When a company purchases less than 50% of the equity securities of another company, which of the following statements is true?

Question

Quizplus · Accepted Answer

When a company purchases less than 50% of the equity securities of another company, the equity method of accounting will be required if the company's investment is at least 20%. If the company's investment is less than 20%, the cost method will be used. The financial statements will not be consolidated unless the company has significant control over the investee, which is generally assumed to occur at ownership of greater than 50% of the investee's equity securities. The fair value method of accounting will be used for all securities that are not accounted for under the equity or cost method, regardless of classification as held-to-maturity, available-for-sale, or trading securities.

When a Company Purchases Less Than 50% of the Equity