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

question 31

Multiple Choice

When a public company holds between 20% and 50% of the outstanding common shares 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 circumstances indicate that it is unable to exercise "significant influence" over the investee.
• C) The investor must use the cost method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.
• D) The investor should always use the cost method to account for its investment.

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Definitions:

Ratify

To formally approve or confirm an agreement or treaty, making it officially valid.

Misrepresentation of Age

The act of intentionally providing a false age or date of birth, usually for the purpose of obtaining certain rights or privileges not available to one's true age.

Incompetent Person

Refers to an individual who is legally declared unable to handle their own affairs due to mental incapacity or illness.

Reasonable Value

The fair or market price of goods or services, considered to be a fair compensation in legal contexts.