The English Tea Company owns 19,000 of the 40,000 shares of outstanding common stock of the Express Beverage Company. The English Tea Company should account for this investment using the:

Question

Quizplus · Accepted Answer

The equity method is used when an investor has significant influence over the investee but does not exercise control. Significant influence is generally assumed to exist when an investor owns between 20% and 50% of the voting stock of the investee. In this case, the English Tea Company owns 47.5% (19,000/40,000) of the outstanding common stock of the Express Beverage Company, which indicates significant influence. Therefore, the equity method is the most appropriate accounting method to be used.

The English Tea Company Owns 19,000 of the 40,000 Shares