Question

When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment?

1) by using the equity method
2) by using the fair value method
3) by using the effective interest method
4) by consolidation

Answer 1

When a company has acquired a "passive interest" in another corporation, they should account for the investment by using the fair value method.

Step-by-step explanation:

When a company has acquired a "passive interest" in another corporation, they should account for the investment by using the fair value method. The fair value method involves recording the investment at its fair market value on the date of acquisition and adjusting the value over time based on changes in the fair market value. This method is used when the acquiring company does not have significant influence or control over the investee company.