A Company Failed to Record Unrealized Gains of $20 Million

question 88

Multiple Choice

A company failed to record unrealized gains of $20 million on its trading security investments.Its tax rate is 30%.As a result of this error,total shareholders' equity would be:

• A)Understated by $14 million.
• B)Understated by $7 million.
• C)Understated by $20 million
• D)Unaffected.

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Definitions:

Estate in Land

A legal interest or right in a property, determining the duration and nature of ownership.

Fee Simple

A legal term referring to the most extensive ownership interest in land that one can possess, which is unlimited in duration, inheritable, and not subject to any restrictions.

Joint Tenants

Joint tenants are co-owners of property who share equal rights to the entire property and have a right of survivorship, meaning when one dies, the other automatically inherits the entire property.

Life Estate

A legal arrangement where an individual is given the right to use and benefit from property for the duration of their life, after which the property reverts to another designated party.