Question #58
Reading: Reading 8 Intercorporate Investments
PDF File: Reading 8 Intercorporate Investments.pdf
Page: 25
Status: Unattempted
Correct Answer: A
Question
Acme Corporation purchases a 3% interest in Bandy Company to become the single largest shareholder of Bandy. Acme will hold a seat on the Board of Directors of Bandy. Acme will account for its investment in Bandy using the:
Answer Choices:
A. equity method
B. lower of cost or market method
C. acquisition method
Explanation
Even though Acme's interest is low at only 3%, they have significant influence by having a
seat on Bandy's Board of Directors. As such, they must use the equity method.