In Examining the Issue of Whether the Choice of Accounting

question 42

Multiple Choice

In examining the issue of whether the choice of accounting methods affects stock prices,studies have found that

• A)the decision between LIFO and FIFO for inventory accounting can significantly affect stock prices.
• B)a firm can affect its stock price if it either withholds information or provides incorrect information.
• C)accounting changes that increase accounting earnings also increase stock prices.
• D)switching depreciation methods can significantly affect stock prices.
• E)the choice between the percentage-of-completion or the completed-contract method for construction projects affect stock prices.

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Definitions:

Fair Value

An estimation of the price at which an asset or liability could be traded in a fair transaction between willing parties, other than in a forced or liquidation sale.

Par Value

The face value of a bond or stock, indicating the amount that must be repaid at maturity (for bonds) or the nominal value of a share (for stocks).

Consideration Transferred

Consideration transferred is the total value of assets, liabilities, or equity shares that an acquirer gives up in order to acquire control of a target company in a business combination.

Business Combination

A transaction or event where a company acquires control over one or more businesses, often through a merger or acquisition.