What Method of Accounting Will Generally Be Used When One

question 9

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)The GAAP prescribed the equity method may be used.
• D)Neither the fair value method nor the equity method may be used,regardless of the level of ownership.

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Definitions:

Sales Tax Payable

An account responsible for tracking the sales tax gathered from buyers, due to be paid to the authorities.

Accounts Receivable

Funds that customers owe to a business for goods or services already provided but not yet compensated for.

Sales Tax Payable

A liability account that accumulates the collected sales tax from customers to be remitted to the respective tax authorities.

Asset Account

An asset account is a category in the financial statements that reports the value of a company's assets, such as cash, inventory, property, and equipment.