A Company That Acquires Less Than 20% Ownership Interest in Another

question 31

Multiple Choice

A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

• A) the cost method.
• B) the equity method.
• C) the significant method.
• D) consolidated financial statements.

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Definitions:

Activity-Based Costing

A method of accounting in which costs are assigned to products or services based on the resources they consume.

Direct Labor-Hours

The collective work hours of personnel directly part of the production workflow.

Direct Materials Cost

The cost of raw materials directly involved in the production of goods, easily traceable to specific products.

Activity-Based Costing

An approach in cost calculation that pinpoints various activities in a company and apportions the expenses of these activities to products and services, reflective of their actual utilization levels.