T OR F 1 Stock investments of 50% or more in an investee should be treated...

T OR F

1 Stock investments of 50% or more in an investee should be treated using the Equity method by the investor.

2. A corporation may NOT legally invest in the bonds of another corporation.

3. A statement of cash flows prepared by the indirect method will disclose the cash flows from specific operating activities, such as cash received from customers.

Solutions

Expert Solution

1.FALSE

Generally accepted accounting principles assume that an investor has enough control to warrant the use of the equity method if it owns from 20 percent to 50 percent of the investee’s common stock.

2.FALSE

Any corporation can legally invest in the other corporation bonds and another traded securities.

3 FALSE

Only in direct method cash flow such as cash received from customers will be disclosed as an operating activity.

The indirect method assumes everything recorded as a revenue was a cash receipt and everything recorded as an expense was a cash payment. Remember that under the accrual basis of accounting, revenues and expenses are recorded following the revenue recognition and matching principles which do not require cash receipts to record revenues or cash payments to record expenses. The operating activities section starts with net income per the income statement and adjusts it to remove the significant non‐cash items.

ekkarill92 answered 1 year ago

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