201. The current price of a share of common stock reflects current economic conditions, not the requirements of authoritative guidance. Market-to-book-value ratios tend to be large for firms that
A. make substantial expenditures on internally developed assets.
B. have a favorable competitive position.
C. have a favorable growth potential.
D. All of the above are correct.
E. None of these answer choices is correct.
202. U.S. GAAP and IFRS aid the investors’ analysis process by requiring firms to classify income transactions in particular ways in the financial statements which include
A. Recurring versus nonrecurring.
B. Central versus peripheral.
C. Unrealized versus realized gains and losses from changes in the fair values of assets and liabilities.
D. Adjustments for errors and changes in accounting principles and accounting estimates.
E. all of the above
203. Young Corporation's capital stock at December 31 consisted of the following:
(a)
Common stock, $2 par value; 100,000 shares authorized, issued, and outstanding.
(b)
10% noncumulative, nonconvertible preferred stock, $100 par value; 1,000 shares authorized, issued, and outstanding.
Young’s common stock, which is listed on a major stock exchange, was quoted at $4 per share on December 31. Young’s net income for the year ended December 31 was $50,000. The yearly preferred dividend was declared. No capital stock transactions occurred. What was the price earnings ratio on Young’s common stock at December 31?
A. 6 to 1
B. 8 to 1
C. 10 to 1
D. 16 to 1
204. Identifying accounting principles. Indicate the accounting principle or method described in each of the following statements.
a. This inventory cost-flow assumption results in reporting the largest net income during periods of rising acquisition costs and nondecreasing inventory levels.
b. This method of accounting for uncollectible accounts recognizes the implied income reduction in the period of sale.
c. This method of accounting for long-term investments in the common stock of other corporations usually requires an adjustment to net income to calculate cash flow from operations under the indirect method in the statement of cash flows.
d. This method of accounting for long-term leases by the lessee gives rise to a noncurrent liability.
e. This method of recognizing interest expense on bonds provides a uniform annual rate of interest expense over the life of the bond.
f. The accounting for this type of hedging instrument designated as a hedge results in a change in other comprehensive income each period.
g. This method of accounting for intercorporate investments in securities can result in a decrease in the investor’s total shareholders’ equity without affecting the Retained Earnings account.
h. This method of recognizing income from a long-term contract generally results in the least amount of fluctuation in earnings over several periods.
i. When a firm identifies specific customers’ accounts as uncollectible and writes them off, this method of accounting results in no change in working capital.
j. The accounting for this type of hedging instrument designated as a hedge affects net
income each period but not other comprehensive income.
k. This method of accounting for long-term leases of equipment by the lessor shows on the income statement an amount for depreciation expense.
l. This inventory cost-flow assumption results in inventory balance sheet amounts closest to current replacement cost.
m. This method of accounting for long-term investments in common stock results in recognizing revenue for dividends received or receivable.
n. This method of depreciation generally results in the largest amounts for depreciable assets on the balance sheet during the first several years of an asset’s life.
o. This inventory cost-flow assumption results in reporting the smallest net income during
periods of falling acquisition costs.
p. This method of accounting for long-term leases of equipment by the lessee results in
showing an amount for rent expense on the income statement.
q. This inventory cost-flow assumption results in inventory balance sheet amounts that may differ significantly from current replacement cost.
r. This method of accounting for long-term leases of equipment by the lessor results in showing revenue at the time of signing a lease.
s. This inventory cost-flow assumption can result in substantial changes in the relation between cost of goods sold and sales if inventory quantities decrease during a period.
