Examples of poor earnings quality that hinder the forecasting of expected future earnings include all of the following except:
A) Earnings dominated by a substantial one-time gains from the sale of real estate tangential to the firm's operations.
B) Reporting a large expense from a warehouse fire that was not covered by insurance.
C) A local government corrects a processing error and a firm receives an unexpected rebate on property taxes previously paid.
D) The company adds equipment that reduces carbon emissions in response to EPA requirements and increases production efficiency.

Question

Quizplus · Accepted Answer

Option D describes a positive change in earnings quality, as the company is responding to EPA requirements and improving production efficiency. Options A, B, and C describe unusual or one-time events that do not reflect the company's underlying earnings potential, making it difficult to forecast future earnings based on these events.

Examples of Poor Earnings Quality That Hinder the Forecasting of Expected