Question and Analysis – Earnings Management and Quality 2023 Business Finance

2023 1 Chapter 6 Questions and Exercises 6 1 6 2 and 6 3 p 471 6 1 Concept of Earnings


1) Chapter 6: Questions and Exercises: 6.1, 6.2, and 6.3 (p. 471):

6.1 Concept of Earnings Quality. The concept of accounting quality has two principal characteristics: the accounting data should be a fair representation of performance for the reporting period, and the information should be pertinent to forecast expected future earnings. Provide a specific example of poor accounting quality that would hinder the forecasting of expected future earnings.

6.2 Balance Sheet Quality and Earnings Quality. You will provide a specific example of a management judgment, estimate, or choice that could decrease both balance sheet and earnings quality. Be specific as to how the judgment decreased quality in each of the two financial statements. Give a different example of how a management judgment, estimate, or choice could increase balance sheet quality, but potentially impair earnings quality.

6.3 Concept of Earnings Management. Define earnings management. Discuss why it is difficult to discern whether a firm does in fact practice earnings management.

2) Chapter 10: Questions and Exercises: 10.7 (p. 830):

10.7 Dividends as a Flexible Financial Account. Schwartz uses dividends as a flexible financial account. Compute the amount of dividends you can assume that Schwartz will pay. Present the projected balance sheet.

Statement will be included.

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