It Is Easier to Evaluate a Firm Using Financial Statements

question 52

Multiple Choice

It is easier to evaluate a firm using financial statements when the firm:

• A)is a conglomerate.
• B)has recently merged with its largest competitor.
• C)uses the same accounting procedures as other firms in the industry.
• D)has a different fiscal year than other firms in the industry.
• E)tends to have many one-time events such as asset sales and property acquisitions.

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Definitions:

Deferred Tax Asset Valuation Allowance

A contra-asset account used to decrease the value of deferred tax assets if it is more likely than not they will not be realized.

Income Manipulation

The practice of adjusting financial statements with the intention to mislead stakeholders about the company's financial performance or health.

Deferred Tax Assets

These are financial items on a company’s balance sheet representing taxes paid or carried forward but not yet recognized in the income statement.