f a company owns between 20% and 50% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment?Multiple ChoiceCost with amortization method.Historical cost method.Equity method.Fair value method.Effective method.
Question
f a company owns between 20% and 50% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment?Multiple ChoiceCost with amortization method.Historical cost method.Equity method.Fair value method.Effective method.
Solution
The investor would normally use the Equity method to account for this investment. This method is used when the investor has significant influence over the investee but not full control over it, such as that gained through ownership of a majority of voting stock. In this case, the investor recognizes its share of the profits and losses of the investee in the periods they are reported by the investee.
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