If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment,which method would the investor normally use to account for this investment?
A)Equity method.
B)Fair value method.
C)Historical cost method.
D)Cost with amortization method.
E)Effective method.

Question

Quizplus · Accepted Answer

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, the investor is considered to have significant influence over the investee. In this case, the equity method is the appropriate accounting method to use. The equity method requires the investor to record its share of the investee's income and adjust the investment account for these distributions or changes in the investee's net assets.

If a Company Owns More Than 20% of the Stock