If 10% of the Common Stock of an Investee Company

question 58

Multiple Choice

If 10% of the common stock of an investee company is purchased as an investment, the appropriate method of accounting for the investment is

• A) the cost method.
• B) the equity method.
• C) the preparation of consolidated financial statements.
• D) determined by agreement with whomever owns the remaining 90% of the stock.

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Definitions:

Truth-in-Savings Act

A U.S. federal law designed to promote the disclosure of account terms and fees to consumers, particularly regarding savings accounts and interest-earning bank accounts.

Information

A document, prepared by the prosecutor and presented to the magistrate, which demonstrates that there is enough evidence to charge the defendant and bring him or her to trial.

Accounts

Records or statements of financial transactions, reflecting the financial activities of a person or organization.

Negotiable

A term describing an instrument, such as a check or bill of exchange, that can be transferred from one person to another in a manner that the holder in due course acquires a good title.