Which of the Following Statements Is Incorrect

question 172

Multiple Choice

Which of the following statements is incorrect?

• A) If the investor has significant influence over the investee, the investor must use the equity method of accounting for the investment.
• B) If the investor has control over the investee, financial statements for the two companies must be consolidated.
• C) If the investor has no significant influence over the investee, and can readily determine the fair value of the investment, the investor should report the investment at fair value.
• D) If the investor has no significant influence over the investee company, and the investment has no readily determinable fair value, the investment is reported at cost with unrealized gains and losses reported as part of other comprehensive income.

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Definitions:

Probability

A measure of how likely it is for an event to occur, expressed as a number between 0 and 1, with 1 indicating certainty.

Investments

Assets or items acquired with the goal of generating income or appreciation in value over time.

Risk-averse

Describes individuals or entities that prefer to avoid risk and would rather choose an option with a certain outcome over one with potentially higher but uncertain returns.

Chance

The occurrence of events in the absence of any predictable pattern or cause, associated with the concepts of probability and randomness.