When an Investor Appropriately Applies the Equity Method, How Should

question 66

Multiple Choice

When an investor appropriately applies the equity method, how should it account for any investee Other Comprehensive Income (OCI) ?

• A) Under the equity method, the investor only recognizes its share of investee's income from continuing operations.
• B) The OCI would reduce the investment.
• C) The OCI would increase the investment.
• D) The OCI would not appear on the investor's income statement but would be a component of comprehensive income.
• E) The OCI would be ignored but shown in the investor's notes to the financial statements.

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Definitions:

Stock Acquisition

The purchase of enough of the voting stock of a corporation to allow the buyer to control the corporation. Also called takeover.

Merger

The combination of two or more companies into one, where one corporation is completely absorbed by another corporation.

Consolidation

The joining of two corporations.

Securities

Financial instruments that signify ownership in a public company (stocks), a creditor relationship with a governmental body or a corporation (bonds), or rights to ownership as represented by an option.