All of the Following Regarding Accounting for Treasury Stock Under

question 40

Multiple Choice

All of the following regarding accounting for Treasury Stock under U.S.GAAP and IRFS is true except:

• A)U.S.GAAP applies the principle that companies do not record gains or losses on transactions involving their own stock.
• B)Only gains are recognized on retirements of treasury stock under IFRS.
• C)IFRS applies the principle that companies do not record gains or losses on transactions involving their own stock.
• D)Gains are not recognized on retirements of treasury stock under U.S.GAAP.
• E)A company's assets and equity are always reduced by the amount paid for the retiring stock.

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Definitions:

Unlevered Cost

Refers to the cost a company would incur without the benefit or cost of debt financing.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity and preferred equity, which is used to finance its overall operations and growth.

Economic Expansion

A phase of the business cycle where the economy grows and increases in activity, marked by rising GDP, employment, and income.

EBIT

Earnings Before Interest and Taxes; a measure of a firm's profitability that includes all expenses except interest and income tax expenses.