If 10% of the Ordinary Shares of an Investee Company

question 11

Multiple Choice

If 10% of the ordinary shares of an investee company is purchased as a long-term 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 shares.

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Definitions:

Activity-Based Costing

A cost assignment approach that finds activities in an entity and assigns each activity's expenses to all goods and services based on actual use.

Customer Service

The support and assistance provided by a company to people who buy or use its products or services.

Time-Driven

A model or approach that bases analysis, costing, or scheduling on the amount of time required to perform tasks.

Activity-Based Costing

A technique for allocating costs to products or services based on the resources they consume.