How Can Profit Smoothing Can Be Achieved

question 50

Multiple Choice

How can profit smoothing can be achieved?

• A) understating allowance for doubtful accounts in periods of higher earnings
• B) reducing the value of inventory of an acquired company at the time of acquisition resulting in higher earnings when the assets are later sold
• C) understating inventory obsolescence reserves in periods of higher earnings
• D) none of the above

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Definitions:

Principle of Ratification

The acceptance and confirmation by a principal of an act performed on their behalf by another, who didn't have the authority to act in the first place.

Injustice

A situation or action that violates the principles of fairness, ethics, or rights, leading to perceived or actual harm.

Sole Proprietorships

A business structure where a single individual owns and operates the business, enjoying complete control but also bearing unlimited personal liability for its debts.

Regulatory Requirements

Legal obligations that entities must follow, often established by government agencies to regulate industry standards and protect public welfare.