31. Ordinarily, a corporation owning a significant portion of the voting stock of another corporation accounts for the investment using the equity method.
32. The investor carrying an investment by the equity method records cash dividends received as an increase in the carrying amount of the investment.
33. Under the equity method, a stock purchase is recorded at its original cost, but is subsequently adjusted to fair market value.
34. The equity method causes the investment account to mirror the proportional changes in book value of the investee.
35. Accounting for the sale of stock is the same for both short-term and long-term investments.
36. The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.
37. The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.
38. It is possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.
39. The equity method is usually more appropriate for accounting for investments where the purchaser does have significant influence over the investee.
40. One potential advantage of financing corporations through the use of bonds rather than common stock is
A. the interest on bonds must be paid when due
B. the corporation must pay the bonds at maturity
the interest expense is deductible for tax purposes by the corporation
D. a higher earnings per share is guaranteed for existing common shareholders