Question

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

A) It has the ability to exercise significant control over the operating policies of the investee.
B) It owns 30% of another company's stock.
C) It has controlling interest (more than 50%) of another company's stock.
D) The investment was made primarily to earn a return on cash.
E) It does not have the ability to exercise significant influence over the operating policies of the investee.

Answer 1

A company should use the equity method to account for an investment if it has the ability to exercise significant control over the operating policies of the investee.

Step-by-step explanation:

A company should always use the equity method to account for an investment if it has the ability to exercise significant control over the operating policies of the investee. This means that option A) is correct. The equity method is used when a company has the ability to make decisions and influence the investee's operations. It applies when the company has joint control, significant influence, or control over the investee.