Question

Identify the topic that most likely applies to each of the following investments.

a. ABC Corp purchases a 5% stake in a small private company. (Assume ABC Corp does not have significant influence.)
ABC 321

b. ABC Corp purchases a 30% stake in a small private company.
ABC 323

c. ABC Corp purchases a 10% stake in a public company. (Assume ABC Corp does not have significant influence.)
ABC 321

d. ABC Corp purchases a 55% stake in a public company.
ABC 810

Answer 1

The four investments by ABC Corp refer to passive investments in equity securities for a 5% and 10% stake, significant influence with a 30% investment, and control with a 55% stake, aligning with ASC 321, ASC 323, and ASC 810 respectively.

Step-by-step explanation:

The topic most likely applies to each investment is based on the nature of equity ownership and corresponding influence or control over the entity in which ABC Corp invests. For items a and c, where ABC Corp purchases lesser stakes in a company without significant influence, the topic is associated with passive investments. In contrast, items b and d involve a higher degree of influence or control, and therefore, relate to topics about strategic investments and consolidation, respectively.

Explanation

The correct option : a

a. When ABC Corp purchases a 5% stake in a small private company without significant influence, this would likely be categorized as an investment in equity securities as per ASC 321.

b. If ABC Corp acquires a 30% stake in a small private company, this might indicate a significant influence, hence the topic might be associated with the equity method of accounting under ASC 323.

c. For buying a 10% stake in a public company with no significant influence, this would again fall under investment in equity securities as dictated by ASC 321.

d. With a 55% ownership in a public company, ABC Corp would typically consolidate the subsidiary's financial statements with its own, following the consolidation method as per ASC 810.