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:

Salience

The quality of being particularly noticeable or important; prominence.

Demand

The desire and ability of consumers to purchase goods and services at a given price.

Elastic

Describes a situation in economics where the demand for or supply of a good is sensitive to changes in price, meaning a small change in price leads to a significant change in quantity demanded or supplied.

Inelastic

A characteristic of goods whose demand does not change significantly when the price of the good changes.