Other Operating Income In 2007, the Company entered into a sale-leaseback arrang

Question

Other Operating Income In 2007, the Company entered into a sale-leaseback arrangement for the land and multi-tenant building housing a TIFFANY & CO. store in Tokyo's Ginza shopping district. The Company secured a long-term lease and is leasing back the portion of the property that it occupied immediately prior to the transaction. The transaction resulted in a pre-tax gain of $105,051,000 and a deferred gain of S75,244,000, which will be amortized in selling, general and administrative expenses over a 15-year period. The pre-tax gain represents the profit on the sale of the property in excess of the present value of the minimum lease payments. The lease is accounted for as an operating lease. The lease expires in 2032; however, the Company has options to terminate the lease in 2022 and 2027 without penalty Statement of Cash Flows Operating Activities ing Activities The Company had net cash inflows from operating activities of $133,224,000 in 2008, $391,395,000 in 2007 and $239,036,000 in 2006. The decrease in 2008 from 2007 primarily resulted from increased income tax payments largely associated with the sale-leasebacks of TIFFANY & CO. stores in Tokyo's Ginza shopping district and on London's Old Bond Street and increased inventory purchases. The increase in 2007 from 2006 primarily resulted from increased net earnings from continuing operations and smaller growth in inventories. Taxes payable also increased in 2007 due to the increase in net earnings

Explanation / Answer

The term quality of earnings refers to the degree to which earnings reported on the company's income statement are a direct result of sustainable and ongoing business operations.

Factors lowering the quality of earnings include inflation and other economic conditions, one-time events, and liberal accounting practices.

While a company's income statement is a very important document to investors and creditors.

The main importance is the quality of earnings reported by companies.

Flexibility is often found in written accounting standards, allowing accountants to establish what might be deemed conservative practices.

Earnings can be overstated and are said to be of low quality.

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