When an Investor Owns Between 20% and 50% of the Common

question 104

Multiple Choice

When an investor owns between 20% and 50% of the common stock of a corporation it is generally presumed that the investor

• A) has insignificant influence on the investee and that the cost method should be used to account for the investment.
• B) should apply the cost method in accounting for the investment.
• C) will prepare consolidated financial statements.
• D) has significant influence on the investee and that the equity method should be used to account for the investment.

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Definitions:

Wholesaler

A person or entity that buys goods in large quantities from manufacturers or importers and sells them to retailers or other businesses.

Mark-Up

The percentage or fixed amount added to the cost of goods to determine the selling price.

Operating Profit

Revenue obtained through a company's principal business activities, before subtracting interest and taxes.

Invoice

A paper provided by the seller to the purchaser, listing the items, amounts, and confirmed pricing for goods or services rendered by the seller.