Charging the Cost of a Wastebasket with an Estimated Useful

question 99

Multiple Choice

Charging the cost of a wastebasket with an estimated useful life of 10 years to an expense account when purchased is an example of the application of

• A) the historical cost principle.
• B) the matching principle.
• C) the materiality constraint.
• D) the full disclosure principle.

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Definitions:

Bird-In-The-Hand Theory

Assumes that investors value a dollar of dividends more highly than a dollar of expected capital gains because the dividend yield component, D1/P0, is less risky than the g component in the total expected return equation rs = D1/P0 + g.

Dividend Yield

A financial benchmark that illustrates the relation between a company's per annum dividend issuance and its share price.

Required Return

The expectancy of financial gain on an investment, considering its risk profile, set by investors as a benchmark.

Dividend Irrelevance Theory

A theory suggesting that dividend policy has no effect on a company's value or its stock price.