If a company acquires a 40% interest in another company one of the fair value models...

If a company acquires a 40% interest in another company

one of the fair value models is usually applicable.

the equity method is usually applicable.

the investor does not have the ability to exert significant influence over the investee.

it would always have a controlling interest.

Expert Solution

Ans:

If a company acquires a 40% interest in another company:

a. one of the fair value models is usually applicable, the option is incorrect. Fair value model is to calculate the value of investment on fair value. Which is not usually applicable to all investment purposes.

b. the equity method is usually applicable. Yes this option is Correct. Equity method is ussually applicable where stock of an enterprise between 20%-50% is aquired. Which creates a significant influence over the company.

c. the investor does not have the ability to exert significant influence over the investee. the option is incorrect. Generally the investor has significant influence where the investment is over 20% in stock unless otherwise specified.

d. it would always have a controlling interest. the option is incorrect. Generally the investor has controlling interest where the investment is over 50% in stock unless otherwise specified.

So correct answer is option B.

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ekkarill92 answered 2 years ago

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