If the Distress Price Is Used as the Transfer Price

question 15

Multiple Choice

If the distress price is used as the transfer price, ________.

• A) the selling division will show a loss because the distress price will not exceed the full cost of the division
• B) the buying division will show a loss because the distress price will not exceed the full cost of the division
• C) the selling division will show a loss because the distress price will exceed the full cost of the division
• D) the buying division will show a loss because the distress price will exceed the full cost of the division

---

Definitions:

Net Income

Net income is the total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue, indicating the company's profitability.

Carrying Amount

The net value of an asset or liability according to a company's balance sheet.

Supplies Used

Expenses related to consumable items used in the operation of a business.

Supplies Account

An account used to track the cost of supplies not immediately consumed by the business, often classified as a current asset.