The Auditor Determines That Matthews Company Occupies the 3rd Floor

question 50

Multiple Choice

The auditor determines that Matthews Company occupies the 3rd floor of an office tower for which it pays no rent. The most likely explanation is

• A) they got lucky the landlord hasn't noticed the lack of payments.
• B) the landlord has weak internal controls over billings.
• C) a related party transaction in which a major shareholder owns the office tower.
• D) Matthews Company is engaging in fraudulent activities.

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Definitions:

Corporation

A legal entity that is separate from its owners, providing them with limited liability protection, and has the ability to own assets, incur liabilities, and sell stock.

Repurchased

Refers to the act of a company buying back its own shares from the marketplace, which can affect the company's stock price and earnings per share.

Treasury Stock

Shares that were issued by a company and have been repurchased from the market, but not retired.

Stockholders' Equity

The owners' claim on the company's assets, calculated as the company's total assets minus its total liabilities; also known as shareholders' equity.