If an investor owns less than 20% of the common stock of another corporation as a long-term investment
A) the equity method of accounting for the investment should be employed.
B) no dividends can be expected.
C) it is presumed that the investor has relatively little influence on the investee.
D) it is presumed that the investor has significant influence on the investee.

Question

Quizplus · Accepted Answer

When an investor owns less than 20% of the common stock of another corporation as a long-term investment, it is presumed that the investor has relatively little influence on the investee. As a result, the equity method of accounting for the investment should not be employed, and no dividends can be expected. If an investor owns between 20% and 50% of the common stock of another corporation, the equity method of accounting should be employed, and it is presumed that the investor has significant influence on the investee. If an investor owns more than 50% of the common stock of another corporation, consolidation accounting should be employed, and it is presumed that the investor has control over the investee.

If an Investor Owns Less Than 20% of the Common