Question #54
Reading: Reading 12 Evaluating Quality of Financial Reports
PDF File: Reading 12 Evaluating Quality of Financial Reports.pdf
Page: 48
Status: Correct
Correct Answer: B
Question
Which of the following choices is most likely a biased accounting choice to overstate profitability?
Answer Choices:
A. Channeling gains through OCI and losses through income statement
B. Lessor use of sales-type finance lease classification
C. Classifying non-operating expenses as operating
Explanation
Lessor use of sales-type finance lease classification results in Lessor recognizing the gross
profit at inception of the lease and is a mechanism to overstate profitability. Classifying
non-operating expenses as operating and channeling gains through OCI and losses
through income statement would understate profitability.