The equity method generally should be used to account for an investment in stock when the level of ownership is
A)between 20 and 50 percent.
B)10 percent or more.
C)less than 20 percent.
D)between 10 and 40 percent.

Question

Quizplus · Accepted Answer

The equity method is generally used when an investor owns between 20 and 50 percent of the investee's voting stock. This level of ownership gives the investor significant influence over the investee's operations and decision-making processes. When an investor owns less than 20 percent, it is generally presumed that the investor does not have significant influence and the investment is accounted for using either the cost or fair value method. If the investor owns 10 percent or more of the investee's voting stock and does not have significant influence, the investment should be accounted for using the fair value method. Therefore, the best choice is A.

The Equity Method Generally Should Be Used to Account for an Investment