Question 1

Indicate three reasons why reported book value and true value may differ.

Accepted Answer

1. The financial statements do not reflect the company's prospects within its business environment.
2. The financial statements themselves are inherently limited.
3. Management tends to prepare the reports in a biased manner.

Question 2

An analyst assessed a company and determined the company to have reported a "high quality of earnings." This implies that

Accepted Answer

A)  management issued a press release indicating it was not aware of any fraud during the current year. 
B)  the company's management exercised little or no discretionary influence in reporting financial statement information to shareholders. 
C)  management has used its influence in determining the dollar amounts reported on financial statements. 
D)  income statement items reported during the current period can be expected to reflect future income levels. B

Question 3

True value of a company is determined by

Accepted Answer

A) Adding adjustments for the business environment, unrecorded events, and types of shareholders to the book value of a company. 
B) Adding adjustments for the business environment, unrecorded events, and cumulative profits to the book value of a company. 
C) Adding adjustments for the business environment, management bias, and cumulative profits to the book value of a company. 
D) Adding adjustments for the business environment, unrecorded events, and management bias to the book value of a company. D

Question 4

Accounting numbers are useful in that they

Accepted Answer

A)  are easy to manipulate by management and help predict a company's future earnings and cash flows. 
B)  allow users to see management's predictions of future profits and help predict a company's future cash flows. 
C)  help investors and creditors influence and monitor management's business decisions and help predict a company's future earnings and cash flows. 
D)  help investors and creditors influence, manipulate, and monitor management's business decisions so that future profits are high.

Question 5

Give three examples of how management can engage in "real" earnings management to achieve the desired reporting of higher net income.

Accepted Answer

The answer of Give three examples of how management can...

Exam 5: Return on Equity, Value Creation, and Firm Value Earnings Management

Indicate three reasons why reported book value and true value may differ.

An analyst assessed a company and determined the company to have reported a "high quality of earnings." This implies that

True value of a company is determined by

Accounting numbers are useful in that they

Give three examples of how management can engage in "real" earnings management to achieve the desired reporting of higher net income.