Question #28
Reading: Reading 12 Evaluating Quality of Financial Reports
PDF File: Reading 12 Evaluating Quality of Financial Reports.pdf
Page: 23
Status: Incorrect
Correct Answer: A
Your Answer: C
Question
Analyst Jane Kilgore is worried that some of Maxwell Research's accrual accounting practices will lead to excessive operating earnings recognition in the near-term. Examples of Kilgore's concerns include the following: Accelerated revenue recognition of service agreements. Classification of recurring revenue as nonrecurring revenue. Understated inventory obsolescence. Which of Kilgore's concerns is least likely to overstate current operating earnings?
Answer Choices:
A. Accelerated revenue recognition of service agreements
B. Understated inventory obsolescence
C. Classification of recurring revenue as nonrecurring revenue
Explanation
Classification of recurring revenue as nonrecurring revenue will understate current
operating earnings. The other two items act to overstate revenue and understate
expenses.