If a company acquires a 40% interest in another company
A)the equity method is usually applicable.
B)it would always have a controlling interest.
C)the fair value model is usually applicable.
D)the investor does not have the ability to exert significant influence over the investee.

Question

Quizplus · Accepted Answer

When a company acquires a 40% interest in another company, it usually does not have a controlling interest (which is usually at least 50%). Therefore, the equity method is usually applicable, as it is used for investments in which the investor has significant influence over the investee but does not have a controlling interest. The fair value model is used for investments where the investor has a controlling interest, and option D is incorrect as having a 40% interest usually means the investor does have the ability to exert significant influence over the investee.

If a Company Acquires a 40% Interest in Another Company