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D Question 3 4 pts Rome Company owns 65% of the outstanding common stock of London Company. Rome would report its investment
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Answer #1

Option D - By preparing Consolidated Financial Statements

Let us analyse all the options:

(A) Trading Securities - An investment is classified as Held for Trading only if it is held so. Unless otherwise provided in the question, an investment is not considered as held for trading.

(B) Held for Maturity Securities - An investment which is held for maturity to obtain cash flows is classified as Held for Maturity. Only an investment in debentures, bonds which have maturity can be classified as Held for Maturity Securities.

(C) Under Equity Method of accounting as investments for significant influence - A company is said to have significant influence on other if it holds more than 20% and less than 50% of its common stock. Since Rome company owns 65% of common stock of London company, it cannot be considered as having significant influence.

(D) By Consolidating Financial Statements - Since Rome company has more than 50% of common stock in London Company, London company is the subsidiary of Rome Company. Hence, Rome company can show its investment in London Company by consolidating their financial statements.

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