When Is the Equity Method Used to Account for Long-Term

question 82

Multiple Choice

When is the equity method used to account for long-term investments in common stock?

• A)When the investment is between 20% and 50% of the voting stock, regardless of whether or not significant influence can be achieved.
• B)When the investment is greater than 50% of the voting stock, regardless of whether or not significant influence can be achieved.
• C)When the investment is greater than 50% of the voting stock and significant influence can be achieved.
• D)When the investment is between 20% and 50% of the voting stock and significant influence can be achieveD.The equity method of accounting is used when an investment is between 20% and 50% of the voting stock of an affiliate and significant influence has been achieved.

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Definitions:

Capital Goods

Long-lasting goods used in the production of other goods or services, such as machinery, tools, and buildings.

Consumer Goods

Finished products consumed by individuals or households to satisfy their immediate wants or needs, such as food, clothing, and electronics.

Limited Partnerships

A form of partnership consisting of one or more general partners, who manage the business and assume legal debts and obligations, and one or more limited partners, who are liable only to the extent of their investments.

Corporate Income Taxes

Taxes imposed on the net income or profit of corporations, calculated after deducting expenses like cost of goods sold and wages.