1) It is possible to estimate the amount of inventory holding gain (or loss) that is
embedded in a company’s FIFO earnings number.
2) When receivables growth exceeds sales growth, this could be an indication of
aggressive revenue recognition policies.
3) Both IFRS and U.S. GAAP require that a valuation allowance when it is deemed
more likely than not (greater than 50% likelihood) that the deferred tax asset will not be
realized.
4) The “free cash flow valuation approach” expresses current stock price as the
discounted present value of expected future distributable cash flows.
5) Because a farmer’s expenditures for seed, fertilizer and fuel yield uncertain future
benefits (similar to expenditures on research and development), such expenditures are
expensed as incurred.
6) Gains or losses from the sale of property, plant or equipment would be reported on
the income statement as a special item in continuing operations.
7) Differences in the business strategies companies adopt give rise to economic
differences that are reflected as differences in asset utilization only.
8) The payments made by the employer to fund a defined contribution pension plan
create a pension fund asset on the balance sheet of the employer.
9) The only condition required for control over receivables to be surrendered is that the
transferred assets should be beyond the reach of the transferor and its creditors.
10) Stock options are the most common short-term incentive device.
11) When using the direct method to report cash flow from operating activities, a
specific category for cash paid to employees and other suppliers of goods and services
must be reported.
12) Although a company’s earnings are important, an analysis of its cash flows is central
to all credit evaluations and lending decisions.
13) Generally accepted accounting principles require that accounts receivable be carried
on the balance sheet at their net realizable value as opposed to their face amount.
14) The change in equity of an entity during a period from transactions and other events
from non-owner sources is known as comprehensive income.
15) GAAP requires a disclosure that reconciles a company’s effective income tax rate
and the U.S. statutory income tax rate.