What Method of Accounting Will Generally Be Used When One

question 31

Multiple Choice

What method of accounting will generally be used when one company purchases between 20% to 50% of the outstanding stock of another company?

• A)Only the fair value method may be used.
• B)Only the equity method may be used.
• C)Either the fair value method or the equity method may be used,depending upon the relationship between the companies.
• D)Neither the fair value method nor the equity method may be used,regardless of the level of ownership.

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Definitions:

Market Price

The current price at which an asset or service can be bought or sold in the open market.

Common Resource

A resource like air or water that is non-excludable and rivalrous, meaning it's impossible to prevent anyone from using it, but one person's use diminishes another person's ability to use it.

Nonexcludable

A nonexcludable good is one where it is not possible to prevent people who have not paid for it from having access to it, typical in public goods.

Marginal Social Benefit

The additional benefit received by society as a whole from consuming one more unit of a good or service.