1) Income statements prepared in accordance with GAAP differentiate between income
components that are believed to be sustainable and those that are transitory.
2) Under the cash basis, expenses are recognized when the costs expire or assets are
used.
3) The direct method is easier for firms to implement because it relies exclusively on
data already available in the accrual accounts.
4) Most financial ratios can only be calculated in one way.
5) Companies that report good news earnings tend to have an upward drift in stock
returns before the actual earnings announcement date.
6) Selected unrealized gains (or losses) sometimes bypass the income statement and are
reported as direct adjustments to a stockholders’ equity account.
7) Shipments to a company’s distributors should normally be treated as sales when they
occur.
8) When a debt is retired on the maturity date, a loss occurs if the market rate of interest
increased subsequent to the issue of the bond.
9) All of the information needed by professional analysts to give a complete picture of a
company is found in the published financial statements.
10) Changes in the discount rate for pension plans cause material differences in interest
expense and the plan assets.
11) Mature companies’ capital expenditures are limited to the amount needed to sustain
current levels of operation.
12) When an asset retirement obligation is established, the offsetting debit goes to a
contra-liability account.
13) Management has considerable discretion over the particular accounting procedures
used in the statements and over the details contained in supplemental footnotes and
related disclosures.