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Question 1

Instead of the usual cash dividend, Evie Corp. declared and distributed a property dividend from its overstocked merchandise. The excess of the merchandise’s carrying amount over its fair value should be

Answer 1

When a corporation declares a dividend consisting of tangible property, the property must first be remeasured to fair value. Thus, a loss should be recognized on the disposition of the asset. This loss on merchandise is an operating item.

Question 2

Which of the following models for assigning values to options takes into account the volatility of stock prices?

Answer 2

This answer is correct. The Black-Scholes, binomial models, and lattice models are option-pricing models that take into account the volatility of stock prices when measuring the fair value of options. The calculated value method is only available to nonpublic companies that cannot estimate volatility.