At Westonci.ca, we make it easy to get the answers you need from a community of informed and experienced contributors. Explore our Q&A platform to find reliable answers from a wide range of experts in different fields. Discover detailed answers to your questions from a wide network of experts on our comprehensive Q&A platform.
Sagot :
Given the circumstances provided:
1. Star, Inc. purchased 1,350 shares out of the 9,000 outstanding shares of Moon Co. stock.
2. This ownership represents a minority percentage (1,350 / 9,000 = 15%).
3. Despite the minority ownership, Star has elected a majority of the directors of Moon Co.
A crucial factor in determining how investments should be reported is the level of control or influence an investor has over the investee. In accounting, the following guidelines generally apply:
- If an investor holds less than 20% of the voting stock of the investee, they typically report the investment at cost or fair value, as they lack significant influence.
- If an investor holds between 20% and 50% of the voting stock, it is presumed the investor has significant influence, and the equity method of accounting is usually applied.
- If an investor holds more than 50% of the voting stock, it’s presumed they have control, and consolidation of financial statements is required.
However, even if the investor holds a minority of shares but can elect a majority of the board of directors, it demonstrates control over the investee. Control is the key factor here.
Given:
- Star has elected a majority of the Moon Co. directors.
This demonstrates that Star exhibits control over Moon Co., even with just 15% ownership. Control over the board dictates that consolidation is the correct accounting treatment.
Therefore, the correct answer is:
C. Star should consolidate its financial statements with those of Moon.
1. Star, Inc. purchased 1,350 shares out of the 9,000 outstanding shares of Moon Co. stock.
2. This ownership represents a minority percentage (1,350 / 9,000 = 15%).
3. Despite the minority ownership, Star has elected a majority of the directors of Moon Co.
A crucial factor in determining how investments should be reported is the level of control or influence an investor has over the investee. In accounting, the following guidelines generally apply:
- If an investor holds less than 20% of the voting stock of the investee, they typically report the investment at cost or fair value, as they lack significant influence.
- If an investor holds between 20% and 50% of the voting stock, it is presumed the investor has significant influence, and the equity method of accounting is usually applied.
- If an investor holds more than 50% of the voting stock, it’s presumed they have control, and consolidation of financial statements is required.
However, even if the investor holds a minority of shares but can elect a majority of the board of directors, it demonstrates control over the investee. Control is the key factor here.
Given:
- Star has elected a majority of the Moon Co. directors.
This demonstrates that Star exhibits control over Moon Co., even with just 15% ownership. Control over the board dictates that consolidation is the correct accounting treatment.
Therefore, the correct answer is:
C. Star should consolidate its financial statements with those of Moon.
We hope you found this helpful. Feel free to come back anytime for more accurate answers and updated information. Thank you for visiting. Our goal is to provide the most accurate answers for all your informational needs. Come back soon. Get the answers you need at Westonci.ca. Stay informed with our latest expert advice.