Question

Which of the following is not a related party transaction? a) Acme Corporation leases office space to Norton Company. Mr. and Mrs. Norton own Norton Company and 65% of Acme Corporation's stock. b) BBD Inc. licenses a patent from Nugo Inc., which owns 82% of BBD's outstanding stock. c) Beth Teal pays $15,000 a year to her gardener, Ben. Beth is Ben's grandmother. d) All the transactions are between related parties.

Answer 1

Answer:

c) Beth Teal pays $15,000 a year to her gardener, Ben. Beth is Ben's grandmother.

Explanation:

A related party transaction is any business transaction that takes place between entities that share some type of common interest, e.g. a parent company leasing a factory to one of its subsidiaries. They are legal, but the potential for conflicts of interest exist. Following the example, if the lease price is higher than fair market price, then the transaction could be considered fraudulent. The SEC requires that publicly traded corporations disclose all related party transactions.