A Company Should Always Use the Equity Method to Account

question 98

Multiple Choice

A company should always use the equity method to account for an investment if:

• A) it has the ability to exercise significant influence over the operating policies of the investee.
• B) it owns 30% of another company's stock.
• C) it has a controlling interest (more than 50%) of another company's stock.
• D) the investment was made primarily to earn a return on excess cash.
• E) it does not have the ability to exercise significant influence over the operating policies of the investee.

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Definitions:

Purchases Journal

A ledger used in accounting to record all purchases of goods and services on credit.

Accounts Payable

Short-term liabilities or money owed by a company to its creditors or suppliers for goods and services that have been delivered but not yet paid for.

Merchandise Inventory

Goods that a retailer, wholesaler, or distributor holds for the primary purpose of selling to customers.

General Journal

A primary accounting record used to document all business transactions in chronological order.