Accounting for Costs of Incentive Programs for Customer Purchases

question 132

Multiple Choice

Accounting for costs of incentive programs for customer purchases:

• A) Requires probability estimation.
• B) Follows the matching principle.
• C) Is a loss contingency situation.
• D) All of these answer choices are correct.

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Definitions:

Employee Stock Options

A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuing company's shares, usually at the discretion of the bondholder.

Diluted Earnings

Earnings per share (EPS) calculated using the maximum potential number of shares that could be outstanding if all sources of conversion, such as convertible bonds or employee stock options, are exercised.

Marginal Income Tax Rate

The percentage of tax applied to your income for each tax bracket in which you qualify, essentially the rate at which the last dollar of your income is taxed.