When a Company Purchases Less Than 50% of the Equity

question 37

Multiple Choice

When a company purchases less than 50% of the equity securities of another company, which of the following statements is true?

• A)Both companies' financial statements must be combined in consolidation.
• B)The equity method of accounting will be required if the company's investment is at least 20%.
• C)The fair value method of accounting will be used only if the securities are classified as available-for-sale.
• D)The fair value method of accounting will be used only if they are trading securities.

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Definitions:

Kinked Demand Curve Model

A model in economics illustrating how firms in oligopoly markets might maintain stable prices despite changes in cost or demand, due to the asymmetric responses of rivals to price changes.

Price Reduction

A decrease in the selling price of goods or services, often to attract more buyers or respond to market conditions.

Non-OPEC Oil

Crude oil produced by countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC).

World Market

A global marketplace where goods, services, and financial assets are traded across countries.