Asked by
Holly Sweeney
on Oct 16, 2024
Verified
If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment,which method would the investor normally use to account for this investment?
A) Equity method.
B) Fair value method.
C) Historical cost method.
D) Cost with amortization method.
E) Effective method.
Equity Method
An accounting technique used to record investments in other companies where the investor has significant influence but does not have full control.
Fair Value Method
The fair value method is an accounting approach that measures assets and liabilities at estimates of their current market value rather than historical cost.
Historical Cost Method
An accounting technique that values an asset at its original purchase price, without adjustments for inflation or market value changes.
- Comprehend the fundamentals of accounting using the equity method.
- Understand the importance of ownership stakes in deciding the accounting approach for investments.
Verified Answer
LG
Learning Objectives
- Comprehend the fundamentals of accounting using the equity method.
- Understand the importance of ownership stakes in deciding the accounting approach for investments.