Question #39

Reading: Reading 8 Intercorporate Investments

PDF File: Reading 8 Intercorporate Investments.pdf

Page: 16

Status: Correct

Correct Answer: A

Part of Context Group: Q38-39
Shared Context
- Assuming the equity method of accounting is used, what will be the cash flow received by Birch, due to their investment in TRQ? A) $65,400. B) $227,500. C) $52,500.
Question
Which of Fitzroy's reasons would most likely support the equity accounting method being appropriate for TRQ?
Answer Choices:
A. Reason 2
B. Reason 1
Explanation
Birch owns 1,500/6,000 = 25% of the common shares of TRQ. This suggests significant influence which would make equity accounting appropriate. The percentage of preferred shares owned is not relevant.
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