Multiple Choice

A company should always use the equity method to account for an investment if

1. it has the ability to exercise significant influence and control over the operating policies of the investee.
2. it has a controlling interest (more than 50%) of another company's stock.
3. it owns 30% of another company's stock.
4. the investment was made primarily to earn a return on excess cash.
5. it does not have the ability to exercise significant influence over the operating policies of the investee.