In Order to Use the Cost Method of Accounting for Stock

question 138

Multiple Choice

In order to use the cost method of accounting for stock investments, how much stock must the investor own?

• A) Less than 20%.
• B) More than 50%.
• C) Between 20% and 50%.
• D) The cost method is always used for stock investments of any size.

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Definitions:

Normal Return

The minimum profit necessary for a company to remain in business, often equated to covering opportunity costs.

Total Fixed Costs

The sum of all costs required to produce any output, assuming they remain constant regardless of the level of production.

Fixed Costs

are expenses that do not change in response to the level of goods or services produced by a business, like rent or salaries.

Variable Costs

Expenses that change in proportion to the production or sales figures.