Sample Case Essay
Judgement case 4-1 (earnings quality) * LO2 LO3
The financial community in the United States has become increasingly concerned with the quality of reported company earnings.
REQUIRED: 1. Define earnings quality. 2. Explain the distinction between permanent and transitory earnings as it …show more content…
1. For each situations, identify the appropriate reporting treatment from the list below (consider each event to be material): a. As an extraordinary item. b. As an unusual or infrequent gain or loss. c. As a prior period adjustment. d. As a change in accounting principle e. As a discontinued operation. f. As a change in accounting estimate. g. As a change in accounting estimate achieved by a change in accounting principle. 2. Indicate whether each situation would beincluded in the income statement in continuing operations (CO) or below continuing operations (BC), or it would appear as an adjustment to retained earnings (RE). Use the format shown below to answer requirements 1 and 2. SITUATION | TREATMENT (A-G) | FINANCIAL STATEMENT PRESENTATION (CO, BC or RE) | 1 | B | CO | 2 | C | RE | 3 | F | BC | 4 | D | BC | 5 | A | BC | 7 | B | CO | 8 | E | BC | 9 | D | BC |
Judgment case 4-10 (income statement presentation) * LO3 through LO7
The following events occurred during 2011 for various audit clients of your firm. Consider each event to be independent