1) The use of the lower of cost or market method to value inventory for reporting
purposes employs the accounting principle of matching.
2) Days payable outstanding helps analysts understand the company’s pattern of cash
receipts from customers.
3) GAAP establishes specific criteria for the treatment of leases. For a lessee, if any of
the criteria are met, the lease must be treated as an operating lease.
4) When “fixed GAAP” is not permitted by the loan agreement, lenders still have the
option to waive or renegotiate covenants that are harmed by a new accounting standard.
5) Accounting for intangible long-lived assets under IFRS is very similar to the
accounting under U.S. GAAP.
6) GAAP requires comparative financial statements to be retroactively adjusted to
include data for the acquired company for periods prior to the acquisition.
7) When companies following IFRS write up an asset to its current fair value,
subsequent depreciation of the asset remains based on the original cost of the asset.
8) Taxpayers would prefer not to capitalize interest payments for tax purposes.
9) It is commonly believed that to some degree many companies use accounting
loopholes to “massage their numbers.”
10) IFRS permits inventory reductions due to lower of cost or market write-downs to be
reversed if the market recovers.
11) For a lessor using the operating lease method of recording a lease, the net effect on
income is recognized evenly throughout the term of the lease, if the lessor uses
straight-line depreciation.
12) A revenue included in the determination of book income this year but never
included in taxable income is an example of a timing difference.
13) When earnings and share price fall below acceptable levels, dissident shareholders
may launch a proxy contest to elect their own slate of directors at the next annual
meeting.
14) The interest coverage ratio reflects the cushion between operating profit inflows and
required interest payments.