Which Statement Is Correct About Derivative Instruments

question 51

Multiple Choice

Which statement is correct about derivative instruments?

• A)Any contract that entitles the holder to joint interest in an entity after deducting all of its liabilities.
• B)A contract whose value changes according to a specified variable, requires little or no initial investment, and is settled at a future date.
• C)Any contract that gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity.
• D)A contract that gives the holder the residual interest in an entity after deducting all of its liabilities.

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Definitions:

Equity Method

An accounting technique used by a company to record its investment in another company, typically when it has significant influence but does not fully control it, usually through owning 20% to 50% of the voting stock.

Common Stock

Represents ownership shares in a corporation, giving holders voting rights and a share in the company’s profits through dividends.

Goodwill

An intangible asset that represents the excess value paid over the fair market value of an acquired company's net assets.

Equity Method

A financial recording method where investments in other firms are first noted at their purchase price and later modified to reflect the investor's portion of the investee's earnings or losses.