Final answer:
A firm is more likely to sell appreciated property to smooth its earnings when its other earnings are low. This tactic is used to make financial results appear more stable and is a form of earnings management.
Step-by-step explanation:
To smooth its earnings, a firm is more apt to sell appreciated property and realize the income on that sale when its other earnings are low. This strategy can help stabilize a company's earnings by offsetting periods of lower income with gains from the sale of assets, thus making the overall financial results appear more consistent over time. It is a form of earnings management that is sometimes used by firms to make financial statements more attractive to investors. The concept behind this strategy is that if a firm's earnings are already high, selling an appreciated asset will simply add to the income and may result in a less favorable tax position. Conversely, if earnings are low, the gain from the sale could provide a needed boost to the financial results, making the firm's performance appear stable.