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Ch8 Solutions - 1C hapter 8 8-25 a(3 b(3 c(4 d(1 8-26 a(1...

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1 C hapter 8 8-25 a.(3) b.(3) c.(4) d. (1) 8-26 a.(1) b.(4) c.(4) 8-27 a.(4) b.(1) c.(2) d.(4) 8-29 a. A related party transaction occurs when one party to a transaction has the ability to impose contract terms that would not have occurred if the parties had been unrelated. FASB 57 concludes that related parties consist of all affiliates of an enterprise, including (1) its management and their immediate families, (2) its principal owners and their immediate families, (3) investments accounted for by the equity method, (4) beneficial employee trusts that are managed by the management of the enterprise, and (5) any party that may, or does, deal with the enterprise and has ownership, control, or significant influence over the management or operating policies of another party to the extent that an arm’s-length transaction may not be achieved. When related party transactions or balances are material, the following disclosures are required: 1. The nature of the relationship or relationships. 2. A description of the transaction for the period reported on, including amounts if any, and such other information deemed necessary to obtain an understanding of the effect on the financial statements. 3. The dollar volume of transactions and the effects of any change in the method of establishing terms from those used in the preceding period. 4. Amounts due from or to related parties, and if not otherwise apparent, the terms and manner of settlement. b. Financial statements are used by people to make decisions about
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the future. Related party transactions can be conducted on a basis other than that which would normally happen with independent parties. That may indicate that these transactions may be on more or less favorable terms than can be expected to occur in the future. These transactions may affect users’ decisions about a company, and therefore are relevant for their decision making. c. The most important related parties that are likely to be involved in related party transactions involving management include relatives of management or management itself, companies in which such related parties have financial interests or dealings, significant suppliers of materials and services, and customers.
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