In Spite of the Fact That a Corporation Does Not

question 9

Multiple Choice

In spite of the fact that a corporation does not meet the solvency test, it can:

• A) pay wages to employees
• B) pay dividends
• C) buy back shares
• D) make loans to directors
• E) it can do none of the above

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Definitions:

Expense Recognition

An accounting principle that matches expenses with revenues in the period in which the expense is incurred to generate those revenues.

Accrual Basis of Accounting

A financial recording technique that logs income and costs as they are accrued, without considering the actual exchange of cash.

Revenue Recognition

The accounting principle that dictates how and when revenue is considered earned and should be recorded in the financial statements.

Expenses

The outflow of money to pay for goods or services, an essential component of a company's operations.