The Equity Method of Accounting for a Stock Investment Should

question 21

Multiple Choice

The equity method of accounting for a stock investment should generally be used when the investor owns a level of stock ownership that:

• A) gives the investor an insignificant influence over the investee.
• B) usually indicates a plan to acquire a controlling interest in the investee company.
• C) requires the investor to prepare consolidated financial statements.
• D) gives the investor significant influence over the investee company.

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Definitions:

Current Financial Resources

Refers to the liquid assets available to a company for use in its immediate or short-term operations, including cash and other assets that can be quickly converted into cash.

Government-Wide Financial Statements

Comprehensive financial reports that encompass all the financial activities of a government entity and its component units.

GAAP-Based Financial Statements

Financial statements prepared according to Generally Accepted Accounting Principles, which serve as the standard framework of guidelines for financial accounting.

Permanent Fund

A lasting fund created to support specific public purposes, generating income while preserving the principal amount.