A company that owns less than 20% of another company's stock may not use the consolidation method of accounting.

Question

Quizplus · Accepted Answer

The consolidation method is only used when a company owns more than 50% of another company's stock. If a company owns between 20% and 50% of another company's stock, the equity method of accounting is used. If a company owns less than 20% of another company's stock, no significant influence exists, and the investor accounts for its investment using the cost method.

A Company That Owns Less Than 20% of Another Company's