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16 April, 09:27

Assume Intervale Railway is considering investing in Pale Co. stock for three months. The investment will represent 5% of the voting stock of Pale Co. How would the investment be classified?

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  1. 16 April, 13:00
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    No significant interest equity investment

    Explanation:

    A technique used in accounting by a firm for the purpose of recording the profits that are obtained from its investments made on other company refers to an equity method. This investment is an equity investment. The profits that are obtained for the investments made by a firm is reported by the company to the firm that made the investment.

    In the scenario given, Intervale Railway y is considering investing in Pale Co. stock for three months which is only 5% of the voting stock of Pale Co. For considering it to be a significant investor, more than 20% and less than 50% of the voting stock must be held by the firm. The firm is holding 5% of the voting stock and hence the investment is considered to be No significant interest equity investment.
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