When Is the Equity Method Not Used to Account for a Long-Term

question 40

Multiple Choice

When is the equity method not used to account for a long-term investment in common stock?

• A)When the investment is 30% of the voting stock and significant influence can be achieved.
• B)When the investment is 18% and significant influence can be achieved.
• C)When the investment is greater than 50% of the voting stock and control is achieved.
• D)When the investment is 40% of the voting stock and significant influence can be achieved.

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Definitions:

Single Cash-generating Unit

The smallest identifiable group of assets that generates cash flows independently from other assets or groups of assets within an organization.

Goodwill Impairment

An accounting process where the recorded value of goodwill on a company's balance sheet is reduced due to declines in the fair value of the acquired business units.

Recoverable Amount

It is the greater value between an asset's fair value less costs of disposal and its value in use.

Consolidation Worksheet

A tool used in the process of combining the financial statements of the parent company and its subsidiaries to prepare consolidated financial statements.