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:

Excise Tax

A tax levied on the sale or consumption of specific goods or services, such as alcohol, tobacco, and gasoline.

Taxable Income

The amount of an individual's or corporation's income used to determine how much tax is owed to the government.

Progressive Income-tax

A tax system where the tax rate increases as the taxable amount increases, typically imposing higher taxes on higher income earners.

Price Elasticity

A measure of how sensitive the demand or supply of a product is to changes in price, indicating how quantities demanded or supplied respond to price changes.