Assuming Everything Else Is Constant, When a Stock Goes Ex-Rights

question 38

Multiple Choice

Assuming everything else is constant, when a stock goes ex-rights its price should:

• A) decrease since the stockholder is losing an option.
• B) increase since the corporation no longer has the right to force the stockholder to convert.
• C) remain the same since an efficient market would anticipate this change.

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Definitions:

Unearned Revenue

Money received by an entity for a service not yet performed or a product not yet delivered. It is recorded as a liability until the service or product is delivered.

Net Income

The total profit or loss of a company after all revenues, expenses, and taxes have been accounted for.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life.

Adjusting Entry

Journal entries made in accounting records at the end of an accounting period to update accounts for accurate financial reporting.