If 10% of the common stock of an investee company is purchased as an investment, the appropriate method of accounting for the investment is
A) the cost method.
B) the equity method.
C) the preparation of consolidated financial statements.
D) determined by agreement with whomever owns the remaining 90% of the stock.

Question

Quizplus · Accepted Answer

When an investor holds less than 20% of the investee's voting stock, the cost method is typically used, as the investor does not have significant influence over the investee.

If 10% of the Common Stock of an Investee Company