• 38. Quality of earnings describes the ability of reported earnings to reflect the companys true earnings.
  • true
  • false
• 39. Writing down inventory in the current year because of obsolescence will have no effect on net income in the current year.
  • true
  • False
• 40. After the preparation of preliminary financial statements, Saturn Corporation changes the depreciation estimate of the factory building. It reduces the estimated useful life to 15 years from the earlier estimate of 20 years. This change will __________ net income reported.
  • increase
  • decrease
  • have no effect on
• 41. In preparing the preliminary financial statement for the current year, the accountant estimated that future bad debts will be 5% of current accounts receivable. He recorded an allowance for this estimate and prepared the financial statements. His manager later asked him to change the estimate to be 8% of accounts receivable. This change will __________ the net cash flows from operating activities in the statement of cash flows.
  • increase
  • decrease
  • have no effect on
• 42 Conservative accounting practices result in lower income, lower assets, and higher liabilities.
  • true
  • False