All of the following situations below might indicate a company has a low quality of earnings except
A) A lack of disclosure about guaranteed payments that were mentioned in the MD&A of the annual report.
B) Maintenance costs are capitalized and then depreciated.
C) Revenue is recognized when earned.
D) Adoption of a different inventory method for each of the last three years.

Question

Quizplus · Accepted Answer

Recognizing revenue when earned is a basic accounting principle and does not necessarily indicate a low quality of earnings. A, B, and D all have potential to indicate a low quality of earnings because they involve manipulation of financial statements, lack of transparency, or inconsistency in accounting practices.

All of the Following Situations Below Might Indicate a Company