The cost method of accounting for investments in stock should be employed when the
A) investor owns more than 50% of the investee's stock.
B) investor has significant influence on the investee and the stock held by the investor are marketable equity securities.
C) market value of the shares held is greater than their historical cost.
D) investor's influence on the investee is insignificant.

Question

Quizplus · Accepted Answer

The cost method of accounting should be employed when the investor's influence on the investee is insignificant. Under the cost method, the investment is initially recorded at cost and any dividends received are recognized as revenue. There is no adjustment made for changes in the market value of the investment. This method is appropriate when the investor does not have significant influence over the investee, and therefore cannot exercise control over the investee's operations or financial policies.

The Cost Method of Accounting for Investments in Stock Should