If the Equity Method Is Used to Account for an Investment

question 85

Multiple Choice

If the equity method is used to account for an investment in common shares

• A)it is presumed that the investor has no significant influence on the investee.
• B)profits of the investee are ignored by the investor.
• C)profits of the investee are recorded as realized gains, but dividends received are credited to the investment account.
• D)the investment account may be at times greater than the acquisition cost.

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Definitions:

Consideration

Something of value exchanged between parties in a contract, making the agreement binding and legally enforceable.

Authorized

Having official permission or approval.

Principal

The amount of money originally invested or loaned, upon which interest is calculated, or in agency relationships, the person who empowers an agent to act on their behalf.

Gratuitous Agent

An agent who acts on behalf of another without receiving any compensation for their services.