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:

Probability-Weighted

An approach to decision-making or forecasting that involves taking into account the likelihood of various outcomes, each weighted by its probability.

Time Value

Time value relates to the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Voting Stock

Shares that give the shareholder the right to vote on corporate matters, such as electing directors and approving company policies.

Book Value

The value of an asset according to its balance sheet account balance, taking into account the cost of the asset minus depreciation.