Problem Three: Analyzing Earnings

question 70

Essay

Problem Three: Analyzing Earnings
Earnings are extremely important to a publicly traded company and the creditors and investors of that company. However, looking at earnings without regard to the quality of those earnings is hazardous to the health of creditors and investors.
a. Why is the determination of earnings quality and persistence important?
b. Explain recasting of the income statement and give three examples of items that are recasted.
c. Explain adjusting of the income statement and give three examples of items that are recasted.

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Definitions:

Third Variable Problem

The circumstance where a variable that has not been measured accounts for the relationship between two other variables. Third variables are also known as confounds.

American Psychological Association

A professional organization representing psychology in the United States, aimed at advancing psychology as a science, a profession, and as a means of promoting health and human welfare.

APA Guidelines

Standards set by the American Psychological Association that govern ethics, research, and practice within the field of psychology.

Cognitive Approach

A psychological framework that focuses on mental processes such as perception, memory, and thinking, as essential components in understanding behavior.