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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Investments in equity securities are deemed to be “passive” if:

a. less than 20% of the firm’s stock is owned.

b. between 20% and 50% of the firm’s stock is owned.

c. between 50% and 100% of the firm’s stock is owned.

d. 100% of the firm’s stock is owned.

To determine

The reasons for considering the investments in equity securities to be “passive”.

Explanation

The investments in equity securities are presumed to be passive only if the company who is investing owns less than the 20% of the voting shares outstanding of the other company, when the fair value method is being used...

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