Current GAAP recommends that the fair value method be used to account for compensatory stock option plans. From a conceptual point of view, this method is an improvement over the intrinsic value method.Required:Explain how the fair value method is an improvement over the intrinsic value method.
What will be an ideal response?
The fair value method increases the relevance of accounting information because it reflects the value that the stock market places on the stock options. However, the reliability of the accounting information is reduced because the method requires estimates.Additionally, the fair value method provides a more relevant measure of a firm's return on investment, because of the compensation expense calculation, and a better assessment of risk, since users are better able to assess the likelihood that the stock options will be exercised. Finally, comparability is improved because external users can better contrast the terms of different plans with the information contained in the notes to the firm's financial statements.
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Wind Chime and Fire Hut Companies purchased identical equipment having an estimated useful life of ten years. Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct?
a. Wind Chime's depreciation expense will be greater in the second year than Fire Hut's depreciation expense. b. Fire Hut's book value will be greater than Wind Chime's book value at the end of year one. c. Wind Chime's net income will be greater than Fire Hut's net income in year nine. d. Fire Hut's book value will be less than Wind Chime's book value at the end of year two.
Applied overhead is equal to the overhead rate times the actual cost driver level
Indicate whether the statement is true or false
Someone who exposes a violation of ethics or law is referred to as a nepotist.
Answer the following statement true (T) or false (F)
In a Chapter 11 bankruptcy, the creditors committee is usually composed of:
A) The three largest secured and three largest unsecured creditors. B) The seven largest unsecured creditors and all secured creditors. C) The seven largest unsecured creditors. D) All unsecured creditors and the three largest secured creditors.