In the Case of an Insurance Policy,________ Occurs When the Existence

question 81

Multiple Choice

In the case of an insurance policy,________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff.

• A) moral hazard
• B) opportunism
• C) adverse selection
• D) shirking

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Definitions:

Unrealized Profit

Profits that have been earned but not yet realized through a transaction, often related to investments that have increased in value but have not been sold.

Consolidation Purposes

The process of combining financial statements of separate business entities within a group for reporting as one entity.

Unrelated Party

A party or entity that does not have a familial, business, or financial relationship with another party, ensuring transactions are conducted at arm's length.

Straight-Line Method

A method of calculating depreciation of an asset whereby the cost is evenly distributed over its useful life, resulting in a constant annual depreciation expense.