To Protect Yourself from Unknown Tax Liabilities When Buying the Stock

question 70

Multiple Choice

To protect yourself from unknown tax liabilities when buying the stock of a business, it makes sense to place part of the purchase price in an escrow account that is earmarked to pay for any corporate liabilities. This is referred to as ______.

• A) holdback money
• B) thinning the assets
• C) escrow settlement
• D) goodwill

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Definitions:

Statement Of Cash Flows

A financial report that shows how changes in balance sheet accounts and income affect cash and cash equivalents, divided into operating, investing, and financing activities.

Operating Activities

Transactions and events that are directly related to the primary operations of a business, typically involving revenue and expense activities.

Investing Activities

Transactions involving the purchase or sale of long-term assets and other investments not considered cash equivalents, usually reflected in the cash flow statement of a company.

Cash Dividends

Payments made by a corporation to its shareholders, usually in the form of cash, out of its profits or reserves.