Question
Good morning, Can I please know if the following earning management are: 1. In compliance with GAAP. 2. Viewed aggressive or gray area in GAAP.
Good morning,
Can I please know if the following earning management are:
1. In compliance with GAAP.
2. Viewed aggressive or gray area in GAAP.
3. Violates GAAP.
SPECIFIC EXAMPLES OF EARNINGS MANAGEMENT
1. Revenue from a multi-year service contract is totally recognized in the year of sale.
2. Operating expenses that have been previously expensed are now being capitalized.
3. Maintenance expenditures are postponed until next year in order to reduce expenses.
4. Revenue is recognized when goods are shipped to a consignee.
5. The write-off of obsolete inventory is deferred until a more appropriate time.
6. The books are kept open for the first week of the next quarter in order to record additional revenue in the current quarter.
7. More lenient credit terms are extended in order to increase sales. No adjustment is made to increase the allowance for bad debts.
8. Optimistic estimate of useful life is used to depreciate plant and equipment.
9. Costs associated with restructuring are significantly overestimated.
10. The allowance for warranty expenses (expressed as a percent of sales) is increased from the previous year.
11. Next year's price increases are leaked to customers in order to increase current-year sales.
12. Production of goods is increased so that more fixed manufacturing overhead is deferred in ending finished goods inventory.
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