Asked by Changhao Zhang on Jun 15, 2024
Verified
If a company acquires a 40% interest in another company
A) the equity method is usually applicable.
B) it would always have a controlling interest.
C) one of the fair value models is usually applicable.
D) the investor does not have the ability to exert significant influence over the investee.
Equity Method
An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and subsequently adjusted to reflect the investor's share of the investee's profit or loss.
Controlling Interest
Ownership of a sufficient portion of a company's stock to influence or control its management and operations.
- Acquire knowledge on the distinctions among investment types and the guidelines for the utilization of the equity method.
- Recognize the criteria for consolidated financial statements and the concept of subsidiary in investment accounting.
Verified Answer
IS
Ibtissam SanjarJun 15, 2024
Final Answer :
A
Explanation :
The equity method is usually applicable when a company acquires a significant but not controlling interest (20%-50%) in another company, allowing it to exert significant influence over the investee without having control.
Learning Objectives
- Acquire knowledge on the distinctions among investment types and the guidelines for the utilization of the equity method.
- Recognize the criteria for consolidated financial statements and the concept of subsidiary in investment accounting.
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