1. Which of the following correctly describes U.S. GAAP accounting for convertible bonds and the implication of that requirement?

A.Separation of debt and equity components; interest expense is understated.

B.No separation of debt and equity components; interest expense is understated.

C.No separation of debt and equity components; interest expense is overstated.

D.Separation of debt and equity components; interest expense is overstated.

2.Which of the following arguments was not used to support the continuation of the accounting for stock-based compensation plans as allowed under APB Opinion No. 25?

Multiple Choice

A.The Black-Scholes method of valuing stock options has not been widely accepted and is arbitrary.

B.The fair value approach would increase expenses and lower net income which would result in lower stock prices.

C.Stock options do not involve a cash flow; therefore, the recording of an expense would violate appropriate income measurement.

D.The fair value approach could jeopardize compliance with contract terms and conditions.