In Reference to Intercompany Transactions Between an Investor and an Investee,when

question 41

Multiple Choice

In reference to intercompany transactions between an investor and an investee,when the investor can significantly influence the investee,which of the following statements is correct,assuming that the investor is using the equity method?

• A)There is the presumption of arms-length bargaining between the related parties.
• B)As long as the investor recognizes the effects of the transaction in its financial statements,it is not required to provide any additional disclosures.
• C)In reporting its share of earnings and losses of an investee,the investor must eliminate the effect of profits and losses on the intercompany transactions until they are realized.
• D)None of the above is correct.

---

Definitions:

Barriers to Entry

Obstacles that make it difficult for new firms to enter a market, such as high startup costs or stringent regulations.

X-inefficiency

The production of output, whatever its level, at a higher average (and total) cost than is necessary for producing that level of output.

Price-Discriminated

A pricing strategy where a seller charges different prices for the same product or service to different buyers, based on factors like demand, market conditions, or buyer characteristics.

Pure Monopolist

A market scenario where a single firm is the sole provider of a product or service, facing no competition.