Financial Accounting (11th Edition)
Financial Accounting (11th Edition)
11th Edition
ISBN: 9780134127620
Author: Walter T. Harrison Jr., Charles T. Horngren, C. William Thomas, Wendy M. Tietz
Publisher: PEARSON
Question
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Chapter 11, Problem 1QC
To determine

To Explain: The statement suggesting the quality of earning.

Expert Solution & Answer
Check Mark

Answer to Problem 1QC

Option d. Income from continuing operations is a more relevant predictor of future performance than income from one-time transactions.

Explanation of Solution

Quality of Earning: Quality of earning refers to the quality of the earning capacity of an organisation which improves with the increase in sales and or the reduction of the cost. The quality of earnings is considered poor when the profits earned by the company are mainly due to the reasons other than the increase in sales and or the reduction of the cost.

  • Option a, is an incorrect option.

    The stockholders want the corporation to earn enough income to be able to pay its debt, explains the general interest of the stockholders and does not relate to the quality of earnings. Hence, option a is incorrect.

  • Option b, is an incorrect option.

    The net income is the best measure for the result of operations does not relate to the quality of earnings. Hence, option b is incorrect.

  • Option c, is an incorrect option.

    Continuing operations and one-time transactions are of equal importance; however, they do not relate to the quality of earnings. Hence, option c is incorrect.

  • Option d, is the correct option.

    The income from continuing operations is a more relevant predictor of future performance than income from one-time transactions. Hence, option d is the correct answer.

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Chapter 11 Solutions

Financial Accounting (11th Edition)

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