When a Company Holds Between 20% and 50% of the Outstanding

question 13

Multiple Choice

When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?

• A) The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee
• B) The investor should always use the equity method to account for its investment
• C) The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee
• D) The investor should always use the fair value method to account for its investment

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Definitions:

Centralisation

The process of concentrating decision-making authority at higher levels of an organization, leading to centralized control.

Service Level Agreements

Formal contracts between service providers and customers that define the level of service expected from the provider.

Corporate Objectives

The defined goals and intentions of a corporation, aimed at guiding its overall direction and strategy for achieving success and growth.

Internal Customers

Individuals or departments within an organization that receive products or services from other parts of the company.