When the Cost-Adjusted-To-Market Method Is Used to Account for a Long-Term

question 98

Multiple Choice

When the cost-adjusted-to-market method is used to account for a long-term investment in stock of another company,the carrying value of the investment is directly affected by

• A) the dividend distributions of the investee.
• B) the earnings and dividend distributions of the investee.
• C) the earnings of the investee.
• D) neither the earnings nor the dividends of the investee.

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Definitions:

Budget Line

A budget line represents the combinations of two goods that a consumer can purchase with a given income and prices, illustrating the trade-off between the two goods.

Risk-free Asset

A Risk-free Asset is an investment with a certain return, with no risk of financial loss, often exemplified by government bonds.

Risky Asset

An investment with a significant degree of uncertainty in its future payoffs, including the potential for losing some or all of the original investment.

Internet Bubble

A period, typically in the late 1990s, characterized by rapid expansion and inflation of the value of internet-based companies, leading to a market crash.