DSI Company recently completed a deal with one of its main suppliers, Microchips Ltd., wherein it purchased 15% of Microchips' voting shares.The deal also gave DSI the right to appoint two of the members of Microchips Ltd for the six-person board of directors.Which of the following methods should DSI use to account for its investment in Microchips Ltd.?

Question

Quizplus · Accepted Answer

DSI only purchased 15% of Microchips' voting shares and has the right to appoint only two members of the six-person board of directors. This means that DSI has significant influence but not control over Microchips. Therefore, the equity method would be the appropriate accounting method for DSI to use to account for its investment in Microchips Ltd.

DSI Company Recently Completed a Deal with One of Its