Failure to record warranty costs when the facts suggest that disclosure is more appropriate accounting treatment. E. None of the above.
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