Income-Smoothing Has Been Applied to a German Subsidiary of Company

question 30

Multiple Choice

Income-smoothing has been applied to a German subsidiary of Company Inc, as it had an abnormally high operating income last year. Which of the following would the accountants working for the subsidiary likely have done?

• A) Debited an expense account and credited an equity account.
• B) Credited an expense account and debited an equity account.
• C) Credited an expense account and debited a provision account appearing under the liabilities section.
• D) Debited an expense account and credited a provision account appearing under the liabilities section.

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Definitions:

Gallbladder

A small organ that stores bile produced by the liver, releasing it into the small intestine to aid in the digestion of fats.

Bicarbonate

A negatively charged ion (HCO3-) that is a form of carbon dioxide in solution, playing a vital role in the buffering of blood pH.

Pancreas

The pancreas is an organ involved in digestion and blood sugar regulation, producing digestive enzymes and insulin, respectively.

Duodenum

The first section of the small intestine immediately beyond the stomach, where the majority of chemical digestion takes place.