For accounting purposes,the method used to account for long-term investments in common stock is determined by:
A)the size of the investor.
B)the size of the investor when compared to the size of the investee.
C)vote by the Board of Directors of the investor.
D)the investor's percentage ownership of the investee's stock.

Question

Quizplus · Accepted Answer

The method used to account for long-term investments in common stock is determined by the investor's percentage ownership of the investee's stock. This is because the level of influence or control that the investor has over the investee is directly related to their percentage of ownership. If the investor owns less than 20% of the investee's stock, the cost method is generally used. If the investor owns between 20% and 50% of the investee's stock, the equity method is typically used. If the investor owns more than 50% of the investee's stock, the consolidation method is generally used. Therefore, the size of the investor or investee, or a vote by the Board of Directors do not determine the accounting method for long-term investments in common stock.

For Accounting Purposes,the Method Used to Account for Long-Term Investments