The Equity Method of Accounting for an Investment in the Ordinary

question 218

Multiple Choice

The equity method of accounting for an investment in the ordinary shares of another company should be used by the investor when the investment

• A) is composed of ordinary shares and it is the investor's intent to vote the ordinary shares.
• B) ensures a source of supply of raw materials for the investor.
• C) enables the investor to exercise significant influence over the investee.
• D) is obtained by an exchange of shares for shares.

Understand and identify various costs associated with long-lived assets.

Differentiate between types of long-lived assets including tangible and intangible assets.

Classify expenditures related to assets correctly as capital or revenue expenditures.

Analyze and record expenditures associated with acquiring and improving long-lived assets.

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Definitions:

Accounts Receivable

Money owed to a business by its customers for goods or services delivered on credit.

Compensating Balance

A minimum balance that must be maintained in a bank account, often required by banks in return for loans or as part of a service agreement.

Effective Interest Rate

The actual interest rate on a loan or investment, taking into account the effect of compounding, fees, and other factors, more accurately reflecting the true cost or yield than the nominal rate.

Quoted Interest Rate

The interest rate that a lender provides to a borrower, usually expressed as an annual percentage of the loan amount.