Lead Inc.owns 15 percent of Charcoal Co., which gives Lead a significant influence over Charcoal's operations.Lead should use which method to account for their investment?

Question

Quizplus · Accepted Answer

The equity method is most appropriate when an investor has significant influence over the investee, as in this case where Lead owns 15 percent of Charcoal. Under the equity method, the investment is initially recorded at cost and adjusted for the investor's share of the investee's net income or loss and dividends received. This method reflects the economic reality of the transactions between the two companies and allows Lead to report its share of Charcoal's financial results on its own financial statements. Therefore, Choice B is the best choice.

Lead IncOwns 15 Percent of Charcoal Co