The Equity Method of Accounting for a Stock Investment Should

question 26

Multiple Choice

The equity method of accounting for a stock investment should generally be used when the investor owns 20%-50% of the investee's stock,because that level of stock ownership:

• A) usually indicates a plan to acquire a controlling interest of the investee company
• B) requires the investor to notify the government of any plans to acquire a controlling interest in the investee company
• C) means the investor has a controlling interest in the investee company
• D) gives the investor significant influence over the investee company

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Definitions:

Franchising

Arrangements based on contracts of service and the supply of products between larger and smaller units of one organization.

Personal Guarantee

A legal commitment by an individual to assume responsibility for another's debt or obligations if that party fails to fulfill them.

Significance

The importance, influence, or meaning of something within a specific context or overall.

Incorporation

The process of legally declaring a corporate entity as separate from its owners, providing benefits like limited liability and perpetual existence.