Harvey Corporation purchased 1,200 of the 3,000 outstanding shares of Michael Company common stock for $50 per share. Given this information, Harvey Corporation should account for the investment in Michael Company stock using the

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Quizplus · Accepted Answer

The equity method is used when an investor has significant influence over the investee, which is presumed to exist when the investor owns 20-50% of the investee's common stock. In this case, since Harvey Corporation purchased 1,200 out of 3,000 outstanding shares, they own 40% of Michael Company's common stock, which indicates significant influence. Therefore, the equity method should be used to account for the investment.

Harvey Corporation Purchased 1,200 of the 3,000 Outstanding Shares of Michael