The Rationale for the Equity Method Is That It Better

question 30

Multiple Choice

The rationale for the equity method is that it better measures an investor's income from investing activities when, because of its ownership interest, it

• A)can exert control over the operations and dividend policy of the investee.
• B)can exert significant influence over the operations and dividend policy of the investee.
• C)cannot exert significant influence over the operations and dividend policy of the investee.
• D)can exert control over the operations and dividend policy of the investor.
• E)can exert significant influence over the operations and dividend policy of the investor.

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Definitions:

GAAP

The set of accounting principles, standards, and procedures that companies use to compile their financial statements. GAAP is used to ensure consistency and comparability across organizations.

Debt-For-Debt

A restructuring process where a company replaces or swaps one form of debt with another, like changing the terms or the type of loan.

Debt-For-Equity Swaps

A financial restructuring tool where a portion of debt is exchanged for a pre-determined amount of equity or stock.

Fair Value

An estimation of the market value of an asset or liability based on the assumptions market participants would use when pricing the asset or liability.