Which of the Following Statements Applying to the Use of the Equity

question 35

Multiple Choice

Which of the following statements applying to the use of the equity method versus the cost method is true?

• A)​A parent company may incur a delay in closing its books while waiting for a subsidiary that it accounts for using the cost method to determine its income.
• B)​If no dividends were paid by the subsidiary, the investment account would have the same balance under both methods.
• C)​The method used has no impact on consolidated financial statements.
• D)​An advantage of the equity method is that no amortization of excess adjustments needs to be made on the consolidated worksheet.

---

Definitions:

Physical Capital

Tangible assets used in the production of goods and services, such as machinery, buildings, and equipment.

Future Goods

Products or services that are not yet manufactured or provided but are planned for future sale.

Inputs

Resources such as labor, materials, and capital that are used in the production process to create goods or services.

Market Rate

The prevailing price determined by supply and demand in the open market for services or commodities.