Asked by Nicole Jamison on Jun 27, 2024
Verified
When an investor owns between 20% and 50% of the common stock of a corporation it is generally presumed that the investor
A) has insignificant influence on the investee and that the cost method should be used to account for the investment.
B) should apply the cost method in accounting for the investment.
C) will prepare consolidated financial statements.
D) has significant influence on the investee and that the equity method should be used to account for the investment.
Significant Influence
The ability of an investor to affect decisions of the investee in which it holds a significant but not controlling interest, typically through ownership of 20% to 50% of voting shares.
Investee
The entity in which an investment is made, usually implying that the investor has significant influence but not full control over it.
Equity Method
An accounting technique used to record investments in associate companies where the investor has significant influence but not full control.
- Decide on the relevant accounting method, be it cost or equity, influenced by the level of ownership and authority.
- Assess the operational and financial factors that influence the method of accounting for stock investments.
Verified Answer
Learning Objectives
- Decide on the relevant accounting method, be it cost or equity, influenced by the level of ownership and authority.
- Assess the operational and financial factors that influence the method of accounting for stock investments.
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