ch13 hw answers - CHAPTER 13 HOMEWORK: Multiple Choice...

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CHAPTER 13 HOMEWORK: Multiple Choice (Page 692): 1 . c 2. a 3. b 4. c 5. b SE13-1 What is the most important number a firm reports in the opinion of Wall Street analysts? What problems has this created? Earnings (per share) is the most important number a firm reports, according to some experts. This creates an inappropriate emphasis on meeting earnings forecasts. Often, a firm will engage in questionable practices—both accounting and business practices—to make sure the income statement and EPS will meet the analysts’ forecasts. SE13-3 Describe the big bath theory. Give examples of items that could be written off early. The big bath theory suggests that a firm will write off (expense) all questionable costs in a period when the firm is going to miss earnings forecasts. The idea is that as long as the firm is going to miss the forecast, the firm might as well write off as much as possible so that these expenses won’t have to be written off in future periods. Examples include probable impairment losses and possibly obsolete inventory.
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This note was uploaded on 04/30/2008 for the course AIM 2301 taught by Professor Muslu during the Spring '08 term at University of Texas at Dallas, Richardson.

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ch13 hw answers - CHAPTER 13 HOMEWORK: Multiple Choice...

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