Which Method of Accounting Will Generally Be Used When One

question 12

Multiple Choice

Which method of accounting will generally be used when one company purchases less than 20% 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) Either the fair value method or the equity method may be used, depending upon the relationship between the companies.
• D) Neither the fair value method nor the equity method may be used, regardless of the level of ownership.

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Definitions:

Company Policies

Guidelines and rules established by a company to govern its actions and decision-making processes.

Bank Service Charges

Fees charged by banks for various services such as account maintenance, transactions, or overdrafts.

Bank Reconciliation

A process that explains the difference between the bank balance shown in an entity's bank statement, as supplied by the bank, and the corresponding amount shown in the entity's own accounting records at a particular point in time.

Bank Interest

Interest charged by banks on loans or earned on savings accounts and other investments.