Which of the Following Statements Applying to the Use of the Equity

question 7

Multiple Choice

Which of the following statements applying to the use of the equity method versus the cost method is true?

• A) The equity method is required when one firm owns 20% or more of the common stock of another firm.
• B) If no dividends were paid by the subsidiary, the investment account would have the same balance under both methods.
• C) The method used has no significance to consolidated statements.
• D) An advantage of the equity method is that no amortization of excess adjustments needs to be made on the consolidated worksheet.

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Definitions:

Materials Cost

The total expense to an entity for all materials used in the production of a product or service.

Break-even Chart

A graphical representation used in financial analysis to show the point at which total costs and total revenue are exactly equal; thus, there is no loss or gain.

Break-even Point

The financial state where total costs and total revenues are equal, meaning there is no net loss or gain, and one has "broken even."

Break-even Chart

A graphical representation showing the relationship between total costs and total revenue at various levels of output, pinpointing where no profit or loss occurs.