The Auditor Determines That Mathews Company Occupies the 3^rd Floor

question 96

Multiple Choice

The auditor determines that Mathews Company occupies the 3^rd 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) 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:

Consolidated Balance Sheet

A financial statement that presents the assets, liabilities, and shareholders' equity of a parent company and its subsidiaries as a single entity.

Minority Shareholders

Shareholders who own less than 50% of a company's shares, often having limited control or influence over company decisions.

Intra-Entity Receivables

Amounts owed to a company by its own subsidiaries or divisions, representing internal transactions within a single entity.

Owned Subsidiary

A company whose majority shares or all are held by another company, making it a controlled entity within a larger corporate structure.