When a Public Company Holds Between 20% and 50% of the Outstanding

question 31

Multiple Choice

When a public company holds between 20% and 50% of the outstanding common shares of an investee, which of the following statements applies?

• A) The investor should always use the equity method to account for its investment.
• B) The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee.
• C) The investor must use the cost method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.
• D) The investor should always use the cost method to account for its investment.