Question

1) Accountants require investors without significant influence over the decisions of an investee firm to use the ________ method.

A) equity

B) cost

C) market value

D) lower of cost or market

2) Accountants require investors with significant influence, but not control, over the decisions of an investee firm to use the ________ method.

A) equity

B) cost

C) market value

D) lower of cost or market

3) Accountants require investors that have control over the decisions of an investee firm to use the ________ method.

A) consolidated financial statements

B) cost

C) market value

D) lower of cost or market

4) The company that owns 100 percent of another company's stock is called the ________. The company that is controlled by another company is called the ________.

A) majority interest; minority interest

B) controlling interest; noncontrolling interest

C) parent; subsidiary

D) subsidiary; segment

5) A subsidiary is a company that owns more than 50 percent of another company's outstanding common stock.(T/F)

Answer 1

If there is a significance of influence over the investee, the investor uses equity method & if there is no significance influence over the investee, then investor uses cost method.

1) Correct answer is option B

2) Correct answer is option A

3) Investor can control a company when it holds more than 50% shares of investee.In this case investor has to use consolidation method to account investment.

Correct answer is option A

4) The company that owns 100 percent of another company's stock is called the Parent The company that is controlled by another company is called the Subsidiary.

Correct answer is option C

5) False, A company that holds more than 50% of another company's common stock is called as Parent not subsidiary.