A Company That Mines Coal on Federally Owned Land Is

question 128

Multiple Choice

A company that mines coal on federally owned land is about to be told by the federal government that, beginning in five years, it must abandon the mine it expected to operate for another twenty years. This will mean a reduction in accounting profits beginning in five years. If the announcement of this ruling was made tomorrow, the price of the firm's stock would fall

• A) in about five years, just before the reduction in accounting profits was to begin.
• B) gradually, as the reduction in the firm's accounting profit drew near.
• C) immediately by the full amount of the discounted value of the decrease in future profit.
• D) immediately because some investors would panic irrationally, whereas smart investors would put the same value on the stock as before, up to the time of the decline in accounting profit.

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Definitions:

Net Loss

The result of a company’s expenses exceeding its revenues during a specific period, indicating a negative financial performance.

Debit Columns

Sections in accounting journals or ledgers where debits are recorded, used for increasing asset and expense accounts and decreasing liability, equity, and revenue accounts.

Adjusting Journal Entries

Entries made in the accounting records to correct any discrepancies or to make non-cash adjustments.

Wages Expense

The total cost incurred by an employer for paying the hourly earnings of its employees.