Any Relationship in Which One Party, the Principal, Considers Entering

question 26

Multiple Choice

Any relationship in which one party, the principal, considers entering into a contractual agreement with another, the agent, expresses the principal-agent model.Regardless of the reason for relying on an agent, the principal faces what two problems?

• A)Influence activities and the problem of vertical expansion
• B)Design decisions and pricing decisions
• C)Sunk costs and skimming
• D)Adverse selection and moral hazard
• E)Externalities and competitive bidding

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Definitions:

Available-for-Sale Securities

Financial assets such as stocks or bonds that are bought and held primarily for sale in the near term to generate income on short-term price differences.

Trading Securities

Short-term investments in debt or equity securities that a company intends to sell within a short period to generate profits on short-term price differences.

Comprehensive Income

Total non-owner changes in equity for a reporting period, which includes all recognized income and expenses, including those not included in the net income.

Unrealized Gain

The increase in value of an asset or investment that has not yet been sold for cash, and thus, the gain is not yet realized.