A Company Should Report a Cumulative Effect of an Accounting

question 7

Multiple Choice

A company should report a cumulative effect of an accounting principle change when

• A)consistency has been violated.
• B)errors are made and subsequently corrected.
• C)FASB mandates a change from one method to another.
• D)international reporting standards differ from GAAP methods.

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Definitions:

Dividend Aversion

A theoretical behavior where investors prefer companies that retain earnings over those that pay out dividends, possibly due to tax advantages.

Capital Gains

The increase in value of an asset or investment over time, which becomes apparent when the asset is sold for more than its purchase price.

Tax Rates

The percentage of income or value of goods taxed by the government.

Indentures

Indentures are formal debt agreements or contracts specifying the terms of a bond issue, including the interest rate, maturity date, and other conditions.