When an Investor Purchases Sufficient Common Stock to Gain Significant

question 43

Multiple Choice

When an investor purchases sufficient common stock to gain significant influence over the investee,what is the proper accounting treatment of any excess of cost over book value acquired?

• A) The excess remains in the asset account until the investment is sold.
• B) The excess is immediately charged to expense in the period in which the investment is made.
• C) The excess is amortized over the period of time that is reasonable in light of the underlying cause of the excess.
• D) The excess is charged to retained earnings at the time the investor resells the common stock.

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Definitions:

Equilibrium

A market scenario where demand and supply are balanced, resulting in steady prices.

High Quality

Describes products or services that meet or exceed customer expectations, characterized by superior craftsmanship, durability, and performance.

Low Quality

Indicates products or services that do not meet the expected standards or performance criteria.

Equilibrium

A state in economics where supply equals demand, leading to a stable market condition.