The Cost Method of Accounting for Investments in Stock Should

question 71

Multiple Choice

The cost method of accounting for investments in stock should be employed when the

• A) investor owns more than 50% of the investee's stock.
• B) investor has significant influence on the investee and the stock held by the investor are marketable equity securities.
• C) market value of the shares held is greater than their historical cost.
• D) investor's influence on the investee is insignificant.

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Definitions:

Operating Cost

Expenses associated with the day-to-day functioning of a business, such as rent, utilities, and salaries.

Subway Fares

The charges or fees paid by passengers for using the subway system for transportation.

Patent Laws

Legal statutes that protect inventors by giving them exclusive rights to produce, use, and sell their inventions for a certain period of time.

Monopoly Rights

Exclusive rights granted to a single entity, allowing it to be the sole provider of a good or service without competition.