Combining REA Diagrams for Individual Transaction Cycles into a Single,enterprise-Wide

question 57

Multiple Choice

Combining REA diagrams for individual transaction cycles into a single,enterprise-wide model adds two more rules to the three basic principles for drawing REA diagrams.Which of the following is not one of those two new rules?

• A) Every resource must be linked to at least one event that increments that resource and to at least one event that decrements that resource.
• B) If a specific event can be linked to more than one other type of event, but cannot be linked simultaneously to all of those other events, then the minimum cardinality between that event and every other event with which it may be associated must be 0.
• C) If a specific event can be linked to more than one other type of event, but cannot be linked simultaneously to all of those other events, then the maximum cardinality between that event and every other event with which it may be associated must be 0.
• D) All of the above are new rules for drawing integrated REA diagrams.

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Definitions:

Loss Contingencies

Potential losses that a company might incur if a certain event occurs, recognized in financial statements if the loss is probable and the amount can be reasonably estimated.

Indirect Guarantees

Guarantees provided by a third party to ensure the fulfillment of a contractual obligation indirectly, such as through a subsidiary or parent company.

Warranty Accrual Method

An accounting method used to estimate the future costs of warranties and allocate them to the period in which the related revenue is recognized.

Warranty Expense

Represents the cost that a company expects to incur under its warranty obligations to repair or replace products that it has sold.