Sample Case Essay

2504 Words Mar 18th, 2013 11 Pages
Apply your critical-thinking ability to the knowledge you’ve gained. These cases will provide you an opportunity to develop your research, analysis, judgement and communication skills. You also will work with other students, integrate what you’ve learned, apply it in real world situations, and consider its global and ethical ramifications. This practice will broaden your knowledge and further develop your decision-making abilities.

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
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The Stridewell Company, a manufacturer of shoes, sold all of its retail outlets. It will continue to manufacture and sell its shoes to other retailers. A loss was incurred in the disposition of the retail stores. The retail stores are considered components of the entity. 8. The inventory costing method was changed from FIFO to average cost.

Required:

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

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