If a company acquires a 40% common stock interest in another company
A) the equity method is usually applicable.
B) all influence is classified as controlling.
C) the cost method is usually applicable.
D) the ability to exert significant influence over the activities of the investee does not exist.

Question

Quizplus · Accepted Answer

The equity method is usually applicable when a company acquires a 40% common stock interest in another company, as this level of ownership generally provides the ability to exert significant influence over the activities of the investee. Under the equity method, the investment is initially recorded at cost, but is subsequently adjusted for the investor's share of the investee's earnings or losses.

If a Company Acquires a 40% Common Stock Interest in Another