Intermediate Acct earnings management, permanent earnings
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What are estimates? Describe the appropriate adjusting entries for two examples of estimates.
Describe the differences between Vodafone's balance sheets and a typical U.S company balance sheet.
How do earnings management practices affect the quality of earnings?
Assume that a manufacturing company's annual income statement included a large gain from the sale of investment securities. What factors would you consider in determining whether or not this gain should be included in an assessment of the company's permanent earnings?
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Your discussion is 513 and a reference and discusses theory and gives practical examples.
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What are estimates? Describe the appropriate adjusting entries for two examples of estimates.
Estimates are judgments when the amount and timing of future cash flows is not known exactly but can be approximated based on historical patterns and information gathered. Examples might be the allowance for bad debts. You know SOME customers will not pay but as of year-end, you do not know exactly WHICH customers will not pay. So, you estimate (to avoid over-stating revenue due to non-paying customers).
AJE for bad debts:
.......................................DEBIT...............CREDIT
Bad debt expense..........$XX
Allowance for bad debt............................$xx
Another example is the accrual for warranty expenses. When you offer a warranty, you have the obligation at the time of sale and so much accrual for what that ...
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