The equity method of accounting for investments in voting common stock is appropriate when:
A) The investor can significantly influence the investee.
B) The investor has voting control over the investee.
C) The investor intends to hold the common stock indefinitely.
D) The investor is assured of a continued supply of a valuable raw material.

Question

Quizplus · Accepted Answer

The equity method of accounting is appropriate when the investor can significantly influence the investee. This influence is typically indicated by ownership of 20% to 50% of the voting common stock of the investee. Under the equity method, the investor records its share of the earnings or losses of the investee in proportion to its ownership interest in the investee.

The Equity Method of Accounting for Investments in Voting Common