Predicting Bankruptcy in the World Age” says that a. Earnings management generally does not interfere with bankruptcy predictions using financial statements because earnings management tends to improve some ratios while hurting others. B. Earnings management generally does not interfere with bankruptcy predictions using financial statements because it is usually detected. C. Earnings management generally interferes with bankruptcy predictions using uncial statements because it tends to smooth earnings. D.
Earnings management generally interferes with bankruptcy predictions using financial statements because it tends to increase earnings. E. Earnings management generally interferes with bankruptcy predictions using financial statements because it tends to increase total assets. 6. Why did Merrill and Lone Star form a Special Purpose Vehicle (SSP)? A. Merrill wanted to keep the big losses on the underlying COD off of Merrill’s balance sheet. B. Lone Star wanted to keep Merrill from taking its assets if the loan from Merrill to Lone Star went bad. C. Merrill wanted Lone Star to keep from taking its assets if the loans in the SSP went bad.
D. Merrill and Lone Star needed to follow government regulations. E. Merrill needed to transfer losses to Lone Star. 7. Which of the following is or are signs of potential fraud? A. Shipping to an international address. B. “rush” or “Overnight” shipping. D. Ordering more than one of the same item. E. All of the above. 8. According to Elephant (Financial Statements Are Still Valuable Tools for Predicting Bankruptcy), a. The ability of financial statements and market-based measures has declined quite bit, but both approaches still help predict bankruptcy. B.
Either financial statements or market-based measures can each predict bankruptcy well. C. Financial statements combined with market-based measures can help predict bankruptcy as much as five years in the future. D. Financial statements and market-based measures have more trouble predicting bankruptcy of companies that manipulate earnings. E. Both b and c. 9. What is the most common reason that a merchant acquirer suffers a loss?