B describe activities that will result in a low quality of earnings;

Question 1

Selecting acceptable acct. princips. that misrep. the econs of a trans.

Answer 1

A firm might choose units of prod. depr. in periods when the consumption of the aset is better measured by the straight line or accelerated methods. If the units of prod. method results in lower dept. than the straight-line method early in the assets life, earnings will be accelerated to the early years of the assets life.

Question 2

Structuring trans. to achieve a desired outcome

Answer 2

A girm might structure the terms of a lease to avoid capital lease recognition, resulting in lower liabilities, lower leverage ratios, and lower fixed assets

Question 3

Using aggressive or unrealistic estimates and assumptions

Answer 3

Lengthening the lives of depreciable assets or increasing the salvage value will result in lower dept. exp. and higher earnings.

Question 4

Exploiting the intent of an accounting princip.

Answer 4

Some firms have applied a narrow rule regarding unconsolidated special purposes entities (SPE) to a broad range of transactions, because leverage is lower if the firm does not consolidate the SPE.