The equity method of accounting for a stock investment should generally be used when the investor owns 20%-50% of the investee's stock,because that level of stock ownership:

Question

Quizplus · Accepted Answer

The equity method of accounting is used when the investor has significant influence over the investee. Significant influence is presumed to exist when the investor owns between 20% and 50% of the voting stock of the investee. Therefore, choice D is the correct answer. Choice A is incorrect because owning 20-50% of a company does not necessarily indicate a plan to acquire a controlling interest. Choice B is also incorrect because notifying the government of plans to acquire a controlling interest is required when the investor intends to acquire a 50% or greater ownership interest in the investee. Finally, choice C is incorrect because owning 20-50% of a company does not constitute a controlling interest.

The Equity Method of Accounting for a Stock Investment Should