When a Company Holds Between 20% and 50% of the Outstanding

question 28

Multiple Choice

When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?

• A) The investor should always use the equity method to account for its investment.
• B) The investor should use the equity method to account for its investment unless circum-stances indicate that it is unable to exercise "significant influence" over the investee.
• C) The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.
• D) The investor should always use the fair value method to account for its investment.

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Definitions:

Managers

Individuals who plan, organize, direct, and control resources, including human, financial, and information, to achieve organizational goals.

Contingencies of Reinforcement

The conditions or situations that determine the consequences of a behavior, which can either encourage or discourage the recurrence of that behavior.

Reward

Something given in exchange for good behavior or achieved objectives, used as a form of motivation.

Employees

Individuals who are hired to perform specific duties or services for an employer in return for payment.