Carlton Electronics posted net income of $500,000 in 2009, compared with a loss of $100,000 in 2008. Over $200,000 of the 2009 profit was due to a problem with faulty approximation in its Toledo operations. The problem occurred when a tax liability had been accrued in prior years assuming a higher tax rate that was actually in effect when the taxes were paid.
Required:
How do you interpret this in terms of quality of earnings? How can a change in expected tax rates lead to a positive effect on reported earnings? Does the $200,000 represent an increase in overall wealth of the company?

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The Answer of Carlton Electronics posted net income of $500,000 in 2009, compared with a loss of $100,000 in 2008. Over $200,000 of the 2009 profit was due to a problem with faulty approximation in its Toledo operations. The problem occurred when a tax liability had been accrued in prior years assuming a higher tax rate that was actually in effect when the taxes were paid.
Required:
How do you interpret this in terms of quality of earnings? How can a change in expected tax rates lead to a positive effect on reported earnings? Does the $200,000 represent an increase in overall wealth of the company?

Carlton Electronics Posted Net Income of $500,000 in 2009, Compared