The Equity Method Is Used to Account for Stock Investments

question 13

True/False

The equity method is used to account for stock investments in which the investor company owns less than 20% of the outstanding stock of the investee.

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Definitions:

Fair Value

An estimate of the market value of an asset or liability based on current market prices or valuations.

Trading Securities

Financial assets that a company holds primarily for the purpose of selling them in the short term to profit from market price changes.

Unrealized Gains

Increases in the value of assets that have not yet been sold and therefore not turned into cash.

Historical Cost

The original purchase price or cost of acquiring an asset, not adjusted for inflation or market changes.