When a company purchases less than 50% of the equity securities of another company,what is the appropriate treatment?

Question

Quizplus · Accepted Answer

When a company purchases less than 50% of the equity securities of another company, it does not have control over the operations of the other company. Therefore, only the equity method of accounting will be required if the purchasing company's investment is at least 20% (but less than 50%). Option A is incorrect because consolidation is only required when a company has control over another company (usually with more than 50% ownership). Option C is incorrect because the fair value method is only used for securities classified as trading or available-for-sale. Option D is incorrect because the fair value method is not dependent on the type of securities but rather the classification of the securities as trading or available-for-sale.

When a Company Purchases Less Than 50% of the Equity