Under GAAP, the Equity Method of Accounting for Long-Term Investments

question 57

Multiple Choice

Under GAAP, the equity method of accounting for long-term investments in ordinary shares should be used when the investor or has significant influence over an investee and owns

• A) less than 20% of the investee's ordinary shares.
• B) more than 50% of the investee's ordinary shares.
• C) 30% or more the investee's ordinary shares.
• D) between 20% and 50% of the investee's ordinary shares.

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Definitions:

Loanable Funds

The funds available in the financial markets for lending and borrowing.

Equilibrium Quantity

The quantity of goods or services supplied that is exactly equal to the quantity demanded at the market's equilibrium price.

Social Insurance

Programs designed to provide protection against economic risks (such as unemployment, disability, or old age) largely based on contributions that reflect a person's earnings.

Loanable Funds

The pool of money available for borrowing in the financial markets, governed by interest rates, which balance the supply of savers and the demand by borrowers.