The following is true about the price earnings ratio
Answer(s): A
PE ratio is calculated based on expected earnings per share and a ratio of less than 5 to 8 makes a stock appear underpriced.
At the end of the fiscal period, the account debited to show the estimated amount of uncollectible accounts is
Answer(s): D
The adjusting entry should recognize an expense and increase the allowance account.
Under US GAAP accounting, R&D expenses cannot be capitalized. They must be expensed as and when incurred. Which of the following is NOT a reason to support this practice?
Note that R&D expenses are, for the most part, are clearly ear-marked as such and hence, are not difficult to measure. Of course, some of these expenses go into generating tangible assets like laboratories and flasks but these are easily measurable and do get capitalized under US GAAP. The other three reasons imply that it is difficult to measure the present value of the assets being generated (if at all) by the research. This prevents a consistent and reliable application of the accrual principles, which require allocation of expenses in proportion to the current benefits generated. Hence, US GAAP takes the easiest solution of expensing all the R&D costs.
Firm A uses Sum-of-digits and Firm B uses straight-line method of depreciation. In the first year, which of the following is/are TRUE?
Answer(s): C
Sum-of-digits results in a higher depreciation in the first year. Hence, Firm A shows lower assets, lower income and hence lower equity. Thus, its debt-to-equity and debt-to-asset ratios are higher than B's.
Goodwill should:
Goodwill can be amortized over a maximum of 40 years. However, goodwill should be amortized over a number of periods equal to its ability to deliver superior earning power unless that period is over 40 years.
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