An investor who may significantly influence the business activities of the investee should report the investment using the:
A)fair value method.
B)consolidated method.
C)equity method.
D)available-for-sale method.

Question

Quizplus · Accepted Answer

The equity method is used when the investor holds significant influence over the investee. This is typically defined as owning between 20% and 50% of the voting stock of the investee. Under this method, the investor reports its investment as a single line item on its balance sheet, representing the investor's share of the investee's net assets. Additionally, the investor recognizes its share of the investee's income or losses on its income statement. This method provides more detailed information about the investor's involvement in the investee's decision-making processes than the available-for-sale or fair value methods. The consolidated method would be used if the investor owned more than 50% of the voting stock of the investee, and the available-for-sale method would be used if the investment was not significant or did not involve influence over the investee's activities.

An Investor Who May Significantly Influence the Business Activities of the Investee