The Occurrence Which Most Likely Would Have No Effect on 2011

question 30

Multiple Choice

The occurrence which most likely would have no effect on 2011 net income (assuming that all amounts involved are material) is the

• A)sale in 2011 of an office building contributed by a stockholder in 1987.
• B)collection in 2011 of a receivable from a customer whose account was written off in 2010 by a charge to the allowance account.
• C)settlement based on litigation in 2011 of previously unrecognized damages from a serious accident which occurred in 2008.
• D)worthlessness determined in 2011 of stock purchased on a speculative basis in 2007.

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Definitions:

Subordination Clauses

Provisions in a contract that determine the ranking of claims in the event of a debtor default, making some debts subordinate to others.

Bond Indentures

A legal and binding agreement that outlines the specific promises made to bondholders, including the terms of the bond, such as its maturity date, timing of interest payments, and method of interest calculation.

Senior Creditors

Creditors who have priority over other creditors for the repayment of debts, typically in the event of a bankruptcy or liquidation.

Yield To Maturity

The total return anticipated on a bond if the bond is held until it matures, considering all interest payments and the principal repayment.