All of the Following Situations Below Might Indicate a Company

question 203

Multiple Choice

All of the following situations below might indicate a company has a low quality of earnings except

• A) A lack of disclosure about guaranteed payments that were mentioned in the MD&A of the annual report.
• B) Maintenance costs are capitalized and then depreciated.
• C) Revenue is recognized when earned.
• D) Adoption of a different inventory method for each of the last three years.

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Definitions:

Intrinsic Value

The actual, fundamental value of an asset, based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors.

Warrants

Securities that give the holder the right, but not the obligation, to buy a company's stock at a specific price before a certain date.