When a company holds between 20% and 50% of the outstanding stock of an investee, which ofthe following statements applies?

a. The investor should always use the equity method to account for its investment.

b. The investor should use the equity method to account for its investment unless circumstancesindicate that it is unable to exercise "significant influence" over the investee.

c. The investor must use the fair value method unless it can clearly demonstrate the ability toexercise "significant influence" over the investee. d. The investor should always use the fair value method to account for its investment

Question

Madisyn Butler

Business

12 December, 16:14

When a company holds between 20% and 50% of the outstanding stock of an investee, which ofthe following statements applies?

a. The investor should always use the equity method to account for its investment.

b. The investor should use the equity method to account for its investment unless circumstancesindicate that it is unable to exercise "significant influence" over the investee.

c. The investor must use the fair value method unless it can clearly demonstrate the ability toexercise "significant influence" over the investee. d. The investor should always use the fair value method to account for its investment

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Answers (1)

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Lorenzo Navarro · Answer 1

Answer: The correct answer is "b. The investor should use the equity method to account for its investment unless circumstancesindicate that it is unable to exercise "significant influence" over the investee."

Explanation: When a company holds between 20% and 50% of the outstanding stock of an investee, the investor should use the equity method to account for its investment unless circumstancesindicate that it is unable to exercise "significant influence" over the investee.

If the company owns between 20% and 50% of the shares in circulation of the controlled company, it can be considered that the company that owns the shares exerts significant influence on the controlled company, in this case if the opposite is not proven, You must apply the equity method.