Asked by Heidi Canaveral on Jun 29, 2024
Verified
If an investor owns less than 20% of the common stock of another corporation as a long-term investment
A) the equity method of accounting for the investment should be employed.
B) no dividends can be expected.
C) it is presumed that the investor has relatively little influence on the investee.
D) it is presumed that the investor has significant influence on the investee.
Common Stock
A type of equity security that represents ownership in a corporation, entitling holders to vote on corporate matters and receive dividends.
Long-term Investment
Investments held by an entity for an extended period, typically more than one year, such as bonds, stocks, or real estate.
- Examine the operational and fiscal aspects that determine the accounting procedures for equity investments.
Verified Answer
NM
Nadie Mc CarthyJul 01, 2024
Final Answer :
C
Explanation :
When an investor owns less than 20% of the common stock of another corporation as a long-term investment, it is presumed that the investor has relatively little influence on the investee. As a result, the equity method of accounting for the investment should not be employed, and no dividends can be expected. If an investor owns between 20% and 50% of the common stock of another corporation, the equity method of accounting should be employed, and it is presumed that the investor has significant influence on the investee. If an investor owns more than 50% of the common stock of another corporation, consolidation accounting should be employed, and it is presumed that the investor has control over the investee.
Learning Objectives
- Examine the operational and fiscal aspects that determine the accounting procedures for equity investments.