The Equity Method Generally Should Be Used to Account for an Investment

question 46

Multiple Choice

The equity method generally should be used to account for an investment in stock when the level of ownership is

• A) between 20 and 50 percent.
• B) 10 percent or more.
• C) less than 10 percent.
• D) between 10 and 20 percent.

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Definitions:

Carrying Costs

The total costs associated with holding inventory, including warehousing, insurance, and loss from obsolescence.

Shortage Costs

Expenses incurred when demand exceeds supply, often leading to lost sales or higher production costs.

Weighted Average Delay

The average delay time for all items being processed, taking into account the proportion that each item contributes to the total amount.

Collection Delay

The time lag between when a payment is made by a customer and when the funds become available to the recipient company.