24) When a company holds between 20% and 50% of the outstanding
stock of an investee, which of the following statements applies?
A. The investor must use the fair value method unless it can clearly
demonstrate the ability to exercise “significant influence” over the inv
estee.
B. The investor should always use the fair value method to account f
or its investment.
C. The investor should use the equity method to account for its inves
tment unless circumstances indicate that it is unable to exercise “significant influence” ov
er the investee.
D. The investor should always use the equity method to account for i
ts investment.
25) Use of the effectiveinterest method in amortizing bond premiums and discounts results in
A. a variable rate of return on the book value of the investment.
B. a smaller amount of interest income over the life of the bond issue
than would result from use of the straight-line method.
C. a varying amount being recorded as interest income from period t
o period.
D. a greater amount of interest income over the life of the bond issue
than would result from use of the straight-line method.
26) Equity securities acquired by a corporation which are accounted f
or by recognizing unrealized holding gains or losses as other compreh
ensive income and as a separate component of stockholders‟ equity ar
e
A. securities where a company has holdings of between 20% and 50
%.
B. securities where a company has holdings of more than 50%.
C. trading securities where a company has holdings of less than 20%
.
D. available-forsale securities where a company has holdings of less than 20%.
27) A requirement for a security to be classified as held-tomaturity is
A. ability to hold the security to maturity.
B. positive intent.