Profits are down so the controller decides to change the corporation's accounting policy relating to inventory costing.The change will allow the corporation to report higher income and higher assets,although the physical inventory has not changed.Which of the following statements is most correct?
A) The stock price is likely to increase because income is higher.
B) The stock price is likely to be unaffected because the stock market is efficient.
C) The stock price is likely to decrease because reported inventory is higher.
D) If the stock price increases, the stock market is efficient.

Question

Quizplus · Accepted Answer

The stock market is considered efficient, meaning that it quickly incorporates all available information into stock prices. Therefore, a change in accounting policy that does not reflect a real change in the company's economic situation is unlikely to affect the stock price.

Profits Are Down So the Controller Decides to Change the Corporation's