Which of the following factors contributes to an investor having significant influence over an investee? Question 2 options: a) Insignificant transactions occur between the investor and the investee. b) The investor owns more than 50% of the common shares outstanding of the investee. c) There is an interchange of managerial personnel between the investor and investee. d) The investor is not represented on the board of the investee.

Which of the following factors contributes to an investor having significant influence over an investee? Question 2 options: a) Insignificant transactions occur between the investor and the investee. b) The investor owns more than 50% of the common shares outstanding of the investee. c) There is an interchange of managerial personnel between the investor and investee. d) The investor is not represented on the board of the investee.

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter5: Corporate Ethical Governance & Accountabililty

Section: Chapter Questions

Problem 13.4EC

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All of the following statements are correct, except, a. An investor may have significant influence even if it has 15% voting power. b. An investor may not have significant influence even if it has more than 20% voting power. c. Under the equity method that is used to account for investment in associates, cash dividends are treated as income. d. Share dividends do not result to a change in the total equity of the investee.
When an investor owns 20% to 50% of the voting stock of an investee company, the investor is presumed to exercise significant influence over the investee unless there is evidence to the contrary. Describe some factors that could be evidence of significant influence? Describe some factors that could be evidence of a lack of significant influence
Which of the following statements is NOT correct about the rights granted to common stockholders? Group of answer choices a. Stockholders may transfer their right to vote to a second party by means of a proxy. b. Dividends due to common stockholders are cumulative. c. Common stockholders have the right to elect a firm's directors. d. In large, publicly traded firms, managers typically have some stock but their personal holdings are generally insufficient to win voting control.
Choose the letter of the correct answer: 1. In which of the following situations would an investor likely account for stock ownership in an investee using the equity method? A. The investor and the investee have many transactions with each other B. The investor owns 15 percent of the investee’s stock C. The investor and investee reside in close proximity to each other D. The investor has significant influence over the investee’s management policies 2. When the cost model/method is used to account for an investment, which of the following would not result in an adjustment to the amount recorded in the investment account? A. The investee declares a regular dividend B. The investor sells some of the stock C. The investee declares a liquidating dividend D. The stock’s market value decreases to a point where is it below the investor’s cost
All of the following statements are correct, except, An investor may have significant influence even if it has 15% voting power. An investor may not have significant influence even if it has more than 20% voting power. Under the equity method that is used to account for investment in associates, cash dividends are treated as income. Share dividends do not result to a change in the total equity of the investee.
When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee. The investor should always use the equity method to account for its investment. The investor should always use the fair value method to account for its investment.
Which of the following is true? 1. Shareholder activism requires the investors to exercise their voting rights. 2. Agency problem arises if the management does not hold the majority share in the firm (i.e., more than 50%). 3. Stock options and performance plans are examples of external market forces. 4. Agency costs are borne by all the stakeholders, including the shareholders.
Which one of the following statements apply only to preference shareholders and not to equity shareholders a. Shareholders risk the loss of investment b. Shareholders bear the risk of no dividends in the event of losses c. Shareholders usually have the right to vote d. Dividends are usually given at a set amount in every financial year
Choose the correct.Which of the following does not indicate an investor company’s ability to significantly influence an investee?a. Material intra-entity transactions.b. The investor owns 30 percent of the investee but another owner holds the remaining 70 percent.c. Interchange of personnel.d. Technological dependency.
In which of the following cases will the agency problem between shareholders and managers be the greatest? a) 75% of the common stock is owned by the founder of the company who decided to retire and hired a manager to run his business for him. b)You own 50% of the common stock of the company. The other 50% is owned by 5 mutual funds. c) The common stock of the company is owned by many diverse shareholders, with no shareholder owning more than 2% of the outstanding stock. d)All top managers in the company own significant amounts of stock and stock options.
With respect to the shareholder/manager relationship, which of the following statements is FALSE? a. The managerial salary package should include an incentive component b. Executive stock options do not have expiration dates and are held in perpetuity c. Executive stock options tend to be issued out-of-money d. Performance shares can be used to align manager/shareholder interests
Which of the following statements is CORRECT? Select one: a. Conflict of interest between shareholders and managers is not possible. b. By definition, the agency problem can only take place in corporations but not in proprietorships and partnerships. c. Conflict of interest between shareholders and bondholders is not possible. d. Managers always work to maximize the long-run value, and therefore the price, of their company stocks. This is exactly what shareholders desire.