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Aries1
Contributor

Joined: 11 Jun 2009
Online Status: Offline
Posts: 83

Posted: 03 May 2012 at 11:44 \| IP Logged

Becaker A4 question:

which of the following events most likely would indicate
existence of related parties:

correct answer: selling real estate at a price
significantly lower than appraised value

wrong answer: granting stock options to key
executives at favorable prices.

why is the second option wrong.to me both seem like
related party issues.can someone please explain this
thanks

megan66
Newbie
Newbie

Joined: 21 Dec 2011
Online Status: Offline
Posts: 27

Posted: 07 May 2012 at 16:42 \| IP Logged

Stock options is normally an award or compensation issued
from the company to employees. It should be favorable to
employees. If a company grants stock options to key
executives at favorable prices, it is considered a normal
business transaction, nothing illegal. However, the real
estate should not be sold SIGNIFICANTLY lower. If it is
SIGNIFICANTLY lower, it is not an arm-length transaction,
which means it could be a related party transaction. You
can see the correct answer here emphasis on the work
"significantly", it indicates it's very different, not
normal.

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