Multiple Choice
You invest \$4,000 in equity securities. According to U.S. GAAP, how should this investment generally be reported on the balance sheet at the end of the reporting period?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
Which of the following provides powerful incentives to maximize stock price per share?
A
Issuing bonds to raise capital
B
Stock-based compensation plans for management
C
Recording investments at historical cost
D
Paying dividends to shareholders
Verified step by step guidance1
Understand the question: The problem is asking which option provides strong motivation for management to maximize the stock price per share. This involves understanding the relationship between management incentives and stock price performance.
Analyze the options: Review each option provided and evaluate how it aligns with the goal of maximizing stock price per share.
Option 1: 'Issuing bonds to raise capital' - This involves borrowing funds, which does not directly incentivize management to focus on stock price performance. It is more related to financing decisions.
Option 2: 'Stock-based compensation plans for management' - This ties management's compensation to the company's stock performance, creating a direct incentive for management to maximize stock price per share.
Option 3: 'Recording investments at historical cost' and Option 4: 'Paying dividends to shareholders' - These are accounting and financial policies that do not directly incentivize management to focus on stock price maximization. Therefore, the correct answer is Option 2.
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