LFM Owned 40 Percent of EMD's Common Stock, and as a Result

question 3

Multiple Choice

LFM owned 40 percent of EMD's common stock, and as a result, accounted for the investment using the equity method. After the fifth year of owning the stock, the investment account had a credit balance. This could only happen if LFM

• A) recorded net losses that were more than the net income.
• B) distributed dividends in excess of the accumulated earnings.
• C) had accumulated income that was less than the additional depreciation that LFM recorded as a result of purchasing the stock when market value of the assets was in excess of book value.
• D) experienced any, or a combination, of the conditions described in the three other responses.

---

Definitions:

Price Elastic

A term possibly intending to describe price elasticity, which measures how much the quantity demanded of a good responds to a change in its price.

Sketchers Go Walk

A line of comfortable walking shoes produced by Skechers, designed to provide a high level of comfort and support for everyday use.

Demand For Shoes

The total amount of shoes that consumers are willing and able to purchase at various prices during a given period.

Perfect Competition

A market structure characterized by a large number of small firms, a homogeneous product, free entry and exit, and perfect information, leading to firms being price takers.