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:

Outstanding Shares

Stocks that a corporation has distributed and are currently owned by investors, encompassing both members of the general public and internal stakeholders of the company.

Net Income

The company's net income following the deduction of all costs, taxes, and losses.

Accrued Interest

The interest on a bond or loan that has accumulated since the principal investment, or since the previous interest payment if there has been one already.

Brokerage Fees

Charges imposed by a broker for acting as the intermediary in facilitating transactions, such as buying or selling securities.