Which Method of Accounting Will Generally Be Used When One

question 10

Multiple Choice

Which 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:

Market Demand

The total quantity of a product or service that consumers are willing and able to purchase at various prices within a certain timeframe.

Bertrand Duopoly

An economic model where two companies compete solely on price, leading to a situation where prices tend toward the cost of production.

Optimal Prices

The price point at which a business can sell its goods or services to maximize its profit margin without losing demand.

Homogenous Goods

Products that are essentially identical, where each unit is the same as every other unit in terms of attributes and quality.