Advanced Financial Accounting 1 + Lab - Stock Investment II

What method of accounting will generally be used when one company purchases less than 20% of the outstanding stock of another company?

• Only the fair value method may be used.

• Only the equity method may be used.

• Either the fair value method or the equity method may be used, depending upon the relationship between the companies.

• Neither the fair value method nor the equity method may be used, regardless of the level of ownership.

Firms must conduct impairment tests more frequently than annually when:

• other shareholders hold more than 50% interest.

• a more-likely-than-not expectation exists that a reporting unit will be sold or disposed of.

• a specific unit does not have publicly traded stock.

• using the equity method.

Pond Corporation uses the fair value method of accounting for its investment in Swan Company. Which one of the following events would affect the Investment in Swan Co. account?

• Investee losses.

• Investee dividend payments.

• An increase in the investee's share price from last period.

• All of the above would affect the Investment in Swan Co. account.

Investments in associates accounted for using the equity method are presented in the statement of financial position amongst .........

In respect to the equity method of accounting, where an investor has no subsidiaries the investor must apply the .......... in its own accounting records.