Mark-to-market accounting, a bookkeeping technique by which estimated future revenue is counted as money in hand, can be used to make a company appear more profitable. This is especially true for large corporations in the utility and energy sectors, where multi-million dollar contracts are often signed for services that will not be delivered for several years. Corporate executives are then able to quote large annual revenue figures to stockholders, even when actual cash flow is almost nonexistent.
Based on the information above, which of the following could most properly be concluded about companies that use mark-to-market accounting?
A. Executives routinely exaggerate the net worth of these companies by millions of dollars a year.
B. Mark-to-market accounting, though dangerous, is a necessity in corporations which contract for services that will not be delivered until a later date.
C. Executives of these companies are all dishonest and seek to deceive shareholders.
D. Information in addition to quoted annual revenue figures is needed in order to tell how profitable a company really is.
E. These companies will eventually collapse when the difference between reported annual revenue and cash flow has grown too great.
Based on the information above, which of the following could most properly be concluded about companies that use mark-to-market accounting?
A. Executives routinely exaggerate the net worth of these companies by millions of dollars a year.
B. Mark-to-market accounting, though dangerous, is a necessity in corporations which contract for services that will not be delivered until a later date.
C. Executives of these companies are all dishonest and seek to deceive shareholders.
D. Information in addition to quoted annual revenue figures is needed in order to tell how profitable a company really is.
E. These companies will eventually collapse when the difference between reported annual revenue and cash flow has grown too great.
