The Practice of Carefully Timing the Recognition of Revenues and Expenses

question 22

Multiple Choice

The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next is called

• A) revenue recognition.
• B) income smoothing.
• C) restructuring.
• D) accrual-basis accounting.

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Definitions:

Flotation Cost

The total costs associated with issuing new securities, including but not limited to underwriting, legal, and registration fees.

Equity Capital

Funds raised by a company through the sale of common or preferred stock, representing ownership interest in the company.

Marginal Tax Rate

The tax rate on the last unit of income.

Cost of Debt

The effective rate that a company pays on its current debt, often calculated by taking the average interest rate it pays on all of its debt instruments.