Chapter 5, Problem 5.3BE

Advantages and Disadvantages of the Income Statement. Match the item with the advantages and disadvantages of the income statements.

Item	Advantage/Disadvantage
1. Evaluates past performance.	a. The sale of a specialized piece of equipment is unlikely to reoccur in the following year
2. Predicts future performance.
3. Assesses risks or uncertainties of achieving	b. The income statements provide confirmatory value
future cash flows	c. Managers make estimates and assumptions
4. Excludes certain items.	d. Investors expect past growth to continue.
5. Depends on accounting methods selected.	e Managers manage earnings to meet analysts’ forecasts
6. Can be manipulated and managed.	f. Pending lawsuits may not be reported
7. Requires extensive judgment.	g. Managers can choose from several inventory cost flow assumptions.