Assume That for Company X,the Opening Residual Equity Was $30

question 22

Multiple Choice

Assume that for Company X,the opening residual equity was $30 000 000 and the price index increased from 150 to 175.The capital maintenance adjustment would be calculated and classified as:

• A) Calculation: $30 000 000 × 25/150 = $5 000 000 and classified as an income
• B) Calculation: $30 000 000 × 25/175 = $4 285 714 and classified as an income
• C) Calculation: $30 000 000 × 25/150 = $5 000 000 and classified as an expense
• D) Calculation: $30 000 000 × 25/175 = $4 285 714 and classified as an expense

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Definitions:

Prepayment Penalty Clause

A provision in a contract that imposes a penalty on a borrower for paying off a loan before its maturity date.

Mortgage Loan

A mortgage is a loan that is secured by tangible real estate property, evidenced through a mortgage note that demonstrates both the loan's existence and the property's lien.

Penalty

A sum inserted into a contract not as a measure of compensation for its breach but rather as punishment for a default. The agreement as to the amount will not be enforced, and recovery will be limited to actual damages.

Lien

A legal right or claim against a property by a creditor to secure the payment of a debt or obligation.