In Practice,there May Be an Increase in the Share Price

question 17

Multiple Choice

In practice,there may be an increase in the share price following the announcement by a company of a forthcoming bonus issue.Which of the following is a likely explanation of this phenomenon?

• A)Companies tend to increase their total dividend payout following a bonus issue.
• B)Bonus issues create wealth for shareholders.
• C)Bonus issues reduce the debt/equity ratio and,therefore,the riskiness of the firm.
• D)Bonus issues increase the dividend payout ratio of companies.

---

Definitions:

Adjusting Entries

At the close of an accounting period, journal entries are made to apportion income and spending to the timeframe in which they legitimately took place.

Prepaid Insurance

Payments made in advance for insurance coverage, recorded as an asset on the balance sheet until the coverage period elapses.

Adjusting Entries

Entries in accounting made at the period's end to assign earnings and costs to their respective actual periods.

Income Statement Accounts

Accounts found on the income statement, which report a company’s financial performance over a specific period, including revenues, expenses, gains, and losses.