When Should a Company Use the Equity Method to Account

question 38

Multiple Choice

When should a company use the equity method to account for an investment in another company's common stock?

• A) The investor intends to hold the common stock for an indefinite period.
• B) The investor has voting control over the investee.
• C) The investor exerts significant influence over the investee.
• D) The investor exerts managerial control over the investee.

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Definitions:

Depreciation Expense

The allocated portion of the cost of a fixed asset that is written off each year over the asset's useful life.

Straight-line Method

A method of allocating the cost of a tangible asset over its useful life in equal annual amounts.

Salvage Value

The projected remaining worth of an asset upon reaching the end of its serviceable duration.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting its decrease in value over time.