When Is the Equity Method Used to Account for Long-Term

question 23

Multiple Choice

When is the equity method used to account for long-term investments in stocks?

• A) When the investment is between 20 - 50% of the voting stock, whether or not significant influence can be achieved.
• B) When the investment is greater than 50% of the voting stock, whether or not significant influence can be achieved.
• C) When the investment is greater than 50% of the voting stock and significant influence can be achieved.
• D) When the investment is between 20 - 50% of the voting stock and significant influence can be achieved.

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Definitions:

Straight-Line Depreciation

A process for breaking down the expenditure of a solid asset throughout its useful life in identical yearly quotas.

Discount Factor

A multiplier used to determine the present value of future cash flows by accounting for time and interest.

Capital Budgeting

It refers to the process by which companies evaluate and select major investment projects, considering their potential long-term profitability.

After-Tax Discount Rate

The rate of return on an investment after accounting for taxes.