A Related Party Transaction May Be Indicated When Another Company

question 105

Multiple Choice

A related party transaction may be indicated when another company

• A)subsidizes certain operating expenses of the company.
• B)purchases its securities at their fair value.
• C)loans to company at market rates.
• D)has had a distributor relationship with the company for 10 years.

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Definitions:

Absorption Costing

A method of costing that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Variable Costing

An accounting method that includes only variable costs - costs that change with production levels - in product cost calculations.

Net Operating Income

It refers to the profit generated from a company's ordinary, core business operations after subtracting operating expenses from operating revenues.

First Year

The initial year of operation, production, or accounting period.