Days Sales in Recievables Index increases  Gross Margin Index decreases 3

1. 1. Days Sales in Recievables Index increases

More likely to engage in earnings manipulation

2. 2. Gross Margin Index decreases

less likely to engage in earnings manipulation

3. 3. Asset Quality Index Increases

more likely to engage in earnings manipulation

4. 4. Depreciation Index decreases

less likely to engage in earnings manipulation

5. 5. Sales Growth Index increases

more likely to engage in earnings manipulation

6. 6. Total Accruals/Total Assets Index decreases

less likely to engage in earnings manipulation

7. 2. The best measure of a firm's sustainable income is:
   a. Net income
   b. Inc. from continuing ops
   c. Income before extraordinary items
   d. income before extra items and change in accounting principle.

b. Income from continuing ops

8. 3. Income or loss from disc. ops. would best be regarded by an analyst as:
   a. sustainable earnings
   b. impairments
   c. transitory earnings
   d. permanent earnings

c. transitory earnings

9. 4. The assessment of earnings quality is best accomplished through the use of which one of the following?
   
   a. B/S and C/F statements.
   b. Single-step financial statements.
   c. Single-step I/S, B/S, and C/F statements.
   Multi-step I/S. B/S. and C/F statements.

d. Earnings manipulation score requires info form each source in answer D.

10. 5. Many times a financial analyst may decide to make adjustments to the financial statements in order to make the statements more useful. Which of the following would not require an adjustment to the financial statement?
    
    a. A company signs a new contract w/ a customer.
    b. A delivery company incurs a loss from disposition of used delivery trucks.
    c. A company changes the useful life of its equipment from 5 yrs to 8 yrs.
    d. A company incurs a charge related to restructuring its operations.

a. A company signs a new contract w/ a customer.