The Equity Method of Accounting for an Investment in the Common

question 55

Multiple Choice

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

• A) is composed of common stock and it is the investor's intent to vote the common stock.
• 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 stock for stock.

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Definitions:

Current Yield

A financial ratio that shows the annual return (interest or dividends) of an investment as a percentage of its current price.

Semi-Annual

Occurring twice a year; often refers to the payment frequency of bond interest or dividends.

Coupon Bond

A debt security that pays the holder interest payments at predefined intervals until maturity, at which point the principal is repaid.

Ask Price

The lowest price a seller is willing to accept for a security, often used in contrast with the bid price, which is the highest price a buyer is willing to pay.