Large Corporation owns less than 20 percent of Small Corporation.Which of the following are true?
I.Large Corp.records asset sales of Small Corp.
II.The investment in Small Corp.is marked to market.
III.Large Corp.records dividends received from Small Corp.
IV.In forecasting entries for Small Corp. ,Large Corp.should use a traditional driver like cash flows.
A)I and II only.
B)I and III only.
C)II and III only.
D)III and IV only.

Question

Quizplus · Accepted Answer

Option I is true because Large Corporation owns less than 20% of Small Corporation, it is not considered a controlling interest. Therefore, any sales of assets by Small Corporation would not be consolidated within Large Corporation's financial statements. 
Option II is true because when an investor owns less than 20% of a company, the investment is classified as available-for-sale and is marked-to-market, meaning that any changes in the value of the investment are recorded in Large Corporation's financial statements. 
Option III is true because any dividends received from Small Corporation would be recognized as investment income in Large Corporation's financial statements. 
Option IV is false because forecasting entries for Small Corporation should be based on operational drivers, not traditional drivers such as cash flows.

Large Corporation Owns Less Than 20 Percent of Small Corporation