1) Managers in lessee companies prefer that leases be treated as capital leases.
2) High quality financial statements help credit analysts see what is really going on at a
company; low quality statements mask true performance and financial condition.
3) Firms that earn less than the cost of equity capital have a share price below book
value.
4) When accounting for an operating lease, interest expense is recognized over the lease
term by the lessee.
5) The primary difference between FIFO and LIFO is that each method makes a
different choice regarding which element is shown at the out-of-date cost.
6) Mandatorily redeemable preferred stock dividends are reported as interest expense
on the income statement.
7) Informed financial statement analysis begins with knowledge of the company and its
industry.
8) From a lessee’s perspective, cash flows from operating activities will be the same
whether a lease is classified as a capital lease or an operating lease.
9) The advantage of the retrospective approach to accounting is that the financial
statements in the year of the change and for prior years presented for comparative
purposes are prepared on the same basis of accounting.
10) All financial statements provide a basis for what might occur in the future.
11) Constructive capitalization occurs when analysts treat capital leases as operating
leases and approximate what balance sheet numbers would have been had the leases not
been capitalized.
12) Firms are rewarded for reporting continuous growth in annual EPS.