If the Cost Method Is Used to Account for an Investment

question 16

Multiple Choice

If the cost method is used to account for an investment in common stock

• A) it is presumed that the investor has significant influence on the investee.
• B) the earning of net income by the investee is considered a proper basis for recognition of income by the investor.
• C) net income of the investee is not considered earned by the investor until dividends are declared by the investee.
• D) the investment account may be at times greater than the acquisition cost.

Determine the correctness of mathematical statements involving algebra.

Understand the concept of secured transactions and the formation of a security interest.

Recognize the types of collateral and goods involved in secured transactions.

Distinguish between attachment and perfection of a security interest.

---

Definitions:

Debts Owed

Amounts of money that are required to be repaid by an individual or organization to creditors.

Drawing Account

A specific account used to record amounts withdrawn by the owner(s) of a business for personal use.

Withdrawals

Amounts taken from a business by its owner(s) for personal use.

Expenses

Costs incurred by a business in the process of earning revenue.