For Accounting Purposes, the Method Used to Account for Investments

question 156

Multiple Choice

For accounting purposes, the method used to account for investments in common stock is determined by

• A) the amount paid for the stock by the investor.
• B) the extent of an investor's influence over the operating and financial affairs of the investee.
• C) whether the stock has paid dividends in past years.
• D) whether the acquisition of the stock by the investor was "friendly" or "hostile."

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Definitions:

Expenses Account

An account where business expenses are recorded, showing the money spent on operations and services.

Understated

Describing financial figures that are reported to be less than the actual or accurate amounts.

Business Transaction

An economic event that involves the exchange of goods, services, money, or assets between two or more parties that is recorded and has a financial impact.

Sequence

A specific order in which related events, movements, or things follow each other.