Transactions Between Related Parties Should Be of Special Interest to Users

question 8

Multiple Choice

Transactions between related parties should be of special interest to users of financial information for which of the following reasons?

• A) Income tax liabilities may be illegitimately or artificially lowered
• B) Senior executives' personal friends may be favoured unduly
• C) Profit amounts or asset values may be inflated
• D) All of the above

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Definitions:

Net Income

The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue, indicating the company's profitability.

Prepaid Insurance

An asset account that represents the amount of insurance premiums paid in advance for coverage that extends beyond the current accounting period.

Consulting Revenue

Income earned by a business or individual for providing expert advice or consultancy services in their field of expertise.

Rent Expense

An expenditure recorded by a company for the use of rental property or equipment.