Which one of the following statements is TRUE?
A) An example of an agency relationship is when a private individual hires a lawyer to prepare her defense in a lawsuit.
B) An example of an agency relationship is when a supervisor hires a forklift operator.
C) The supervisor-employee relation between a production line supervisor and a production line operator is an example of an agency relationship.
D) An agency cost is the wage required to pay someone who is hired to perform a service.
E) An example of an agency cost is when the board of directors pays a dividend to shareholders.

Question

Quizplus · Accepted Answer

An agency relationship exists when one party (the principal) hires another party (the agent) to act on their behalf. Option A is the only example of an agency relationship listed, where the private individual hires a lawyer to act as their agent and prepare their defense in a lawsuit. Option B describes an employment relationship, not an agency relationship. Option C also describes an employment relationship, but not necessarily an agency relationship. Option D is a definition of a wage, not an agency cost. Option E describes a dividend payment, which is not an example of an agency cost.

Which One of the Following Statements Is TRUE