Question #45
Reading: Reading 23 Residual Income Valuation
PDF File: Reading 23 Residual Income Valuation.pdf
Page: 24
Status: Unattempted
Correct Answer: A
Question
In general, firms making aggressive accounting decisions will report future earnings that are:
Answer Choices:
A. lower
B. inflation-adjusted
C. higher
Explanation
In general, firms making aggressive (conservative) accounting decisions will report higher
(lower) book values and lower (higher) future earnings.
Firms may adopt aggressive accounting practices that overstate the value of earnings by,
for example, accelerating revenues to the current period or deferring expenses to a later
period. Current earnings will be higher, but future earnings will be lower.