The Assumption of Arm's-Length Transaction States That

question 21

Multiple Choice

The assumption of arm's-length transaction states that:

• A) both parties to a transaction can act independently of each other and make economically rational decisions.
• B) both parties to a transaction must have had previous transactions.
• C) one of the parties to the transaction is a bank that has full knowledge of the company's creditworthiness.
• D) none of the above

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Definitions:

Services Provided

The activities or functions performed by a business or organization for the benefit of its customers, which do not result in the ownership of a physical product.

Biweekly Salaries

Payments made to employees every two weeks, totaling 26 pay periods in a year.

Fiscal Period

A specific time frame used for financial reporting and budgeting, often synonymous with a fiscal year, but can refer to any defined accounting period.

Adjusting Entry

An entry made in the accounting journals at the end of an accounting period to allocate income and expenditure to the appropriate period.