Typical features attached to preferred stock include all of the following except:
Answer(s): A
Preferred shareholders hold a security that looks very similar to a bond, but they are very rarely allowed to demand redemption of their shares. On the other hand, many bonds are callable.
In a period of rising prices, the inventory method that gives the lowest possible value for ending inventory is:
Answer(s): B
The ending inventory under LIFO is priced at the earliest, and thus the lowest prices (in a period of rising prices) than any of the other methods.
The cash spent on replacing operating capacity used up in the normal course of business is classified as:
Operating cash flow does not include cash outlays for replacement of depreciation of capacity. The cash used for this purpose is classified as an investment cash flow.
The current economic environment is one of steady inflation. A firm uses historical cost accounting. Which of the following is/are true?
Since the assets are carried at historical values which are lower than the current asset values due to inflation, the depreciation expense is understated. Therefore, income is overstated, leading to an overstatement of taxes.Historical cost accounting in inflationary environment implies that the asset values are understated.
Which of the following is /are true?
Answer(s): C
A simple capital structure consists of only common stock and non-convertible senior securities while a complex structure is one which contains potentially dilutive securities. Since there is no contingent conversion associated with straight, preferred equity, it is considered to be a part of a simple capital structure. Finally, only dilutive securities i.e. securities that do not increase earnings or decrease losses are included in the calculation of DEPS. Anti-dilutive securities are ignored in the calculations.
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