When Is the Equity Method Used to Account for Long-Term

question 97

Multiple Choice

When is the equity method used to account for long-term investments in stocks?

• A) When the investment is between 20 - 50% of the voting stock, regardless of whether or not significant influence can be achieved.
• B) When the investment is greater than 50% of the voting stock and significant influence can be achieved.
• C) When the investment is between 20 - 50% of the voting stock and significant influence can be achieved.
• D) When the investment is greater than 50% of the voting stock, regardless of whether or not significant influence can be achieved.

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Definitions:

Available-For-Sale Securities

Financial assets that are neither held for trading purposes nor intended to be held to maturity, which can be sold in the short-term.

Trading Securities

Financial instruments bought and held primarily for selling them in the near term to profit from short-term price fluctuations.

Fair Value

An estimate of the market value of an asset or liability, based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

Equity Method

An accounting technique used to record investments in associate companies, reflecting the investor’s share of the investee’s profit or loss.