Which of Following Generally Does Not Indicate an Unreasonable Earnings

question 45

Multiple Choice

Which of following generally does not indicate an unreasonable earnings accumulation?

• A)loans to shareholders
• B)expenditure of corporate funds for the personal benefit of the shareholders
• C)planned expansion of business facilities
• D)investments in properties or securities unrelated to the activities of the corporation

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Definitions:

Capital Lease

A lease agreement that is considered a purchase of an asset for accounting purposes, with the lessee assuming both the benefits and risks of ownership.

Interest Expense

The cost incurred by an entity for borrowed funds, calculated as the principal times the interest rate over a period.

Residual Value

The estimated value that an asset will have at the end of its useful life, often used in calculating depreciation.

Capital Lease

A type of long-term lease agreement in which the lessee essentially buys an asset and pays for it over the lease term, with the asset's ownership potentially transferring to the lessee at the lease's end.