QUIZ : Earning Managament

Dosen : Nisrul Irawati

Nama : Anggi Dermawan Purba

NIM : 217019026

1.If a company is managing its earnings, which of the ethical theories are they most likely following?
A. Rights
B. Fairness
C. Egoism
D. Virtue

2.Which statement best describes earnings management?

A. It is about maximizing earnings.
B. It is about earnings manipulation to maximize profit.
C. It is about making financial statements look better.
D. It is about changing illegal accounting practices to legal ones.

3. Jane owns a chain of flower shops, but due to bad business, she had to close down two of her shops.
Jane knows that this loss has already caused a decrease in net earnings. She decides to charge a majority
of the companies expenses to the shut down of the two shops. Identify the earnings management
technique that Jane has decided to use.
A. Big Bath
B. Cookie Jar
C. Operating Activities
D. Materiality

4. What tools do managers have at their disposal to manage net income?

a) Accruals and discretionary accruals
b) Fraud and “under-the-table” transactions
c) Discretionary accruals and accounting policy
d) Inventory sell-offs and accounts receivable write-downs
e) Discretionary accruals and corporate bonuses tied to net income

5. Which of the following is not a reason that management would use earnings management to
decrease net income?
a) Net income has exceeded management’s bonus cap.
b) Net income is significantly lower that management’s bonus bogey.
c) A firm under investigation for monopolistic practices.
d) Net income is slightly below management’s bonus bogey.
6. Which of the following is an example of an earnings management pattern?
a) Taking a bath
b) Taking a shower
c) Income manipulation
d) Juggling the books
e) Income balancing

7. Earnings management is:

a) The decision to pay dividends or not.
b) Marketing during slow periods to try and increase sales.
c) A financial ratio used to better understand the relationship between earnings and sales.
d) The choice by a manager of accounting policies so as to achieve some specific objective.
e) Predicting the effects of new accounting standards on earnings.

8. Why does earnings management still persist if it allows managers to manipulate earnings?
a) It is not cost effective to eliminate.
b) It provides investors with insider information.
c) It allows investors to choose between honest and dishonest companies.
d) Both a) and b)
e) All of the above

Part Two – True and False

1. Research has found that stock markets do not react to earnings management.

True / False

2. One would expect that the changes to GAAP regarding extraordinary items (Jan 1990) would increase
the use of earnings management.

True / False

3. Earnings management is irrelevant for taxation purposes because taxation authorities impose their
own accounting rules for calculation of taxable net income.

True / False

4. The “iron law” surrounding earnings management suggests that managing current earnings upwards
will lead to higher future net income.

True / False

5. The market would better reflect insider information if earnings management was eliminated through
standardization.

True / False