CFA Practice Question
All of the following treatments are allowed under U.S. generally accepted accounting principles EXCEPT:
A. treating a 40 percent stock distribution as a stock dividend.
B. charging appropriated retained earnings to recognize the outcome of a court case.
C. a company that issued $100 par value preferred stock now selling in the market at $80 should carry that stock on the balance sheet at $100.
Explanation: You cannot charge that against retained earnings directly.
User Contributed Comments 5
| User | Comment |
|---|---|
| StanleyMo | C is due to the revaluation not allow. Am i right? A i guess every rules allow them. |
| ninad123 | owner's equity appearing on the balance sheet is not an indication of the fair market value of the company it is the book value |
| Mariana80 | So what would you do if you the company will incur some cost due to the result of a court case? |
| SKIA | Mariana80 - you expense them -- only capitalize legal costs if they are to secure a patent (even if that patent is developed internally) |
| Alexander5 | Still don’t get it! |