Which of the Following Statements Is Correct with Respect to Set-Off

question 32

Multiple Choice

Which of the following statements is correct with respect to set-off of assets and liabilities?

• A) An entity will apply set-off to reduce the number of elements reported in the financial statements.
• B) An entity will apply set-off to avoid violation of debt covenants in debt contracts.
• C) Positive accounting theory predicts the likelihood that managers will apply set-off to increase profits.
• D) Positive accounting theory predicts the likelihood that managers will apply set-off to reduce political costs.
• E) None of the given answers.

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Definitions:

Market System

(1) An economic system in which individuals own most economic resources and in which markets and prices serve as the dominant coordinating mechanism used to allocate those resources; capitalism. Compare with command system. (2) All the product and resource markets of a market economy and the relationships among them.

Retained Earnings

Profits that a company keeps after dividends are paid out to shareholders, often used for reinvestment in the business or to pay off debt.

Funding of R&D

The financial investment allocated towards research and development activities in order to innovate, enhance product quality, or create new products.

Established Corporations

Large, well-known companies that have been in existence for a considerable amount of time, typically characterized by strong brand recognition and financial stability.