Question #26
Reading: Reading 12 Evaluating Quality of Financial Reports
PDF File: Reading 12 Evaluating Quality of Financial Reports.pdf
Page: 20
Status: Incorrect
Correct Answer: A
Your Answer: C
Question
Which of the following statements about financial disclosures are correct or incorrect? Statement #1: Transitory earnings are usually more important to investors than permanent earnings. Statement #2: Pro-forma earnings are usually prepared in accordance with generally accepted accounting principles.
Answer Choices:
A. Only statement #1 is incorrect
B. Both are incorrect
C. Only statement #2 is incorrect
Explanation
Statement #1 is incorrect. Investors are usually more interested in permanent earnings.
Statement #2 is incorrect. Pro-forma earnings are not prepared in accordance with
generally accepted accounting principles because they may exclude certain transactions.
This is why it is important for an analyst to understand the disclosures.