The Available-For-Sale Method of Accounting for Long-Term Investments in Stock

question 118

Multiple Choice

The available-for-sale method of accounting for long-term investments in stock should be used when the:

• A)investor owns less than 20% of the outstanding stock of the investee.
• B)investor has significant influence over the investee's operating decisions and policies.
• C)investor has little or no influence on the investee.
• D)A and C.

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Definitions:

Crossover Point

The point at which two or more alternative investments have the same net present value or rate of return.

Negatively Correlated Projects

Investments whose returns move in opposite directions, where the success of one is associated with the failure of another.

Independent Projects

Projects within a financial or business context that do not affect each other's outcomes or viability.

Multiple IRR Projects

Investment projects that, due to their cash flow structure, yield more than one internal rate of return, complicating the investment decision.