Question #30
Reading: Reading 12 Evaluating Quality of Financial Reports
PDF File: Reading 12 Evaluating Quality of Financial Reports.pdf
Page: 24
Status: Incorrect
Correct Answer: B
Your Answer: B
Question
Aggressive revenue recognition practices are least likely to increase:
Answer Choices:
A. reported expenses
B. reported ending inventory
C. reported assets
Explanation
Aggressive revenue recognition practices would increase accounts receivable, revenues,
expenses, income and stockholder's equity. Ending inventory would decline but by less
than the increase in accounts receivable resulting in increase in total assets. Early
recognition of revenues also accelerates recognition of expenses (COGS).