Question #33
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
Which of the following is least likely an indicator of biased measurement in assessing balance sheet quality?
Answer Choices:
A. Understatement of valuation allowance for deferred tax assets
B. Presence of substantial goodwill on balance sheet
Explanation
Presence of substantial goodwill does not inherently make it biased measurement. Only if
the value of goodwill is unjustified (based on market values of the investments), would the
measurement be considered biased. Understatement of inventory impairment charges
overstates value of inventory. Similarly understatement of valuation allowance for
deferred tax assets overstates the value of deferred tax assets.