The cost method of accounting for long-term investments in common stock is typically used when the investor: a. has a controlling interest. b. recognizes any goodwill when preparing consolidated financial statements. c. owns between 20% and 50% of the

The correct answer is d. owns less than 20% of the investee's common stock. The cost method is used when the investor owns less than 20% of the investee's common stock. Under this method, the investment is recorded at its original cost and no adjustments are made for changes in the investee's stock price or earnings. This is because the investor does not have significant influence over the investee's operations or financial decisions. If the investor owns between 20% and 50% of the investee's outstanding common stock, the equity method of accounting may be used. Under this method, the investment is initially recorded at cost and adjusted over time to reflect the investor's share of the investee's earnings or losses. If the investor has a controlling interest (usually over 50%), consolidation of the investee's financial statements is required. Goodwill may also be recognized if the purchase price of the investee exceeds the fair value of its identifiable assets and liabilities.