Townsend Ltd. has the following shareholders: Palermo Co.-60%
Nix Ltd.-30%
Riley Ltd.-10%
Nix does not conduct any business with Townsend; nor has it been able to secure a seat on the board of directors. Which of the following statements is true?

Question

Quizplus · Accepted Answer

Since Nix does not conduct any business with Townsend and has not been able to secure a seat on the board of directors, it suggests that Nix does not have significant influence over Townsend. Thus, Nix should treat Townsend as a non-strategic investment. Choice A is incorrect because Nix does not have significant influence. Choice B is incorrect because Townsend is not a special purpose entity. Choice C is incorrect because Nix does not have significant influence and Townsend does not meet the definition of an associated company.

Townsend Ltd. Has the Following Shareholders: Palermo Co.-60