Firms sometimes invest in the common stock of other entities in order to exert significant influence or control over the other entity.U.S.GAAP and IFRS assume that firms owning more than ______ can exert control, unless other information indicates the contrary.
A)20%
B)30%
C)40%
D)50%
E)60%

Question

Quizplus · Accepted Answer

Both U.S. GAAP and IFRS assume that firms owning more than 50% of the common stock of another entity can exert control over it. This is based on the assumption that owning more than 50% of the common stock gives the firm the ability to make decisions about the other entity's operations and financial policies. However, other information may indicate that control is not present, such as the existence of a significant minority shareholder or the presence of other factors that limit the firm's ability to influence the other entity's decisions.

Firms Sometimes Invest in the Common Stock of Other Entities