The term "earnings quality" refers to the ability of reported earnings to predict an entity's future earnings.To enhance predictability,financial analysts attempt to distinguish between a company's transitory earnings (transactions or events not likely to occur in the future)and its permanent earnings.
It is tempting to assume that transitory earnings are represented primarily by discontinued operations and extraordinary items.All items of revenue and expense included in operating income may not be permanent,however.Restructuring costs often are included in determining operating income,yet may or may not continue in the future.
Required:
Do you think restructuring costs represent transitory earnings or permanent earnings? Explain.

Question

Quizplus · Accepted Answer

The Answer of The term "earnings quality" refers to the ability of reported earnings to predict an entity's future earnings.To enhance predictability,financial analysts attempt to distinguish between a company's transitory earnings (transactions or events not likely to occur in the future)and its permanent earnings.
It is tempting to assume that transitory earnings are represented primarily by discontinued operations and extraordinary items.All items of revenue and expense included in operating income may not be permanent,however.Restructuring costs often are included in determining operating income,yet may or may not continue in the future.
Required:
Do you think restructuring costs represent transitory earnings or permanent earnings? Explain.

The Term "Earnings Quality" Refers to the Ability of Reported