Question #28
Reading: Reading 8 Intercorporate Investments
PDF File: Reading 8 Intercorporate Investments.pdf
Page: 11
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
A company reports an intercorporate investment using the acquisition method. Which of the following statements is most accurate?
Answer Choices:
A. The use of the acquisition method by a company will generally report the more favorable results
B. The use of the acquisition method by a company will generally report the less favorable results
C. The use of the equity method by a company will generally report the same results
Explanation
The equity method will provide more favorable results, while the acquisition method will
provide less favorable results. (Under the equity method, liabilities and leverage are lower
than under the acquisition method, while net profit margin, ROE, and ROA are higher.)