ABC Company uses the equity method for its 30% interest in the voting stock of XYZ Company. ABC paid $5,000,000 for the investment at the beginning of the current year and XYZ's total book value of $10,000,000. Any fair value book value difference is attributable to a patent with a 10 year life. XYZ reported income of $700,000 and paid dividends of $150,000 during the year.

Using the equity method in published financial reports is appropriate if:

a. The investor can demonstrate that it has significant influence over the investee.

b. The investor can demonstrate that it controls the investee

c. The investee has agreed to allow the investor to use the equity method

d. The investor owns more than 20% stock outstanding of the investee

Question

ABC Company uses the equity method for its 30% interest in the voting stock of XYZ Company. ABC paid $5,000,000 for the investment at the beginning of the current year and XYZ's total book value of $10,000,000. Any fair value book value difference is attributable to a patent with a 10 year life. XYZ reported income of $700,000 and paid dividends of $150,000 during the year.

Using the equity method in published financial reports is appropriate if:

a. The investor can demonstrate that it has significant influence over the investee.

b. The investor can demonstrate that it controls the investee

c. The investee has agreed to allow the investor to use the equity method

d. The investor owns more than 20% stock outstanding of the investee

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ABC Company uses the equity method for its 30% interest in the voting stock of XYZ Company. ABC paid $5,000,000 for the investment at the

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