Touch Tronix, Inc

question 111

Multiple Choice

Touch Tronix, Inc.sells component parts to Advanced Communications, Inc.a cell phone manufacturer.During December 2011, Touch Tronix, Inc.sold €680,000 of goods to Advanced Communications, Inc.on account for €880,000.Advanced Communications, Inc.was dissatisfied with 25% of the merchandise it received due to inferior quality.On December 21, 2011, Advanced Communications, Inc.returns the goods to Touch Tronix, Inc.for credit.Which of the following is true regarding the statement of financial position for Advanced Communications, Inc.at December 31, 2011?

• A)Assets will increase by €170,000 and liabilities will increase by €170,000.
• B)Assets will decrease by €170,000 and liabilities will decrease by €170,000.
• C)Assets will decrease by €220,000 and liabilities will decrease by €220,000.
• D)Assets will increase by €220,000 and liabilities will increase by €220,000.

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Definitions:

Principal-Agent Problem

A dilemma arising from a conflict of interest between a principal (someone who entrusts a task) and an agent (the one performing the task), where the agent may not act in the best interest of the principal.

Behavioral Asymmetry

A situation in economic or psychological contexts where individuals or entities exhibit uneven or unequal behavioral responses under similar circumstances.

Economics

The study of how society manages its scarce resources.

Signaling

An action taken by an informed party to reveal private information to an uninformed party.